Anticipating Volatility and the Rise of Emerging Markets

By Frank Holmes

CEO and Chief Investment Officer

U.S. Global Investors

Life is about managing expectations and we believe understanding market cycles helps investors navigate through the volatility of their investments. We often remind investors to “Anticipate Before You Participate” and I strongly urge you to read through our special presentation on managing volatility. Read the presentation here.

This table shows the monthly volatility based on 10 years of data for a number of different investments. You can easily see each asset class has its own unique DNA of volatility.

Standard Deviation Based on 10 Years of Data Rolling 1 MonthAs of 11/12/2010

Source: U.S. Global ResearchNYSE Arca Gold BUGS Index (HUI)11.1%MSCI Emerging Markets (MXEF)7.2%S&P 500 Index (SPX)5.1%Gold Bullion4.9%U.S. Dollar (DXY)2.5%
For gold stocks, it’s a normal event to see a positive or negative move of 11 percent over just one month’s time. For emerging markets, it’s just over 7 percent. Understanding this volatility is essential to removing emotional reactions and making the best investment decisions.

Recently, I’ve noticed many new faces on business television commenting about a bubble forming in commodities due to the Federal Reserve’s Quantitative Easing (QE2) policy and resulting weakness in the U.S. dollar. Both of these are a part of the commodity equation but focusing on them omits several long-term factors driving commodities.

I do not see a bubble at this time but our quant models are showing we are due for a short-term correction. Investors need to anticipate this correction and not lose sight of the long-term trend.

We believe government policies are a precursor to change, and as a result, we monitor and track the fiscal and monetary policies of the world’s largest countries both in terms of economic stature and population.

This table shows the population size and economic stature of the emerging world—represented by what we like to call the E7—versus the developed world—the G7.

You can see that the emerging world currently holds roughly half of the world’s population but less than one-fifth of its economic clout. Already we are seeing a tremendous transformation of the emerging world and we don’t think this imbalance will remain the case for long.

Most significant has been the doubling of the world’s population since 1970, with 40 percent of the world’s population being in China and India—we affectionately call this region Chindia. Chindia has evolved from being isolationists 40 years ago to center stage on the global scene today.

With this population surge and integration into the global economy comes a need for new and improved infrastructure. Did you know that when the U.S. built its Interstate Highway System in the 1950s it consumed roughly half of the world’s available commodities?

Today’s equivalent of President Eisenhower’s highway buildout is the network of subways and rapid transit systems China is constructing. This graphic from CICC charts the world’s top ten cities by total length of rapid transit. With 410 kilometers of tracks, Shanghai reigns as king over cities like London, New York, Tokyo and Madrid.

Even more surprising is the pace at which they have been able to lay so many tracks. The first subway cars rolled down the tracks in London and New York during the 1860s but Shanghai’s first subway wasn’t operational until 1993. That means it took China 17 years to build what it took the UK and the U.S. 150 years to construct.

Shanghai and Beijing are the largest systems in China but recently many of the smaller cities, often referred to as Tier 2 cities, are hopping on board. The Chinese government has already approved construction for 28 rapid transit systems and 36 other cities have submitted applications for construction, according to CICC.

Our China analyst Michael Ding witnessed this firsthand while traveling in China last week. Michael was surprised to see a subway being constructed in his hometown of Dalian, a city of about 6 million. I had a similar surprising experience in New Delhi a couple of years ago when I traveled on the city’s new, pristine subway system.

While short-term factors like the U.S. dollar’s volatility and the Federal Reserve’s QE2 program seem to grab the most attention, I believe the doubling of the world’s population, massive infrastructure expansion like China’s subways and the “free market policies” being embraced by the government leaders in the emerging world are much more significant.

Index Summary

The major market indices were higher this week. The Dow Jones Industrial Average lost 2.2 percent. The S&P 500 Stock Index gave up 2.17 percent, while the Nasdaq Composite finished 2.36 percent lower.
Barra Value underperformed Barra Growth as Barra Value finished 2.22 percent lower while Barra Growth lost 2.13 percent. The Russell 2000 closed the week with a loss of 2.35 percent.
The Hang Seng Composite finished lower by 2.71 percent; Taiwan was down 1.58 percent, and the KOSPI fell 1.33 percent.
The 10-year Treasury bond yield closed at 2.78 percent, up 25 basis points for the week.
All American Equity Fund – GBTFX • Holmes Growth Fund – ACBGX • Global MegaTrends Fund – MEGAX

Domestic Equity Market

The figure below shows the performance of each sector in the S&P 500 Index for the week. The best-performing and only positive sector for the week was energy, which rose 0.95 percent. Financials were the worst performers, followed by technology and industrials.

Within the energy sector, the best-performing stock was Halliburton, up 12 percent. Other top performers were Consol Energy, Range Resources and Cabot Oil & Gas.

Strengths

The coal group was one of the best-performing groups for the week, up 2.5 percent, led by Consol Energy. The company rose as Chevron agreed to buy Atlas Energy, which helped crystallize the valuation of Consol’s Marcellus Shale holdings.
Priceline.com rose 6.7 percent as the company released earnings this week which surpassed investor expectations.
Halliburton held a successful analyst day in which investors were encouraged by international growth and rising margins.
Weaknesses

Dean Foods was the worst performer in the S&P 500 this week, falling by more than 26 percent as the company missed earnings expectations and also guided the fourth quarter below consensus.
Cisco Systems was the second-worst performer, falling 17 percent as the company cited waning government purchases of its equipment. Cisco said that state government orders fell 48 percent.
Boeing fell by 11.5 percent as the new Dreamliner suffered another setback when a test flight was forced to make an emergency landing after a fire on board.
Opportunities

There may be an opportunity for gain in merger and acquisition (M&A) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
Threats

Should investors’ expectations for an improving economy not come to fruition on a reasonable timeframe, it could be a threat to stock prices.
As governments around the world begin to wind down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.

U.S. Government Securities Savings Fund – UGSXX • U.S. Treasury Securities Cash Fund – USTXX

Near-Term Tax Free Fund – NEARX • Tax Free Fund – USUTX

The Economy and Bond Market

Economic news flow was relatively light after an action-packed week last week. The market continued to digest the implications of quantitative easing (QE2), the mid-term elections and employment data. Bonds sold off this week, sending yields higher by as much as 25 basis points on a combination of QE2 trade unwind and speculation that troubled European lenders will be supported by the rest of the Euro region. The stress and concerns surrounding peripheral European countries can be seen in the chart below, which shows the current Irish 10-year bond price, which currently yields about 8 percent.

Strengths

Mortgage rates fell to a record low of 4.17 percent.
Consumer debt continued to decline in the third quarter as necessary deleveraging is taking place.
The University of Michigan Confidence Index rose modestly in November.
Weaknesses

Soaring Irish bond yields highlight the remaining risks and concerns surrounding the Euro region.
China raised its bank reserve ratio as it steps up efforts to slow inflation and to offset some of the spillover from the U.S. QE2 program.
Wholesale inventories rose 1.5 percent in September, matching the largest increase in two years. This is a potential red flag for manufacturing, as the restocking process is likely completed and this data points to slowing sales.
Opportunities

Inflation is unlikely to be a problem for some time, giving central bankers and other policy makers around the world room for expansive policies.
Threats

Inflation expectations as measured by TIPS spreads have risen sharply over the past month. Inflation expectations will be key data points to drive Fed policy changes going forward.

World Precious Minerals Fund – UNWPX • Gold and Precious Metals Fund – USERX
Gold Market

For the week, spot gold closed at $1,368.75 per ounce, down $24.90, or 1.79 percent for the week. However, gold equities, as measured by the Philadelphia Gold & Silver Index, actually gained 0.55 percent. The U.S. Trade-Weighted Dollar Index surged 2.09 percent for the week on somewhat of a reversal that QE2 was fully priced by the markets.

Strengths

World Bank President Robert Zoellick wrote in the Financial Times that gold should be used as an “international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
Zoellick later said that he was not advocating a return to a gold standard for exchange rates, but described the metal as “the elephant in the room” that policy makers needed to acknowledge.
“The dollar is losing its relevance especially with the emergence of Asia economies, so a more neutral benchmark may be required. Gold, amid all the recent uncertainty, is proving its worth,” said ANZ’s senior commodity analyst, Mark Pervan.
Weaknesses

Gold reached an intraday record high early in the week of $1,422 as investors bought the metal on inflation concerns and reemerging euro sovereign debt problems. However, as the week came to a close, a new round of profit taking emerged on concern over rate hikes in China and increased CME margin requirements for silver speculators.
Gary Shilling, who correctly predicted the collapse in the U.S. housing market, noted the stock market is overvalued and foresees a significant selloff within a year.
The Federal Reserve is targeting an increase in asset prices, particularly in stocks, to create a wealth effect, and investors have responded by bidding up prices significantly before the official announcement. A sustained recovery does not appear to be in the cards after insiders sold a record $4.5 billion of their personal holdings in company stock last week
Opportunities

China is boosting domestic minerals exploration spending in an effort to reduce the country’s dependence on imports of iron ore and copper. China plans to spend $4.48 billion over the next five years to explore for minerals in 21 provinces to reduce its reliance on imported mineral products.
Commerzbank expects gold to reach $1,450 per ounce by the end of 2011, supported by quantitative easing from the U.S. and worries about countries trying to devalue their currencies.
“The dollar is going to be debased in a major way, and that’s reflected in a rising gold price,” said Felix Zulauf, president of Zulauf Asset Management. “If it remains within conventional boundaries, then I think $2,500 within the next two, three years is possible. Most likely it will eventually get outside of conventional boundaries when the situation worsens, and then it can go much higher in terms of U.S. dollars.”
Threats

A Bloomberg poll of over 1,000 investors, analysts, and traders resulted in 75 percent of them saying that QE2 will have little or no effect on joblessness and more than half also said that the action will not increase U.S. growth over the next year.
In terms of the Fed, David Rosenberg of Gluskin Sheff noted we may have seen the last of quantitative easing. In 2011, there will be three new voting Federal Reserve Bank presidents who have verbally opposed the easing initiatives.

Global Resources Fund – PSPFX • Global MegaTrends Fund – MEGAX

Energy and Natural Resources Market

Strengths

West Texas Intermediate (WTI) oil prices climbed to their highest level in over two years Wednesday, buoyed by the U.S. Energy Information Administration (EIA) inventory report showing significant draws in all three major oil stock categories.
Frontline, the world’s biggest supertanker operator, said it’s seeing “huge” demand for crude-oil imports from China, potentially reversing a slump that contributed to mostly unprofitable charter rates since June.
OPEC raised its forecast for global oil demand in 2011 by 310,000 barrels per day. OPEC’s growth estimate for oil demand in 2011 is now 1.17 million barrels per day compared to 1.05 million barrels per day previously, but is still well below the EIA report at 1.44 million barrels per day and the International Energy Agency (IEA) report, which was at 1.22 million barrels per day in October.
Gold imports by India increased 25 percent to 20 tonnes due to a surge in demand for jewelry during the Diwali festival, according to the Bombay Bullion Association.
Weaknesses

China’s imports of copper in October declined 25.8 percent month-over-month to 273,510 million tonnes.
Crude steel production in China dropped 3.8 percent year-over-year in October as the government imposed power restrictions to meet energy efficiency targets. Output was 50.3 million metric tons, according to data from the National Statistics Bureau.
Opportunities

Analysts at Merrill Lynch aggressively upgraded price forecasts for base metals based on a combination of U.S. Federal Reserve QE and dollar debasement and emerging market demand. They forecast copper to average $5.10 per pound in 2011 and $5.44 per pound in 2012.
According to Alcoa, China would like to curtail another 600,000 tonnes of aluminum smelter production before the end of 2010 to meet energy efficiency targets.
Bloomberg reported that Coal India may bid for one of Massey Energy Company’s coal mines in the Eastern U.S.
China has signed another long-term supply agreement, this time with Kazakhstan, according to a number of press articles. Kazakhstan will reportedly supply China Guangdong Nuclear Power Company with a total of about 63 million pounds of triuranium octoxide until 2020. There are no details on pricing, but this contract is slightly larger than the AREVA deal announced last week.
Threats

China sold almost all the zinc on offer from state reserves at below-market prices in the latest auctions held in an attempt to curb price gains. The government sold 49,992.97 metric tons of the 50,000 tons on offer through auctions on November 9 at an average price of 19,511 yuan ($2,946) a ton, said the State Bureau of Material Reserve.
China’s central bank raised lenders’ reserve requirements as cash from October’s larger-than-forecast $27.1 billion trade surplus threatened to add to the risk of asset bubbles and accelerating inflation. Reserve requirements will increase 0.5 percentage points from November 16, the People’s Bank of China said in a statement.

