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The Case for Emerging Europe

August 31, 2012

Press Release: U.S. Global Investors Reports Results for Fiscal Year 2012 Strengthens Marketing Strategy for Growth in a Volatile Environment

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

If history had turned out differently, the USSR would’ve taken home the most Olympic medals this year, as the total awarded to athletes from the area was 163, according to a blog on Foreign Policy’s website. As we all know, the Wall came down, the Soviet Union collapsed, and now Russia has to be content with its third-place position of 82 medals. Athletes from the United States were awarded the most medals (104), followed by participants from China, who took home 88.

In another contest, the U.S. stock market outperformed many developed and emerging equity markets for the year as of the end of August. Despite the negativity surrounding corporate earnings, lower economic growth and ongoing political uncertainty, the S&P 500 ETF rallied, climbing 13 percent through August 30.

By comparison, the iShares S&P Europe 350 ETF only rose 6.9 percent.

What seems to be overlooked by investors is the fact that stocks in Emerging Europe have also seen noteworthy results. As you can see in the chart below, the Eastern European Fund (EUROX) rose nearly 10 percent over the same time frame. Turkey was a significant contributor to those results, with stocks in the country climbing almost 40 percent; Russian stocks only advanced about 4 percent.

EUROX Compared to US and Europe Stocks

With the underperformance of the iShares S&P Europe 350 ETF, many investors have interpreted this as a contrarian sign to hunt for bargains in developed Europe. However, if you believe that Europe will see better days ahead, greater opportunity may lie to the east.

Here are three reasons to look at Emerging Europe stocks today:

1. Better GDP Growth Potential
The companies in the Eastern European area are located in countries set to grow faster than the U.S. and countries in Europe. Russia and Turkey are projected to have a GDP of about 4 percent this year, while Poland’s GDP growth is expected to be 2 to 3 percent.

2. Stocks are Undervalued
Along with benefiting from higher GDP growth, many of these stocks are historically undervalued. BCA Research looked at certain value metrics of several emerging market countries, including the trailing and forward price-to-earnings ratio and price-to-book ratios and compared these figures to the historical average going back to the early 1990s. Poland has a reading of about 1.2, which means that today’s price-to-earnings and price-to-book ratios are 1.2 standard deviations below the historical mean. Conversely, Mexico’s reading of -1.5 indicates that stocks in this country are historically overvalued.

Among emerging countries, Poland, Russia and Turkey are the better values, says BCA.

Eastern European countries among the Better Values

BCA also looked at the emerging markets where growth was expected to improve over the next five years compared to the previous two years. Among “the most favorably-placed markets” for valuation and economic growth were Russia and Poland.

3. Attractive Dividend Yields
Many Eastern European stocks pay attractive dividends, allowing investors to benefit from income and potential appreciation. As of June 30, 2012, the stocks in the EUROX portfolio had an average dividend yield of more than 5 percent.

Dividend income may not be the only benefit: According to research from ING Bank, there appears to be a healthy dividend effect on stock outperformance in emerging Europe.

The chart below shows the cumulative average outperformance 40 days before and 40 days after the ex-date among dividend-paying stocks in Europe, Middle East and Africa (EMEA) countries. The outperformance has historically started about 10 days before the ex-date and continues throughout the next 40 days. The ex-date is the day on or after which a security is traded without a previously declared dividend or distribution.

Dividend-Paying Stocks in Europe, Middle East and Africa Cumulative Average Outperformance Before and After Ex-Date

While this effect is seen throughout the EMEA countries, “Turkish stocks appear to be most attractive dividend effect plays with outperformance of 5 percent on average,” according to ING.

In today’s low yielding environment, dividends have been particularly attractive to investors. Martin Barnes, chief economist at BCA Research, writes to subscribers that he believes that in today’s uncertain environment, investors can still “build an equity portfolio of global companies with strong balance sheets, powerful brands and paying reliable and decent dividends. Not the most exciting investment strategy perhaps, but one that should pay off in the long-run.”

