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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

Talking Turkey with John Derrick
October 28, 2014

Upon his arrival in Istanbul, John Derrick prepared his notes for the next two days’ worth of meetings while he spent a cool, drizzly afternoon outside a café, sipping coffee and watching ships cruise by on the Bosphorus. Separating Asia from Europe, the Bosphorus has long served as an important trading lane. Today it’s the second-busiest strait in the world, traversed by an average of 48,000 vessels annually, or roughly 132 per day.

A ship crusing the Bosphorus past IstanbulThis is just one of many observations and insights that John, Director of Research at U.S. Global Investors, returned home with following his visit to Turkey and Greece, where he met with companies held in our Emerging Europe Fund (EUROX) and sniffed out other potential investment opportunities.

As this was U.S. Global’s first visit to Turkey since May, I made sure to follow up with John about what he heard and saw.

So what’s changed since our last trip to the country?

Well, one major change is that Turkey has become our largest exposure in EUROX since we exited Russia. There’s a reason why it’s is such an attractive place to invest in. It has a relatively stable economy, despite the European slowdown and recent threat of ISIS. The International Monetary Fund (IMF) expects Turkey’s GDP growth to be about 3 percent this year, a little under what it was last year, but not by too much. Prime Minister Recep Tayyip Erdogan, who was elected in August, vows to make Turkey the world’s tenth-largest economy by 2023. This is probably a little too ambitious, but the country was able to grow its economy close to 230 percent between 2002 and 2013, so the goal might be achievable.

Like many other emerging markets, Turkish stocks had a rough September. Financials, which saw a nice rally this summer, took a tumble last month, but we’re starting to see some improvement. I had a very productive meeting with Garanti, Turkey’s second-largest bank and one of our top holdings in EUROX. Our discussion touched on a number of issues such as the threat of NPLs (non-performing loans), central bank policy and what actions Garanti might need to take if the lira weakens any further. The currency’s been banged up recently because of the strong dollar, but now that the dollar’s going through a correction, the lira is trying to stabilize.

Turkish Banks Starting to Recover After a Disappointing September
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I also was able to meet with Sabanci Holdings, another company in our fund. Part of our due diligence as investment managers, as you know, is catching up with such companies, meeting with their executives and top decision-makers, gaining tacit knowledge on their business models. Sabanci is a large conglomerate with interests in, among others, Turkish bank Akbank, tire manufacturer Brisa, cement maker Akcansa and Kordsa, which manufactures internal tire components. The company continues to do well and is expected to grow between 3 and 3.5 percent this year due to increased price competitiveness.

How does the Turkish telecommunications industry look?

Turkey, believe it or not, is third in the world in using smartphones for e-commerce, behind England and Germany, so the industry is pretty strong. I met with two of the country’s largest providers, Türk Telekom and Turkcell, the latter of which we own. Right now they mostly blame each other for being irrational players in the market, but they both offer potential opportunity. Türk Telekom has some legacy landline business and offers broadband. Although Turkcell has had an ongoing shareholder dispute that’s prevented them from paying a dividend for the last four years, it looks very promising that a resolution is near. It’s still six to nine months out, but hopefully we’ll see a dividend of between 20 and 50 percent of its market cap.

The Lounge Istanbul at Istanbul Ataturk International Airport, designed by Turkish Do&Co, takes luxuruy to a new level Describe the best experience you had during your stay in Turkey.

That would have to be Do & Co, self-described as “the Gourmet Entertainment Company.” They specialize in high-end, luxury airline and event catering, with additional business in restaurants, bars and airport lounges. Even though the company is based in Austria, Turkish Airlines is its flagship customer. I got to inspect the Lounge Istanbul in the city’s international airport and was awestruck by its lavishness. By far the nicest lounge I’ve ever been in. Even the fruit was arranged in an artful way.

Do & Co is a very attractive company, and I don’t mean that just from an aesthetic point of view. It’s a double-digit sales and earnings-per-share grower—it’s expected to grow 20 percent next year. It also has a reasonable valuation and pays a dividend. We’ll certainly keep our eyes on it.

So I hear you attended a San Antonio Spurs exhibition game! How did they do?

The Lounge Istanbul at Istanbul Ataturk International Airport, designed by Turkish Do&Co, takes luxuruy to a new level The Spurs performed well as always. They went up against Fenerbahçe Ülker in the Ülker Sports Arena, named for the wealthy family and food manufacturer, which makes Godiva Chocolate, among other products. Two of the people I attended the game with—investment professionals from Finansinvest, a Turkish banking and brokerage firm—generously gave me a jersey with “John” written on the back.