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November 12, 2010

Three Asian Markets We Are Positive On

November 9, 2010

Record Gold Prices and the Festival of Lights

November 8, 2010

Diwali, Dollars and Gold

China Region Opportunity Fund – USCOX • Eastern European Fund – EUROX

Global Emerging Markets Fund – GEMFX

Emerging Markets

Strengths

China’s passenger car sales rose 27 percent year-over-year to 1.2 million units in October, the fastest pace in six months, driven by end-of-year government purchases as well as speculation that car-buying incentives may be reduced or eliminated next year.
Moody’s raised China’s debt rating to Aa3, its fourth-highest ranking, from A1, citing the country’s resilient economic growth and likely containment and effective management of losses from record lending in 2009 to combat the global financial crisis. Hong Kong’s rating was also raised to Aa1 from Aa2.
Hong Kong’s GDP expanded by a faster-than-estimated 6.8 percent year-over-year in the third quarter, accelerating from the second quarter’s 6.5 percent, thanks to robust service exports and household consumption.
LAN, the Chilean air carrier, announced strong traffic data for October with passenger traffic rising by 15.9 percent year-over-year and cargo volume rising by 18.5 percent year-over-year.
Various emerging market companies continue to expand beyond their borders – most recently Bimbo of Mexico announced an acquisition of Sara Lee’s North American bakery business for $959 million. Investors seemed to approve of this move with Bimbo’s shares up 5 percent on the news.
Walmex’s same-store-sales (SSS) in October increased by 4.2 percent year-over-year with a 2.6 percent higher average ticket size.
Higher sugar prices, up 42 percent during the third quarter, are benefiting some Brazilian sugar/ethanol producers. Cosan this week announced strong third quarter results with EBITDA coming in 30 percent above expectations.
Hungary’s economic growth accelerated in the third quarter as rising domestic consumption and increasing export demand in Western Europe is helping the country recover from its worst recession in 18 years. GDP grew an annual 1.6 percent after expanding 1 percent in the second quarter, according to Bloomberg.
Weaknesses

China raised required reserve ratios for all banks by 50 basis points and an extra 50 basis points for six large banks in an effort to drain excess liquidity in the banking system and better manage inflation expectations.
China’s Consumer Price Index (CPI) rose by a higher-than-expected 4.4 percent in October from a year earlier and by 0.7 percent from September, attributable to a 10.1 percent year-over-year increase in food prices, the first double-digit gain since August 2008.
Thailand’s consumer confidence dropped to 71.6 in October from 73.5 in September, the first decline in six months, as the local currency strengthened to a 13-year high against the U.S. dollar and the worst floods in five decades impacted the agricultural sector.
We are watching for rising inflationary expectations around the world—Brazil’s October CPI came in at 5.2 percent compared with 4.7 percent in September, with higher food prices the main contributor.
The Hungarian government’s budget plan includes revenue projections for a special tax on selected industries to last through 2014, instead of ending a temporary levy after 2012 as previously announced.
Opportunities

Incipient fears over government policy tightening in China may trigger sector rotation into more defensive industries such as healthcare. With the Chinese government-spending on healthcare reaching RMB 297.8 billion in October, representing an accelerated growth rate of 63 percent versus last year, local medical equipment makers should benefit the most due to a government policy focus on expanding hospitals across the country.
A study by the Chilean Copper Commission estimates that by 2020, India will become the world’s second-largest copper consumer, versus its current position in sixth place behind China, the U.S., Germany, South Korea and Japan. The expectations are that the current annual consumption by India of around 610,000 tones will rise to 2.4-3.6 million tones. By comparison, China currently consumes around 6 million tones of copper annually.
While Zimbabwe has remained a non-entry place for many investors, there are more and more indications that the country is warming up to the entry of international companies. In the latest move, Essar Group of India is reportedly paying around $500 million for a 54 percent stake in Zisco, the local steel manufacturer, which has the capacity to produce 1 million tones of steel.
According to the Mexican press, there are three private equity groups interested in resurrecting Mexicana, the bankrupt airline. Any deal will have to be approved by the unions representing pilots, ground service and air hostesses; we understand that there are some labor liabilities that may pose a stumbling block.
Hungary, which escaped having it debt rating cut to junk by Standard & Poor’s last week, is underappreciated by investors given its fiscal performance, Royal Bank of Canada said. The chart below shows that Hungary will be the only country in Eastern Europe to run a budget surplus this year and next.

Threats

The prospect of China’s headline inflation to remain above 4 percent in the near future makes the specter of government price controls loom large, given China’s track record of pricing intervention when inflation of consumer items exceeded 4 percent on a year-over-year basis as recently as in 2004, 2007 and 2008. If price controls are brought to bear again, investor sentiment might turn negative towards producers of such consumer necessities as food, fuel and electricity.

The Central Bank of Turkey raised the reserve requirement ratio on lira deposits to 6 percent, which should drain market liquidity by 2.1 billion, according to J.P. Morgan. The monetary policy committee voiced its concern over fast loan growth and worsening external balances, in a clear signal of an imminent hike in interest rates.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Weekly PerformanceIndexCloseWeekly

Change($)Weekly

Change(%)S&P Basic Materials219.85-4.96-2.21%S&P Energy469.56+4.44+0.95%Hang Seng Composite Index3,402.65-94.82-2.71%Gold Futures1,367.80-29.90-2.14%XAU216.10+1.19+0.55%Russell 2000719.28-17.31-2.35%S&P BARRA Value558.44-12.69-2.22%S&P 5001,199.21-26.64-2.17%DJIA11,192.58-251.50-2.20%Oil Futures84.57-2.28-2.63%S&P BARRA Growth633.21-13.76-2.13%Nasdaq2,518.21-60.77-2.36%Korean KOSPI Index1,913.12-25.84-1.33%S&P/TSX Canadian Gold Index416.02+2.09+0.50%Natural Gas Futures3.83-0.11-2.82%10-Yr Treasury Bond2.78+0.25+9.87%

Monthly PerformanceIndexCloseMonthly

Change($)Monthly

Change(%)Oil Futures84.57+1.56+1.88%XAU216.10+6.46+3.08%Russell 2000719.28+12.81+1.81%S&P Energy469.56+28.04+6.35%Nasdaq2,518.21+76.98+3.15%Gold Futures1,367.80-2.70-0.20%S&P Basic Materials219.85+4.80+2.23%S&P BARRA Growth633.21+17.48+2.84%Korean KOSPI Index1,913.12+36.97+1.97%S&P 5001,199.21+21.11+1.79%DJIA11,192.58+96.50+0.87%S&P BARRA Value558.44+4.07+0.73%S&P/TSX Canadian Gold Index416.02+7.09+1.73%Natural Gas Futures3.83+0.13+3.52%10-Yr Treasury Bond2.78+0.36+14.77%Hang Seng Composite Index3,402.65-332.01-14.83%

Quarterly PerformanceIndexCloseQuarterly

Change($)Quarterly

Change(%)XAU216.10+41.96+24.10%S&P Basic Materials219.85+29.73+15.64%Hang Seng Composite Index3,402.65+453.20+15.37%S&P/TSX Canadian Gold Index416.02+47.19+12.79%Gold Futures1,367.80+151.10+12.42%Russell 2000719.28+102.30+16.58%Korean KOSPI Index1,913.12+191.37+11.11%S&P Energy469.56+68.74+17.15%Nasdaq2,518.21+327.94+14.97%Oil Futures84.57+8.83+11.66%S&P BARRA Growth633.21+73.41+13.11%S&P 5001,199.21+115.60+10.67%DJIA11,192.58+872.63+8.46%S&P BARRA Value558.44+42.58+8.25%Natural Gas Futures3.83-0.47-10.94%10-Yr Treasury Bond2.78+0.04+1.27%

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting Home – U.S. Global Investors or by calling 1-800-US-FUNDS begin_of_the_skype_highlighting 1-800-US-FUNDS end_of_the_skype_highlighting (1-800-873-8637 begin_of_the_skype_highlighting 1-800-873-8637 end_of_the_skype_highlighting). 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.

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 fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are 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 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

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. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 9/30/10:

Halliburton: 0.0%

Consol Energy: 0.0%

Range Resources: 0.0%

Cabot Oil & Gas: 0.0%

Chevron: All American Equity Fund: 0.97%

Atlas Energy: World Precious Minerals Fund: 1.19%; Global Resources Fund: 1.86%

Priceline.com: 0.0%

Dean Foods: 0.0%

Cisco Systems: 0.0%

Boeing: 0.0%

Alcoa: 0.0%

Coal India: 0.0%

Massey Energy Company: 0.0%

China Guangdong Nuclear Power Company:

LAN: 0.0%

Bimbo: 0.0%

Sara Lee’s: 0.0%

Walmex: 0.0%

Cosan: Global Emerging Markets Fund: 1.10%

Essar Gropu: 0.0%

Zisco: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.

The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.

The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.

The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.

The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.

The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.

The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.

The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.

The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.

The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.

The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.

The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.

The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.

The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.

The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.

The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.

The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.

The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.

The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.

The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.

The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.

The Next Big Emerging Markets?

By Frank Holmes
CEO and Chief Investment Officer

When countries get grouped together for economic or political purposes, an acronym or other shorthand device is soon to follow. OPEC, EU and G7 are a few of the old standards, while G20, PIIGS (European nations with dangerously large sovereign debt burdens), and of course BRICs are newer examples.
Now The Economist is getting into the game with “CIVETS.”

This venerable magazine is not reinventing itself as a British version of National Geographic we’re not talking about the civets that prowl the treetops in the tropical forests of Africa and Asia.

CIVETS in this case refers to Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa six countries that could be the next wave of emerging markets stardom.

The Economist’s basic case: these six have large and young populations, diversified economies, relative political stability and decent financial systems. In addition, they are for the most part unhampered by high inflation, trade imbalances or sovereign debt bombs.

We didn’t think up the acronym, but we have liked the long-term prospects for most of these countries for quite a while. Here are some of our thoughts and observations.

Start with Colombia, which has had a hard time getting people to forget about its narcoterrorism past and look at its pro-business government policies.
I met with former President Alvaro Uribe and it was fascinating to observe his policies for social stability and job creation. Five years ago, he changed the rules and began to encourage companies to come in and help develop their oil resources. He has taken those petrodollars created and reinvested them back in the country’s infrastructure and created jobs.

That is in complete contrast to what Hugo Chavez is doing in Venezuela, or even Mexico and its energy policy. Both of those countries are watching their reserves deplete, but there’s no policy to bring in intellectual capital like you’re seeing in Colombia.

2010 Performance Indicators
Population (m) GDP per head
(US$, PPP) Consumer
price inflation (%, av) Budget balance
(% of GDP) Source: Economist Intelligence Unit, Country Data

Colombia 46.9 8,920 2.6 -3.9 Indonesia 243.0 4,230 5.1 -2.2 Vietnam 87.8 3,150 9.3 -7.7 Egypt 84.7 5,910 11.8 -8.7 Turkey 73.3 12,740 8.7 -4.5 South Africa 49.1 10,730 5.8 -6.3 Turkey’s economy is dynamic and currently supported by strong underlying trends that point to long-term growth ahead. Its economy is the sixth largest in Europe and in the top 20 worldwide with a 2009 GDP of $615 billion.

According to a 2009 International Monetary Fund (IMF) report, Turkey’s per capita GDP of just over $8,700 is greater than any of the BRICs. Industrial output leaped by 21 percent in the 12 months ending March 2010, inflation fell to 6.1 percent last year from double-digit levels a year before, and public debt is less than 40 percent of GDP.

And while Europe still makes up more than half of Turkey’s exports, the current government has taken steps to increase exports to Middle East trading partners Saudi Arabia, Iraq and Egypt, for instance as a hedge against any economic volatility in Europe.

Indonesia’s demographics, natural resources and relatively stable political environment have set up the country for what could be a very strong decade of growth. Its economy doubled in the past five years and in greater Jakarta—the world’s second-largest urban area with roughly 23 million people—GDP per capita grew by 11 percent each year from 2006 through 2009.

More importantly, this growth was driven by the private sector, not by government spending the private sector accounts for roughly 90 percent of the country’s GDP. Over the past five years, the average income has doubled to $2,350 a year and Deutsche Bank thinks that figure can rise another 50 percent by the end of next year.

Despite this income growth, Indonesia still has the lowest unit labor costs in the Asia-Pacific region, according to JP Morgan. This has attracted manufacturing activities from China. Employment growth is key because half of Indonesia’s population is 25 years old or younger, so the workforce as a portion of total population will rise over the next 20 years. This should increase the country’s consumption levels and fuel further economic growth.

