Investor Alert - Placing This Week’s Selloff Into Context

August 05, 2011

By Frank Holmes

CEO and Chief Investment Officer

U.S. Global Investors

Cascading negative news over the past couple of weeks have frightened investors and sent the S&P 500 Index below levels where we began the year. BCA Research says “The U.S. economy has stalled, the euro area debt crisis has intensified, and inflation problems continue to plague emerging market countries.” On Thursday, we lived through the worst market decline since December 2008.

How extreme were this week’s markets? The 7.2 percent decline for the S&P 500 represents nearly a three standard deviation move for the index. That means the move was nearly three times the average move in a given week, going back 10 years.

Though extreme, selloffs are common this time of year. According to the Stock Trader’s Almanac, August has been the second-worst month of the year for the Dow Jones and S&P 500 since the 1987 crash. The 7.2 percent decline for the S&P 500 was the worst week ever recorded during the month of August, beating out another dismal week for performance in 1974.

What does this mean? Many stocks can are now on “sale.”

We believe volatility can be your friend if you’re not overleveraged and take advantage of downdrafts. We often look to add to our top positions during down days, weeks or months.

In order to successfully navigate their portfolios through shifting markets like today’s markets, investors must understand the inherent volatility in commodities and international investments. I often coach investors to “anticipate before they participate.”

There are a few reasons to remain cautiously optimistic:

Today’s job number was better than many expected

Second-quarter earnings for S&P 500 companies are up over 17 percent on a year-over-year basis, according to BCA Research. This has been driven by a 13 percent rise in revenues for those companies.

Current conditions are similar to 13 months ago when the S&P 500 was down 15 percent and prompted the Federal Reserve to initiate the QE2 program, BCA says. This means the door to QE3 has begun to swing open.

Being optimistic in today’s difficult market is certainly not traveling with the herd. Regardless of market conditions, those searching for reasons to be pessimistic will always poke holes in the optimistic viewpoint. This is a because “most people don’t want to risk looking dumb when it’s so easy to just go along with the herd’s view that the world is going to hell in a hand-basket,” writes Loretta Breuning, Ph.D. for Psychology Today. Breuning continues “Your brain scans for facts that fit the [your beliefs], and skims past facts that don’t fit.”

It’s also important to remember we must always view today’s market in a global context. The world has 7 billion people fueling the global economy. Today’s globalized world is quite different from the 1970s when many of the world’s 3 billion people were isolationists, non-participants in global commerce. Today, China and India are large contributors to the global economy. In these countries incomes are rising and consumption of goods and services is increasing.

Zachary Karabell did a great job of explaining this in a piece for The Daily Beast. In his piece, Karabell described this week’s selloff as “indiscriminate” and “programmatic.” Mainly, Karabell makes the case that focusing on the selloff ignores the shifting dynamics of global markets we’ve discussed for many years.

“So where does this sell-off leave us? The panoply above is vital—because it indicates that there is no cliff off of which the global economy is about to plunge, despite the blathering of pessimistic talking heads.”

“Yes, there is and will continue to be a risk of collapse; the events of 2008-2009 showed that we don’t have a safety net for our interconnectivity, and that is a real risk. But we do live in a much less levered world, and one in which there is a level of confidence, albeit new and untested, in the world beyond the reach of Wall Street and the capitals of Europe, to say nothing of the forgotten behemoth Japan.”

“Again, you’d be a fool to make a definitive market call for today or next week, but it’s hard to panic about a system that thrives where it used to lag and lags where it used to thrive. Those realities meet on the balance sheets of thousands of global companies who have been reporting just that for the past two years—booming abroad, treading water at home. This stock sell-off has little to do with profits, and everything to do with the relentless need for capital in Europe, plus an American investing class that is only slowly awakening to the fact that yes, this time it’s different.”

Karabell wrapped up his article with a piece of advice for investors

“This sell-off speaks to the continuing anxiety that a world not led by the United States and Europe and Japan is a world adrift. The smart money should bet that this swoon isn’t based on what we can see, but rather a fear of the unknown and the new. Welcome to the 21st century.”