One of the highlights of the game was watching the audience’s reaction to the Spurs Coyote. Here in the U.S. we take sports mascots for granted, but I think initially the Turks kind of saw him as a curiosity. They were a little taken aback seeing him taunt the referee and dribble the ball with his “paws,” but they soon realized this was all part of the theater of American basketball. By the end of the game they were laughing at the Coyote’s antics.

For more on our Emerging Europe Fund, check out its composition. Also, make sure to look out for my chat with John about his visit to Greece.

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.

Past performance does not guarantee future results.

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 Emerging Europe Fund invests more than 25% 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.

The Borsa Istanbul Banks Index (XBANK) is a capitalization-weighted free float adjusted Industry Group Index composed of National Market listed companies in the banking industry. All members of the index are also constituents of the XUMAL Sector Index.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Emerging Europe Fund as a percentage of net assets as 09/30/2014: Turkiye Garanti Bankasi A.S. 3.31%, Turkcell Iletisim Hizmetleri A.S. 2.40%, Haci Ömer Sabanci Holding A.S. 1.96%, Ülker Bisküvi Sanayi A.S. 1.02%, DO & CO Aktiengesellschaft 0.00%, Akçansa Çimento Sanayi ve Ticaret Anonim Sirketi 0.00%, Kordsa Global 0.00%, Türk Telekom 0.00%, Brisa Bridgestone 0.00%, Akbank 0.00%, Finansinvest 0.00%, Turkish Airlines (Türk Hava Yollari) 0.00%.       

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

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As the Eurozone Stalls, China Cuts the Red Tape
October 27, 2014

Forty-four percent. That’s the alarming unemployment rate for those aged 15 to 25 in Italy, where I traveled recently to meet with other global chief executives and business leaders.

The reasons for Italy’s high youth unemployment? Tortuous red tape, high taxation and thuggish unions. Many of the CEOs at the event I attended noted that Italy is mired in unionization. This has created a restrictive jobs market that crowds out well-educated, aspirational young people, many of whom are forced to flee their homes and seek work elsewhere.

A penny-farthing economy on a precarious ride: Fiscal and monetary policy are imbalanced in the eurozoneBut “elsewhere” within the European Union is currently not much of an improvement. Even in Germany, the EU’s most reliable economy, train and airline unionists have gone on strike, bringing the country to a near-standstill. Incredibly, both Italy and France—where the youth unemployment rate stands at 24 percent—want the EU to foot the bill for their joblessness woes. Global investors’ patience has been stretched thin as European Central Bank (ECB) President Mario Draghi and German Chancellor Angela Merkel continue to bicker over how to resolve the region’s slowdown.

As I told CNBC Asia’s Bernie Lo, the EU’s default policy is to tax anything that moves. Led by pro-taxation economists such as France’s Thomas Piketty, Europe’s policies have become a sort of contagion resonating throughout the rest of the world. The eurozone countries have an imbalanced approach to jumpstarting their economies, relying only on monetary policy but failing to address fiscal issues such as punitive taxation and over-bloated entitlement spending.

You can see how disastrous the results have been: France and Germany’s industrial production has turned down recently. Their purchasing managers’ index (PMI) numbers are below the 50-mark line, indicating contraction. This trend is especially worrisome because Europe is a bigger trading partner with China than the U.S. is.

So what’s the solution?

The EU would do well to look east, specifically to China.

China Handing over Its Economy’s Keys to Capital Markets
Last week senior Chinese officials met in Beijing to resolve the sorts of problems the EU can’t seem to fix, let alone acknowledge. On the chopping block were regulations—hundreds of them. According to Premier Li Keqiang, 416 lines of red tape have allegedly either been abolished or eased in order to facilitate business growth in important sectors such as transportation, logistics and telecommunications. In June, Li vowed to slash an additional 200 measures.

The Chinese government also plans to relax oversight of key areas such as utilities and natural resources, land and the pricing mechanism of money. Gone is the government’s control over shale gas, coal bed methane and imported liquefied natural gas (LNG). The mining sector’s tax code has been reformed. And for the first time, private companies have been granted the license to ship crude oil.

It appears as if China is starting to see the light. They’re introducing competition back into their capital markets instead of strangling it, as the eurozone has done. Between January and September, 10.97 million new jobs were created in China, exceeding the government’s goal of 10 million in 2014 and beating the benchmark by an entire quarter, according to China’s National Bureau of Statistics (NBS).

As you can see below, new business start-ups in China have skyrocketed.