Vietnam has seen rapid economic growth in recent years. It too has picked up some manufacturing base that was formerly in China. The country’s per-capita income of $1,050 last year was nearly fivefold higher than it was in the mid 1990s, and in Hanoi, the income level is closing in on $2,000 per person, according to government figures.

That new wealth is showing up in gold purchases. Net retail gold investment in Vietnam exceeded 500,000 ounces during the first quarter of 2010, up 36 percent year-over-year, the World Gold Council says. Add to that a 20 percent increase in gold jewelry demand.

Beyond the CIVETS, we see some potential in other places. Malaysia’s economy, for instance, grew more than 10 percent in the first quarter of 2010, and the country has plans to slash its budget deficit and at the same time invest more heavily in infrastructure. And in Chile, despite February’s earthquake, public debt is just 7 percent of GDP and the economy is expected to 5.5 percent growth this year and 6.5 percent in 2011 as resource exports to emerging markets in Asia accelerate.

We see the global growth story led by key emerging market countries like the BRICs, the CIVETS and others as the most powerful long-term investment opportunity.

For more on this theme, I invite you to visit our website to read through the “Frank Talk” blog for a look at our interactive “What’s Driving Emerging Markets” presentation.

Index Summary

The major market indices were mixed this week. The Dow Jones Industrial Index rose 0.40 percent. The S&P 500 Stock Index lost 0.10 percent, while the Nasdaq Composite finished 0.65 percent lower.
Barra Growth underperformed Barra Value as Barra Value finished 0.36 percent higher while Barra Growth declined 0.56 percent. The Russell 2000 closed the week with a gain of 0.04 percent.
The Hang Seng Composite finished higher by 1.00 percent; Taiwan was down 0.01 percent and the Kospi advanced 0.07 percent.
The 10-year Treasury bond yield closed at 2.91 percent, down 9 basis points for the week.
All American Equity Fund – GBTFX • Holmes Growth Fund – ACBGX • Global MegaTrends Fund – MEGAX

Domestic Equity Market

The chart shows the performance of each sector in the S&P 500 index for the week. Five sectors gained and five declined. The best-performing sector was telecom services, up 1.7 percent. Other better-performing sectors included financials and industrials. The three worst-performing sectors were technology, consumer staples, and consumer utilities.

Within the telecom services sector the best-performing stock was Verizon Communications Inc, up 4 percent. The other top-three performers were Frontier Communications Corp and AT&T Inc.

Strengths

The real estate services group was the best-performing group for the week, up 12 percent, led by its single member, CB Richard Ellis Group Inc. The firm’s second quarter earnings easily beat the consensus estimate, driven by year-over-year increases in investment sales revenue and leasing revenue.
The office electronics group was the second-best performer, increasing 5 percent. The group’s single member, Xerox Corp, reported earnings in the prior week above the consensus estimate, and it guided 2010 earnings up. The strength in the stock this week appeared to be a carryover from that report.
The diversified chemicals group outperformed, rising 4 percent, led by E.I DuPont & Co which reported earnings above the analysts’ consensus estimate and raised its full year outlook above the analysts’ forecast.
Weaknesses

The photo products group was the worst performer, down 18 percent, led by its single member, Eastman Kodak Co, which reported earnings below the consensus forecast.
The tires & rubber group underperformed, down 13 percent. The group’s single member, Goodyear Tire & Rubber Co, reported earnings above the consensus, but the stock sold off on concerns about the outlook for the second half.
The building products group underperformed, losing 10 percent, led by its single member, Masco Corp, which reported earnings above the consensus but warned that the second half would be challenging as home building activity was slowing and big-ticket items would continue to be deferred.
Opportunities

There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
Threats

Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
As governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.

U.S. Government Securities Savings Fund – UGSXX • U.S. Treasury Securities Cash Fund – USTXX
Near-Term Tax Free Fund – NEARX • Tax Free Fund – USUTX

The Economy and Bond Market

Treasury bonds rallied this week on mixed economic news. Bonds appeared to be reacting to stocks, trading inversely this week driven largely by global macro concerns.

Economic data was mixed this week as second quarter GDP disappointed a little while housing data was a little better than expected. An interesting data point out of Europe this week was the European Commission Economic Sentiment Indicator for the Eurozone which reached the highest level in more than two years. This is counter intuitive given the ongoing European financial crisis but the weaker Euro has boosted exports and German unemployment has now fallen for 13 consecutive months, so maybe things aren’t as bad as they seem.

Strengths

European confidence remains surprisingly strong and is an interesting counter point to all the recent bad news.
The S&P/CaseShiller Composite 20 Home Price Index rose a better than expected 4.6 percent. At the same time Freddie Mac reported that mortgage rates hit another record low of 4.54 percent.
The Chicago Purchasing Managers Index unexpectedly rose, indicating that manufacturing activity remains strong.
Weaknesses

Second quarter GDP was somewhat disappointing, expanding at a modest 2.4 percent.
Durable Goods orders for June declined one percent, well below expectations of a one percent gain.
The Fed’s Beige Book report highlighted the slowing pace of economic activity in several areas of the country.
Opportunities

Inflation is unlikely to be a problem for some time and this gives central bankers and other policy makers around the world room for expansive policies.
Threats

The risk of austerity measures going too far and significantly diminishing economic growth is a real risk.
July 29, 2010

Another ETF Eye-opener

July 28, 2010

One of the Best Gold Watchers

July 27, 2010

Seeing the Good and Bad in Latin America

World Precious Minerals Fund – UNWPX • Gold and Precious Metals Fund – USERX

Gold Market

For the week, spot gold closed at $1,181.05 per ounce, down $8.15, or 0.69 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 2.13 percent. The U.S. Trade-Weighted Dollar Index decreased 1.03 percent.

Strengths

The U.S. unit of ETF Securities, a global ETF issuer specializing in commodities, filed papers with the SEC to market a gold exchange-traded fund that would be the first to store its bullion in a Singapore vault.
A poll of 55 analysts and traders showed expectations for gold prices in 2011 have risen by nearly 7 percent to a median of $1,228 per ounce, and 2010 gold expectations have risen 4 percent to a median of $1,197 per ounce.
Jamie Sokalsky, the CFO of the world’s largest gold producer, recently noted the concerns that pushed the gold price to record highs above $1,200 per ounce have not been addressed despite the weakened gold price within the past weeks.
Weaknesses

A congressional subcommittee has been asked to investigate the growing backlog in foreign procurement of U.S. bullion and collectors’ precious metals coin blanks manufactured by the U.S. Mint.
The gold price fell to a three month low on Tuesday to around $1,160 per ounce due to fear abatement, central bank tightening, and ETF liquidation.
Seasonally, the next natural catalyst for gold will be the return of jewelry manufactures as we close out the summer. In the mean time, the gold market may be relatively flat.
Opportunities

UBS recently stated “We believe that ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction will raise the spectre of debt monetization repeatedly over the next few years. We expect that this background will remain very supportive for gold prices over the period.”
Earnings reporting season for gold companies is in full swing. What is interesting is the number of companies that have established a dividend or raised their dividend payout, which should give these companies greater appeal to mainstream investors.
The attraction of dividend payments along with gold companies starting to be compared on other fundamental valuation metrics such as PE ratios is not a sign that there is “bubble in gold company valuations”.
Threats

The debate around the nationalism of South African mines has created “great uncertainty” with investors, and could even see the development of some projects essentially be put on hold, until after the ruling the African National Congress’s policy review conference in 2012.
Deutsche Bank believes the “gold price weakness has been driven more by a liquidation in a net length among the investor community than a structural change in market fundamentals, and history suggests investor de-leveraging can persist for another month.”
St. Louis Federal Reserve Bank President James Bullard commented that the economic outlook was unusually uncertain. He further noted, “The U.S. is closer to a Japanese-style outcome today than at any other time in recent history…”

Global Resources Fund – PSPFX • Global MegaTrends Fund – MEGAX

Energy and Natural Resources Market

Strengths

Indonesia, the largest coal exporter in the world, exported 24.49 million tonnes of coal in June, rising 32.23 percent from 18.52 million tonnes in May.
In June, Japan’s crude oil imports were up 0.5 percent year-over-year to 3.16 million barrels per day, liquefied natural gas imports were up 9 percent year-over-year and coal imports up 14 percent year-over-year, according to data published by the Finance Ministry.
According to the National Development and Reform Commission, China domestic coal production reached 1.57 billion tons in the first half up by 20.1 percent year-over-year.
Mitsui O.S.K. Lines Ltd., the operator of the world’s largest merchant fleet, raised its full-year profit forecast as demand for transporting goods between Asia and the U.S. and Europe rebounded.
Weaknesses

Iraq’s oil ministry has said the country’s oil exports had dropped to 1.8 million barrels per day in June from 1.9 million barrels per day the month before, due to bad weather and bomb attacks.
Japan’s refined copper exports fell 22 percent year-over-year in June while refined zinc exports fell 37 percent from a year earlier, Ministry of Finance data showed.
Opportunities

The Hellenic Shipping News reported that Russia plans to give licenses for development of 41 iron-ore and 31 coking coal deposits during 2011-2015. The iron-ore deposits are estimated to have a reserve base of 16.6 billion tonnes, while the coking coal reserves are estimated to be about 80.5 billion tones.
Arabian Oil Co., the world’s biggest oil company, said Wednesday it signed contracts with several local and international contractors to help it build its estimated $10 billion export refinery at Yanbu on the Red Sea. Announced first in 2005, the refinery was originally set to cost $6 billion to build. However, the project’s price tag doubled to as much as $12 billion in 2008 when raw material and commodity prices peaked. Construction of the facility is now estimated to cost about $10 billion.
State-run explorer Oil India has set aside $2 billion for overseas acquisitions, chairman NM Borah told reporters this week. Bigger rival Oil & Natural Gas Corporation has spearheaded India’s hunt for foreign petroleum assets, often competing with Chinese companies, but smaller players such as Oil India and refiners like Indian Oil Corporation are also scouting for assets, Reuters reported..
Threats

Oil reserves in Nigeria have dropped by 4.79 percent to 31.81 billion barrels over the past year because companies refuse to undertake exploration, a senior industry official said this week.
China’s natural gas supplies may face pressure in some regions this winter because of insufficient storage capacity and slowness by some companies to import supplies, said the National Development and Reform Commission.

China Region Opportunity Fund – USCOX • Eastern European Fund – EUROX
Global Emerging Markets Fund – GEMFX

Emerging Markets

Strengths

South Korea’s GDP expanded by a faster than expected 1.5 percent quarter-over- quarter, or 7.2 percent year-over-year, in the second quarter, driven by strong exports of automobiles, semiconductors, and machinery. Consumer confidence held at a five month high of 112 in July.
Profits at China’s large industrial companies in 24 regions climbed 71.8 percent year over year to RMB 1.61 trillion in the first half of this year.
China’s land supply for residential real estate construction increased 113 percent in the first half compared with a year ago, while the average price of residential land declined 10.6 percent sequentially in the second quarter.
The Indonesian rupiah appreciated to a three-year high on Thursday against the U.S. dollar, as the local stock market rose to a record high and government forecasted 6 percent GDP growth in the second half of this year.
Lojas Renner, one of the largest Brazilian retailers, reported strong 2Q results that were boosted by better procurement practices that resulted in an improvement in the earnings before interest, taxes, depreciation and amortization (EBITDA) margin to 24.8 percent from 17.8 percent a year earlier.
OHL toll road group in Brazil reported a 29 percent traffic growth in 2Q brought about by an economic recovery in the country.
Chilean banks, Banco de Chile and Santander Chile, also reported strong 2Q results with net income growing 57 percent year-over-year.
Hungary sold more debt than planned at an auction of three month Treasury bills on Wednesday as traders said yields were attractive given the interest rate outlook, according to Bloomberg.
Weaknesses

China’s new loans to property developers fell 62 percent sequentially in the second quarter to RMB 122 billion, representing a 32 percent decrease year-over- year, as banks intentionally reduced balance sheet exposure to the property sector as a result of credit control and risk management.
Vietnam’s long term foreign and local currency debt ratings were reduced by Fitch Ratings to B+ from BB-, due to concerns over declining foreign reserves and weak banking system.
The capital output ratio defined as the investment portion of GDP divided by real GDP growth measures how much investment is needed to produce GDP growth, the higher the ratio, the more inefficient the investment. As the chart shows, the efficiency of Russia’s investment into economy was particularly wasteful under socialism. It has now reached a stable state at around 4 times (equal to that of China), which is below the world average at 3 times.