What Karabell is pointing out is that the global fundamentals remain supportive of long-term growth.

This week was an outlier and extreme moves often present a buying opportunity. In a note yesterday, ISI Group’s John Mendelson framed this week’s selloff well: “There is nothing more bullish than fear nor more bearish than certainty.” Mendelson is saying that that if everyone is convinced the market is going higher, it may be a good time to sell. If everyone’s bailing out because of fear, it may be the time to buy.

Director of Research John Derrick contributed to this commentary.

Index Summary

The major market indices were lower this week. The Dow Jones Industrial Average lost 5.75 percent. The S&P 500 Stock Index decreased 7.19 percent, while the Nasdaq Composite fell 8.13 percent.

Barra Growth outperformed Barra Value as Barra Value finished 7.53 percent lower while Barra Growth decreased 6.88 percent. The Russell 2000 closed the week with a loss of 10.34 percent.

The Hang Seng Composite Index finished lower by 6.80 percent, Taiwan fell 9.15 percent, and the KOSPI declined 8.88 percent.

The 10-year Treasury bond yield closed 24 basis points lower at 2.56 percent.

All American Equity Fund - GBTFX • Holmes Growth Fund - ACBGX • Global MegaTrends Fund - MEGAX

Domestic Equity Market

The domestic stock market suffered a sharp correction this week with the S&P 500 Index losing 7.19 percent. The figure below shows the performance of each sector in the index for the week. All ten sectors declined. The best-performing sector for the week was consumer staples which decreased 2.54 percent. Other top-three sectors were telecom services and utilities. Energy was the worst performer, down 9.98 percent. Other bottom-three performers were materials and financials.

Within the consumer staples sector the best-performing stock was Kraft Foods, which rose 1.43 percent. Other top-five performers were PepsiCo, Colgate-Palmolive, Hershey Co., and Dr Pepper Snapple Group.

Strengths

With the stock market undergoing a sharp correction, it is normal for some of the groups in the consumer staples and utility sectors to outperform. That occurred this week as soft drinks, household products, integrated telecom services, packaged foods; tobacco and multi-utilities appeared among the top-ten groups. Those groups were down between 0.92 percent and 2.72 percent.

The construction materials group outperformed, down 1.57 percent, led by its single member, Vulcan Materials. In the company’s second quarter earnings conference call this week, the CEO said that they were “encouraged by the broad-based improvement in pricing versus the prior year’s second quarter.”

The gold group outperformed, losing 2.16 percent. This group consists of a single member, Newmont Mining Co. The price of gold increased during the week.

Weaknesses

The price of crude oil declined this week, and three of the bottom-ten underperforming groups were energy-related. The coal & consumable fuels group declined 21 percent. The oil & gas drilling group fell 16 percent, and the oil & gas refining & marketing group gave up 16 percent.

The industrial REITS (real estate investment trusts) group was the second-worst performer, down 19 percent, led by its single member, Prologis. Several REIT groups were among the weakest groups in the financials sector this week, perhaps due to investor concern over the possibility of an economic slow-down and its effects on real-estate values.

The airlines group underperformed, down 15 percent by its single member, Southwest Airlines Co. The company reported quarterly earnings below the consensus this week, and the CEO said that, based on bookings for August and September, the rate of growth has slowed.

Opportunities

There may be an opportunity for gain in merger & acquisition (M&A) transactions in 2011. Corporate liquidity is high, thereby providing the means to pursue acquisitions.

Threats

A mid-cycle slowdown in the domestic economy would be negative for stocks.

An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.

U.S. Government Securities Savings Fund - UGSXX • U.S. Treasury Securities Cash Fund - USTXX

Near-Term Tax Free Fund - NEARX • Tax Free Fund - USUTX

The Economy and Bond Market

Treasury bond yields fell sharply this week with weak economic data and rapidly escalating fears surrounding Europe’s never ending debt crisis. The week began with what appeared to be calming news as a debt ceiling deal was finally agreed to. The market quickly shrugged that off and focused on the rapidly deteriorating ISM manufacturing data and concerns about a possible need for additional European bailouts which would have a significant impact on the global financial sector.