China's Reduction of Red Tape Has Increased Business Start-ups, Despite Slowing Growth
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These red tape-cutting measures, coupled with fiscal stimulus, are needed now more than ever. As promising as Premier Li’s promises are, China still faces deflation and declining real GDP growth. The Asian country’s economy is currently headed for its slowest expansion since 1990, the main culprit of which is the struggling real estate market.

Other problems also continue to hold China back, many of them deeply-rooted and systemic. The Ease of Doing Business Index ranks China 158 out of 189 economies in the “Starting a Business” category and an almost-dead-last 185 in the “Dealing with Construction Permits” category. According to the World Economic Forum’s most recent Global Competitiveness Report, the two most problematic factors for conducting business in China are access to financing and corruption, another issue Chinese officials are addressing this week.

These issues can’t and won’t be fixed overnight. But unlike the EU, China acknowledges them and is seeking innovative solutions. One of the only benefits to having a one-party system, as China does, is that you can’t shuffle off a set of problems to another party and then lay the blame at their feet when they go unresolved. You must think long-term.

Constructive Manufacturing News
Last week we were relieved to learn that China’s flash PMI came in at 50.4. Anything over 50 indicates growth in the manufacturing sector, but as I’ve discussed on numerous occasions, what really matters is that the one-month reading crosses above the three-month moving average. Such a “cross-above” historically means that commodities and commodity stocks perform better in the coming months. Based on our research, three months following a cross-above, there’s a 73 percent chance that the S&P 500 Index will rise more than 2.4 percent and a 55 percent chance that the S&P 1500 Energy Index will rise more than 0.7 percent.

As you can see, this crossover did indeed occur, the first time it’s done so since May. 

One-Month Reading for china's Flash PMI Crosses Above the Three-Month Reading
click to enlarge

Of course, flash PMIs are merely preliminary, and we won’t know the final results until later. But for now this is certainly positive news.

Emerging Asia Wins with Cheap Commodities
One of the reasons why Chinese manufacturing is picking up steam might be the recent collapse in commodity prices. Low commodity prices undeniably hurt certain stocks in the space, and we’ve felt the pain in some of our funds. The silver-lining, though, is that these low prices have helped non-Japan Asian companies get ahead, a tailwind for our China Region Fund (USCOX). Because labor continues to be relatively cheap in Asia, commodities tend to be the single-largest company expenditure.

Lower Energy and Food Prices Will Help Chinese Businesses
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Lower steel and aluminum costs benefit machinery, automobile and equipment manufacturers, as well as homebuilders, shipbuilders and oil and drilling equipment suppliers; falling corn and wheat prices are welcomed by food and beverage producers; cheap copper is good for construction and engineering, utilities and electrical equipment.

Then there’s oil and gas. Since June, Brent crude has corrected itself over 25 percent. Again, this is a headwind for petroleum companies and large net-oil-exporting nations such as Russia and Mexico, but cheap energy equates to huge savings for emerging Asian countries. 

Asian Markets Benefit Most from Lower Oil Prices
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One final bellwether of economic growth I want to touch upon is accelerated electricity generation and usage. In the past, Chinese Premier Li Keqiang has cited this as one of the more reliable indicators of economic activity because electricity is not easily stored and the data is difficult to manipulate. This month, energy production improved 4.1 percent year-over-year —not a huge cause for celebration, but a step in the right direction nonetheless. 

Increased Electricity Production in China Is a Reliable Indicator of Economic Activity
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With a more balanced approach to monetary and fiscal policy than the eurozone, China is able to be more productive.China Is a Long-Term Story
Compared to many eurozone nations, China is relatively young. Whereas the median age in Italy is 43 years, in China it’s 35. There’s huge growth potential in this region, especially now that Premier Li has resolved to cut red tape and balance monetary and fiscal policy. In 10 years’ time, the 35-to-45 cohort, a well-educated group with good salaries and credit, will expand dramatically.

Consider this: of the 1.35 billion Chinese citizens, about 618 million, nearly half, have access to the Internet. Of those, 302 million, nearly half again, shop online. These numbers will continue to grow, and with them, greater investment opportunity. Name one Western European company that, in recent years, has achieved the sort of success Alibaba, Tencent or Baidu has. Not in a Piketty economy.

I encourage investors who are seeking growth potential to check out our China Region Fund’s composition.

And to those who prefer a “no-drama” fund, please take a look at our Near-Term Fax Free Fund (NEARX).

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.

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. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. 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. The Near-Term 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. The Near-Term Tax Free Fund 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.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.