Price Reversal Indicates Attractive Entry Point?
As you can see below, over the past month, EUROX has moved above its 50-day moving average. This indicates to us that there is growing strength in the Eastern European area and an attractive entry point for investors.

Eastern European Fund (EUROX)

The Eastern European Fund isn’t the only fund signaling a potential price reversal—all equity funds at U.S. Global Investors are above their 50-day moving average. Click here to see the charts.

Total Annualized Returns as of 6/30/12
  1-Year 3-Year 5-Year 10-Year Gross
Expense
Ratio
Eastern European Fund -24.68% 7.09% -10.06% 9.74% 1.98%
SPDR S&P 500 ETF 5.26% 16.23% 0.16% 5.23% 0.10%
iShares S&P Europe 350 ETF -13.00% -2.31% -10.65% -1.45% 0.60%

Expense ratios as stated in the most recent prospectus. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus (e.g., short-term trading fees of 2.00%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

Dividend yields are as of 6/30/2012. These figures do not represent the funds’ yields, which may be materially different from the average yields of the stocks held in the funds.

For investment objective and risks regarding the Eastern European Fund, the SPDR S&P and the S&P Europe 350 ETFs, please see the disclosures section.

The Best Rates May Not Be in a Bank

Index Summary

  • The major market indices were lower this week. The Dow Jones Industrial Average fell 0.51 percent. The S&P 500 Stock Index declined 0.32 percent, while the Nasdaq Composite dropped 0.09 percent.
  • Barra Value slightly outperformed Barra Growth as Barra Value fell 0.30 percent while the Barra Growth index declined 0.34 percent for the week. The Russell 2000 closed the week with a gain of 0.36 percent.
  • The Hang Seng Composite fell 2.30 percent; Taiwan fell 1.08 percent, while the KOSPI dropped 0.77 percent.
  • The 10-year Treasury bond yield fell 14 basis points for the week, to 1.54 percent.

Domestic Equity Market

The S&P 500 Index fell 0.32 percent this week as economic data was mixed and many market participants were waiting on Federal Reserve Chairman Ben Bernanke’s Friday morning’s speech from Jackson Hole, Wyoming. Chairman Bernanke didn’t disappoint but also didn’t offer a lot of additional information, essentially saying the Fed has an easing bias and will implement additional quantitative easing if deemed necessary.

Domestic Equity Market

Strengths

  • The consumer discretionary sector was the best performer this week rising a modest 0.21 percent as retail sales data for August was generally better than expected. Tiffany & Co., J.C. Penny, Carnival Corp. and Coach all rose by at least 4 percent.
  • The health care sector was also able to eek out a small gain with WellPoint, Waters Corp. and Edwards LifeSciences Corp. leading the way with gains 3 percent or more.
  • Hudson City Bancorp was the best performer in the S&P 500 this week rising by 11.65 percent as M&T Bank agreed to buy the company for $3.8 billion.

Weaknesses

  • The industrials sector was the worst performer this week as a weak global economic environment is making it difficult for many bellwether names in this space. Joy Global, Eaton Corp., Cummins and Fluor were among the worst performers for the week.
  • The utilities sector lagged for the third week in a row as the market continued to rotate into other areas. Utilities remained the worst-performing sector over the past three months, rising just 1.26 percent vs. more than 7 percent for the S&P 500.
  • First Solar was the worst performer this week in the S&P 500, falling by more than 19 percent as the company reported it had stopped delivering modules to a power plant in Arizona. It is believed that current inventory at the site may not be installed until next year, increasing concerns about the level of inventory and operating rates at the company.

Opportunity

  • The market remains focused on the potential monetary policy action from the Fed, the European Central Bank (ECB) and China, looking past the current economic weakness.

Threat

  • The S&P 500 has almost reached its April high, a technical resistance level, and could be vulnerable to any disappointments from global central bankers.