Bonds rallied dramatically this week in response to the above-mentioned items as odds of a double-dip recession have seemingly increased significantly and at the same time, worries about inflation and a possible tightening move by the Federal Reserve have been pushed far into the future.

Strengths

Bonds rallied sharply this week on weak economic data and rapidly escalating fears surrounding Europe’s never-ending debt crisis.

Nonfarm payrolls for July rose 117,000. This better than expected report on Friday dampened some of the enthusiasm that existed for most of the week in the fixed income markets.

Mortgage rates fell to the lowest levels since November 2010.

Weaknesses

A crisis of confidence in U.S. and European leaders appears to have been a significant reason for the dramatic fall of many risky assets across the globe.

The ISM Manufacturing Index fell sharply and came in well below expectations, indicating a high risk of contraction in manufacturing.

The ISM Non-Manufacturing Index also disappointed and raised the risk of a broad based slowdown.

Opportunities

Federal Reserve Chairman Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling.

Threats

Confidence needs to be restored to the financial markets or further volatility can be expected.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

According to Erste Research, “QB Asset Management calculates the so-called “Shadow Gold Price” (“SGP”). It divides the US Monetary Base by U.S. official gold holdings, the same formula actually used during the Bretton Woods regime to fix the exchange value of the dollar at USD 35.00/ounce. It would be the theoretical price of gold today, were the Fed to depreciate the USD to a level that would cover systemic bank liabilities. The current Shadow Gold Price would be just under USD 10,000.”

For the week, spot gold closed at $1663.80, up $35.92 per ounce, or 2.2 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 4.74 percent. The U.S. Trade-Weighted Dollar Index rose 0.78 percent for the week.

Strengths

In tumultuous week of price action, as evidenced by the S&P 500 Index falling 7.19 percent, gold faired pretty well with a 2.1 percent gain, but silver fell 4.3 percent.

Both Royal Gold and Yamana Gold posted positive gains for the week. Royal Gold benefits from its first in line royalty structure of income generation; the company essentially gets paid via the revenue stream from gold sales on mines that other companies operate, while Yamana Gold has begun to regain market confidence in its ability to deliver consistently on company guidance.

Year-to-date, emerging market central banks have bought nearly 180 tons of gold, more than double the roughly 73 tons purchased by central banks globally in the whole of 2010. This hits the central issue of the public’s recognition that government policy makers in Europe and the U.S. do not have the will to address spending cuts. The budget deal over the prior weekend only allowed for a $10 billion reduction in planned spending increases over the next two years while a couple of trillion dollars in cuts would allegedly take place after the presidential election.

Weaknesses

It was a stark week of underperformance by the junior and mid-tier gold and silver stocks relative to their senior peers as evidenced by a weekly decline of 9.2 percent for the junior space versus the larger capitalization gold stocks which fell 2.6 percent.

Underperformance in the junior space can largely be attributed to a loss in confidence in overall stock markets around the world to provide capital for what is turning out to be a period of low growth.

On a risk-preference basis, investors have been more willing to add to their gold bullion exposure versus adding to equity market exposure, even in the realm of gold mining companies.

Opportunities

Noted market historian Don Coxe believes that the gold rally “is primarily driven by fear-not greed.” He advised “gold is gradually becoming recognized as a necessary investment for those with wealth to conserve who do not assume that the political classes in the US and Europe will display sustained statesmanship.”

Despite rising prices, precious metals demand in India, the world’s biggest consumer of bullion, continues to soar. Jewelry manufactures note that gold is likely to see further increased demand with the festival and wedding season around the corner.

Entertainment specialist Jim Cramer recommended that gold should account for 20 percent of any portfolio. Just a small shift in investment portfolios allocations towards this weight would likely create an order of magnitude change in the gold price should investors follow his advice.

Threats

Investor confidence going forward after the recent near panic in selling will be a headwind in the near term.

