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Talking Turkey with John Derrick
October 28, 2014

Upon his arrival in Istanbul, John Derrick prepared his notes for the next two days’ worth of meetings while he spent a cool, drizzly afternoon outside a café, sipping coffee and watching ships cruise by on the Bosphorus. Separating Asia from Europe, the Bosphorus has long served as an important trading lane. Today it’s the second-busiest strait in the world, traversed by an average of 48,000 vessels annually, or roughly 132 per day.

A ship crusing the Bosphorus past IstanbulThis is just one of many observations and insights that John, Director of Research at U.S. Global Investors, returned home with following his visit to Turkey and Greece, where he met with companies held in our Emerging Europe Fund (EUROX) and sniffed out other potential investment opportunities.

As this was U.S. Global’s first visit to Turkey since May, I made sure to follow up with John about what he heard and saw.

So what’s changed since our last trip to the country?

Well, one major change is that Turkey has become our largest exposure in EUROX since we exited Russia. There’s a reason why it’s is such an attractive place to invest in. It has a relatively stable economy, despite the European slowdown and recent threat of ISIS. The International Monetary Fund (IMF) expects Turkey’s GDP growth to be about 3 percent this year, a little under what it was last year, but not by too much. Prime Minister Recep Tayyip Erdogan, who was elected in August, vows to make Turkey the world’s tenth-largest economy by 2023. This is probably a little too ambitious, but the country was able to grow its economy close to 230 percent between 2002 and 2013, so the goal might be achievable.

Like many other emerging markets, Turkish stocks had a rough September. Financials, which saw a nice rally this summer, took a tumble last month, but we’re starting to see some improvement. I had a very productive meeting with Garanti, Turkey’s second-largest bank and one of our top holdings in EUROX. Our discussion touched on a number of issues such as the threat of NPLs (non-performing loans), central bank policy and what actions Garanti might need to take if the lira weakens any further. The currency’s been banged up recently because of the strong dollar, but now that the dollar’s going through a correction, the lira is trying to stabilize.

Turkish Banks Starting to Recover After a Disappointing September
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I also was able to meet with Sabanci Holdings, another company in our fund. Part of our due diligence as investment managers, as you know, is catching up with such companies, meeting with their executives and top decision-makers, gaining tacit knowledge on their business models. Sabanci is a large conglomerate with interests in, among others, Turkish bank Akbank, tire manufacturer Brisa, cement maker Akcansa and Kordsa, which manufactures internal tire components. The company continues to do well and is expected to grow between 3 and 3.5 percent this year due to increased price competitiveness.

How does the Turkish telecommunications industry look?

Turkey, believe it or not, is third in the world in using smartphones for e-commerce, behind England and Germany, so the industry is pretty strong. I met with two of the country’s largest providers, Türk Telekom and Turkcell, the latter of which we own. Right now they mostly blame each other for being irrational players in the market, but they both offer potential opportunity. Türk Telekom has some legacy landline business and offers broadband. Although Turkcell has had an ongoing shareholder dispute that’s prevented them from paying a dividend for the last four years, it looks very promising that a resolution is near. It’s still six to nine months out, but hopefully we’ll see a dividend of between 20 and 50 percent of its market cap.

The Lounge Istanbul at Istanbul Ataturk International Airport, designed by Turkish Do&Co, takes luxuruy to a new level Describe the best experience you had during your stay in Turkey.

That would have to be Do & Co, self-described as “the Gourmet Entertainment Company.” They specialize in high-end, luxury airline and event catering, with additional business in restaurants, bars and airport lounges. Even though the company is based in Austria, Turkish Airlines is its flagship customer. I got to inspect the Lounge Istanbul in the city’s international airport and was awestruck by its lavishness. By far the nicest lounge I’ve ever been in. Even the fruit was arranged in an artful way.

Do & Co is a very attractive company, and I don’t mean that just from an aesthetic point of view. It’s a double-digit sales and earnings-per-share grower—it’s expected to grow 20 percent next year. It also has a reasonable valuation and pays a dividend. We’ll certainly keep our eyes on it.

So I hear you attended a San Antonio Spurs exhibition game! How did they do?

The Lounge Istanbul at Istanbul Ataturk International Airport, designed by Turkish Do&Co, takes luxuruy to a new level The Spurs performed well as always. They went up against Fenerbahçe Ülker in the Ülker Sports Arena, named for the wealthy family and food manufacturer, which makes Godiva Chocolate, among other products. Two of the people I attended the game with—investment professionals from Finansinvest, a Turkish banking and brokerage firm—generously gave me a jersey with “John” written on the back.

One of the highlights of the game was watching the audience’s reaction to the Spurs Coyote. Here in the U.S. we take sports mascots for granted, but I think initially the Turks kind of saw him as a curiosity. They were a little taken aback seeing him taunt the referee and dribble the ball with his “paws,” but they soon realized this was all part of the theater of American basketball. By the end of the game they were laughing at the Coyote’s antics.

For more on our Emerging Europe Fund, check out its composition. Also, make sure to look out for my chat with John about his visit to Greece.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Past performance does not guarantee future results.

