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July 2014

In July, the Near-Term Tax Free Fund fell 0.22 percent, while the benchmark Barclay’s 3-Year Municipal Bond Index rose 0.08 percent. The Barclay’s Municipal Bond Index rose 0.18 percent for the month. Returns in the municipal market were more muted in July than in recent months but still managed to grind higher overall. See complete fund performance here.

Fixed-income markets declined in July as better-than-expected economic data raised concerns that the Federal Reserve may be closer to tightening than expected. Municipals were able to buck this trend as a dearth of municipal supply helped support the market.

U.S. economic data has been better than expected. Second-quarter real GDP was much better than expected, rising 4 percent. The employment report showed consistent, steady gains with 298,000 nonfarm payrolls added in June and another 209,000 in July. Consumer confidence has also been on the upswing, currently at its highest levels since early 2008. Housing indicators were mixed and have been a weak spot for the economy. New home sales fell by more than 8 percent in June, while housing starts and building permits were also weak, falling 9.3 percent and 4.2 percent, respectively, in June. Housing activity has disappointed since the Federal Reserve’s quantitative easing (QE) taper announcement a year ago due to a combination of higher mortgage rates and higher housing prices.

The Fed continued to taper its QE program by an additional $10 billion in July and is expected to have exited the program by the end of October. The Fed appears committed to taper unless economic data deteriorates significantly. To balance the risk to the economy, the Fed remains committed to an ultra-low Fed Funds rate as long as needed. The current consensus forecast is for an interest rate hike in mid-2015.

In specialty-state trading, returns were fairly uniform except for Puerto Rico and other U.S. territories which outperformed; this trend has been in place for several months now. Puerto Rican municipals fell 5.41 percent in July on concerns that recently passed legislation in Puerto Rico would allow for some of the commonwealth’s agencies to default. As a group, revenue bonds performed in-line with general obligation credits. Within the revenue universe, hospitals, transportation and industrial development-backed bonds outperformed. High yield or “junk” bonds also outperformed the broad market, rising 0.63 percent. Within the investment grade universe, lower quality outperformed, as AAA-rated credits underperformed BBB-rated bonds by 14 basis points.

Past performance does not guarantee future results.

The Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market. 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 08/20/2014

Global Resources Fund PSPFX $9.90 No Change Gold and Precious Metals Fund USERX $7.52 No Change World Precious Minerals Fund UNWPX $7.02 -0.02 China Region Fund USCOX $8.49 No Change Emerging Europe Fund EUROX $7.92 -0.06 All American Equity Fund GBTFX $33.79 0.05 Holmes Macro Trends Fund MEGAX $24.37 -0.03 Near-Term Tax Free Fund NEARX $2.26 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 -0.01