Liabilities on quasi-government-backed debt relating to the housing bust on corporate balance sheets were bought back by the government over the last couple of years via the bailout package. Company balance sheets are relatively healthy, but this fact has been overshadowed by the central debt issue not being dealt with effectively and the continuing threat of tax increases to solve the spending problem of governments.

While gold has performed very well as of late, investors must be cognizant that some leveraged market participants may get liquidated and be forced to sell their holdings in gold too.

August 5, 2011

Chart of the Week Copper's Weak Supply Growth

August 3, 2011

Gold's Explosive Reaction to Uncertainty

August 1, 2011

The 2011 Gold Season is Just around the Corner

Global Resources Fund - PSPFX • Global MegaTrends Fund - MEGAX

Energy and Natural Resources Market

Strengths

Due to recent defensive positioning of the portfolio, the Global Resources Fund weathered this week’s market’s turmoil relative to its benchmark, the Morgan Stanley Commodity Related Index.

In spite of escalating macro fears, analysts at Credit Suisse find that many of the ‘real economy’ data points that they track are actually showing improvement. Specifically, rail carloads posted the second-highest level year-to-date during the week ended July 30; the Cass Freight Shipment Index increased 11 percent year-over-year in July (comparable to +5 percent in June); and the ATA Truck Tonnage Index rose 7 percent year-over-year in June (accelerating from the +3 percent in May).

According to Mineweb, the U.S. car market is rebounding off an annualized rate of 9.5 million units at the 2009 bottom, and could reach 13 million units this year. This may rise as high as 15 million units by 2015.

Analysts at Macquarie highlighted that commodities for which China sets the market price remained strong, with iron ore holding at $179.5 per ton CFR China (62 percent Iron) in the latest Platts assessment, the highest level since mid-May. Meanwhile, Platts’ assessment of Chinese hot-rolled steel coil prices rose $5 per ton week-over-week to $707.50 per ton.

Weaknesses

The S&P energy sector was one of the weakest sectors this week, falling approximately 10 percent on a slide in crude oil and mixed results from earnings reports. Small cap exploration & production was one of the worst performing sub-sectors, down 12.7 percent for the week, negatively impacting the Global Resources Fund.

Crude oil was down approximately 9 percent, to $87.03 per barrel, the lowest close since February. Traders are concerned with slowing global economic growth and worries over contagion of European sovereign debt problems.

China’s Purchasing Managers Index (PMI) fell to 50.7 last month but the HSBC PMI fell to under the 50-mark for the first time in one year. This indicates that shrinkage in that country’s manufacturing sector is underway according to Kitco Metals.

Chinese imports of uranium slowed during the first half of the year, amid industry uncertainty caused by Japan’s Fukushima nuclear crisis. China imported 5,356 tons of uranium in the first six months of 2011, a 13 percent drop year-over-year, according to figures released by the General Administration of Customs. In contrast, China had tripled its uranium imports from 2009 levels to 17,136 tons in 2010.

Opportunities

Chile’s Escondida mine workers accepted a company offer to end a two-week strike that shut the world’s largest copper deposit and raised fears of a supply shortage, according to Reuters.

Ernst and Young predicts a record $120 billion in transactions this year as the pace of deals within the resource sector have picked up in recent weeks, putting the sector on track to top a record.

Because of ongoing nuclear power development in China, Africa and the Middle East, uranium prices could bounce back to pre-Fukushima levels of $70 per pound in 2012 according to the Energy Report.

According to JP Morgan Market Intelligence, China is aiming to increase its self-sufficiency in non-ferrous metals over the next 5 years by increasing domestic exploration and making overseas acquisitions.

Threats

In Rio Tinto’s first half of 2011 results, the company noted an approximate 30 percent increase in capital intensity for its cornerstone Pilbara expansion to approximately $175 per ton annual capacity. This is in line with previous hikes noted by BHP Billiton, and provides yet another example of spiraling capital costs afflicting Australian iron ore projects.