Opportunities

Although China’s domestic A share market staged a close to 10 percent rebound in July, the best performer in Asia for the month, Chinese mutual funds by and large did not participate in the rally. These mutual funds, together with domestic insurance companies who are expected to be approved to raise allocation to equities in August, may provide liquidity support for a continued recovery in Chinese domestically listed stocks.
A recent M&A activity in the Brazilian telecom sector has created three major fully integrated players America Movil, Telefonica and Oi, that should offer bundled products (fixed line, wireless and pay TV) at a reduced cost for customers.
We have noted an inflow into the Chilean equity market by the local pension funds that scaled down their international exposure and boosted valuations of the Santiago bourse.
The IMF’s new loan agreement for $15 billion requires fiscal policy changes from Ukraine aimed at lowering the deficit to 5.5 percent of GDP in 2010 and 3.5 percent in 2011. The IMF’s renewed engagement with Ukraine opens up the possibility of loans from the European Commission and the World Bank, according to RGE Monitor.
Threats

In addition to ongoing property tightening, Chinese government’s goal to reduce energy consumption per unit of real GDP by over 5 percent this year from 2009, as mandated by its 11th Five Year Plan, may result in more plant closures, as a matter of expediency, especially in heavy industries, and a slowdown in economic activity in the second half of this year.
Macquarie Airports indicated that they will be selling its 14 percent stake in ASUR. At this point it remains uncertain who the buyer might be but the transaction may well improve liquidity in the ASUR shares.
On Thursday, the Russian government finalized its list of companies to be privatized in 2011-2013, and the amount it is planning to raise through these privatizations is close to $35 billion US dollars. The slope of the regression line of Russian Trading System market returns vs. total IPO issuance is negative, suggesting that a large supply of state’s shares could have a negative impact on the market.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.
Weekly Performance Index Close Weekly
Change($) Weekly
Change(%) DJIA 10,465.94 +41.32 +0.40% S&P 500 1,101.60 -1.06 -0.10% S&P BARRA Value 525.54 +1.89 +0.36% S&P BARRA Growth 567.85 -3.19 -0.56% S&P Energy 403.14 +0.84 +0.21% S&P Basic Materials 193.56 -0.28 -0.14% Nasdaq 2,254.70 -14.77 -0.65% Russell 2000 650.89 +0.24 +0.04% Hang Seng Composite Index 2,954.24 +29.28 +1.00% Korean KOSPI Index 1,759.33 +1.27 +0.07% S&P/TSX Canadian Gold Index 346.45 -8.74 -2.46% XAU 169.72 -3.70 -2.13% Gold Futures 1,183.50 -8.10 -0.68% Oil Futures 78.95 -0.03 -0.04% Natural Gas Futures 4.92 +0.34 +7.40% 10-Yr Treasury Bond 2.91 -0.09 -2.90%
Monthly Performance Index Close Monthly
Change($) Monthly
Change(%) DJIA 10,465.94 +691.92 +7.08% S&P 500 1,101.60 +70.89 +6.88% S&P BARRA Value 525.54 +34.02 +6.92% S&P BARRA Growth 567.85 +36.31 +6.83% S&P Energy 403.14 +29.78 +7.98% S&P Basic Materials 193.56 +21.10 +12.23% Nasdaq 2,254.70 +145.46 +6.90% Russell 2000 650.89 +41.40 +6.79% Hang Seng Composite Index 2,954.24 -332.01 -14.83% Korean KOSPI Index 1,759.33 +61.04 +3.59% S&P/TSX Canadian Gold Index 346.45 -36.35 -9.50% XAU 169.72 -7.91 -4.45% Gold Futures 1,183.50 -66.40 -5.31% Oil Futures 78.95 +3.32 +4.39% Natural Gas Futures 4.92 +0.30 +6.56% 10-Yr Treasury Bond 2.91 -0.02 -0.82%
Quarterly Performance Index Close Quarterly
Change($) Quarterly
Change(%) DJIA 10,465.94 -701.38 -6.28% S&P 500 1,101.60 -105.18 -8.72% S&P BARRA Value 525.54 -52.80 -9.13% S&P BARRA Growth 567.85 -51.37 -8.30% S&P Energy 403.14 -51.25 -11.28% S&P Basic Materials 193.56 -15.17 -7.27% Nasdaq 2,254.70 -257.22 -10.24% Russell 2000 650.89 -86.85 -11.77% Hang Seng Composite Index 2,954.24 +13.16 +0.45% Korean KOSPI Index 1,759.33 +30.91 +1.79% S&P/TSX Canadian Gold Index 346.45 -4.27 -1.22% XAU 169.72 -8.87 -4.97% Gold Futures 1,183.50 +10.80 +0.92% Oil Futures 78.95 -6.22 -7.30% Natural Gas Futures 4.92 +0.94 +23.59% 10-Yr Treasury Bond 2.91 -0.82 -21.93%
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting Home – U.S. Global Investors 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.
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 fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.
The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.
Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.
Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are 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 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.
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. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.
Past performance does not guarantee future results.
These market comments were compiled using Bloomberg and Reuters financial news.
Holdings as a percentage of net assets as of 6/30/10:
Verizon Communications Inc.: All American Equity Fund 1.01%
Frontier Communications Corp.: All American Equity Fund 0.93%
AT&T Inc.: All American Equity Fund 1.03%
CB Richard Ellis Group Inc.: 0.00%
Xerox Corp.: 0.00%
E.I. du Pont de Nemours & Co.: 0.00%
Eastman Kodak Co.: 0.00%
Goodyear Tire & Rubber Co.: 0.00%
Masco Corp.: 0.00%
Mitsui O.S.K. Lines Ltd.: 0.00%
Arabian Oil Co.: 0.00%
Oil & Natural Gas Corporation: 0.00%
Indian Oil Corporation: 0.00%
Lojas Renner S.A.: Global Emerging Markets Fund 3.18%
Obrascon Huarte Lain S.A.: 0.00%
Banco de Chile: 0.00%
Banco Santander Chile: 0.00%
America Movil: Global MegaTrends Fund 2.18%, Global Emerging Markets Fund 1.62%
Telefonica: 0.00%
Oi: 0.00%
Grupo Aeroportuario de Sureste SAB de CV: Global MegaTrends Fund 4.65%
*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The S&P/Case-Shiller Index tracks changes in home prices throughout the United States by following price movements in the value of homes in 20 major metropolitan areas.
The European Commission Economic Sentiment Indicator is a monthly economic sentiment indicator reflects general economic activity of the EU. This indicator combines assessments and expectations stemming from business and consumer surveys. Such surveys include different components of the economy: industry, consumers, construction and retail trade. In order to comply with new Eurostat data series, the base year of the ESI has been changed in August 2003 from 1995 to 2000.
The Russian Trading System Index is and indicator of the 50 most liquid Russian stocks listed on the exchange.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
Advanced G-20 economies references members of the G-20 whose economies are considered by the IMF to be developed. This includes Canada, United States, Austria, Belgium, France, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Australia, Japan and Korea. Emerging G-20 economies references members of the G-20 whose economies are considered by the IMF to be emerging. This includes Brazil, India, Indonesia, Hungary, Russia and Saudi Arabia. BRIC refers to the emerging market countries Brazil, Russia, India and China.

Investor Alert – June 25, 2010

Index Summary

The major market indices were lower this week. The Dow Jones Industrial Index lost 2.94 percent. The S&P 500 Stock Index decreased 3.65 percent, while the Nasdaq Composite finished 3.74 percent lower.
Barra Growth underperformed Barra Value as Barra Value finished 3.62 percent lower while Barra Growth fell 3.67 percent. The Russell 2000 closed the week with a loss of 3.27 percent.
The Hang Seng Composite finished higher by 1.59 percent; Taiwan was down 0.25 percent and the Kospi gained 1.05 percent.
The 10-year Treasury bond yield closed at 3.11 percent, down 11 basis points for the week.
All American Equity Fund – GBTFX • Holmes Growth Fund – ACBGX • Global MegaTrends Fund – MEGAX

Domestic Equity Market

All 10 sectors of the S&P 500 index declined this week (chart below). The best-performing sector was financials, down 1.5 percent. Other better-performing sectors included health care and telecom services. The three worst-performing sectors were energy, consumer discretion and technology.
Within the financials sector, the best-performing stock was Moody’s Corp, up 4.3 percent. Other top performers in the sector were First Horizon National Corp., Discover Financial Services, Berkshire Hathaway Inc. and Capital One Financial Corp.

Strengths

The oil & gas refining & marketing group was the top-performing group for the week, up 4 percent. Government data this week showed a drop in gasoline inventories, and the travel group AAA forecast that U.S. auto travel over the July 4 holiday weekend will likely rise 18 percent. Both factors helped lift expectations that demand for gasoline will keep prices up.
The human resources & employment services group rose 2 percent. A major brokerage firm upgraded Robert Half International Inc. to “outperform” and raised its target price on the stock.
The biotechnology group gained 1 percent. Genzyme Corp. entered into an agreement to repurchase $1 billion of its common stock.
Weaknesses

The motorcycle manufacturing group was the worst performer, losing 9 percent, led down by its single member, Harley-Davidson Inc. A major brokerage firm reiterated its “sell” rating on the stock, saying its research showed that new bike demand appeared to have decelerated in May.
Seven of the 10 worst-performing groups were in the consumer discretion sector (motorcycle manufacturing, specialty stores, photographic products, department stores, home furnishings, education services and hotels). It appears that investors have become more concerned about a slowdown in the pace of economic growth and consumer spending.
The retail drug group underperformed, dropping 8 percent. Walgreen Corp. reported earnings below the consensus estimate, in part due to higher-than-expected expenses.
Opportunities

There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
Threats

Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
As governments around the world begin to wind down the monetary and fiscal stimulus programs put in place during the economic crisis, a headwind for stocks will likely be created.
June 24, 2010

Steel Supports Recovery

June 23, 2010

Chart of the Week Chinese Wages

June 22, 2010

An Expert’s View on Yuan Appreciation

U.S. Government Securities Savings Fund – UGSXX • U.S. Treasury Securities Cash Fund – USTXX
Near-Term Tax Free Fund – NEARX • Tax Free Fund – USUTX

The Economy and Bond Market

Treasury bonds rallied this week, sending yields lower by about 10 basis points across much of the Treasury yield curve. Weak housing data and growing concerns over the global economic impact of austerity measures were the primary drivers. The Federal Reserve met this week and met expectations by signaling no change in monetary policy.

New homes sales dropped nearly 33 percent in May to 300,000 units, less than a quarter of their level in May 2005 and the lowest level since records began in 1963. Expiration of the homebuyer tax credit apparently pulled demand forward and the market is suffering without that support.

Strengths

China relaxed the yuan’s peg to the dollar, essentially allowing it to appreciate. While this is effectively a tightening step for China, it is viewed as a better alternative than raising interest rates. The timing was also favorable from a political standpoint, as the G-20 meeting of large economies is being held this weekend in Toronto. Many nations participating in the meeting have urged China to allow appreciation.
Global steel output rose 29 percent in May and now stands 10 percent higher than May 2007, before the global economic crisis.
The University of Michigan Consumer Confidence Index rose to the highest level since January 2008.
Weaknesses

May new home sales hit a record low and existing home sales also disappointed, falling 2.2 percent in the month. Housing is not providing any basis for the economic rebound.
Austerity measures are all the rage around the world, including the United Kingdom, Germany and Japan. The measures proposed are often aggressive cost cutting or tax increases that threaten the near-term economic recovery.
Durable goods in May declined 1.1 percent, better than expected but still down sharply.
Opportunities

Inflation is unlikely to be a problem for some time and this gives central bankers and other policymakers around the world room for expansive policies.
Threats

The risk of austerity measures going too far and significantly diminishing economic growth is real.
Concerns about a full-blown credit crisis have probably diminished, but still cannot be ruled out.
World Precious Minerals Fund – UNWPX • Gold and Precious Metals Fund – USERX

Gold Market

For the week, spot gold closed at $1,255.60 per ounce, down $1.20, or 0.10 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index, shed 0.27 percent. The U.S. Trade-Weighted Dollar Index fell 0.46 percent.

