An Income Opportunity for Investors Looking to Lower their Tax Bills and Reduce Risk in a Portfolio
Learn more about our tax free municipal funds:
Historical Outperformance with Steady Results
| The Near-Term Tax Free Fund is Highly Rated by Morningstar |
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Morningstar ratings and number of Municipal National
Short-term funds through 03/31/13
Municipal and Revenue Bonds
Most people think of municipal bonds as general obligation debt issued by a city, county or state. These are classic municipal bonds that are usually backed by the taxing ability of the government entity.
Revenue bonds are also municipal bonds, but the interest is paid by revenue from a specific project. Water and sewer fees, or electricity fees may support payment.
There are a number of variables that an investment manager considers when selecting municipal bonds.
- What is the expected revenue stream?
- What kind of protections do you have as an investor?
- What is the likelihood that this revenue stream might become disrupted, and what are the remedies if that happens?
As in every market, securities that carry more risk and have very slim debt service coverage—where revenue streams aren’t quite as secure—are the ones where fund managers will exercise caution.
For the Tax Free and Near-Term Tax Free funds, we apply a two-step approach in choosing municipal bonds. First we analyze various macroeconomic factors in an attempt to forecast interest rate movements, and then we position the portfolios by selecting investments that we believe fit that forecast.
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It’s important to consider the differences between the U.S. Global funds before investing:
| Compare | Tax Free Fund | Near-Term Tax Free Fund | U.S. Government Securities Savings Fund |
|---|---|---|---|
| Type of Fund and Investment Objective | Municipal bond fund; seeks current income that is exempt from federal income tax and seeks preservation of capital |
Municipal bond fund; seeks current income that is exempt from federal income tax and seeks preservation of capital |
Money market fund; seeks a high yield with safety of principal |
| Primary Investments | Investment grade municipal bonds with longer term maturity |
Investment grade municipal bonds with relatively short maturity |
U.S. Treasury debt securities and government agency notes |
| Stable share price? | No, but seeks minimal fluctuations | No, but seeks minimal fluctuations | Seeks to maintain $1 NAV |
Tax Free Fund (USUTX)
The Tax Free Fund invests in municipal bonds issued by state and local governments across the country, with the goal of consistent superior performance in the municipal arena. The Tax Free Fund invests in bonds the portfolio management team believes will perform well in the long run, with a focus on providing a higher level of tax-free income.
Near-Term Tax Free Fund (NEARX)
The Near-Term Tax Free Fund invests in municipal bonds with relatively short maturities. The fund seeks to provide tax-free monthly income and stability by investing in debt securities issued by state and local governments from across the country.
How Are These Funds Similar?
From a credit perspective, the Near-Term Tax Free Fund and the Tax Free Fund are similar. They both invest at least 80 percent of their net assets in investment grade municipal securities. At the time of purchase, the ratings on the bonds must be one of the four highest ratings by Moody’s Investors Services or Standard & Poor’s Corporation (or, if not rated, determined to be of comparable quality). They are restricted to a maximum of 10 percent of their portfolios in the lowest quality investment grade bonds (those rated Baa or BBB).
Both funds currently provide a higher yield than our U.S. Government Securities Savings money market fund, with income exempt from federal taxes.
How Do They Differ?
The primary difference between the funds is in the maturity structure of the bonds in their portfolios. Maturity is the average number of years of the bonds held in the portfolio before they are paid back by the municipalities. Generally speaking, the longer the bond’s maturity, the higher the price volatility due to changes in prevailing interest rates.
The Tax Free Fund tends to invest in longer term securities, which can cause the fund to be a little more volatile than the Near-Term Tax Free Fund because of interest rate risk. The Near-Term Tax Free Fund is restricted to a weighted average maturity of five years or less. This feature tends to make the fund less volatile than the Tax Free Fund.
About U.S. Global Investors
For more than 20 years, U.S. Global Investors has been providing high-quality tax-free municipal bond funds to investors. These funds complement our equity funds focused on gold, natural resources and emerging markets opportunities around the world. The company’s San Antonio, Texas, headquarters serves as home base for our portfolio managers who travel the earth researching opportunities and evaluating risk, all in the pursuit of exceptional performance for our funds.
| 1-year | 5-year | 10-year | Gross Expense Ratio | Expense Ratio After Waivers | |
|---|---|---|---|---|---|
| Tax Free Fund | 4.11% | 4.90% | 4.01% | 1.84% | 0.70% |
| Near-Term Tax Free Fund | 2.58% | 3.45% | 3.06% | 1.25% | 0.45% |
| U.S. Government Securities Savings Fund | 0.01% | 0.25% | 1.52% | 0.87% | 0.45% |
Expense ratios as stated in the most recent prospectus. The expense ratio after waivers is a contractual limit through April 30, 2014, for the Tax Free and Near-Term Tax Free Funds, and a voluntary limit for all other funds, on total fund operating expenses (exclusive of any acquired fund fees and expenses, extraordinary expenses, taxes, brokerage commissions and interest). U.S. Global Investors, Inc. (the “Adviser”) can modify or terminate the voluntary limits at any time, which may lower a fund’s yield or return. In addition, the yields and returns for the U.S. Government Securities Savings Fund include the effects of the Adviser’s voluntary waiver of fees and/or reimbursement of expenses to maintain a minimum net yield for the funds. The Adviser can modify or terminate these arrangements at any time. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. 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 at www.usfunds.com or 1-800-US-FUNDS.
Investments in the Tax Free Fund, Near-Term Tax Free Fund and the U.S. Government Securities Savings Fund are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the U.S. Government Securities Savings Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
Please consider carefully the fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or call 1-800-USFUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
Read additional important information
Be aware that the Tax Free Fund and Near-Term Tax Free Fund are bond funds and not money market funds and should not be considered substitutes for a money market fund. Unlike a money market fund, the Tax Free Fund and Near-Term Tax Free Fund are not subject to the same maturity, credit or diversification limitations as a money market fund and may invest in instruments that a money market fund may not purchase. Though the Tax Free Fund and Near-Term Tax Free Fund seek minimal fluctuations in share price, they are subject to the risk that a decline in the credit quality of a portfolio holding could cause a fund’s share price to decline. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer. Diversification does not protect an investor from market risks and does not assure a profit. Investments in natural resources, emerging markets and infrastructure are subject to distinct risks as described in the funds’ prospectus.
Morningstar Ratings are based on risk-adjusted return. The Overall Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)
The 7-day yield is used only for money market funds. It consists of the dividend and interest income the fund pays over a 7-day period, net of expenses, expressed as an annualized percentage of the fund’s share price. The 30-day yield is used for bond funds, balanced funds, and stock funds. It consists of the interest income the fund pays over a 30-day period, net of expenses, expressed as an annualized percentage of the fund’s share price. Tax Equivalent Yield is the before-tax yield you would have to get from a higher-paying but taxable investment to equal the yield from a tax-exempt investment and was computed assuming a 43.4% tax rate. 13-207