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The Economy and Bond Market

Treasury yields built on last week’s momentum and continued to fall this week as the much anticipated Jackson Hole speech from Fed Chairman Ben Bernanke did not disappoint. Chairman Bernanke reiterated many of the ideas communicated after the August 1 Federal Open Market Committee (FOMC) meeting, essentially saying that additional quantitative easing remains a viable policy tool and the Fed would implement if they deemed it necessary. The ECB added to the positive tone this week by reiterating its preference for buying European sovereign bonds. Also on Friday it was announced that the ECB was moving forward with a proposal that would allow it day-to-day oversight of large banks and the ability to grant bank licenses. This potentially paves the way for direct bank bailouts if needed, avoiding many of the political hurdles that have plagued the on-going financial crisis.

10-yr-Treasury Yield

Strengths

  • Back to school sales started off strong with July as personal spending rose 0.4 percent, which was the strongest performance since February. That trend continued in August as many retailers reported stronger than expected same-store-sales results across a broad cross section of formats.
  • Pending home sales rose 2.4 percent in July, which was the best showing since April 2010.
  • The S&P/Case-Shiller 20-city home price index rose 0.9 percent (seasonally adjusted) in June. This indicator has now increased for five months in a row.

Weaknesses

  • Consumer confidence hit a nine-month low in August and fell far short of analyst expectations.
  • Germany’s Ifo business sentiment index fell in August for the fourth straight month as the majority of firms surveyed had negative outlooks for the first time in three years.
  • Retail sales in Japan fell 0.8 percent in July on a year-over-year basis; this was the worst showing since November 2011.

Opportunity

  • Both the Fed and ECB appear ready to implement some form of quantitative easing in the very near future.
  • With further weak economic data out of China, odds of additional easing measures continue to move higher.
  • Interest rates are likely to remain very low for the foreseeable future.

Threat

  • Europe remains a wildcard with the markets shifting focus on a weekly basis.
  • China also remains somewhat of a wildcard as the economy has slowed and officials appear in no hurry to take decisive action.

Natural Resources Strengthen a Balanced Portfolio

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

Gold Market

For the week, spot gold closed at $1,692.01 up $21.46 per ounce, or 1.28 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 0.69 percent. The U.S. Trade-Weighted Dollar Index slipped lower, falling 0.43 percent for the week.

Strengths

  • The tides appear to be turning. Since the February $1,790 highs in gold and Bernanke’s stalling on any new stimulus measures, gold has been the fast money’s favorite short with each ensuing Fed meeting.
  • However over the last couple of months, Fed meetings have produced only modest pull backs in gold that were met with heavy accumulation. Gold inventories held in ETFs have been on the rise with nearly 38 tons of accumulation in August just in the U.S.’s most widely traded product, marking the biggest inflow since November. Gold held in ETFs now exceeds Italy’s national reserves of gold, which are the third largest in the world.
  • The $36 plus jump in gold on Friday, as it initially slumped close to its 200-day moving average after Bernanke’s speech, set a very strong tone for investors to get long and don’t be wrong.

Weaknesses

  • The labor conflict between the South African unions at the platinum mines has started to spill over to the gold mines. Labor at Gold Fields Kloof-Driefontein operation started an illegal strike at the close of the week and caused its share price to miss out on any of the gains produced by the surge in gold. This mine accounted for 31 percent of Gold Field’s production last year.
  • In addition, Gold Fields said it expected Ghana to announce a 10 percent windfall tax by the end of next month. Gold Fields has been trying to get a tax stability agreement in place for the last eight years with regards to its Tarkwa mine. This may be a bargaining ploy to signal to Ghana that new investment in the country will be a risk if an agreement cannot be reached.
  • Some of the press articles still try to villainize hedge fund manager John Paulson for the tremendous success he has had in the capital markets, particularly since he is focused on gold and it has had a rough start to the year.