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 Emerging Europe 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.

The Borsa Istanbul Banks Index (XBANK) is a capitalization-weighted free float adjusted Industry Group Index composed of National Market listed companies in the banking industry. All members of the index are also constituents of the XUMAL Sector Index.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Emerging Europe Fund as a percentage of net assets as 09/30/2014: Turkiye Garanti Bankasi A.S. 3.31%, Turkcell Iletisim Hizmetleri A.S. 2.40%, Haci Ömer Sabanci Holding A.S. 1.96%, Ülker Bisküvi Sanayi A.S. 1.02%, DO & CO Aktiengesellschaft 0.00%, Akçansa Çimento Sanayi ve Ticaret Anonim Sirketi 0.00%, Kordsa Global 0.00%, Türk Telekom 0.00%, Brisa Bridgestone 0.00%, Akbank 0.00%, Finansinvest 0.00%, Turkish Airlines (Türk Hava Yollari) 0.00%.       

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

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As the Eurozone Stalls, China Cuts the Red Tape
October 27, 2014

Forty-four percent. That’s the alarming unemployment rate for those aged 15 to 25 in Italy, where I traveled recently to meet with other global chief executives and business leaders.

The reasons for Italy’s high youth unemployment? Tortuous red tape, high taxation and thuggish unions. Many of the CEOs at the event I attended noted that Italy is mired in unionization. This has created a restrictive jobs market that crowds out well-educated, aspirational young people, many of whom are forced to flee their homes and seek work elsewhere.

A penny-farthing economy on a precarious ride: Fiscal and monetary policy are imbalanced in the eurozoneBut “elsewhere” within the European Union is currently not much of an improvement. Even in Germany, the EU’s most reliable economy, train and airline unionists have gone on strike, bringing the country to a near-standstill. Incredibly, both Italy and France—where the youth unemployment rate stands at 24 percent—want the EU to foot the bill for their joblessness woes. Global investors’ patience has been stretched thin as European Central Bank (ECB) President Mario Draghi and German Chancellor Angela Merkel continue to bicker over how to resolve the region’s slowdown.

As I told CNBC Asia’s Bernie Lo, the EU’s default policy is to tax anything that moves. Led by pro-taxation economists such as France’s Thomas Piketty, Europe’s policies have become a sort of contagion resonating throughout the rest of the world. The eurozone countries have an imbalanced approach to jumpstarting their economies, relying only on monetary policy but failing to address fiscal issues such as punitive taxation and over-bloated entitlement spending.

You can see how disastrous the results have been: France and Germany’s industrial production has turned down recently. Their purchasing managers’ index (PMI) numbers are below the 50-mark line, indicating contraction. This trend is especially worrisome because Europe is a bigger trading partner with China than the U.S. is.

So what’s the solution?

The EU would do well to look east, specifically to China.

China Handing over Its Economy’s Keys to Capital Markets
Last week senior Chinese officials met in Beijing to resolve the sorts of problems the EU can’t seem to fix, let alone acknowledge. On the chopping block were regulations—hundreds of them. According to Premier Li Keqiang, 416 lines of red tape have allegedly either been abolished or eased in order to facilitate business growth in important sectors such as transportation, logistics and telecommunications. In June, Li vowed to slash an additional 200 measures.

The Chinese government also plans to relax oversight of key areas such as utilities and natural resources, land and the pricing mechanism of money. Gone is the government’s control over shale gas, coal bed methane and imported liquefied natural gas (LNG). The mining sector’s tax code has been reformed. And for the first time, private companies have been granted the license to ship crude oil.

It appears as if China is starting to see the light. They’re introducing competition back into their capital markets instead of strangling it, as the eurozone has done. Between January and September, 10.97 million new jobs were created in China, exceeding the government’s goal of 10 million in 2014 and beating the benchmark by an entire quarter, according to China’s National Bureau of Statistics (NBS).

As you can see below, new business start-ups in China have skyrocketed.

China's Reduction of Red Tape Has Increased Business Start-ups, Despite Slowing Growth
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These red tape-cutting measures, coupled with fiscal stimulus, are needed now more than ever. As promising as Premier Li’s promises are, China still faces deflation and declining real GDP growth. The Asian country’s economy is currently headed for its slowest expansion since 1990, the main culprit of which is the struggling real estate market.

Other problems also continue to hold China back, many of them deeply-rooted and systemic. The Ease of Doing Business Index ranks China 158 out of 189 economies in the “Starting a Business” category and an almost-dead-last 185 in the “Dealing with Construction Permits” category. According to the World Economic Forum’s most recent Global Competitiveness Report, the two most problematic factors for conducting business in China are access to financing and corruption, another issue Chinese officials are addressing this week.

These issues can’t and won’t be fixed overnight. But unlike the EU, China acknowledges them and is seeking innovative solutions. One of the only benefits to having a one-party system, as China does, is that you can’t shuffle off a set of problems to another party and then lay the blame at their feet when they go unresolved. You must think long-term.