The HSBC Flash China Manufacturing PMI is published a week ahead of the final HSBC China PMI every month. It analyzes 85-90 percent of the responses to the Final PMI from purchasing executives in more than 400 small, medium and large manufacturers, both state-owned and private enterprises.

The Doing Business Project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages countries to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each country. The Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations.  The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 9/30/2014: Alibaba Group Holding, Ltd. 0.42%, Tencent Holding, Ltd. 5.62%, Baidu, Inc. 2.44%.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Past performance does not guarantee future results.

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New Economic Report Card Shows that the U.S. Still Has the Competitive Edge
October 16, 2014

America’s still got it.

That’s according to the latest Global Competitiveness Report, which names the U.S. the third-most competitive nation in the world, our highest ranking since 2008.

For 10 years now the World Economic Forum (WEF) has published its annual competitiveness report, which assesses the strength of 144 countries’ 12 “pillars,” including institutions, infrastructure, health and primary education and higher education. It then ranks these countries based on their overall ability to promote prosperity for their citizens.

Singapore retains its number two spot for the fourth straight year, while Switzerland leads for the sixth year in a row.

Top 20 Countries in 2013 - 2014 Global Competiveness Index
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From 2006 until 2008, the U.S. held the top position, but following the financial crisis, our ranking slipped to number seven in 2012.

This year, the WEF notes:

“U.S. companies are highly sophisticated and innovative, and they are supported by an excellent university system... Combined with flexible labor markets and the scale opportunities afforded by the sheer size of its domestic economy—the world’s largest by far—these qualities make the United States very competitive.”

You might be thinking: But wait, didn’t China’s economy just exceed our own?

Yes and no.

It’s true that, when U.S. and China’s economies are not adjusted for costs of living, the U.S. is still “the world’s largest by far.” Our GDP stands at around $16.8 trillion whereas China’s is $9.3 trillion.

But based on purchasing power parity (PPP), a calculation that factors in relative costs of living to make comparisons between and among countries “fairer,” China has indeed caught up with and surpassed the U.S.

China's Economy Surpasses the U.S.'s Based on Purchasing Power Parity
click to enlarge

This news might bruise some readers’ egos, but it’s actually a tailwind for both commodities and our China Region Fund (USCOX). China is such an important player in the global economy that it’s nearly impossible for any serious investor to see China’s ascent as anything but positive.

Below are some of the key takeaways from the Global Competitiveness Report.

Strengths

The economic report card gives the U.S. many accolades, including its capacity to attract and retain talented people from abroad. I always say that when people want to innovate and start businesses, they typically come here to the United States. The report reveals it’s relatively easy in the U.S. for “entrepreneurs with innovative but risky projects to find venture capital.” Our financial services are strong, and we have ready access to bank loans for sound business plans. When it comes to the ease of raising money by issuing shares on the stock market, we come in at sixth place, following Hong Kong, Taiwan, South Africa, New Zealand and Qatar.

The United States ranks high in company spending on research and development.Only Switzerland beats us in our capacity for innovation.

We score very well in our availability and corporate adoption of the latest technologies, as well as availability of scientists and engineers, quality of scientific research institutions and company spending on R&D. We rank eleventh in the number of patent applications filed under the Patent Cooperation Treaty (PCT), amounting to 149.8 per one million U.S. citizens.

In the business sophistication pillar, we excel above all other countries in our use of sophisticated marketing tools and techniques.

Areas for Improvement

It comes as no surprise that the top three most problematic factors for doing business in the U.S., according to the report, are tax rates, tax regulations and inefficient government bureaucracy. It’s for these reasons that some businesses, including Burger King, Medtronic and Chiquita, are in the process of moving their corporate headquarters to countries with friendlier tax rates—Ireland, Canada and Singapore, among others.

High tax rates, burdensome regulations and inefficient government bureaucracy are all cited as "problematic factors" for doing business in the U.S.To prevent such tax inversions from occurring, our tax code sorely needs amending. Our 35-percent corporate income tax rate is the highest among the 34 member nations of the Organisation for Economic Co-operation and Development (OECD), and we actually rank 32 out of 34 in the 2014 International Tax Competitiveness Index. Only Portugal and France fare worse.

Indeed, the Global Competitiveness Report shows that, to a large extent, taxes reduce the incentive to work: in this department we come in at number 37, just between China and Ghana. As for wastefulness of government spending, we rank number 73, trailing France by one point and China by 49 points. The report also shows that it can often be difficult for some businesses to comply with U.S. government regulations.