Opportunities

  • Harmony Gold and Newcrest Mining released their prefeasibility study for the Golpu project in Papua New Guinea mid-week. Both companies’ share prices took a hit on the push back on the development timeline, but for Harmony the growth in the updated resource base will be game changer over time. Harmony’s gold reserves in Papua New Guinea have grown to 42 percent of the company’s total reserves versus 11 percent in the prior year. Earlier this year Harmony sold its Evander operations in South Africa, further reducing its exposure to South Africa.
  • Gold smuggling in India may be up as much as 10-fold based on seizures of undeclared gold coming into the country at airports. The rise in the import duty on gold from 2 percent to 4 percent earlier this year has evidently not stymied the desire to acquire gold in India. Weakness in the rupee has sent the local gold price to new highs, which typically would soften the demand for gold in anticipation of a pull-back, but demand still appears to be strong.
  • Not only has shorting gold bullion been a popular trade by the fast money players but so has shorting the gold stocks. This has become a crowed trade and of course all good things must come to an end. In the case of Dundee Precious Metals, the short interest has reached such an extreme that it would take nearly 51 days of average trading volume to close out the short positions. Let the wailing and gnashing of teeth begin for the short sellers as the gold price rises higher.

Threats

  • Some are cautioning that the silver mining stocks have risen too much in the recent rally and are due for a correction in the short term. It is true the silver stocks have been star performers but historically silver stocks have exhibited as much as a three- times beta to the gold stocks. We haven’t seen much talk that the gold stocks are overdone yet.
  • The dollar has drifted steadily lower over the month of August and now within a couple percent of crossing below its 200-day moving average. This could be a technical support level which some traders might try to defend, considering the political backdrop to keep America strong, and could be a testing point to see if the gold price can go higher.
  • The next Fed meeting on September 12-13 may be the last time the Fed can announce any new measures to shore up the economy, without looking too partisan in its bias, and could be an important test for new legs in the gold price. Given that Romney has said that he will fire Bernanke if he is elected, we will see how badly the Fed Chairman would like to keep his job.

Frank Holmes to Speak at the Chicago Hard Assets Investment Conference

Energy and Natural Resources Market

OPEC and Saudi Spare Capacity Levels Remain Constrained

Strengths

  • The U.S. oil-rig count rose for the first time in three weeks as crude futures breached $95 a barrel. The oil count increased by 11 to 1,419 rigs.
  • International oil companies and sovereign wealth funds continue to see opportunities in the North American oil patch. The Globe and Mail reported that the Kuwait Petroleum Corporation may invest as much as C$4 billion for a joint venture to develop Athabasca Oil’s assets in Alberta.
  • Despite a sluggish domestic economy, the Department of Energy’s latest report showed that June 2012 implied demand for gasoline and distillate were revised up 1.3 percent and 1.2 percent, respectively.

Weaknesses

  • Rusal announced it would be cutting 150,000 metric tons of capacity in light of continued pressure on aluminum prices and company performance. The cut represents roughly 4 percent of expected 2012 output and comes as part of a larger review of 275,000 metric tons of high-cost capacity. Further cuts could potentially be made in stages over the next several years and replaced with lower-cost capacity currently under construction in Siberia.
  • Returns for very large crude carriers (VLCC) for the industry’s busiest trade route stayed negative for an eighth week as a lack of cargoes continues to persist. VLCCs are losing $6,389 daily from the Middle East to Asia route. Returns have now been negative since July 5.
  • Iron ore prices fell to their lowest levels since 2009 on Thursday as a slowdown from top-consumer China dampens demand for the steel-making ingredient.

Opportunities

  • Increased activity in the exploration and production (E&P) sector will be the primary driver in pushing oil and gas capital expenditure (capex) to an enormous $1,039 billion for 2012, states the latest report by GlobalData. The new report predicts that the total oil and gas capex will increase by 13.4 percent this year over the 2011 total of $916 billion, as oil companies intensify upstream operations across locations as diverse as offshore Brazil, the Gulf of Mexico and the Arctic Circle.
  • Royal Dutch Shell will be allowed to begin some "limited" drilling in Alaska's Chukchi Sea, the U.S. government said on Thursday, a move the company hailed as a step forward in its long-delayed effort to tap Arctic oil.