Constructive Manufacturing News
Last week we were relieved to learn that China’s flash PMI came in at 50.4. Anything over 50 indicates growth in the manufacturing sector, but as I’ve discussed on numerous occasions, what really matters is that the one-month reading crosses above the three-month moving average. Such a “cross-above” historically means that commodities and commodity stocks perform better in the coming months. Based on our research, three months following a cross-above, there’s a 73 percent chance that the S&P 500 Index will rise more than 2.4 percent and a 55 percent chance that the S&P 1500 Energy Index will rise more than 0.7 percent.

As you can see, this crossover did indeed occur, the first time it’s done so since May. 

One-Month Reading for china's Flash PMI Crosses Above the Three-Month Reading
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Of course, flash PMIs are merely preliminary, and we won’t know the final results until later. But for now this is certainly positive news.

Emerging Asia Wins with Cheap Commodities
One of the reasons why Chinese manufacturing is picking up steam might be the recent collapse in commodity prices. Low commodity prices undeniably hurt certain stocks in the space, and we’ve felt the pain in some of our funds. The silver-lining, though, is that these low prices have helped non-Japan Asian companies get ahead, a tailwind for our China Region Fund (USCOX). Because labor continues to be relatively cheap in Asia, commodities tend to be the single-largest company expenditure.

Lower Energy and Food Prices Will Help Chinese Businesses
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Lower steel and aluminum costs benefit machinery, automobile and equipment manufacturers, as well as homebuilders, shipbuilders and oil and drilling equipment suppliers; falling corn and wheat prices are welcomed by food and beverage producers; cheap copper is good for construction and engineering, utilities and electrical equipment.

Then there’s oil and gas. Since June, Brent crude has corrected itself over 25 percent. Again, this is a headwind for petroleum companies and large net-oil-exporting nations such as Russia and Mexico, but cheap energy equates to huge savings for emerging Asian countries. 

Asian Markets Benefit Most from Lower Oil Prices
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One final bellwether of economic growth I want to touch upon is accelerated electricity generation and usage. In the past, Chinese Premier Li Keqiang has cited this as one of the more reliable indicators of economic activity because electricity is not easily stored and the data is difficult to manipulate. This month, energy production improved 4.1 percent year-over-year —not a huge cause for celebration, but a step in the right direction nonetheless. 

Increased Electricity Production in China Is a Reliable Indicator of Economic Activity
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With a more balanced approach to monetary and fiscal policy than the eurozone, China is able to be more productive.China Is a Long-Term Story
Compared to many eurozone nations, China is relatively young. Whereas the median age in Italy is 43 years, in China it’s 35. There’s huge growth potential in this region, especially now that Premier Li has resolved to cut red tape and balance monetary and fiscal policy. In 10 years’ time, the 35-to-45 cohort, a well-educated group with good salaries and credit, will expand dramatically.

Consider this: of the 1.35 billion Chinese citizens, about 618 million, nearly half, have access to the Internet. Of those, 302 million, nearly half again, shop online. These numbers will continue to grow, and with them, greater investment opportunity. Name one Western European company that, in recent years, has achieved the sort of success Alibaba, Tencent or Baidu has. Not in a Piketty economy.

I encourage investors who are seeking growth potential to check out our China Region Fund’s composition.

And to those who prefer a “no-drama” fund, please take a look at our Near-Term Fax Free Fund (NEARX).

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

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. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. 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. The Near-Term 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. The Near-Term Tax Free Fund 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.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. 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 HSBC Flash China Manufacturing PMI is published a week ahead of the final HSBC China PMI every month. It analyzes 85-90 percent of the responses to the Final PMI from purchasing executives in more than 400 small, medium and large manufacturers, both state-owned and private enterprises.

The Doing Business Project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages countries to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each country. The Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations.  The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 9/30/2014: Alibaba Group Holding, Ltd. 0.42%, Tencent Holding, Ltd. 5.62%, Baidu, Inc. 2.44%.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Past performance does not guarantee future results.

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New Jobs Data: America off the Mat, Ready for the Next Round
October 21, 2014

Ninety years ago, President Calvin Coolidge stated before the American Society of Newspaper Editors: “The chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world.”

U.S. Ready for the next roundHe should know. One of our most successful presidents in terms of economic growth, Coolidge oversaw average annual stock market returns of 29.1 percent—higher than any other top executive since 1900.

Since that time, not much has changed. The U.S. is still just as committed to fostering business and innovation now as we were then.

The global market unequivocally agrees. For the second year in a row and beating out strong contenders such as China, Canada and the United Kingdom, the U.S. tops the A.T. Kearney Foreign Direct Investment Confidence Index, which ranks countries on how changes in political, economic and regulatory systems might affect foreign direct investment inflows.

A handful of other recently-released data and reports underscores Coolidge’s point that you need not look too far to find growth and opportunity. On the contrary, they can be found right here in the land of innovation.

The recession hit us hard, but like any iron-willed prizefighter, we rose off the mat, ready for the next round.