Strengths

After a rocky start for gold this week, due to China’s intention to let its currency appreciate, bullion came close to eclipsing its all-time high by Friday close. Spreads on Greek credit default swaps are now higher than before Europe announced its massive plan to restore credibility to the euro.
Saudi Arabia moved up to become the 16th largest country in terms of gold reserves with 322.9 metric tons. This amount held in Saudi Arabia’s central bank more than doubled previous estimates.
China’s largest gold producer, China National Gold (a private company), will purchase and process gold concentrates under a long-term contract from the Kensington Mine in Alaska. China offered payment for the gold within seven days of delivery versus the traditional three-month delay used by many smelters. This provides an innovative source for China to increase its gold holdings by not going out to the open market to directly acquire gold.
Weaknesses

Indian gold demand dipped by more than 50 percent from April to May as strong gold prices due to eurozone problems put some buyers on the sidelines.
Australia and China signed more than $8.8 billion worth of commercial and mining deals. This is a sign that Australia’s proposed mining tax has not deterred China, Australia’s largest export market.
What is bad for the major publicly listed mining companies is an opportunity for the Chinese government to establish more direct ties to the source of the minerals they need versus competing to buy them in the public markets.
Opportunities

Over the last 10 years, gold and gold-mining stocks have been a good investment. For the first five years of this period, the gold-mining equity indexes outperformed the gold price due to expanding profit margins. In the last five years, gold has outperformed the gold-mining indexes as margins were compressed by rising costs from fuel, steel, reagents and labor. With gold prices significantly above the all-in marginal cost of production, we are now likely to see the gold miners outperform bullion.
All but two U.S. states will have budget deficits this year, with the combined shortfall likely exceeding $300 billion. That would far surpass Greece’s expected 2010 budget shortfall of $28 billion. As financial problems persist, gold’s safe haven attributes look more attractive.
A recent Gluskin Sheff report by David Rosenberg, Chief Economist & Strategist, highlights the impact of bear markets over the past 125 years. Looking at the Dow Jones Industrial Average (and adjusting for inflation), the average bear market of 16 years pretty much wipes out gains from the previous bull market. Assuming 2 percent inflation and that the current bear market ends in 2016, Rosenberg says, the Dow could trough at 5,000. At that point, he predicts, gold would likely be $5000 per ounce. The last time gold had a major run (1970 to 1980), the S&P 500 delivered an average annual real return of 0.8 percent for the decade, while the Toronto Gold & Precious Minerals Index, in U.S. dollar terms, compounded at a real return 25.1 percent per year.
Threats

The Guatemalan government asked a large Canadian-based mining company to suspend operations temporarily while the government addresses accusations of human rights claims made by an activist group. The company has not complied with the request.
A gold miner in Mexico facing labor problems at one of its mines fired all 400 miners for going on an illegal strike. Management may find it difficult to re-establish good relations with the community.
Australia’s new prime minister, Julia Gillard, has not moved away from her predecessor’s plans to introduce a super profits mining tax. Gillard did, however, emphasize that she wants to make sure Australians get a fair share of the mineral wealth.

Global Resources Fund – PSPFX • Global MegaTrends Fund – MEGAX

Energy and Natural Resources Market

Strengths

Global crude steel output jumped 30 percent in the first five months of the year to 586 million metric tons, the World Steel Association said.
According to the World Gold Council, the Saudi Arabian central bank’s gold holdings climbed to 323 metric tons, more than double the 143 metric tons reported in March.
China increased coal imports by 17 percent year over year in May because of a rebound in the economy. Coal purchases rose to 11 million metric tons in May, according to data released by the General Administration of Customs. China paid an average $109 a ton for delivered coal in May, about 11 percent higher than in the previous month.
Weaknesses

Platts reports that hot-rolled coil steel prices in the U.S. declined by $12.50 per ton to $645 per ton, down 6.5 percent over the last month.
The Baltic Dry Index, a key indicator of future international trade activity and the U.S. economy, closed at 2,502 on Thursday, down 7 percent from the prior week and more than 40 percent since the end of May.
Spot hard coking coal prices in Australia fell $2.00 per metric ton to $203, according to Platts. Prices are down 6 percent over the last month and down 14 percent over the last two months.
Opportunities

Petrobras announced it will boost its five-year capital spending plans for oil and gas projects by 14 percent to $224 billion.
Physical ETFs may become increasingly important in to base metals, with an aluminum ETF likely to come to market this year.
According to a draft government document obtained by Chinese media, China aims to shut down as many as 7,000 small coal miners by 2015.
China’s natural gas consumption is expected to account for 8 percent of total energy consumption in the country during the 2010-15 period, compared with the current 4 percent, according to the National Energy Bureau.
Threats

The tropical wave over the western Caribbean Sea could develop into a tropical depression over the next couple of days as it moves toward the Gulf of Mexico, the U.S. National Hurricane Center and other weather forecasters predicted.
India’s food price index rose 17 percent in the year to June 12, while the fuel price index climbed 13 percent, according to government data.

China Region Opportunity Fund – USCOX • Eastern European Fund – EUROX
Global Emerging Markets Fund – GEMFX

Emerging Markets

Strengths

China unpegged its currency from the U.S. dollar one week ahead of the June 26-27 G-20 meeting in Toronto in order to reintroduce more flexibility to the exchange rate after a two-year moratorium. The yuan strengthened by more than 0.5 percent against the U.S. dollar this week.
Moody’s Investors Service raised the outlook on Indonesia’s local and foreign currency sovereign ratings to “positive” from “stable,” saying it expects the country to post sustained strong growth and further improvements in financial and debt position.
Taiwan’s unemployment rate declined to a 17-month low of 5.2 percent in May, better than market expectations and lower than April’s 5.4 percent. Technology manufacturers grew more confident of the economic outlook and increased hiring.
South Korea’s consumer confidence rose to 112 in June from 111 in May, a second month of advance, reflecting the strengthening economy and improving job market.
Singapore’s industrial production unexpectedly accelerated to 58.6 percent in terms of year-over-year growth from April’s 49.7 percent surge, driven by the electronics industry.
Weaknesses

China canceled export tax rebates for a long list of products of polluting and high energy-consuming industries, including steel, nonferrous metals and chemicals.
Taiwan’s central bank unexpectedly raised the benchmark interest rate by 12.5 basis points to 1.375 percent, after keeping it at the record low 1.25 percent for 15 months, in a pre-emptive move to bring the rate toward a neutral level.
Philippines’ budget deficit widened in May to 30.5 billion pesos from 11.38 billion pesos in May 2009. Cumulative government expenditure in the first five months increased 14.3 percent year over year while revenue rose only 9.6 percent.
Singapore’s consumer prices increased 3.2 percent year over year in May, more than market expected, as a result of higher prices for food, housing, and automobiles.
Opportunities

Indonesia remains one of the major beneficiaries of an appreciating Chinese currency, thanks to the commodity-heavy nature of its exports to China. Coal and palm oil are key categories. During the three years from mid-2005 to mid-2008, when the yuan was unpegged from the U.S. dollar and saw appreciation, Indonesian equities more than doubled in U.S. dollar terms, making them the second-best performer in Asia after Chinese equities. In addition, the government’s improving fiscal status highlights a prudent Indonesia where public sector debt declined to 31 percent of GDP in 2009 from 102 percent in 1999, a confidence booster in a world of apprehensions over sovereign indebtedness.

Threats

The lagging impact of weakening European demand and a potentially rising yuan on Chinese exports may combine with a considerable policy-induced slowdown in fixed asset investment to eclipse growth in private consumption in China in the second half of this year. Macroeconomic headwinds could continue to challenge investor sentiment towards China in the near term.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.
Weekly Performance Index Close Weekly
Change($) Weekly
Change(%) Oil Futures 79.13 +1.95 +2.53% Hang Seng Composite Index 2,888.84 +45.16 +1.59% Korean KOSPI Index 1,729.84 +17.89 +1.05% S&P/TSX Canadian Gold Index 387.73 +3.95 +1.03% Gold Futures 1,256.30 -2.00 -0.16% XAU 185.12 -0.50 -0.27% Natural Gas Futures 4.86 -0.14 -2.70% S&P Basic Materials 183.16 -5.15 -2.73% DJIA 10,143.81 -306.83 -2.94% Russell 2000 645.11 -21.81 -3.27% 10-Yr Treasury Bond 3.11 -0.11 -3.51% S&P BARRA Value 512.93 -19.27 -3.62% S&P 500 1,076.76 -40.75 -3.65% S&P BARRA Growth 555.89 -21.19 -3.67% Nasdaq 2,223.48 -86.32 -3.74% S&P Energy 392.50 -24.59 -5.90%
Monthly Performance Index Close Monthly
Change($) Monthly
Change(%) Natural Gas Futures 4.86 +0.71 +17.02% Oil Futures 79.13 +7.62 +10.66% Korean KOSPI Index 1,729.84 +147.72 +9.34% XAU 185.12 +14.38 +8.42% S&P/TSX Canadian Gold Index 387.73 +25.47 +7.03% Gold Futures 1,256.30 +41.00 +3.37% DJIA 10,143.81 +169.36 +1.70% S&P BARRA Growth 555.89 +8.47 +1.55% Nasdaq 2,223.48 +27.60 +1.26% S&P Energy 392.50 +4.40 +1.13% S&P 500 1,076.76 +8.81 +0.82% S&P Basic Materials 183.16 +1.42 +0.78% Russell 2000 645.11 +2.49 +0.39% S&P BARRA Value 512.93 +0.60 +0.12% 10-Yr Treasury Bond 3.11 -0.08 -2.57% Hang Seng Composite Index 2,888.84 -332.01 -14.83%
Quarterly Performance Index Close Quarterly
Change($) Quarterly
Change(%) S&P/TSX Canadian Gold Index 387.73 +82.16 +26.89% Natural Gas Futures 4.86 +0.88 +22.13% XAU 185.12 +26.81 +16.94% Gold Futures 1,256.30 +161.00 +14.70% Korean KOSPI Index 1,729.84 +41.45 +2.46% Oil Futures 79.13 -1.40 -1.74% Hang Seng Composite Index 2,888.84 -64.16 -2.17% Russell 2000 645.11 -33.99 -5.01% DJIA 10,143.81 -697.40 -6.43% S&P Energy 392.50 -27.95 -6.65% S&P BARRA Growth 555.89 -42.85 -7.16% Nasdaq 2,223.48 -173.93 -7.25% S&P 500 1,076.76 -88.97 -7.63% S&P BARRA Value 512.93 -45.21 -8.10% S&P Basic Materials 183.16 -18.70 -9.26% 10-Yr Treasury Bond 3.11 -0.77 -19.90%
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting Home – U.S. Global Investors 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.
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 fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.
The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.
Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.
Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are 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 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.
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. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.
Past performance does not guarantee future results.
These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 3/31/10:
Moody’s Corp: 0.00%
First Horizon National Corp: 0.00%
Discover Financial Services: 0.00%
Berkshire Hathaway Inc: Global MegaTrends Fund 2.62%
Capital One Financial Corp: 0.00%
AAA: 0.00%
Robert Half International Inc: 0.00%
Genzyme Corp: 0.00%
Harley-Davidson Inc: 0.00%
Walgreen Corp: 0.00%
Petrobras: 0.00%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
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 Baltic Dry Freight Index is an economic indicator that portrays an assessed price of moving major raw materials by sea as compiled by the London-based Baltic Exchange.

Investor Alert – June 05, 2010

Index Summary

The major market indices were down this week. The Dow Jones Industrial Index fell 2.02 percent. The S&P 500 Stock Index lost 2.25 percent, while the Nasdaq Composite finished 1.68 percent lower.
Barra Growth outperformed Barra Value as Barra Value finished 2.66 percent lower while Barra Growth declined 1.84 percent. The Russell 2000 closed the week with a loss of 4.18 percent.
The Hang Seng Composite finished higher by 0.02 percent; Taiwan was up 0.68 percent and the Kospi gained 2.55 percent.
The 10-year Treasury bond yield closed at 3.20 percent, down 11 basis points for the week.
All American Equity Fund – GBTFX • Holmes Growth Fund – ACBGX • Global MegaTrends Fund – MEGAX

Domestic Equity Market

Miserable May bodes well for June-July

At U.S. Global Investors, Inc we like to use probability and statistics as an aid in our efforts to provide returns to our mutual fund shareholders. In that regard, a U.S. equity strategy report from J.P. Morgan cites some interesting statistics and probabilities with potentially positive implications for the equity market over the next couple of months. Their report shows the 7.9 percent decline in the Dow Jones Industrial Average in May was the 6th worst May decline in history. The 10 worst May declines were followed by an average 9.4 percent gain from June 1 to July 31st. Their report also shows that, on average for those 10 occasions, stocks historically troughed 8 days into June. In summary, the “Miserable May bodes well for June-July.”

The figure below shows the performance of each sector in the S&P 500 index for the week. All ten sectors declined. The best-performing sector was technology, down 0.9 percent. Other better-performing sectors included telecom services and consumer staples. The three worst-performing sectors were materials, industrials, and financials.

Within the technology sector the best-performing stock was Netapp Inc, up 0.6 percent. Other top-five performers in the sector were Hewlett-Packard Co, Apple Inc, Qualcomm Inc and Dell Inc.