Chile’s copper output may be 5 percent below the target of 5.6 million tons this year on the back of various unforeseen events, according to the CEO of the world’s largest copper producer, Codelco. Year-to-date, Chile’s copper production has already been 2 percent below comparable figures for the previous year.

China Region Fund - USCOX  •  Eastern European Fund - EUROX

Global Emerging Markets Fund - GEMFX

Emerging Markets

Strengths

South Korea’s exports in July rose to a record high $51.4 billion, representing 27.3 percent year-over-year growth, much stronger than market consensus 17.1 percent and faster than June’s 13.6 percent, thanks to robust shipments of vessels, steel, petrochemicals and auto parts.

Indonesia’s consumer confidence accelerated to 111.8 in July from 109 in June, led by encouraging stock market performance, moderating inflation and buoyant economic growth. GDP growth remained solid at 6.5 percent year-over-year in the second quarter, unchanged from the first quarter, due to sustained momentum in consumer spending and government expenditure.

Malaysia’s June export growth registered higher than expected, up 8.6 percent from a year earlier, driven by gradual recovery of global supply chain disruptions in the wake of Japan’s March earthquake and rising Asian demand for commodities.

The Bloomberg chart below shows that benchmark equity indexes have retreated this year in developing nations including Brazil and China where a majority of people are satisfied with their country’s direction, while stocks advanced in Russia and Indonesia, where most respondents said they were dissatisfied. The divergence between share prices and happiness shows investors are concerned that the fastest-expanding economies have overheated, making them vulnerable to a drop in growth as central banks raise interest rates, according to Renaissance Asset Managers. While economic growth in Indonesia is slower than in China and India, inflation in Indonesia fell for six straight months through July and the central bank lifted borrowing costs only once this year. Russia’s central bank raised its refinancing rate twice in 2011 as the economy expanded at less than half the pace of China.

Copa, a Panama-based airline serving Central and South America, reported solid second-quarter results thanks to a higher load factor (up 3.2 percent to 76.3 percent) and increased capacity that included opening of four new destinations. In addition, its operating margin improved to 17.6 percent from 14.4 percent, despite a 38 percent rise in fuel cost. The company revised upwards guidance for the remainder of the year.

ASUR reported a 5.9 percent increase in airport traffic in July driven by domestic and international travelers, up 8.5 percent and 3.6 percent year-over-year, respectively.

Bancolombia’s second-quarter results came in with net income up 32 percent year-over-year.

Weaknesses

China’s official manufacturing Purchasing Managers Index (PMI), dominated by state owned companies, continued to slow to a 28-month low of 50.7 in July from 50.9 in June, presaging a slowdown in industrial activity. The earlier-released HSBC flash PMI, comprising mostly smaller enterprises, suggested even weaker conditions in the private sector.

The Indian Prime Minister’s Economic Advisory Council revised its GDP forecast downward to 8.2 percent from 9 percent for the current fiscal year. India’s central bank raised the benchmark interest rate by 50 basis points to 7 percent in the previous week.

Hong Kong’s number of housing transactions declined 60 percent year-over-year in July with the value of transactions down 39 percent, the lowest since April 2009, caused by rising mortgage rates and higher down payments required by its government to curb speculative purchases.

The Hungarian stock exchange lost the most during the week, as exports slumped in June and industrial-output growth fell to its lowest level since December 2009.

Itau Unibanco reported second-quarter results that came in around 2 percent below estimates, mainly due to lower treasury gains. Most Brazilian banks have been under pressure this year due to purported overleverage by retail consumers.

Brazil’s Industrial Production in June declined 1.6 percent year-over-year mainly due to weakness in the textile and footwear segments. In order to alleviate pressure on the industry, which has been affected by appreciation of the Brazilian currency, the government is considering tax breaks for the next two years.

Opportunities

According to the 2011 Blue Book of World Luxury Association, China’s total domestic luxury retail sales had reached $10.7 billion by the end of March, or 27.5 percent of world’s total. China has become the second-largest luxury consumer globally after Japan and is estimated to surpass Japan by 2012 as luxury demand migrates to tier 2 and tier 3 cities. Growing awareness of premium brands and attention to quality of life among aspiring Chinese consumers should benefit local jewelers and department stores.