Americans Back to Work

For nearly 50 consecutive months, the private-sector jobs market has been in the black. This is the most robust pace in job creation since the late 1990s. According to the Bureau of Labor Statistics (BLS), the U.S. added 248,000 nonfarm payroll jobs to the economy in September, many of them in professional and business services, health care and retail. Among those jobs were 9,000 new positions in mining and logging, an indication that the resources sector is showing moderate growth within the States. This could be a tailwind for our Global Resources Fund (PSPFX).

The unemployment rate in September declined 0.2 percent to end at 5.9 percent, the first time it’s been below 6 percent since 2008.

Unemployment Rate Drops to Lowest Percentage Since Summer of 2008
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On the decline as well are initial jobless claims. According to the latest weekly data, new claims amounted to 264,000, a decrease of 23,000 from the previous week. Amazingly, this is the lowest level we’ve seen since April 2000.

This improvement is so dramatic, in fact, that initial claims are down more than four-and-a-half standard deviations from the mean, a move we haven’t seen since soon after the height of the 2008-2009 recession.

Initial Jobless Claims Down More Than 4.5 Standard Deviations
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Consumer confidence is also at pre-recession levels, up 9.2 percent in September from last year. Although new and existing home sales in the U.S. have remained tepid, strong auto sales suggest that Americans are feeling more comfortable about making large purchases. This is good for steel, aluminum, platinum, palladium and other resources used in manufacturing automobiles.

Vehicle Sales in the U.S. Have Accelerated Steadily Since 2009
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As always, you can find something to dampen welcome news, and in this case, it’s a steadily diminishing workforce. Since its peak in early 2002, the labor force participation rate, which measures the number of Americans who are either employed or actively seeking employment, has declined to a 36-year low of 62.7 percent. There are many potential combinations of social and economic factors that might explain why this is the case: discouragement finding steady work, family- or health-related issues, an aging population, and others.

Labor Force Participation Rate at Its Lowest Since 1977
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Bob and Weave

Regardless, Coolidge’s message that the United States, pound for pound, is the best place on earth to invest and produce is just as accurate today as it was then. Where, for instance, did recently-elected Indian Prime Minister Narendra Modi initially visit to broker new business opportunities and partnerships? Certainly not France.

Presidents Coolidge and Clinton both oversaw strong economic and employment growth Another former president, my friend Bill Clinton—whose economic performance nears, and in some areas surpasses, Coolidge’s—once perceptively observed: “There is nothing wrong with America that cannot be cured by what is right with America.”

I couldn’t agree more. Our nation isn’t perfect. Burdensome taxes and overreaching regulations continue to stand in the way of optimal economic conditions, a theme I touched upon most recently regarding our Global Competitiveness Index score.

Despite such missteps, America has shown time and again that even when we stumble, we quickly find our footing, wipe the sweat from our eyes and prepare for the next round.

Get in the ring by checking out our Near-Term Tax Free Fund (NEARX), which recently earned the coveted five-star rating from Morningstar* for the five-year performance period and four stars overall. You can see the fund’s performance here. 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Morningstar Rating

Overall/164
3-Year/164
5-Year/137
10-Year/103

Morningstar ratings based on risk-adjusted return and number of funds
Category: Municipal National Short-Term Funds
Through: 09/30/2014

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. 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. The Near-Term 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. The Near-Term Tax Free Fund 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.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Morningstar Ratings are based on risk-adjusted return. The Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Ratingä based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)

The A.T. Kearney Foreign Direct Investment Confidence Index, establish in 1998, examines overarching trends and ranks countries on how changes in their political, economic, and regulatory systems are likely to affect foreign direct investment (FDI) inflows in the coming years.

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.

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.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content. Past performance does not guarantee future results.

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What the Strong Dollar Does to Yellow and Black Gold and Why We’re Seeing Green
October 20, 2014

The United States is doing better than it has in years. Jobs growth is up, unemployment is down, our manufacturing sector carries the rest of the world on its shoulders like a wounded soldier and the World Economic Forum named the U.S. the third-most competitive nation, our highest ranking since before the recession.

As heretical as it sounds, there’s a downside to America’s success, and that’s a stronger dollar. Although our currency has softened recently, it has put pressure on two commodities that we consider our lifeblood at U.S. Global Investors: gold and oil.

strong dollar has put pressure on both gold and oilIt’s worth noting that we’ve been here before. In October 2011, a similar correction occurred in energy, commodities and resources stocks based on European and Chinese growth fears. But international economic stimulus measures helped raise market confidence, and many of the companies we now own within these sectors benefited. Between October 2011 and January 2012, Anadarko Petroleum rose 58 percent; Canadian Natural Resources, 20 percent; Devon Energy, 15 percent; Cimarex Energy, 15 percent; Peyto Exploration & Development, 15 percent; and Suncor Energy, 10 percent.

Granted, we face new challenges this year that have caused market jitters—Ebola and ISIS, just to name a couple. But we’re confident that once the dollar begins to revert back to the mean, a rally in energy and resources stocks might soon follow. Brian Hicks, portfolio manager of our Global Resources Fund (PSPFX), notes that he’s been nibbling on cheap stocks ahead of a potential rally, one that, he hopes, mimics what we saw in late 2011 and early 2012.

