Second Quarter 2016

The Barclays Municipal 3-Year Bond Index gained 0.52 percent during the month of June while the Near-Term Tax Free Fund gained 0.55 percent. For the quarter, the Barclays Municipal 3-Year Bond Index gained 0.68 percent while the fund gained 0.75 percent. See complete fund performance here.

In a historic decision, the U.K. voted to exit the European Union. Despite polls showing a close race, markets were surprised by the "leave" decision and sold off sharply. The pound dropped 12 percent to a 30-year low. Global stock markets also suffered large corrections. Meanwhile, global rates saw immediate flight-to-safety moves with the 10-Year U.S. Treasury yield touching 1.40 percent and German 10-Year yields reaching negative 0.16 percent. In U.S. markets, the dollar, U.S. Treasuries and equities saw the greatest price impacts following the Brexit vote, but they rebounded quickly as fears faded that Brexit was a new "Lehman moment." Central banks stepped in to backstop risk by providing ample liquidity to the market, but the 10-Year U.S. Treasury yield remains hovering around 1.5 percent, roughly 30 basis points (bps) below where it was pre-Brexit, reflecting the significant uncertainty that still hangs over the market.

The conditions surrounding the Brexit vote are emblematic of a challenging dynamic that markets are currently facing. On one side, there are fundamental events, weak data or other macroeconomic variables that should create volatility. However, offsetting that pressure are aggressively accommodative central banks and yield-hungry investors providing support to markets. With nearly 50 percent of global fixed-income securities yielding 1 percent or lower, the search for yield has driven investors into riskier assets and overshadowed worsening fundamentals. Currently the spread between the Two-Year Treasury note and the 10-year is less than 90 bps, the lowest level since 2007. In contrast to previous episodes of curve flattening, which were driven by Federal Reserve rate hikes in the front end, this instance of curve flattening has been driven by a rally in 10-year rates. Regardless of the cause of the moves, a flat curve still weighs on banks' willingness to extend credit, which is likely to act as a drag on domestic growth.

Amid worries about jobs growth and low inflation, the Fed opted to hold off on a rate hike at the June meeting. Bringing its views more in line with market expectations, the Fed revised its forecast for growth in 2016 from 2.2 percent to 2 percent and lowered projections of future rate increases. As of the June meeting, most members still anticipated two hikes, though a greater number of officials forecasted just one increase. While the Fed is likely to remain dovish and has no intention of surprising markets, if the effects of Brexit on the U.S. economy are limited and economic data improves, market expectations can change rapidly and the FOMC may be forced to move more quickly than currently anticipated.

In municipal market developments, the U.S. Senate passed a bill that protects Puerto Rico from creditors. The legislation creates a financial control board to help restructure the island's $70 billion in debt and oversee its finances, marking the largest federal intervention ever into the U.S. municipal bond market. Illinois had its bond ratings dropped to levels not seen for a U.S. state in over a decade because of a protracted political deadlock that had left it veering toward its second straight year without a budget. Moody's cut its grade on about $28.8 billion of general-obligation and sales-tax debt by one level to Baa2, its lowest for a state since Massachusetts in 1992. S&P Global Ratings followed by dropping it one step to BBB+. Atlantic City got a lifeline as New Jersey Governor Chris Christie signed two bills that will pull the city from the brink of bankruptcy and give it about five months to right its finances, a task that, if unmet, would result in an unprecedented state takeover. The measures will infuse Atlantic City with enough cash to pay bills and workers through October. Officials have until then to craft a five-year plan to restore fiscal stability. If they fail, the city would fall under the control of the state, which could sell assets and void or change labor contracts through expansive powers awarded by the legislation. Tennessee was awarded a AAA general-obligation bond rating from S&P Global Ratings, which cited the strengthening state economy, growing reserves and consistent payment of its required contribution to the state's pension system. It became the eighth state to receive the top bond-rating ranking from both S&P and Moody's. The others are Delaware, Maryland, Missouri, North Carolina, Texas, Utah and Virginia.

Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. 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 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 here or by calling 1-800-US-FUNDS.

The Barclays 3-Year Municipal Bond Index is a total return benchmark designed for short-term municipal assets. The index includes bonds with a minimum credit rating BAA3, are issued as part of a deal of at least $50 million, have an amount outstanding of at least $5 million and have a maturity of 2 to 4 years.

Net Asset Value
as of 10/27/2016

Global Resources Fund PSPFX $5.59 -0.06 Gold and Precious Metals Fund USERX $8.52 -0.22 World Precious Minerals Fund UNWPX $7.86 -0.23 China Region Fund USCOX $7.86 -0.08 Emerging Europe Fund EUROX $5.54 -0.02 All American Equity Fund GBTFX $22.65 -0.08 Holmes Macro Trends Fund MEGAX $18.17 -0.14 Near-Term Tax Free Fund NEARX $2.24 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change