Threats

  • Morgan Stanley says iron ore could decline as much as 16 percent from its lowest price in more than 2 years on slowing demand and rising stockpiles. Iron ore with 62 percent iron content was at $99.40 per ton on August 24.
  • Downgrades to Chinese economic growth may bias oil demand growth prospects to the downside, which could weigh on crude oil prices.
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China Region Fund - USCOX  •  Eastern European Fund - EUROX
Global Emerging Markets Fund - GEMFX

Emerging Markets
 

Strengths

  • Central Huijin Investment, China’s government wealth management entity, picked up more A-shares of Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China in the second quarter, in hopes of boosting the market sentiment in China as regulators also called on companies to buy back their shares as their share price approaches book value.
  • China’s third-quarter economy may rebound and be “slightly” higher than the second quarter as stable growth policies start to take effect, Xinhua reported, citing Hou Yunchun, a researcher at the State Council’s State Development Research Center.
  • China will overtake the U.S. as the world’s largest smartphone market this year. China will account for 26.5 percent of smartphone shipments in 2012, compared with 17.8 percent for the U.S., research firm IDC said.

Weaknesses

  • About 2,453 publicly listed Chinese companies combined first-half profits falling 0.38 percent with no growth on a year-over-year basis, China Securities Journal said. For the second half of the year, Bank of America Merrill Lynch Global Research and CICC believe corporate earnings growth could accelerate as they think China will step up easing policies.
  • High commodity prices have played a significant role in depressing Indian equities’ price performance. Lower commodity prices will help stabilize India’s relative performance against other emerging markets because they will at the margin boost profit margins as well as domestic liquidity, according to BCA.
  • Thailand’s July exports fell 4.46 percent, lower than the consensus of -3.8 percent, but imports surged 13.7 percent on a year-over-year basis, resulting in a widening trade deficit of $1.75 billion.

Opportunities

  • Here is a case in point that government policy is a precursor to change. In the Philippines, both monetary and fiscal policies are in favor of property and construction and consumer income growth, as the country is cutting interest rates and allocating the budget toward building infrastructure in the country. The chart below shows capital goods imports increased, an indication that construction is booming.

Investment Cycle in Philippines Accelerating

  • Indian relative equity valuations are no longer excessive given that India’s return on equity and return on assets exceed, and will likely remain, above those of emerging markets counterparts, maintains BCA Research.

India's Equity Valuation Excesses Dropping

  • Now that anti-corruption allegations have largely subsided, BCA Research expects the Indian government to approve a pipeline of pending projects. After a prolonged and messy hold up, this is not only positive for India’s power problems, but also for the nation’s banks, which have a sizable exposure to the power industry.

Implementation of India's electricity Projects Lagging

Threats

  • Indonesia’s current account deficit widened to 3.1 percent GDP in the first half of the year as export commodity prices fell, while the domestic economy and consumptions were booming. Directly impacted by current account deficit, Indonesia’s currency was weakened, which, though not a structural issue, caused some market volatility lately.
  • On the heels of the Republican convention, a Citibank strategist opined that a victory for Romney could drive the Russian equity market down by 5 to 10 percent. Romney’s foreign policy stance differs in two key areas that could damage the Russian market: 1) the ‘number one geopolitical foe’ rhetoric would elicit an equal and opposite reaction; and 2) a greater push for U.S. energy independence has important consequences for global oil markets.
  • On the other hand, Romney’s foreign policy platform would bolster relationships with traditional bulwarks against aggressive behavior on the part of Russia, such as Poland and Turkey. He plans to decrease European energy reliance on Russia by helping to speed up development of shale gas in Poland. He would also aim to free Central Asian gas with construction of the Nabucco pipeline through Georgia and Turkey.