A repeat of last year’s abnormally frigid winter, though unpleasant, might help heat up some of the sectors and companies that have underperformed lately.

September Was the Cruelest Month

On the left side of the chart below, you can see 45 years’ worth of data that show fairly subdued fluctuations in gold prices in relation to the dollar. On the right side, by contrast, you can see that the strong dollar pushed bullion prices down 6 percent in September, historically gold’s strongest month. This move is unusual also because gold has had a monthly standard deviation of ±5.5 percent based on the last 10 years’ worth of data.

Strong Contrast in 2014 Gold and Dollar Changes vs Historic Averages
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Here’s another way of looking at it. On October 3, bullion fell below $1,200 to prices we haven’t seen since 2010, but they quickly rebounded to the $1,240 range as the dollar index receded from its peak the same day.

A-Strong-US-Dollar-Keeps-Gold-and-Oil-Prices-Low
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There’s no need to worry just yet. This isn’t 2013, when the metal gave back 28 percent. And despite the correction, would it surprise you to learn that gold has actually outperformed several of the major stock indices this year?

Gold-is-Outperforming-All-but-the-SP-500-Index
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As for gold stocks, there’s no denying the facts: With few exceptions, they’ve been taken to the woodshed. September was demonstrably cruel. Based on the last five years’ worth of data, the NYSE Arca Gold BUGS Index has had a monthly standard deviation of ±9.4, but last month it plunged 20 percent. We haven’t seen such a one-month dip since April 2013. This volatility exemplifies why we always advocate for no more than a 10 percent combined allocation to gold and gold stocks in investor portfolios.

Oil’s slump is a little more complicated to explain.

Since the end of World War II, black gold has been priced in U.S. greenbacks. This means that when our currency fluctuates as dramatically as it has recently, it affects every other nation’s consumption of crude. Oil, then, has become much more expensive lately for the slowing European and Asian markets. Weaker purchasing power equals less overseas oil demand equals even lower prices.

What some people are calling the American energy renaissance has also led to lower oil prices. Spurred by more efficient extraction techniques such as fracking, the U.S. has been producing over 8.5 million barrels a day, the highest domestic production level since 1986. We’re awash in the stuff, with supply outpacing demand. Whereas the rest of the world has flat-lined in terms of oil production, the U.S. has zoomed to 30-year highs.

In a way, American shale oil has become a victim of its own success.

Domestic-Crude-Oil-Production-Riding-Sharply-as-the-Rest-of-the-World-Has-Flat-Lined
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At the end of next month, members of the Organization of the Petroleum Exporting Countries (OPEC) are scheduled to meet in Vienna. As Brian speculated during our most recent webcast, it would be surprising if we didn’t see another production cut. With Brent oil for November delivery at $83 a barrel—a four-year low—many oil-rich countries, including Iran, Iraq and Venezuela and Saudi Arabia, will have a hard time balancing their books. Venezuela, in fact, has been clamoring for an emergency meeting ahead of November to make a plea for production cuts.     

Producer-country-budget-breakeven-prices
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Although not an OPEC member, Russia, once the world’s largest producer of crude, is being squeezed by plunging oil prices on the left, international sanctions on the right. This might prompt President Vladimir Putin to scale back the country’s presence in Ukraine and delay a multibillion-dollar revamp of its armed forces. When the upgrade was approved in 2011, GDP growth was expected to hold at 6 percent. But now as a result of the sanctions and dropping oil prices, Russia faces a dismally flat 0.5 percent.

Volatility Has Returned

The current all-in sustaining cost to produce one ounce of gold is hovering between $1,000 and $1,200. With the price of bullion where it is, many miners can barely break even. Production has been down 10 percent because it’s become costlier to excavate. As I told Kitco News’ Daniela Cambone, we will probably start seeing supply shrinkage in North and South America and Africa.

The same could happen to oil production. Extraction of shale oil here in the U.S. costs companies between $50 and $100 a barrel, with producers able to break even at around $80 to $85. If prices slide even further, drillers might be forced to trim their capital budgets or even shelve new projects.

Michael Levi of the Council on Foreign Relations told NPR’s Audie Cornish that a decrease in drilling could hurt certain commodities:

“[I]f prices fall far enough for long enough, you’ll see a pullback in drilling. And shale drilling uses a lot of manufactured goods—20 percent of what people spend on a well is steel, 10 percent is cement, so less drilling means less manufacturing in those sectors.”

At the same time, Levi places oil prices in a long-term context, reminding listeners that we’ve become accustomed to unusually high prices for the last three years.

“People were starting to believe that this was permanent, and they were wrong,” he said. “So the big news is that volatility is back.”

On this note, be sure to visit our interactive and perennially popular Periodic Table of Commodities, which you can modify to view gold and oil’s performance going back ten years.