If our government were to simplify the tax code and ease regulations, there’s no doubt that the U.S. could once again claim top honor.

Other crucial areas for improvement include quality of electrical supply (we come in at number 24, following Barbados), soundness of banks (number 49), gross domestic secondary enrollment rate (59) and quality of math and science education (51).

Emerging Countries 

Some of the emerging markets that we track at U.S. Global Investors either made gains this year or maintained their positions.

Poland, for instance, held on to its rank of 43. The WEF noted the country’s “improvements… in institutions, infrastructure and education,” its “increased flexibility in labor market efficiency” and its “[c]ontinued structural reforms geared toward strengthening its innovation and knowledge-driven economy.” A well-educated population and secure financial market make Poland globally competitive, but to truly boost its innovative capacity, it needs to improve its infrastructure, soften regulations and make settling business disputes more efficient.

Greece jumped 10 spots to reach the rank of 81. Despite its high levels of government debt, the Mediterranean country has managed to improve the functioning of its goods and labor markets and reduce its budget deficit. However, its government is still inefficient and its financial market has yet to recover from the recent crisis that hit parts of Europe. A lack of access to financing is the most problematic factor for doing business in Greece.

Other key emerging markets that rose up the list were China, Malaysia, Thailand, Indonesia and the Philippines.

Keep Investing in America

Despite a few areas for improvement, the United States is still the preeminent place on earth to invest, with plenty of openings for growth. As we continue to recover from the recession, now is the most opportune time in years to place your trust in America’s future.

Our two U.S. equity funds, All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX), have been impacted by the global economic slowdown and growth scare. Cyclical stocks—the kind we focus on in these two funds—have lagged defensive stocks, by about 6 percent in the last month and a half.

Cyclicals are those types of goods and services consumers can afford to purchase when the economy is performing well. Examples include discretionary-type companies such as Apple, Priceline and Tesla Motors. Defensives, on the other hand, typically remain stable, even in times of market downturns. Examples include electricity, gas and food.

Cyclical Stocks Have Dropped 6 Percent in Last Month-and-a-Half Compared to Defensive Stocks
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This might sound like troubling news, but we view it as an opportunity. As you can see, a similar discrepancy between cyclical and defensive stocks occurred in April and May of last year, and yet mean reversion corrected it. We’re optimistic that such a turn will occur again, which means that now might be an ideal time to accumulate cyclicals.

Our Near-Term Tax Free Fund invests in the schools that keep America competitive.Another way to potentially capitalize on our nation’s successes is U.S. Global Investors’ Near-Term Tax Free Fund (NEARX), which invests in high-quality, U.S. municipal bonds. A significant portion of the fund is invested in health services, public schools and higher education, three of the 12 pillars that the WEF assesses. To keep these services operational and efficient, state and local governments rely on funding from the very bonds we invest in, which in turn improves Americans’ livelihood as well as the businesses they run.

Although past performance is no guarantee of future results, NEARX has delivered positive tax-free income for the past 13 years. The fund seeks preservation of capital and has demonstrated minimal fluctuation in its share price, with a net asset value (NAV) that has floated in the $2 range.

Near-Term Tax Free Fund Annual Total Return
click to enlarge

Because of its risk-adjusted returns, NEARX has earned the coveted five-star rating from Morningstar* for the five-year performance period and four stars overall. Check out its performance here.

To learn more about how you can help keep the United States competitive, I encourage you to request an information packet.

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.

Quarter End Average Annual Total Returns as of 09/30/2014
YTD 1
Year
5
Year
10
Year
Since
Inception
Gross
Expense
Ratio
Expense
Ratio
After Waivers
2.66% 3.26% 2.59% 2.97% 4.22% 1.21% 0.45%

Expense ratio as stated in the most recent prospectus. The expense ratio after waivers is a contractual limit through December 31, 2015, for the Near-Term Tax Free Fund, on total fund operating expenses (exclusive of acquired fund fees and expenses, extraordinary expenses, taxes, brokerage commissions and interest). Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. 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.

Morningstar Rating

Overall/164
3-Year/164
5-Year/137
10-Year/103

Morningstar ratings based on risk-adjusted return and number of funds
Category: Municipal National Short-Term Funds
Through: 09/30/2014

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. 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. The Near-Term 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. The Near-Term Tax Free Fund 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. Though the Near-Term Tax Free Fund seeks minimal fluctuations in share price, it is subject to the risk that a decline in the credit quality of a portfolio holding could cause a fund’s share price to decline. Stock markets can be volatile and can fluctuate in response to sector-related or foreign-market developments. For details about these and other risks the Holmes Macro Trends Fund may face, please refer to the fund’s prospectus. 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.

