Second Quarter 2017

In the second quarter, the Barclays Municipal 3-Year Bond Index gained 0.54 percent, while the Near-Term Tax Free Fund gained 0.30 percent. See complete fund performance here.

Past performance does not guarantee future results. 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.

During the second quarter, the average yield in the short and intermediate term municipal bond market fell, producing positive returns for market participants. The yield curve continued the flattening that began in the first quarter throughout the second quarter. Bonds with lower credit ratings generally outperformed bonds of higher quality. Among investment grade bonds, the returns for bonds rated BBB/Baa were 2.21 percent, for single-A 2.17 percent, for double-A 1.79 percent and for triple-A 1.62 percent. The outperformance of lower-rated bonds was partly due to their longer average durations, but also came as a result of higher starting yields and some narrowing of credit spreads. The municipal yield curve remains flat by historical standards.

The spread between 10-year and one-year yields stood at 1.09 percent at the end of June, which was below the average of 1.32 percent over the last two years and 1.91 percent over the last 10 years.

The fiscal conditions of most state and local governments are seeing improvement from rising tax revenues, which should help them counter rising expenses, especially pension costs. State revenue from sales and individual and corporate income taxes continues to increase on a year-over-year basis. Further, according to a survey by the National Association of State Budget Officers (NASBO), state general fund revenues in fiscal 2017 are estimated to rise 2.4 percent, compared to 1.8 percent in 2016. While revenue is growing, spending also remains in check, with proposed state budgets reflecting caution on the part of most governors. According to the NASBO survey, general fund expenditures are projected to increase only 1 percent in 2018, which is the slowest rate of growth since 2010 and far below the 4.1 percent increase in spending in 2017. For local governments, property tax revenues will probably continue to rise given appreciating housing values. According to the S&P/Case-Shiller 20-City Composite House Price Index, prices have increased 5.7 percent during the 12 months through April 2017, and are up 47.1 percent from their low in March 2012.

While state revenues have been rising overall, some states remain in a perilous fiscal condition. After two full years without a budget, the State of Illinois began its 2017/18 fiscal year without a budget, but the legislature eventually overrode the governor's veto to enact a budget that increases personal income taxes from 3.75 percent to 4.95 percent. New Jersey, Connecticut and Maine also started the fiscal year without a budget.

The governor of Texas enacted legislation to improve the funding ratios of pension plans in Dallas and Houston. The reforms for Dallas raise the retirement age from 55 to 58, increase the employee contribution from 8.5 percent to 13.5 percent of pay and boost the city's contribution from 27.5 percent to 34.5 percent. The rate of return for those in the deferred retirement option plan will be based on U.S. Treasury yields rather than being a guaranteed rate of 6 percent. The legislation for Houston lowered the plans' assumed rate of return to 7 percent from 8 percent to 8.5 percent, and provided for reductions in benefits or increases in employee contributions if rates of return fall short of expectations.

The Federal Reserve announced it expects to begin unwinding its balance sheet later in 2017 by decreasing reinvestment of principal payments from its holdings, which could cause some upward pressure on long-term interest rates.

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.

The S&P/Case-Shiller 20-City Composite House Price Index measures changes in the prices of single-family, detached residences (also known as houses) using the repeat-sales method, which compares the sale prices of the same properties over time. New construction is excluded since these houses have not been previously sold, there is no way to calculate how their sale prices have changed until they have had two owners (at which point they are no longer new construction).

Net Asset Value
as of 10/16/2017

Global Resources Fund PSPFX $5.85 -0.01 Gold and Precious Metals Fund USERX $7.92 -0.15 World Precious Minerals Fund UNWPX $6.43 -0.15 China Region Fund USCOX $11.62 -0.01 Emerging Europe Fund EUROX $7.12 No Change All American Equity Fund GBTFX $24.23 -0.04 Holmes Macro Trends Fund MEGAX $20.70 0.13 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change