Strengths

The managed healthcare group was the best-performing group, up 4 percent for the week. It may be that after weakness in the stocks of the healthcare insurers following healthcare reform, some investors began to seek out bargains.
The internet software & services group outperformed, gaining 2 percent. Google Inc, the largest member of the group, rose 3 percent. Two major brokerage firms reiterated their Buy / Overweight ratings on the stock. A smaller member of the group, Akamai Technologies Inc, gained 7.5 percent. A major brokerage firm raised its target price on the stock, citing a more benign competitive environment in the internet content delivery space.
The brewers group outperformed, rising 1 percent on the strength of its single member, Molson Coors Brewing Co. In the prior week, the Chairman of the company indicated interest in bidding for Foster’s Group Ltd according to press reports. Several other companies have also been cited as being interested in Foster’s after the Australian brewer announced in the prior week that it would split off its struggling wine business in 2011.
Weaknesses

The healthcare facilities group was the worst performer, down 14 percent, led by its single member, Tenet Healthcare Corp. A major brokerage firm downgraded the hospital operator following confirmation the company was in preliminary discussions to acquire an Australian hospital operator.
The homebuilding group underperformed, losing 10 percent. On Wednesday homebuilder Hovnanian Enterprises Inc reported that new home contracts in the February-April quarter declined 17 percent from the prior-year period, citing weakness due to the expiration of the homebuyer tax credit in April.
The diversified metals & mining group lost 10 percent, led down by its largest member, Freeport-McMoran Copper & Gold Inc. The price of copper declined during the week.
Opportunities

There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
Threats

Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
As governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.
U.S. Government Securities Savings Fund – UGSXX • U.S. Treasury Securities Cash Fund – USTXX
Near-Term Tax Free Fund – NEARX • Tax Free Fund – USUTX

The Economy and Bond Market

Treasury bond yields continued their move higher this week as market participants begin to embrace riskier assets once again. However, on Friday the yields dropped on the weak payroll report, resulting in a net drop in yield on the 10-year Treasury of 8 basis points for the week, ending the week at 3.21 percent.

The graph shows the month-over-month change in U.S. nonfarm payrolls in thousands. The recent May report showed an increase of 431,000, but it was much weaker than the 536,000 expected. In addition, the prior two months had a net downward revision of 22,000. Also, private employment grew just 41,000, well below the consensus of 180,000.

Strengths

Employment unexpectedly increased in Spain. The unemployment rate fell by 1.8 percent, which was the largest drop in five years.
The ISM manufacturing index fell slightly in May but remains at a high level indicating continued economic expansion.
The May unemployment rate edged down to 9.7 percent from 9.9 percent in April, slightly besting the May consensus forecast of 9.8 percent.
Weaknesses

As explained above, the May payroll report was much weaker than expected.
Canada raised rates by 25 basis points in a first step to normalize monetary policy.
China’s May purchasing managers’ index was weaker than expected and increased concerns of a broad based economic slow down.
Opportunities

The current environment appears similar to 2008 in many ways but also crucial differences are evident. The economy is recovering and global economic growth still looks like the most likely outcome. In addition, while some fear/risk indicators are elevated they are nowhere near the panic levels seen during the past crisis.
Threats

Until the European situation is resolved with some degree of certainty the market will be at the whims of macro risk factors.
Concerns of a full blown credit crisis have probably diminished some but can not be ruled out.
June 4, 2010

Urbanization a Key to Consumption

June 3, 2010

Is the Dollar a Zombie?

June 2, 2010

Chart of the Week SWFs and Oil Prices

World Precious Minerals Fund – UNWPX • Gold and Precious Metals Fund – USERX Gold Market

For the week, spot gold closed at $1,219.90 per ounce up $5.52 or 0.45 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index fell 2.80 percent. The U.S. Trade-Weighted Dollar Index continued its upward march rising 2.03 percent.

Strengths

U.S. Mint May gold coin sales hit their highest level since 1999. Silver coins sales also were halted until more silver blanks could be acquired. Rand Refinery noted sales of Krugerrand gold coins soared by 50 percent due to investor demand over the euro crises.
In an interview with The Gold Report, when asked what hedge is most favorable against a collapse of the euro, CD Capital founder Carmel Daniele stated, “The safest bet is gold. It’s the safest currency. It’s become a currency.”
In the prior week, the German five-year bond auction failed for the first time since September 2008. Dealers were left holding 22 percent of the issue, which was priced to yield only 1.47 percent. In contrast, Portugal sold bonds yielding 3.70 percent. Seems that investors figured, why buy German debt when I can buy higher yielding Portuguese debt, guaranteed by the German government?
Weaknesses

South Africa’s first quarter gold production fell 15 percent quarter-on-quarter, continuing their decrease in output.
Kevin Rudd, Australia’s Prime Minister, said the government has no plans of reforming the resource super profits tax. KPMG, one of the top accounting firms, noted that $69 billion worth of resource projects had been placed on hold in Australia due to uncertainty over the tax.
Gold prices slipped almost $17 on Thursday and commentators cited the current strength in equities and decreased risk aversion was unfavorable for gold investors and could subdue gold prices in the short term. The sudden drop could also have been due to the International Monetary Fund (IMF) asking for a bid on some of the gold they currently have in the pipeline to sell. Latest estimates place the IMF with about 153 tonnes left to sell. Interestingly, one of the gold ETF’s inventory rose by 21.3 tonnes on the same day.
Opportunities

The second largest pension fund in the U.S., California State Teachers’ Retirement System, will vote soon on whether to invest in commodities as a hedge against the risk of increased inflation
Michael Jalonen, of BofA Merrill Lynch Global Research, highlighted that for 20 of the last 22 years, bullion has enjoyed late summer/early fall gains averaging 13 percent on the back of renewed jewelry demand. A rally in bullion has also tended to support some spectacular rallies in the gold mining stocks. Jalonen notes bullion could rise to $1,300 per ounce by October 2010.
While there may be days where gold could see a quick sell off, these are likely going to be opportunities to accumulate gold and gold equities as governments policies are out of step with economic reality. A recent report by Eric Sprott and David Franklin outline “A Busted Formula” and it is an excellent overview of economic problems our nation faces. When the U.S. government spends $117,933 to create a job that won’t pay anywhere near that amount of income, or takes on $2.5 trillion in debt to get GDP to rise by $200 billion, it is like running a business where you buy dimes for dollars.
Threats

Indications of a double dip in Europe have been becoming more visible as restrictive policies and an assortment of troublesome data, such as weakening consumer spending and manufacturing reports are becoming more consistent, according to a recent ISI Group report. What is distressing is the lack of realization that the odds of such an outcome in the U.S. are just as strong.
Corporate debt markets continue to struggle. Global new issues declined to $70 billion in May, less than half of what was issued in April and the lowest since August 2003. Investment bankers are hesitant to bring new deals that may not go well.
Warren Buffett, recently subpoenaed to testify before Congress, predicts a negative outcome for municipal debt in the U.S. In fact, New York, recently has stopped paying contractors of private construction companies and told them to continue work or they will sue them for breach of contract.
Global Resources Fund – PSPFX • Global MegaTrends Fund – MEGAX

Energy and Natural Resources Market

Strengths

Natural gas futures climbed 12 percent to $4.85 per mmbtu this week on potential supply disruptions in the Gulf of Mexico and forecasts of warmer weather.
The U.S. Mint sold 190,000 ounces of American Eagle gold bullion coins last month, the most since sales of 231,500 ounces in December, according to data on its website.
Weaknesses

ArcelorMittal is to idle three of its European blast furnaces in the third quarter, Steel Business Briefing reported, citing Antoine Van Schoolen, the company’s Chief Marketing Officer. He did not reveal which furnaces will be affected, but said one would be idled in July and two in August.
According to the China Automotive Technology & Research Center, China’s auto production in May was down 14.36 percent month-over-month, while inventories increased by 12 percent month-over-month. A source from Maanshan Iron & Steel told Steel Business Briefing that auto sheet orders were down by about 20 percent in May. The source noted that the slower summer sales season is approaching and demand for auto sheet could pick up in September at the earliest.
Taiwan, which imports all of its coal needs, reduced purchases for the first time in five months as power producers cut shipments. Coal imports fell 9.3 percent from a year earlier to 4.73 million metric tons in April, the Bureau of Energy in Taipei said.
According to the ministry of finance, Japan’s refined copper exports fell 28 percent in April from a year earlier to 47,645 tonnes.
Opportunities

Kazakh mining companies will invest $16 billion in the next five years, Deputy Industry and New Technologies Minister Derik Kamaliev said at a conference in Almaty. 85 percent of the investment will come from private companies, including Kazakhmys Plc and Eurasian Natural Resources Corp, Kamaliev said.
China announced a 24.9 percent rise in natural gas prices on Monday in a reform to spur supply of the cleaner-burning fuel, use of which is growing fast as the country gives more weight to the environment.
Threats

Xstrata Plc shelved spending on projects worth $5.6 billion in Australia, intensifying pressure on the government to wind back its proposed tax on mine profits.
China’s coking coal import growth rate may slow in the second half of the year compared with the first half, according to Huang Jingan, General Director at the China Coking Industry Association as government measures to curb speculation in the property market may impact demand for steel.
According to Russian news agencies, the country may restore an export tariff on copper and adjust a 5 percent export tariff on nickel this year after lifting tariffs in February last year.

China Region Opportunity Fund – USCOX • Eastern European Fund – EUROX
Global Emerging Markets Fund – GEMFX

Emerging Markets

Strengths

South Korea’s exports climbed 41.9 percent year-over-year in May, better than expected thanks to still robust demand from China and the U.S. The Bank of Korea revised up first quarter GDP growth to 2.1 percent quarter-over-quarter from its April estimate of 1.8 percent.
Macau’s casino revenue almost doubled in May to $2.1 billion from a year earlier, representing a 22 percent rise month-over-month, driven by surging VIP gaming.
ASUR traffic in May increased by 86 percent year-over-year, mainly thanks to a low base effect in May 2009 due to the flu scare. Compared to May 2008, the traffic declined by 8.5 percent.
Mexico consumer confidence index in May rose to 84.6 from 82.3 in April.
Russia’s economy expanded last month at the fastest pace since November 2008 as companies continued hiring and domestic demand accelerated, according to VTB Capital GDP rose an annual 2 percent, after 1.2 percent growth in April.
The Russian jobless rate in April fell to 8.2 percent from 8.6 percent a month earlier, while retail sales rose for a fourth month, jumping 4.2 percent after growing 2.9 percent in March.
Turkey’s exports in May increased an annual 25 percent to USD 9.07 billion, despite the plunge of the euro value of its exports. Cumulatively, Turkey’s exports reached USD 44.15 billion in the first five months of the year.
Meanwhile, Turkish May manufacturing PMI rose to 56.5 from 56.0 in April. The index recorded the highest value since the survey began in June, extending its growth run to a thirteenth consecutive month. The rise in the PMI is largely due to increasing domestic demand.
Some 9.4 million passengers travelled through airports in Turkey in May, up 25 percent from last year, according to state airports authority. Istanbul Ataturk airport saw twice the increase of international passengers (+14 percent), compared to domestic travelers (+7 percent).
Weaknesses

The official and private China Manufacturing Purchasing Managers’ Index declined to 53.9 and 52.7, respectively, in May from 55.7 and 55.2, respectively, in April. This partly reflects ongoing uncertainty in Europe and weakened outlook for China’s property market, which resulted in lower new orders.
China registered 885,800 in passenger car sales in May, representing a continued slowdown in year over year growth to 25 percent from April’s 34 percent, due to diminishing wealth effect from a slumping domestic stock market.
Domestic car sales in Brazil in May declined by 10 percent month-over-month, which was attributable to the end of a tax incentive in March.
Bank Credit Analyst research highlights that Hungary has been in a classic debt deflation, as its nominal GDP has been contracting while government borrowing costs have held above 6 percent. Hungary’s domestic demand has been contracting for three years and the current government is planning to reflate via massive interest rate cuts, fiscal spending, and a weaker currency.

Opportunities

Recent wage increases in some Chinese cities following media reports of worker suicides and strikes are congruent with the central government’s commitment to promote consumption, especially when exports to Europe might fade and a difficult real estate market could discourage investment. Soon after rolling over auto subsidies, China extended the existing “old-for-new” home appliance subsidy program to December 31, 2011, and expanded program coverage to include 19 additional provinces, mostly inland regions where rapid urbanization is occurring, to reach 85 percent of total population.

Telefonica of Spain raised its offer for Portugal Telecom’s (PT) stake in Vivo to EUR 6.5 billion from EUR 5.7 billion. Unlike the previous offers that had been rejected outright, the board of PT will vote on the latest offer, which, if accepted, would resolve a long lasting dispute between PT and Telefonica about the future strategy of Vivo.
In light of recent production issues with BP’s well in the Gulf of Mexico, followed by the U.S. government’s ban on deepwater exploration drilling, the relative cost advantages of Russian onshore producers will become more evident, according to Renaissance Capital, and the valuation gap to the global peer group should start to close.