Morningstar Ratings are based on risk-adjusted return. The 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 Ratingä 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 Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

The Tax Foundation’s International Tax Competitiveness Index (ITCI) measures the degree to which the 34 OECD countries’ tax systems promote competitiveness through low tax burdens on business investment and neutrality through a well-structured tax code. The ITCI considers more than forty variables across five categories: Corporate Taxes, Consumption Taxes, Property Taxes, Individual Taxes, and International Tax Rules.

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 09/30/2014: Burger King (0.00%), Medtronic (0.00%), Chiquita (0.00%), Apple, Inc. (4.35% in All American Equity Fund, 4.56% in Holmes Macro Trends Fund), The Priceline Group, Inc. (3.00% in All American Equity Fund, 3.03% in Holmes Macro Trends Fund), Tesla Motors, Inc. (2.09% in All American Equity Fund, 2.93% in Holmes Macro Trends Fund).  

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content. Past performance does not guarantee future results.

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How Alibaba Could Capitalize on the EBay-PayPal Split
October 7, 2014

Ebay and Paypal Split - U.S. Global InvestorsInternet auctioneer and retailer eBay announced last week that it will be spinning off its online payment service PayPal into two listed companies. This decision, heralded by activist shareholder Carl Icahn, among other investors, will allegedly enable both companies to focus exclusively on what they do best.

The split makes a lot of sense. PayPal’s non-eBay business is growing three times faster than eBay-related transactions. Freeing itself from its parent company will strengthen its brand and marshal its troops under one banner. It will also enable PayPal to allocate more intellectual bandwidth toward improving its mobile payment services in order to stay ahead of serious competitors such as Square Cash, Google Wallet and newcomer Apple Pay, which launched with the iPhone 6. Facebook might also be looking into mobile payment services soon, as a recent hack revealed that Facebook Messenger contains hidden code to accommodate friend-to-friend payments.

But another repercussion of the split is that eBay will give up much of its market value. The company is currently valued at roughly $70 billion, and of that amount, PayPal might be entitled to $47 billion. When the two go their separate ways, eBay will then be worth $23 billion.

Which is very close to the amount Alibaba Group raised on the first day of its historic IPO.

Alibaba Tops the List of the 10 Largest U.S. IPOs to Date
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Even though eBay CEO John Donahoe, who will be stepping down once the spinoff is complete, has roundly denied rumors that the company is for sale, Alibaba founder and chairman Jack Ma is in the buying mood.

Alibaba is a company founded by Chinese people but that belongs to the world - Jack MaAlibaba, which we now own in our China Region Fund (USCOX), has already made several recent high-profile investments and acquisitions. It currently owns about 30 percent of Weibo, China’s answer to Twitter; 26 percent of Intime Retail, a Chinese department store; 16.5 percent of Youku Tudou, a Chinese Internet video company; UCWeb, a Chinese mobile e-commerce firm; and even 50 percent of the Guangzhou Evergrande Football Club.

In his letter to investors, Ma hinted that Alibaba is now looking beyond China’s borders:

From the very beginning our founders have aspired to create a company founded by Chinese people but that belongs to the world. In the past decade, we measured ourselves by how much we changed China. In the future, we will be judged by how much progress we bring to the world.

There was a time when eBay appeared likely to dominate not just the American market but the Chinese market as well. Then-CEO Meg Whitman stated in 2004: “Ten to 15 years from now, I think China can be eBay’s largest market on a global basis… We think China has tremendous long-term potential and we want to do everything we can to maintain our number one position.”

Whitman was certainly right about China’s tremendous potential.

Today, Taobao, Alibaba Group’s eBay-like consumer-to-consumer marketplace, does more business and moves more inventory annually than eBay does in China alone. If Ma were interested in reaching American consumers, eBay could very possibly be his entry point.

“The only way Alibaba can break into the American market is to have an American company like eBay,” Marth Stokes, CEO of TechniTrader, told International Business Times. “Otherwise, they’re going to have a really tough sell.”

Asian E-Commerce Companies Making Huge Strides

Led by giants such as Google, Facebook and Amazon.com, U.S. Internet companies maintain a firm upper hand over the rest of the world. Of the $1.5 trillion represented below, American companies control close to $1 trillion.

But Asian Internet companies, Chinese in particular, are gradually gaining ground.