A Penny Saved Is a Billion Dollars To Spend and Invest

With fresh volatility in oil production comes the fear that the most price-sensitive states will be hurt the most. Exceptionally vulnerable states include Oklahoma, Wyoming and North Dakota. Texas, the nation’s leading oil producer—one of the world’s top producers, in fact—is diversified well enough to not feel the pain as much.

What’s bad for oil producers, though, turns out to be good for American consumers, who are already benefiting from lower gasoline prices. As of this writing, the national average for a gallon of gas is $3.10, down from $3.35 a year ago, according to AAA’s Daily Fuel Gauge Report.

As a result, American consumers are looking at huge savings—$40 billion this year alone. According to Deutsche Bank’s Joe LaVogna, every penny that’s saved at the pump equates to a billion dollars in household energy consumption that can be put back into the economy in other ways.        

Lower Gas Prices Will Save the U.S. $40 Billion in Annual Energy Costs
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I like to think of this as an unexpected and very welcome tax break. Automobile sales are already up from 2009. Lower gas prices might encourage some families to spring for that Suburban instead of a Prius.

Vehicle-Sales-in-the-US-Have-Accelerated-Steadily-Since-2009
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Klondex Turning Heads and Profits

As I said earlier, gold stocks have been hurting lately. One mining company that’s managed to not only survive in this uncertain climate but actually thrive is Klondex Mines, our largest holding in both our Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX), with additional exposure in our Global Resources Fund (PSPFX). Headquartered in Vancouver, Klondex has complete ownership and control of the Fire Creek Project and Midas Mine, both in Nevada.

The chart below, based on our own research, shows Klondex’s relative strength to its peers and why we find the company so attractive in the long term. The y-axis indicates profit margin, the x-axis, enterprise value. The size of the spheres represents the amount of revenue generated by each one of these companies in the second quarter of 2014, Klondex’s first quarter of full commercial production.

Klondex-mines-looks-attractive-against-peers-in-second-quarter
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What the chart conveys is that, in relation to its peers, Klondex has a significantly higher profit margin than companies with a market cap two to three times its size.

“This is going to be very positive for Klondex shareholders as we go into the year-end,” portfolio manager Ralph Aldis said during our webcast. “The third quarter should be another great quarter, and that’s when people will say, ‘Hey, that second quarter report wasn’t a fluke.’ They’re going to start buying the stock and get it moving.”

Indeed, Klondex has managed to stay above the Market Vectors Junior Gold Miners ETF for the 12-month period, delivering a positive return of 7 percent versus the index’s -7.5 percent.

Klondex-Mines-Outperforms-the-market-Vectors-Junior-Gold-Miners-ETF
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On numerous occasions I’ve written about our research on the typical lifecycle of a mine, most recently in my whitepaper “Managing Expectations: Anticipate Before You Participate in the Market.” Below you can see the relationship between a mine’s lifecycle and the company’s share price.  

Life-cycle-of-a-mine
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As experts in mining stocks, it’s imperative for us to know which production stage the mine is in to manage our exposure to the company.

In the case of Klondex, its price action mimics the movements in share price based on the chart above, confirming our research.

Klondex-Mine-Moves-in-Tandem-with-Mine-Life-Cycle
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It also supports the benefits of active management.

“When you buy an indexed fund, you’re basically just buying the market capitalization of those companies,” Ralph said. “You’re not getting the benefit of active management where we go out, meet the company’s management team and know its history. We’re familiar with the lifecycle of the mine in question, the money, the burn rate and the minerals the company is involved in.”

I couldn’t have said it better myself.

Speaking of Active Management…

John-Derrick-Spurs-game-Istanbul-Turkey-Greece Last week I expressed my concerns disapproval of how the European Union is handling (or not handling) its fiscal and monetary mess. Because the EU is such an important region for the global economy, investors have become impatient with the bickering that’s stalled any clear solution to its slowdown.

Last week I was in Italy meeting with other global business leaders, while U.S. Global’s Director of Research John Derrick was visiting and assessing Greek and Turkish companies such as Tsakos Energy Navigation, JUMBO, Türk Telekom and Turkcell.

Watch for our firsthand accounts of and insights on the European situation this week.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. 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. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

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 Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization. The Market Vectors Junior Gold Miners Index is a market-capitalization-weighted index. It covers the largest and most liquid companies that derive at least 50 percent from gold or silver mining or have properties to do so. 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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 09/04/2014: Alamos Gold, Inc. (0.04% World Precious Minerals Fund); Anadarko Petroleum Corp. (2.11% Global Resources Fund); Argonaut Gold (0.00%); AuRico Gold, Inc. (1.85% in Gold and Precious Metals Fund, 0.41% World Precious Minerals Fund); B2Gold Corp. (0.00%); Canadian Natural Resources, Ltd. (1.59% Global Resources Fund); Cimarex Energy Co. (1.80% Global Resources Fund); Detour Gold Corp. (0.00%); Deutsche Bank (0.00%); Devon Energy Corp. (1.82% Global Resources Fund); JUMBO S.A. (0.00%); Klondex Mines, Ltd. (7.76% Gold and Precious Metals Fund, 7.51% World Precious Minerals Fund, 1.22% Global Resources Fund); Market Vectors Junior Gold Miners ETF (0.16% Gold and Precious Metals Fund, 0.17% World Precious Minerals Fund); Peyto Exploration & Development Corp. (1.31% Global Resources Fund); Primero Mining Corp. (0.05% Gold and Precious Metals Fund, 0.02% World Precious Minerals Fund); Suncor Energy, Inc. (2.13% Global Resources Fund); Tsakos Energy Navigation, Ltd. (0.00%); Türk Telekom (0.00%); Turkcell (1.79% Emerging Europe Fund).