The IMF recently revised its 2010 GDP forecast for Turkey to 6.25 percent from 5.2 percent, and the Organisation for Economic Co-operation and Development (OECD) is expecting Turkey’s economy to grow 6.8 percent.
Threats

The latest reduction of steel product prices by China’s largest steelmaker can be an initial sign of the ripple effect of tightening policies in the country’s real estate sector. Activities related to property construction and sales are at the risk of slowdown given no official backtrack in restraining the property market.
GAP airport group in Mexico was suspended both on the NYSE and Mexican Bolsa after reports that its chairman and independent directors were removed. Apparently the company installed 7 temporary directors and is working with the exchanges to resolve the situation “expeditiously.”

Current rosy projections for demand growth for both electricity and gas in Russia and Poland are unrealistic, argues Troika Dialog. Simple economics would imply that when prices for very cheap goods like gas and electricity rise, then demand will fall as consumers economize.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.
Weekly Performance Index Close Weekly
Change($) Weekly
Change(%) Natural Gas Futures 4.80 +0.45 +10.46% Oil Futures 71.09 -2.88 -3.89% XAU 169.06 -4.87 -2.80% S&P/TSX Canadian Gold Index 359.41 -2.76 -0.76% Gold Futures 1,221.20 +6.20 +0.51% Hang Seng Composite Index 2,768.22 -0.53 -0.02% Russell 2000 633.97 -27.64 -4.18% 10-Yr Treasury Bond 3.20 -0.11 -3.24% Korean KOSPI Index 1,664.13 +41.35 +2.55% Nasdaq 2,219.17 -37.87 -1.68% S&P Basic Materials 175.96 -9.68 -5.21% S&P BARRA Growth 548.40 -10.26 -1.84% S&P 500 1,064.88 -24.53 -2.25% S&P BARRA Value 508.51 -13.88 -2.66% S&P Energy 386.22 -10.09 -2.55% DJIA 9,931.97 -204.66 -2.02%
Monthly Performance Index Close Monthly
Change($) Monthly
Change(%) S&P/TSX Canadian Gold Index 359.41 +7.52 +2.14% Gold Futures 1,221.20 +44.80 +3.81% Natural Gas Futures 4.80 +0.80 +20.15% XAU 169.06 -3.80 -2.20% Korean KOSPI Index 1,664.13
% DJIA 9,931.97 -936.15 -8.61% S&P BARRA Value 508.51 -51.76 -9.24% Russell 2000 633.97 -64.60 -9.25% S&P 500 1,064.88 -101.02 -8.66% Nasdaq 2,219.17 -183.12 -7.62% S&P BARRA Growth 548.40 -48.18 -8.08% S&P Basic Materials 175.96 -20.57 -10.47% Oil Futures 71.09 -8.88 -11.10% 10-Yr Treasury Bond 3.20 -0.35 -9.86% S&P Energy 386.22 -49.08 -11.27% Hang Seng Composite Index 2,768.22 -332.01 -14.83%
Quarterly Performance Index Close Quarterly
Change($) Quarterly
Change(%) S&P/TSX Canadian Gold Index 359.41 +30.57 +9.30% Gold Futures 1,221.20 +85.70 +7.55% XAU 169.06 +1.03 +0.61% Russell 2000 633.97 -18.50 -2.84% Korean KOSPI Index 1,664.13 +45.93 +2.84% Nasdaq 2,219.17 -73.14 -3.19% S&P BARRA Value 508.51 -25.79 -4.83% S&P 500 1,064.88 -58.09 -5.17% DJIA 9,931.97 -512.17 -4.90% S&P BARRA Growth 548.40 -32.06 -5.52% S&P Basic Materials 175.96 -21.62 -10.94% Hang Seng Composite Index 2,768.22 -132.95 -4.58% S&P Energy 386.22 -38.55 -9.08% Oil Futures 71.09 -9.12 -11.37% Natural Gas Futures 4.80 +0.22 +4.81% 10-Yr Treasury Bond 3.20 -0.41 -11.26%
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting Home – U.S. Global Investors 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.
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 fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are 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 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.
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. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer. Past performance does not guarantee future results.
These market comments were compiled using Bloomberg and Reuters financial news.
Holdings as a percentage of net assets as of 3/31/10:
Netapp Inc.: 0.0%
Hewlett-Packard Co.: 0.0%
Apple Inc.: All American Equity Fund 4.17%, Holmes Growth Fund 3.67%
Qualcomm Inc.:0.0%
Dell Inc.: 0.0%
Google Inc.: 0.0%
Akamai Technologies Inc.: All American Equity Fund 1.12%
Molson Coors Brewing Co.: 0.0%
Foster’s Group Ltd.: 0.0%
Tenet Healthcare Corp.: 0.0%
Hovnanian Enterprises Inc.: 0.0%
Freeport-McMoRan Copper & Gold Inc.: Gold and Precious Metals Fund 0.73%, World Precious Minerals Fund 0.37%, Global Resources Fund 1.53%. All American Equity Fund 1.73%, Holmes Growth Fund 1.96%, Global MegaTrends Fund 2.09%, Global Emerging Markets Fund 1.99%
ArcelorMittal: 0.0%
Maanshan Iron & Steel: 0.0%
Kazakhmys Plc: 0.0%
Eurasian Natural Resources Corp.: 0.0%
Xstrata Plc: Global Resources Fund 2.21%
Bank of Korea: 0.0%
Telefonica: 0.0%
Portugual Telecom: 0.0%
Vivo Participacoes SA: Global MegaTrends Fund 2.06%, Global Emerging Markets Fund 2.45%
BP Plc: 0.0%
Grupo Aeroportuario del Pacifico SAB de CV: 0.0%
TNK-BP Holding: Eastern European Fund 0.23%
Exxon Mobil Corp.: All American Equity Fund 0.99%
Royal Dutch Shell: 0.0%
Chevron Corp.: Global Resources Fund 3.89%
Total SA: 0.0%
PetroChina Co Ltd.: Global Emerging Markets Fund 0.90%
Petroleo Brasileiro SA: 0.0%
Sinopec: 0.0%
CNOOC Ltd.: China Region Fund 0.91%
Tatneft: Eastern European Fund 0.47%
Rosneft Oil Co.: Eastern European Fund 5.97%, Global Emerging Markets Fund 1.72%
Gazprom OAO: Eastern European Fund 5.62%, Global Emerging Markets Fund 0.85%
Lukoil OAO: Eastern European Fund 5.99%, Global Emerging Markets Fund 1.23%
SPDR Gold Trust: Gold and Precious Metals Fund 1.57%, World Precious Minerals Fund 1.29%, China Region Fund 0.30%
*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.
The China Purchasing Managers’ Index, a gauge of nationwide manufacturing activity, is issued by the China Federation of Logistics & Purchasing and co-compiled by the National Bureau of Statistics.
The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

Weekly Investor Alert – Jan 29, 2010

Index Summary

The major market indices were lower this week. The Dow Jones Industrial Index fell 1.04 percent. The S&P 500 Stock Index dropped 1.64 percent, while the Nasdaq Composite finished 2.63 percent lower.
Barra Growth underperformed Barra Value as Barra Value finished 1.09 percent lower while Barra Growth fell 2.19 percent. The Russell 2000 closed the week with a loss of 2.44 percent.
The Hang Seng Composite finished lower by 3.63 percent; Taiwan lost 3.62 percent, and the Kospi declined 4.86 percent.
The 10-year Treasury bond yield closed at 3.60 percent, down 2 basis points for the week.
All American Equity Fund – GBTFX • Holmes Growth Fund – ACBGX • Global MegaTrends Fund – MEGAX

Domestic Equity Market

The chart above shows the performance of each sector in the S&P 500 Index for the week. All of the sectors were down. The best-performing sector was financials, down 0.1 percent. Other better-performing sectors include consumer staples and consumer discretion. Underperforming sectors were materials, technology, and energy.

Within the financials sector the best-performing stock was Genworth Financial, up 11.5 percent. The other top five performers in financials were Zions Bancorp, Travelers Cos. Inc., Wells Fargo & Co., and Chubb Corp.

Strengths

The photographic products group was the best-performing group for the week, up 39 percent, driven by its single member, Eastman Kodak Co. The company reported fourth-quarter profit that greatly exceeded the consensus estimate. It was the company’s first profit in five quarters. The earnings were driven by consumer and commercial inkjet printer sales, leaner costs and royalties on digital-imaging technology.
The homebuilding group outperformed, rising 4 percent. A major brokerage firm published a positive note on the homebuilders, reiterating an “attractive” view on the homebuilders, and noting that it sees upside to current valuations. The brokerage based its opinion, in part, on positive comments from builders about January home sales, which may bode well for a strong spring selling season and growth in new home sales in 2010.
The automobile manufacturer group was among the outperformers, up 3 percent, driven by its single member, Ford Motor Co. The company reported fourth-quarter earnings significantly above the consensus estimate. Also, Ford may have an opportunity to gain from the recalls being made by Toyota Motor Corp.

Weaknesses

The steel group underperformed, dropping 9 percent. United States Steel Corp. reported earnings below consensus, and it provided disappointing guidance. Investor concern over China starting to slow bank lending negatively affected the basic materials groups. A stronger dollar also weighed on the steel group.
The home furnishings group was among the underperformers, down 9 percent, led by its single member, Leggett & Platt Inc. The company’s fourth-quarter earnings report beat the consensus estimate, but the midpoint of the guidance for 2010 was below consensus.
The communications equipment group underperformed, losing 7 percent, led down by its second-largest member, Qualcomm Inc. The firm’s first-quarter earnings beat consensus, but guidance was disappointing. Competitive pricing in the cellular chip market was part of the reason for the reduced guidance.

Opportunities

There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010.
The strength in the market since March could be an opportunity to eliminate weaker companies in the portfolio and upgrade to companies with better fundamental outlooks.

Threats

Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
As governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.
January 28, 2010

Platinum Goes Platinum

January 27, 2010

Wind Power Not Hot Air

January 26, 2010

A Car and Housing Growth Story

U.S. Government Securities Savings Fund – UGSXX • U.S. Treasury Securities Cash Fund – USTXX
Near-Term Tax Free Fund – NEARX • Tax Free Fund – USUTX

The Economy and Bond Market

The 10-year U.S. Treasury note was relatively stable this week, with the yield decreasing by one basis point to end the week at 3.60 percent.

As reported this week, real gross domestic product (real GDP) increased at an annual rate of 5.7 percent in the fourth quarter of 2009, besting the consensus estimate of 4.7 percent. This was the best performance since the third quarter of 2003. The figure below shows the annualized quarter-over-quarter percentage changes.

Strengths

The Reuters/University of Michigan final index of consumer sentiment for January rose to 74.4, exceeding the consensus of 73.0 and the preliminary estimate of 72.8. This was the highest level in two years.
The Chicago Purchasing Managers Index increased to 61.5 in January, higher than the consensus estimate of 57.2. This was the highest level since November 2005.
The S&P Case-Shiller 20-city home price index for November rose a seasonally adjusted 0.24 percent from October, the sixth straight monthly gain. The index was down 5.32 percent year-over-year, the smallest year-over-year decline in two years.
The Conference Board’s index of consumer confidence rose to 55.9 in January from a revised 53.6 in December, besting the 53.5 median estimate of economists.

Weaknesses

Durable goods orders for December rose 0.3 percent from November, less than the 2 percent advance expected by economists. Orders for durable goods excluding transportation increased by 0.9 percent, more that the 0.5 percent consensus.
Initial jobless claims for the week ended January 23 were reported at 470,000, more than the 450,000 expected.
December new home sales declined 7.6 percent month-over-month to 342,000, less than the forecast of 366,000.
Sales of existing U.S. homes in December fell 16.7 percent from November levels to an annual rate of 5.45 million, worse than the consensus of 5.90 million. November sales had been helped by the government tax credit, which was originally scheduled to expire on November 30.
The Richmond Fed’s manufacturing index for the central Atlantic region for January came in at -2.00, slightly worse than the consensus estimate of 0.00. It did edge up a bit from December’s index of -4.00. For each of the seven months prior to December, the index had been positive.
The Mortgage Banker’s Association index of mortgage applications for the week ended January 22 dropped by 10.9 percent after rising for the preceding three weeks.

Opportunities

The fourth-quarter GDP of 5.7 percent reported this week provides another indication that the global economic recovery appears to be taking hold.