The World's Largest Publically Listed Internet Companies by Market Capitalization
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Alibaba, fueled by its record IPO, has already surpassed Facebook in market cap. It’s now the second-largest company in the Nasdaq Internet Index behind Google, and were it in the S&P 500 Index, it would be the 11th largest company.

Alibaba’s hypothetical acquisition of eBay would be a major tipping point, further tilting e-commerce in China’s direction. Not only would the auction site fall under the umbrella of the Alibaba Group, but much of PayPal’s business might also drift to Alipay Wallet, which handles much of the transactions made through Alibaba’s many marketplaces. Although Alibaba no longer has ownership of Alipay, it’s already the world’s leading mobile payment service. Last year alone, 2.78 billion transactions were made using Alipay, amounting to $150 billion—far exceeding PayPal and Square’s combined $50 billion in volume.

Competition Mounting

Despite the success of digital behemoths such as Google, Facebook and Amazon.com, American Internet stocks are actually lagging behind their Asian counterparts. Whereas the former have returned only 0.55 percent, the latter have delivered 2.59 percent year-to-date (YTD).

Asian Internet Stocks Are Outperforming U.S. Internet Stocks year-to-date
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This might very well persist as more and more people in the Asia region gain connectivity and spend their money online. According to the International Telecommunication Union (ITU), around 45 percent of the world’s Internet users will be from the Asia-Pacific region by the end of this year. In China alone, there are 618 million Internet users. Of those, 302 million—nearly the population of the United States—shop online.

Again, Donahoe claims neither eBay nor PayPal is for sale. But this is the same man who on numerous occasions opposed Icahn’s suggestion to split the two. With Internet company mergers and acquisitions accelerating—Facebook, for instance, just closed on a deal to acquire popular instant messaging service WhatsApp for $22 billion—it’s not out of the realm of possibility that eBay might one day be subsumed by Alibaba Group.

U.S. Global Investors analysts and investment team stay current on global e-commerce companies “EBay may be a shark in the ocean, but I am a crocodile in the Yangtze River,” Ma stated in 2005. “If we fight in the ocean, we lose—but if we fight in the river, we win.”

We at U.S. Global Investors are curious to see how a growing Chinese middle-class will shift the global online marketplace ecosystem and payment service industry. The winners will likely be Asian companies such as Alibaba. Smartphones such as the Apple 6 will also benefit, as more and more people will use them to make transactions. The losers could possibly be cash and second-tier credit cards such as Discover.

But like a weathervane, our investment team will be sensitive to the direction Internet companies take—on both sides of the Pacific Ocean.

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.

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 NASDAQ Internet Index is a modified market capitalization-weighted index designed to track the performance of the largest and most liquid U.S.-listed companies engaged in internet-related businesses and that are listed on the NASDAQ Stock Market, the New York Stock Exchange (NYSE) or NYSE Amex. The Bloomberg Asia Pacific Internet Index is a capitalization-weighted index of internet companies from the Asia Pacific Region. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 6/30/2014: EBay (0.00%), PayPal (0.00%), Square, Inc. (0.00%), Google (0.00%), Apple (0.00%), Facebook (0.00%), Alibaba Group (0.00%), Visa (0.00%), General Motors (0.00%), Kraft (0.00%), UPS (0.00%), CIT (0.00%), Travelers Group (0.00%), HCA (0.00%), Goldman Sachs (0.00%), Weibo (0.00%), Twitter (0.00%), Intime Retail (0.00%), Youku Tudou (0.25%), Amazon.com (0.00%), TechniTrader (0.00%), Tencent Holdings (4.55%), Baidu (0.00%), Priceline Group (0.00%), Yahoo! (0.00%), JD.com (0.00%), Netflix (0.00%), LinkedIn (0.00%), Naver (0.00%), Yahoo! Japan (0.00%), Rakuten (0.00%), WhatsApp (0.00%), Venmo (0.00%), MasterCard (0.00%), Discover (0.00%).

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content. Past performance does not guarantee future results.

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600 Million Reasons to Keep Your Eyes on India
October 6, 2014

Prime Minister Narendra Modi tells America's top Businesses: "Come, make in India."In the wake of his rock star reception at Madison Square Garden last Sunday, Prime Minister Narendra Modi has emphatically announced to our nation’s top corporate and political leaders that India is now open for business. Between September 26 and 30, he met with not only President Barack Obama and other high-profile politicians but also the CEOs of some of our nation’s largest and most successful companies: Google—which we own in both our All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX)—Boeing, PepsiCo and General Electric, among others.

The only thing missing was a ribbon cutting ceremony. 

