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Second Quarter 2014

The Barclays Capital Municipal Bond Index gained 2.59 percent during the second quarter. Returns were directly tied to maturity – the longer the better.  The short and intermediate portions of the curve experienced more modest gains with the three-year and five-year bonds returning 0.71 percent and 1.28 percent, respectively. The municipal yield curve flattened during the quarter as yields on the long end of the curve fell by 70 to 80 basis points, while the short end was roughly unchanged. Credit factors also played a role as lower-quality bonds outperformed. AAA-rated municipals gained 1.95 percent in the quarter versus a gain of 4.02 percent for BBB-rated bonds. General obligation municipals underperformed revenue-backed bonds as hospital and industrial-development backed bonds outperformed. In specialty-state trading, Puerto Rico significantly outperformed. The territory issued long-term bonds that were well received by the market, relieving near-term pressure; Texas and California also outperformed.

The Federal Reserve continued to “taper” its quantitative easing (QE) program during the second quarter, with $10 billion reductions at every Federal Open Markets Committee (FOMC) meeting since December 2013, bringing the current pace to $35 billion per month. The Fed has communicated to the market its preference for a measured approach and gradual reduction over time, with the winding down expected to be complete by the fall of 2014. The reduction in Fed stimulus is predicated on a gradually strengthening economy, which appeared on track in the second quarter after weather disrupted activity in the first quarter. Economic data has been consistently better across many areas of the economy, from employment and manufacturing to housing and consumer confidence. While the Fed is reducing stimulus, many areas of the world are embarking on new monetary stimulus measures, which has taken some pressure off the Fed and is the primary driver behind the bond market rally we have experienced this year.

Past performance does not guarantee future results.

The Barclays Capital Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.

Net Asset Value
as of 07/30/2014

Global Resources Fund PSPFX $10.11 -0.08 Gold and Precious Metals Fund USERX $7.65 -0.06 World Precious Minerals Fund UNWPX $7.23 -0.03 China Region Fund USCOX $8.35 -0.04 Emerging Europe Fund EUROX $8.22 -0.04 All American Equity Fund GBTFX $33.18 0.04 Holmes Macro Trends Fund MEGAX $23.98 0.01 Near-Term Tax Free Fund NEARX $2.26 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change