Threats

Coordinated global removal of fiscal and monetary stimulus are the biggest threats to the financial markets.
World Precious Minerals Fund – UNWPX • Gold and Precious Metals Fund – USERX
Gold Market

For the week, spot gold closed at $1,081.28 per ounce, down $11.92, or 1.09 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index (XAU), fell 6.83 percent for the week. The U.S. Trade-Weighted Dollar Index (DXY) climbed 1.52 percent.

Strengths

Investment demand for gold continued to be robust. The World Gold Council said investors bought 30 metric tons via exchange-traded funds in the fourth quarter of 2009, contributing to an overall total of 1,762 metric tons of ETF holdings for the year.
The China Gold Association said China’s gold output jumped 11.3 percent to a record of 314 metric tons in 2009, securing its position as the world’s largest gold producer for the third straight year.
India started the year on a positive note by importing 35 to 40 metric tons of gold during the first 27 days of January, up from 9.8 metric tons last January. Stable prices have given 2010 a good start to gold demand, the Bombay Bullion Association said.

Weaknesses

Gold was negatively impacted during the week by offloading of positions based on sluggish global cues.
President Obama’s spending freeze for several federal departments, and the Commerce Department’s announcement that the U.S. economy grew at a 5.7 annual rate in the fourth quarter of 2009, were also supportive in a market environment where sovereign risk and financial imbalances are key concerns.
The Office of Fair Trading is conducting a probing investigation on several companies in the “cash for gold” industry after complaints from customers show they were not offered fair values for their mailed-in jewelry.

Opportunities

Research from Cormark Securities shows that global gold production peaked in 2001 at 2,600 metric tons. World output has been steadily declining from that point because of lower grades and higher capital costs that are making it uneconomic for producers to bring new gold onto the market.
A bullion analyst in Beijing said the high price of gold is not deterring investors from the yellow metal as it does in India and the Middle East. Global investors Jim Rogers and Marc Faber have said that falling Chinese equity markets present good gold-buying opportunities.
The U.S. Federal Deposit Insurance Corporation is planning to securitize more than $36 billion in assets from failed banks, and auction them off in a bond offering to help cushion the ailing mortgage backed security market.

Threats

Bank of America-Merrill Lynch analysts believe that policy risk and government intervention remain the largest two risks to the economic outlook in 2010.
Economist Nouriel Roubini said he is pessimistic on the eurozone and that Spain poses a serious threat because of its fiscal imbalance. Spain is the region’s fourth largest economy with the unemployment rate of 19 percent, double the EU average. Rising sovereign risk may cause a flight of capital into the refuge of the U.S. dollar.
The World Bank said commodity growth will be restricted for the next two years as a result of a low-growth economic environment. It has forecast global GDP growth of 2.7 percent this year, followed by 3.1 percent in 2011.

Global Resources Fund – PSPFX • Global MegaTrends Fund – MEGAX

Energy and Natural Resources Market

Despite forecasts for record grain supply over the 2009 and 2010 growing season, the global grains stocks-to-use ratio is expected to remain below the historical average due to forecast growth in grain consumption.

Strengths

Capacity utilization at U.S. steel mills has risen 1.5 percent to 65.6 percent in the last week, according to the latest American Iron and Steel Institute data. At 1.44 million metric tons, the total production was the highest since the end of October 2008 and represents 75 million metric tons per year on an annualized basis.
Japan’s shipments of aluminum rolled products rose 9.1 percent in December, posting the first increase since September 2008.

Weaknesses

Crude oil prices fell this week as the U.S. Dollar gained 1.4 percent and concerns about Chinese oil demand amidst the Chinese government’s tightening economic policy.
Base metals prices plunged this week on fears of a slowdown in buying from China. Copper fell nearly 9 percent and zinc more than 10 percent.

Opportunities

BHP Billiton announced that it will acquire Athabasca Potash for $320 million. BHP Billiton also raised offers on manganese ore to customers in China by as much as 17 percent, as global supply tightens and demand picks up.
The queue of ships at Newcastle, Australia—the world’s biggest coal port—is near its longest level since before the financial crisis, and waiting times are at a one-year high. Figures published this week show 58 ships waiting on Monday, just shy of the pre-Christmas peak of 60, which was the longest queue since mid-2007. Average waiting times for vessels is 18 days, the Newcastle Port Corporation figures show.
Bunge has sold its Brazilian fertilizer assets to Vale for $3.8 billion in cash to fill a war chest for agribusiness and sugar expansion and to attack its heavy debt burden.
Russian steelmaker Severstal confirmed its intention to restart its 1.2-million-metric-ton-per-year facility in Warren, Ohio, during March.

Threats

Australia’s government has not yet decided what recommendations it will adopt from a report proposing major tax reforms, possibly including a big increase in mining royalties, Prime Minister Kevin Rudd said this week.
MySteel.net claims that Chinese hot-rolled coil prices have fallen 80 Chinese yuan per metric ton so far this week and that cold-rolled coil price is off 100 Chinese yuan per metric ton. Further declines are expected ahead of the Chinese New Year holiday.
China Region Opportunity Fund – USCOX • Eastern European Fund – EUROX
Global Emerging Markets Fund – GEMFX

Emerging Markets

Strengths

Fitch raised Indonesia’s long-term foreign and local currency credit ratings from BB to BB+, the highest level in more than a decade and only one level below investment grade. Indonesia’s resilience to the 2008-2009 global financial crisis due to improvements in its public finances was cited as a reason.
Thailand’s industrial production growth rose to 35.7 percent year over year in December, the highest on record and ahead of market expectations, as continued global recovery drove up exports 26.2 percent during the month.
The unemployment rate in Brazil in December declined to 6.8 percent from 7.4 percent in November, attributable to seasonal factors.
Fitch followed S&P in raising Russia’s sovereign credit outlook from negative to stable. Industrial production in the country grew 2.7 percent in December, a second positive monthly reading in a row. The monetary base jumped 25 percent in December, spurred by year-end government spending.
Bond yields in South Africa fell to their lowest level in three weeks after December inflation came in below expectations at 6.3 percent. Outside of gasoline, most major subcomponents of the CPI decelerated during the month.

Weaknesses

Continued fears over the prospect of macro tightening in China resulted in an 8.8 percent decline for Chinese domestic A shares and 10.1 percent decline for Chinese H shares traded in Hong Kong in January.
South Korea’s GDP expanded by a seasonally adjusted 0.2 percent sequentially in the fourth quarter of 2009, slower than expected due to a decline in government spending and household consumption.
Brazil is to end tax cuts on purchases of cars (effective March 31) and appliances (end of January). According to the government, stimulus is no longer necessary. This move had been anticipated.
Czech industrial production fell 2.3 percent from the November’s level, suggesting a level of production close to that in the first quarter of 2009.

Opportunities

While the recent correction in China has been steep and swift, history suggests buying opportunities in the medium term. In early 2004 and early 2007, when tightening fears haunted investors in a policy environment similar to the current one, Chinese stocks underwent a sharp selloff for a couple of months and yet finished the year higher as investors realized the economy was not headed for a hard landing.
The fixed-line telecom market in Mexico is likely to become more competitive after the government decided to auction the fiber-optic long-haul network of CFE (electric utility). It is expected that Televisa and Megacable will participate in the auction in order to provide triple-play services for their customers.
After the Central Bank of Russia lowered refinancing rates by 425 basis points within last 10 months to the current 8.75 percent, consumer loan rates followed. The benchmark fixed mortgage is down 300 basis points to 17 percent. These lower rates have begun to translate into an increase in mortgage lending, based on research by Deutsche Bank.

Threats

The Indian central bank’s surprise increase of cash reserve ratio by 75 basis points and hawkish language regarding inflation may in the short term reinforce investors’ perception of tightening bias among global central banks.
Lower commodities prices would be a headwind for resource-rich economies in Latin America.
The inflation report from Central Bank of Turkey (CBT) continues to downplay rising headline inflation, according to Citi. As central banks around the world start tightening, keeping rates on hold could risk the CBT’s credibility and the lira’s performance.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.
Weekly Performance Index Close Weekly
Change($) Weekly
Change(%) Korean KOSPI Index 1,602.43 -81.92 -4.86% DJIA 10,067.33 -105.65 -1.04% Gold Futures 1,082.10 -8.70 -0.80% S&P BARRA Value 513.83 -5.68 -1.09% S&P 500 1,073.87 -17.89 -1.64% S&P BARRA Growth 551.93 -12.33 -2.19% Russell 2000 602.04 -15.08 -2.44% Natural Gas Futures 5.12 -0.70 -12.10% Nasdaq 2,147.35 -57.94 -2.63% S&P Energy 410.57 -11.99 -2.84% Hang Seng Composite Index 2,822.25 -106.38 -3.63% S&P Basic Materials 182.50 -8.30 -4.35% 10-Yr Treasury Bond 3.60 -0.02 -0.58% XAU 147.93 -10.85 -6.83% S&P/TSX Canadian Gold Index 300.37 -18.29 -5.74% Oil Futures 72.74 -1.80 -2.41%
Monthly Performance Index Close Monthly
Change($) Monthly
Change(%) Oil Futures 72.74 -6.13 -7.77% Russell 2000 602.04 -31.14 -4.92% S&P Energy 410.57 -22.91 -5.29% Nasdaq 2,147.35 -141.05 -6.16% S&P Basic Materials 182.50 -19.62 -9.71% Natural Gas Futures 5.12 -0.70 -12.02% S&P BARRA Value 513.83 -16.20 -3.06% S&P 500 1,073.87 -52.33 -4.65% 10-Yr Treasury Bond 3.60 -0.25 -6.50% S&P BARRA Growth 551.93 -36.53 -6.21% Korean KOSPI Index 1,602.43 -70.05 -4.19% DJIA 10,067.33 -478.08 -4.53% XAU 147.93 -21.54 -12.71% Gold Futures 1,082.10 -17.40 -1.58% S&P/TSX Canadian Gold Index 300.37 -32.25 -9.70% Hang Seng Composite Index 2,822.25 -332.01 -14.83%
Quarterly Performance Index Close Quarterly
Change($) Quarterly
Change(%) Natural Gas Futures 5.12 +0.05 +1.05% Gold Futures 1,082.10 +32.90 +3.14% 10-Yr Treasury Bond 3.60 +0.10 +2.89% DJIA 10,067.33 +104.75 +1.05% Nasdaq 2,147.35 +49.80 +2.37% S&P BARRA Growth 551.93 -3.35 -0.60% S&P Basic Materials 182.50 -1.48 -0.80% S&P 500 1,073.87 +7.76 +0.73% S&P BARRA Value 513.83 +10.58 +2.10% Korean KOSPI Index 1,602.43 +16.58 +1.05% Russell 2000 602.04 +21.82 +3.76% Hang Seng Composite Index 2,822.25 -105.61 -3.61% Oil Futures 72.74 -7.13 -8.93% S&P Energy 410.57 -26.92 -6.15% XAU 147.93 -14.11 -8.71% S&P/TSX Canadian Gold Index 300.37 -22.50 -6.97%

Please consider carefully the fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting Home – U.S. Global Investors 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.
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 fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Eastern European Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are 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 5% to 10% of your portfolio in these sectors. 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. Each tax free fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Past performance does not guarantee future results.
These market comments were compiled using Bloomberg and Reuters financial news.
Holdings as a percentage of net assets as of 12/31/09:
Genworth Financial: 0.00%
Zions Bancorp: 0.00%
Travelers Cos Inc: 0.00%
Wells Fargo & Co: 0.00%
Chubb Corp: 0.00%
Eastman Kodak Co: 0.00%
Ford Motor Company: All American Equity 0.04%
Toyota Motor Corp: 0.00%
United States Steel Corp: Global Resources 1.12%
Leggett & Platt Inc: 0.00%
Qualcomm Inc: 0.00%
BHP Billiton: 0.00%
Athabasca Potash: 0.00%
Bunge: 0.00%
Vale: Global Emerging Markets 1.58%
Severstal: 0.00%
Televisa: 0.00%
Megacable: 0.00%
*The above-mentioned indexes are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The S&P/Case-Shiller Index tracks changes in home prices throughout the United States by following price movements in the value of homes in 20 major metropolitan areas.
The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy.
The Richmond Fed Manufacturing Survey Assesses regional manufacturing conditions for the Richmond Fed District. Based on mail-in surveys from a representative sample of manufacturing plants, the Richmond Fed Index seeks to track industrial performance. The report puts particular emphasis on inflationary pressures.
The Mortgage Bankers Association Market Composite Index measures mortgage loan application volume.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Shanghai A-Share Stock Price Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares listed on the Shanghai Stock Exchange that are restricted to local investors and qualified institutional foreign investors. The index was developed with a base value of 100 on December 19, 1990.
H-shares are Chinese companies that trade in Hong Kong but are incorporated in China.