Russian inflation slowed in July as prices for fresh fruits and vegetables dropped by 9.2 percent from the previous month, easing margin pressure for food retailers. Food price inflation may slow further in the second half thanks to a favorable harvest and stabilizing food prices globally.

Liverpool, the Mexican department chain, will enter the local equity index effective September 1, which should generate increased interest among investors for the Mexican consumer theme.

At a time of increased volatility in the markets, it may well be that traditional utilities will provide refuge for investors. In Brazil, the worst-performing emerging market year to date (down 25 percent), most electric utilities are in the positive territory. They include AES Tiete (up 2 percent), CPFL (up 7 percent) and CEMIG (up 13 percent), mainly thanks to healthy dividend yields in the sector that ranges from 7-10 percent.

Threats

Unilateral intervention by the Japanese government in its currency market caused the Japanese yen to weaken against the U.S. dollar significantly on Thursday. A weaker Japanese yen would make Korean exporters less competitive compared with Japanese exporters. Considering the fact that Korea has been a major beneficiary in the wake of the Japanese earthquake in March, investors may have started to take profits in exporters in Korea in anticipation of a potential comeback of Japanese activity.

Turkey’s Central Bank unexpectedly cut key policy rate by 50 basis points, to “reduce the risk of a domestic recession that may be caused by the heightened problems in the global economy.” It came as a surprise to economists who expected a rate hike to cool off domestic demand.

A protracted disruption in the equity markets worldwide, partly a result of lower economic growth, will cloud sentiment for most emerging markets, particularly those tied to commodities.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Weekly Performance