Fiscal Year 2012 Earnings Announcement Webcast

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 2.80 +0.10 +3.59%
Gold Futures 1,687.60 +14.70 +0.88%
XAU 169.88 +1.38 +0.82%
Russell 2000 812.09 +2.90 +0.36%
Oil Futures 96.47 +0.32 +0.33%
S&P/TSX Canadian Gold Index 314.48 -0.17 -0.05%
Nasdaq 3,066.97 -2.82 -0.09%
S&P BARRA Value 632.77 -1.92 -0.30%
S&P 500 1,406.58 -4.55 -0.32%
S&P BARRA Growth 766.25 -2.60 -0.34%
S&P Basic Materials 224.90 -1.05 -0.46%
DJIA 13,090.84 -67.13 -0.51%
S&P Energy 533.54 -4.10 -0.76%
Korean KOSPI Index 1,905.12 -14.69 -0.77%
Hang Seng Composite Index 2,626.84 -61.74 -2.30%
10-Yr Treasury Bond 1.55 -0.14 -8.18%

Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
XAU 169.88 +20.77 +13.93%
S&P/TSX Canadian Gold Index 314.48 +28.99 +10.15%
Oil Futures 96.47 +7.56 +8.50%
Russell 2000 812.09 +41.06 +5.33%
Nasdaq 3,066.97 +146.76 +5.03%
Gold Futures 1,687.60 +80.30 +5.00%
S&P BARRA Growth 766.25 +17.51 +2.34%
S&P 500 1,406.58 +31.44 +2.29%
S&P Basic Materials 224.90 +5.01 +2.28%
S&P BARRA Value 632.77 +13.76 +2.22%
10-Yr Treasury Bond 1.55 +0.02 +1.57%
S&P Energy 533.54 +7.31 +1.39%
Korean KOSPI Index 1,905.12 +25.19 +1.34%
DJIA 13,090.84 +119.78 +0.92%
Natural Gas Futures 2.80 -0.37 -11.73%
Hang Seng Composite Index 2,626.84 -332.01 -14.83%

Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
Natural Gas Futures 2.80 +0.38 +15.57%
S&P Energy 533.54 +57.03 +11.97%
Oil Futures 96.47 +9.94 +11.49%
XAU 169.88 +16.08 +10.46%
Nasdaq 3,066.97 +239.63 +8.48%
Gold Futures 1,687.60 +118.90 +7.58%
S&P BARRA Growth 766.25 +53.05 +7.44%
S&P 500 1,406.58 +96.25 +7.35%
S&P BARRA Value 632.77 +42.68 +7.23%
Russell 2000 812.09 +50.27 +6.60%
DJIA 13,090.84 +697.39 +5.63%
S&P Basic Materials 224.90 +11.67 +5.47%
Korean KOSPI Index 1,905.12 +61.65 +3.34%
S&P/TSX Canadian Gold Index 314.48 +8.61 +2.81%
Hang Seng Composite Index 2,626.84 +46.20 +1.79%
10-Yr Treasury Bond 1.55 -0.01 -0.64%

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.

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.

Investment Objective: The Eastern European Fund is an actively managed fund that takes a non-diversified approach to the Eastern European market. The fund invests in companies located in the emerging markets of Eastern Europe.

The SPDR S&P 500 ETF is a passively managed fund that seeks to replicate as closely as possible, before fees and expenses, the performance of the S&P 500 Index.

The iShares S&P Europe 350 ETF is a passively managed fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of 350 stocks providing geographic and economic diversity over 10 market sectors, as represented by the S&P Europe 350 Index.

Liquidity: The Eastern European Fund can be purchased or sold at a net asset value (NAV) determined at the end of each trading day.

The SPDR S&P 500 ETF and the iShares S&P Europe 350 ETF can be purchased or sold intraday. These purchases and redemptions may generate brokerage commissions and other charges not reflected in the ETF’s published expense ratio.

