Third Quarter 2009

For the third quarter, the Gold and Precious Metals Fund outperformed its benchmark, the FTSE Gold Mines Index. For the same period, the World Precious Minerals Fund underperformed its benchmark, the NYSE Arca Gold Miners Index (HUI). Spot gold closed the quarter at $1,007.70 per troy ounce, a rise of $81.10 or 8.75 percent. The S&P 500 Index rose 15.56 percent. In the currency markets, the U.S. Trade Weighted Dollar Index lost 4.34 percent.

As of late, gold’s tug-of-war relationship with the U.S. dollar has been driven by dollar weakness and sudden fluctuations in both risk appetite and risk aversion. The Financial Times reported that the U.S. dollar has overtaken the yen to become the new funding currency of choice to finance the purchase of higher-yielding assets because of the currency’s low interest rates. The United Nations, along with former vice-chairman of China’s Standing Committee, have voiced concerns over record debt levels in the United States, and have suggested diversifying away from the currency. As the dollar is driven lower, fears of both future inflation and central banks’ ability to reverse quantitative easing stimulus programs continue to build. As a result, investment demand for gold continues to strengthen and has pushed the price of bullion higher. The World Gold Council has said that as of August 31, 2009, assets held by exchange-traded funds backed by gold bullion climbed to $51.4 billion from $33.1 billion at the end of last year, a 55 percent increase.

The World Gold Council has said that India may be overtaken by China to become the world’s top gold consumer this year as total demand for gold in China was six times that of India in the first quarter. With a second quarter growth rate of 7.9 percent, China became the first of the major economies to rebound from the global recession with the help of the 4 trillion yuan stimulus package. China’s continued demand in metals and natural resources has driven the commodities markets recently, especially in Shanghai where copper stockpiling has climbed to a five-year high of 104,248 metric tons. At the same time, gold fund managers in India say exchange-traded fund collections are emerging as the nation’s fastest growing investment segment, with investors increasing by 100 percent year-over-year. Gold collection exchange-traded funds have risen 24.6 percent to 5.93 metric tons from 4.76 metric tons last year.

Central banks have also joined the gold-buying frenzy after historically being net sellers of the precious metal. According to research from the CPM Group, central banks are expected to buy 6 million to 10 million ounces of gold annually to counter weakening currencies. The World Gold Council has also said central bank gold sales in 2009 are only at a minimal 140 tonnes, well below the recently renewed Central Bank Gold Agreement which caps sales at 400 tonnes per year.

Although investment demand has remained strong, jewelry demand has been underpinned by economic hardships and high gold prices. A report by the World Gold Council has said that global jewelry demand, excluding China, declined by 22 percent in the second quarter of 2009. China was the exception as the country posted a 6 percent rise in demand largely attributable to healthy economic growth rates, increasing nominal incomes and measures taken by the Chinese government to mitigate the global downturn.

According to the Gold Survey 2009 from Gold Fields Mineral Services, world gold mine production in the first half of 2009 increased 7 percent and production costs increased 7 percent between the first and second quarters to more than $600 per ounce. In South Africa, the Chamber of Mines has said gold output in the second quarter of 2009 fell 9.3 percent to 51,634 kilograms compared with year-earlier levels. Despite weakness caused from wage disputes, lower production, power shortages and higher costs, many in the mining industry believe the worst may be over for international miners, according to Doug Silver, a highly respected U.S. mining consultant. According to Silver’s tally, about $47 billion in capital has been raised in 2009 by mining companies with about 60 percent of the companies being able to access capital markets. However, only about 18 percent of the exploration companies were able to raise money.

The Federal Reserve has signaled that the U.S. economy’s return to growth is insufficient to withdraw stimulus, and has therefore left rates unchanged and has extended liquidity-boosting programs to the first quarter of 2010. Chinese officials have voiced concerns over the dollar’s role as the world’s reserve currency. Brazil, Russia and China, have all agreed to buy $70 billion in notes from the International Monetary Fund (IMF) denominated in Special Drawing Rights after calling for a super-sovereign reserve currency to replace dependence on any one currency. China’s recent 76 percent increase in gold reserves suggests Beijing is quietly diversifying its reserves, the largest in the world. Lila Lu, head of precious metals at Minsheng Bank Corp., has said China has no need to purchase gold from global markets since China is already a large gold producer and can buy gold from much of its state-run enterprises. Lu also says that instead of using U.S. dollars to purchase bullion on the global markets, it would be in China’s interests to use yuan to buy gold locally, a move that may place further downward pressure on the dollar.

Past performance does not guarantee future results.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The FTSE Gold Mines Index Series encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold. 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 index benchmark value was 500.0 at the close of trading on December 20, 2002. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.