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.

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.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content. Past performance does not guarantee future results.

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New Economic Report Card Shows that the U.S. Still Has the Competitive Edge
October 16, 2014

America’s still got it.

That’s according to the latest Global Competitiveness Report, which names the U.S. the third-most competitive nation in the world, our highest ranking since 2008.

For 10 years now the World Economic Forum (WEF) has published its annual competitiveness report, which assesses the strength of 144 countries’ 12 “pillars,” including institutions, infrastructure, health and primary education and higher education. It then ranks these countries based on their overall ability to promote prosperity for their citizens.

Singapore retains its number two spot for the fourth straight year, while Switzerland leads for the sixth year in a row.

Top 20 Countries in 2013 - 2014 Global Competiveness Index
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From 2006 until 2008, the U.S. held the top position, but following the financial crisis, our ranking slipped to number seven in 2012.

This year, the WEF notes:

“U.S. companies are highly sophisticated and innovative, and they are supported by an excellent university system... Combined with flexible labor markets and the scale opportunities afforded by the sheer size of its domestic economy—the world’s largest by far—these qualities make the United States very competitive.”

You might be thinking: But wait, didn’t China’s economy just exceed our own?

Yes and no.

It’s true that, when U.S. and China’s economies are not adjusted for costs of living, the U.S. is still “the world’s largest by far.” Our GDP stands at around $16.8 trillion whereas China’s is $9.3 trillion.

But based on purchasing power parity (PPP), a calculation that factors in relative costs of living to make comparisons between and among countries “fairer,” China has indeed caught up with and surpassed the U.S.

China's Economy Surpasses the U.S.'s Based on Purchasing Power Parity
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This news might bruise some readers’ egos, but it’s actually a tailwind for both commodities and our China Region Fund (USCOX). China is such an important player in the global economy that it’s nearly impossible for any serious investor to see China’s ascent as anything but positive.

Below are some of the key takeaways from the Global Competitiveness Report.

Strengths

The economic report card gives the U.S. many accolades, including its capacity to attract and retain talented people from abroad. I always say that when people want to innovate and start businesses, they typically come here to the United States. The report reveals it’s relatively easy in the U.S. for “entrepreneurs with innovative but risky projects to find venture capital.” Our financial services are strong, and we have ready access to bank loans for sound business plans. When it comes to the ease of raising money by issuing shares on the stock market, we come in at sixth place, following Hong Kong, Taiwan, South Africa, New Zealand and Qatar.

The United States ranks high in company spending on research and development.Only Switzerland beats us in our capacity for innovation.

We score very well in our availability and corporate adoption of the latest technologies, as well as availability of scientists and engineers, quality of scientific research institutions and company spending on R&D. We rank eleventh in the number of patent applications filed under the Patent Cooperation Treaty (PCT), amounting to 149.8 per one million U.S. citizens.

In the business sophistication pillar, we excel above all other countries in our use of sophisticated marketing tools and techniques.

Areas for Improvement

It comes as no surprise that the top three most problematic factors for doing business in the U.S., according to the report, are tax rates, tax regulations and inefficient government bureaucracy. It’s for these reasons that some businesses, including Burger King, Medtronic and Chiquita, are in the process of moving their corporate headquarters to countries with friendlier tax rates—Ireland, Canada and Singapore, among others.

High tax rates, burdensome regulations and inefficient government bureaucracy are all cited as "problematic factors" for doing business in the U.S.To prevent such tax inversions from occurring, our tax code sorely needs amending. Our 35-percent corporate income tax rate is the highest among the 34 member nations of the Organisation for Economic Co-operation and Development (OECD), and we actually rank 32 out of 34 in the 2014 International Tax Competitiveness Index. Only Portugal and France fare worse.

Indeed, the Global Competitiveness Report shows that, to a large extent, taxes reduce the incentive to work: in this department we come in at number 37, just between China and Ghana. As for wastefulness of government spending, we rank number 73, trailing France by one point and China by 49 points. The report also shows that it can often be difficult for some businesses to comply with U.S. government regulations.

If our government were to simplify the tax code and ease regulations, there’s no doubt that the U.S. could once again claim top honor.

Other crucial areas for improvement include quality of electrical supply (we come in at number 24, following Barbados), soundness of banks (number 49), gross domestic secondary enrollment rate (59) and quality of math and science education (51).

Emerging Countries 

Some of the emerging markets that we track at U.S. Global Investors either made gains this year or maintained their positions.