Safety/Fluctuations of principal/return: Loss of money is a risk of investing in the Eastern European Fund, as well as the SPDR S&P 500 ETF and iShares S&P Europe 350 ETF. Shares of the three securities are subject to sudden fluctuations in value. The SPDR S&P 500 ETF and iShares S&P Europe 350 ETF may also be subject to bid-ask premiums or discounts to net asset value (NAV) that could adversely affect a shareholder’s actual returns.

Tax features: The Eastern European Fund may make distributions that may be taxed as ordinary income or capital gains. Under current federal law, long-term capital gains for individual investors in the fund are taxed at a maximum rate of 15%.

For the SPDR S&P 500 ETF and the iShares S&P Europe 350 ETF, long-term capital gain distributions will result from gains on the sale or exchange of capital assets held by a Fund for more than one year. Any long-term capital gains distributions you receive from a Fund are taxable as long-term capital gain regardless of how long you have owned your Shares. Long-term capital gains are currently taxed at a maximum of 15%. Information provided here is neither tax nor legal advice and is general in nature. Federal and state laws and regulations are subject to change.

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. Dividend yields are as of 6/30/2012.

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

Holdings as a percentage of net assets as of 06/30/12:

Tiffany & Co.: 0.0%
J.C. Penny Co., Inc.: 0.0%
Carnival Corp. & plc: 0.0%
Coach, Inc.: 0.0%
WellPoint, Inc.: 0.0%
Waters Corp.: 0.0%
Edwards LifeSciences Corp.: 0.0%
Hudson City Bancorp, Inc.: 0.0%
M&T Bank: 0.0%
Joy Global Inc.: 0.0%
Eaton Corp.: 0.0%
Cummins Inc.: 0.0%
Fluor Corp.: 0.0%
First Solar, Inc.: 0.0%
United Company RUSAL plc: 0.0%
Athabasca Oil Corp.: 0.0%
Royal Dutch Shell plc: 0.0%
Morgan Stanley: 0.0%
Industrial and Commercial Bank of China Ltd.: China Region Fund, 0.99%
China Construction Bank Corp.: China Region Fund, 1.95%%
Agricultural Bank of China Ltd.: China Region Fund, 0.85%
Bank of China Ltd.: China Region Fund, 2.16%
Bank of America Corp.: 0.0%
China International Capital Corporation Ltd.: 0.0%
Citibank: 0.0%
Gold Fields Ltd.: Gold and Precious Metals Fund, 0.01%; World Precious Minerals Fund, 0.0%
Harmony Gold Mining Company Ltd.: Gold and Precious Metals Fund, 5.16%; World Precious Minerals Fund, 3.00%
Newcrest Mining Ltd.: 0.0%
Dundee Precious Metals Inc.: Gold and Precious Metals Fund, 5.31%; World Precious Minerals Fund, 2.84%; Global Resources Fund, 0.52%; Eastern European Fund, 1.48%
iShares S&P Europe 350 Index Fund: 0.0%
ING Group: 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 Bloomberg Gold Bear/Bull Sentiment Indicator charts the percent of respondents in a weekly Bloomberg News survey of traders, investors, and analysts predicting gold prices will rise the following week. The number of participants in the survey, which is completed every Friday, may vary.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The S&P/TSX Global Gold Index is an international benchmark tracking the world's leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies.
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 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 Producer Price Index (PPI) measures prices received by producers at the first commercial sale. The index measures goods at three stages of production: finished, intermediate and crude.
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 Ifo Business Climate Index is based on ca. 7,000 monthly survey responses of firms in manufacturing, construction, wholesaling and retailing. The firms are asked to give their assessments of the current business situation and their expectations for the next six months.

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

 

Net Asset Value
as of 04/23/2014

Global Resources Fund PSPFX $9.85 0.03 Gold and Precious Metals Fund USERX $6.73 0.14 World Precious Minerals Fund UNWPX $6.43 0.11 China Region Fund USCOX $8.02 -0.03 Emerging Europe Fund EUROX $8.07 -0.06 All American Equity Fund GBTFX $32.19 -0.21 Holmes Macro Trends Fund MEGAX $23.56 -0.18 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change