IndexCloseWeekly

Change($)Weekly

Change(%)Gold Futures

1,665.20

+34.00

+2.08%

S&P/TSX Canadian Gold Index

370.48

-5.73

-1.52%

Natural Gas Futures

3.96

-0.19

-4.54%

XAU

196.06

-9.75

-4.74%

DJIA

11,444.61

-698.63

-5.75%

Hang Seng Composite Index

2,970.69

-216.84

-6.80%

S&P BARRA Growth

645.58

-47.70

-6.88%

S&P 500

1,199.38

-92.90

-7.19%

S&P BARRA Value

547.13

-44.54

-7.53%

Nasdaq

2,532.41

-223.97

-8.13%

10-Yr Treasury Bond

2.56

-0.24

-8.40%

Korean KOSPI Index

1,943.75

-189.46

-8.88%

Oil Futures

87.09

-8.61

-9.00%

S&P Basic Materials

215.01

-22.58

-9.50%

S&P Energy

506.81

-56.21

-9.98%

Russell 2000

714.63

-82.40

-10.34%

Monthly Performance

IndexCloseMonthly

Change($)Monthly

Change(%)Gold Futures

1,665.20

+133.70

+8.73%

S&P/TSX Canadian Gold Index

370.48

-5.60

-1.49%

XAU

196.06

-10.00

-4.85%

Natural Gas Futures

3.96

-0.26

-6.17%

S&P BARRA Growth

645.58

-66.14

-9.29%

DJIA

11,444.61

-1,181.41

-9.36%

Oil Futures

87.09

-9.56

-9.89%

S&P 500

1,199.38

-139.84

-10.44%

Korean KOSPI Index

1,943.75

-227.44

-10.48%

S&P Energy

506.81

-59.61

-10.52%

Nasdaq

2,532.41

-301.61

-10.64%

S&P BARRA Value

547.13

-72.30

-11.67%

S&P Basic Materials

215.01

-34.34

-13.77%

Hang Seng Composite Index

2,970.69

-332.01

-14.83%

Russell 2000

714.63

-130.60

-15.45%

10-Yr Treasury Bond

2.56

-0.55

-17.59%

Quarterly Performance

IndexCloseQuarterly

Change($)Quarterly

Change(%)Gold Futures

1,665.20

+180.30

+12.14%

S&P/TSX Canadian Gold Index

370.48

-3.62

-0.97%

XAU

196.06

-5.52

-2.74%

Natural Gas Futures

3.96

-0.30

-7.13%

S&P BARRA Growth

645.58

-54.13

-7.74%

S&P Energy

506.81

-47.63

-8.59%

DJIA

11,444.61

-1,139.56

-9.06%

Hang Seng Composite Index

2,970.69

-321.58

-9.77%

Nasdaq

2,532.41

-282.31

-10.03%

S&P 500

1,199.38

-135.72

-10.17%

Korean KOSPI Index

1,943.75

-236.89

-10.86%

S&P Basic Materials

215.01

-28.09

-11.55%

S&P BARRA Value

547.13

-79.52

-12.69%

Oil Futures

87.09

-12.71

-12.74%

Russell 2000

714.63

-114.61

-13.82%

10-Yr Treasury Bond

2.56

-0.59

-18.72%

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the 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.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

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 percent 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.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 6/30/2011:

Copa Airlines.: 0.0%

Grupo Aeroportuario del Sureste SAB.: 0.0%

Grupo Bancolombia.: 0.0%

Itau Unibanco Holding SA.: Global Emerging Markets Fund: 1.72%

El Puerto De Liverpool SAB.: 0.0%

AES Tiete SA.: 0.0%

CPFL Energia SA.: Global MegaTrends Fund: 2.96%

Companhia Energetica de Minas Gerais.: 0.0%

Kraft Foods, Inc.: 0.0%

PepsiCo Inc.: 0.0%

Colgate-Palmolive Co.: 0.0%

The Hershey Co.: 0.0%

Dr Pepper Snapple Group Inc.: All American Equity Fund: 1.14%

Vulcan Materials Co.: 0.0%

Newmont Mining Corp.: Gold and Precious Metals Fund: 2.01%; Global Resources Fund: 4.14%

Prologis, Inc.: 0.0%

Southwest Airlines Co. 0.0%

Royal Gold, Inc.: Gold and Precious Metals Fund: 1.23%; 

Yamana Gold Inc.: Gold and Precious Metals Fund: 4.88%; World Precious Minerals Fund: 3.67%

Rio Tinto Ltd.: 0.0%

BHP Billiton Ltd.: Global Resources Fund: 2.87%

National Copper Corporation of Chile.: 0.0%

JP Morgan Chase & Co.: All American Equity Fund: 0.89%; Holmes Growth Fund: 1.53%

Ernst and Young LLP.: 0.0%

Apple, Inc.: All American Equity Fund: 0.91%; Holmes Growth Fund: 1.57%

Credit Suisse Group AG.: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The ATA Truck Tonnage Index is a measure of the total amount of tonnage hired for transport from American freight trucking services. It is often used as a barometer of commerce and trade in general across the United States, as the higher the number the more people and corporations are using truck and freight services to ship goods across the country. 

The Cass Freight Index is a measure of monthly freight activity. It is widely used by industry analysts and economists as an accurate barometer of North American shipping and economic trends. Data within the Index is derived from $17 billion in freight transactions processed by Cass annually on behalf of its client base of 350 large shippers.

The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy. The China Purchasing Managers’ Index, a gauge of nationwide manufacturing activity, is issued by the China Federation of Logistics & Purchasing and co-compiled by the National Bureau of Statistics.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.

The ISM Services Non-Manufacturing Index is a national non-manufacturing index based on a survey of roughly 370 purchasing executives in industries including finance, insurance and real estate (or FIRE), communications and utilities. This sister of the Purchasing Managers’ Index measures service-sector activity. 

The Morgan Stanley Commodity Related Index (CRX) is an equal-dollar weighted index of 20 stocks involved in commodity related industries such as energy, non-ferrous metals, agriculture, and forest products. The index was developed with a base value of 200 as of March 15, 1996.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.

The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.

The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.

The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.

The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.

The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.

The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges. 

The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. 

The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

The MSCI Ru