Poland, for instance, held on to its rank of 43. The WEF noted the country’s “improvements… in institutions, infrastructure and education,” its “increased flexibility in labor market efficiency” and its “[c]ontinued structural reforms geared toward strengthening its innovation and knowledge-driven economy.” A well-educated population and secure financial market make Poland globally competitive, but to truly boost its innovative capacity, it needs to improve its infrastructure, soften regulations and make settling business disputes more efficient.

Greece jumped 10 spots to reach the rank of 81. Despite its high levels of government debt, the Mediterranean country has managed to improve the functioning of its goods and labor markets and reduce its budget deficit. However, its government is still inefficient and its financial market has yet to recover from the recent crisis that hit parts of Europe. A lack of access to financing is the most problematic factor for doing business in Greece.

Other key emerging markets that rose up the list were China, Malaysia, Thailand, Indonesia and the Philippines.

Keep Investing in America

Despite a few areas for improvement, the United States is still the preeminent place on earth to invest, with plenty of openings for growth. As we continue to recover from the recession, now is the most opportune time in years to place your trust in America’s future.

Our two U.S. equity funds, All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX), have been impacted by the global economic slowdown and growth scare. Cyclical stocks—the kind we focus on in these two funds—have lagged defensive stocks, by about 6 percent in the last month and a half.

Cyclicals are those types of goods and services consumers can afford to purchase when the economy is performing well. Examples include discretionary-type companies such as Apple, Priceline and Tesla Motors. Defensives, on the other hand, typically remain stable, even in times of market downturns. Examples include electricity, gas and food.

Cyclical Stocks Have Dropped 6 Percent in Last Month-and-a-Half Compared to Defensive Stocks
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This might sound like troubling news, but we view it as an opportunity. As you can see, a similar discrepancy between cyclical and defensive stocks occurred in April and May of last year, and yet mean reversion corrected it. We’re optimistic that such a turn will occur again, which means that now might be an ideal time to accumulate cyclicals.

Our Near-Term Tax Free Fund invests in the schools that keep America competitive.Another way to potentially capitalize on our nation’s successes is U.S. Global Investors’ Near-Term Tax Free Fund (NEARX), which invests in high-quality, U.S. municipal bonds. A significant portion of the fund is invested in health services, public schools and higher education, three of the 12 pillars that the WEF assesses. To keep these services operational and efficient, state and local governments rely on funding from the very bonds we invest in, which in turn improves Americans’ livelihood as well as the businesses they run.

Although past performance is no guarantee of future results, NEARX has delivered positive tax-free income for the past 13 years. The fund seeks preservation of capital and has an attractive floating $2 net asset value (NAV) that has demonstrated minimal fluctuation in its share price.

Near-Term Tax Free Fund Annual Total Return
click to enlarge

Because of its risk-adjusted returns, NEARX has earned the coveted five-star rating from Morningstar* for the five-year performance period and four stars overall. Check out its performance here.

To learn more about how you can help keep the United States competitive, I encourage you to request an information packet.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Morningstar Rating

Overall/164
3-Year/164
5-Year/137
10-Year/103

Morningstar ratings based on risk-adjusted return and number of funds
Category: Municipal National Short-Term Funds
Through: 09/30/2014

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. 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. The Near-Term 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. The Near-Term Tax Free Fund 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. Though the Near-Term Tax Free Fund seeks minimal fluctuations in share price, it is subject to the risk that a decline in the credit quality of a portfolio holding could cause a fund’s share price to decline. Stock markets can be volatile and can fluctuate in response to sector-related or foreign-market developments. For details about these and other risks the Holmes Macro Trends Fund may face, please refer to the fund’s prospectus. 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.

Morningstar Ratings are based on risk-adjusted return. The Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Ratingä based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)

The Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

The Tax Foundation’s International Tax Competitiveness Index (ITCI) measures the degree to which the 34 OECD countries’ tax systems promote competitiveness through low tax burdens on business investment and neutrality through a well-structured tax code. The ITCI considers more than forty variables across five categories: Corporate Taxes, Consumption Taxes, Property Taxes, Individual Taxes, and International Tax Rules.

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 09/30/2014: Burger King (0.00%), Medtronic (0.00%), Chiquita (0.00%), Apple, Inc. (4.35% in All American Equity Fund, 4.56% in Holmes Macro Trends Fund), The Priceline Group, Inc. (3.00% in All American Equity Fund, 3.03% in Holmes Macro Trends Fund), Tesla Motors, Inc. (2.09% in All American Equity Fund, 2.93% in Holmes Macro Trends Fund).  

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content. Past performance does not guarantee future results.

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Net Asset Value
as of 10/31/2014

Global Resources Fund PSPFX $8.28 0.07 Gold and Precious Metals Fund USERX $5.12 -0.31 World Precious Minerals Fund UNWPX $4.74 -0.25 China Region Fund USCOX $8.13 0.13 Emerging Europe Fund EUROX $7.36 -0.01 All American Equity Fund GBTFX $33.07 0.39 Holmes Macro Trends Fund MEGAX $23.31 0.31 Near-Term Tax Free Fund NEARX $2.26 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change