Although U.S. Global Investors typically doesn’t invest in India, the country has recently found itself in the driver’s seat of global resources demand and production. This is a tailwind for our Global Resources Fund (PSPFX), which maintains heavy exposure in the industries that India will increasingly need to support its more than 1.25 billion (and counting) citizens: oil and gas, chemicals, energy services and infrastructure, precious metals and food.

India’s culture is ancient, dating back more than five millennia, but it has a disproportionately young population. As the world’s second-most populous country, India is home to roughly 600 million people under the age of 25. That’s close to half of its own population and a little less than twice the entire U.S. population. Over the next few years, this one generation will largely be responsible for charting the country’s trajectory into its next stage of economic development.  

As old as India’s culture is, millions of its citizens seek the contemporary American dream of opportunity and prosperity. They rely on their new leader, former tea merchant Narendra Modi, as their ambassador of “hope for change,” as he put it in his September 25 Wall Street Journal op-ed.

India Opening Its Wallet to International Sellers

At its current rate of population growth, the South Asian country will in the coming years be in need of biblical amounts of natural resources to meet the ambitious economic and social plans the newly-elected prime minister has laid out.

Among other goals, Modi envisions “affordable health care within everyone’s reach; sanitation for all by 2019; a roof over every head by 2022; electricity for every household; and connectivity to every village.”

The energy infrastructure alone will require staggering amounts of copper conductors, iron, electrical steel and oil. As I wrote back in May, Modi has a proven track record for bringing electricity to Indians who previously never had it.

The prime minister also asserts: “The number of cell phones in India has gone up from about 40 million to more than 900 million in a decade; our country is already the second-largest market for smartphones, with sales growing ever faster.”

China is currently the world’s largest smartphone market.

Most smartphones require a combination of many precious metals, minerals and other materials, including gold, aluminum, glass, steel, lithium and various rare earth elements you might never have heard of such as yttrium, praseodymium and dysprosium.

Since Modi’s election in late May, the consumer outlook index in India has risen nearly 8 percent. At 45.2, however, it’s still about five points shy of 50, the pivotal threshold that indicates, on balance, that more consumers perceive the economy to be improving.

India's COnsumer COnfidence for September Reaches a Two-and-a-half Year High
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Planes, Trains and Automobiles

As population mounts and business and manufacturing activity increases, India’s need for additional cars and trucks has accelerated this year. Vehicle production uses not only many of the materials already mentioned but also palladium, lead, zinc and others.

Indian Domestic Car and Truck Sales Are on the Rise
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India, the world’s largest importer of weapons, also has its eyes on American-made military aircraft—more than $3 billion worth. The Asian country is already the U.S.’s leading defense market, and companies such as Boeing, Lockheed Martin and Sikorsky are no doubt pleased to hear that Modi’s government is committed to ramping up its defense spending.

According to the Wall Street Journal,among the possible purchases Prime Minister Modi discussed during his visit to the U.S. were 22 Apache attack helicopters, 15 Chinook heavy-lift helicopters and 24 Harpoon anti-ship missiles.

Below is a video courtesy of National Geographic that illustrates just how many metals, chemicals and other materials go into the assembly of a single Apache helicopter.

Going Long in India

Many economists and pundits have already likened Prime Minister Modi’s transformative pro-business position to that of Ronald Reagan and Margaret Thatcher—and his media darling status to that of Barack Obama circa 2008.

Even before Modi’s election, India was drawing the attention of global investors seeking growth and opportunity. Last month the portfolio manager of our China Region Fund (USCOX), Xian Liang, had the pleasure to attend a presentation in Hong Kong by CLSA’s Chris Wood, recognized as the one of the best strategists in Asian markets. During his speech, Wood maintained that India has been and continues to be his favorite market in the region, now more than ever since Modi’s ascent:

CLSA's Chris Wood is extremely bullish on India, deeming it the most attractive BRIC for investors.

I have, in fact, allocated 41 percent of my long only portfolio to India… I am not going to pull out because I am viewing India as a five-year story given the fact that Modi has been elected for five years. Modi is the most pro-business, pro-investment political leader in the world today.

Wood went on to argue that among the four BRIC countries—Brazil, Russia and China included—India is the best place for investors to be right now.

But with Brazil’s economy limping along at less than a 1-percent growth rate and Russia’s wounded by international sanctions, it’s hardly an intellectual feat to declare India the BRIC country with the greatest potential.

The chart below places India in context with other emerging Asian countries. As you can see, whereas the economies of China, Indonesia and the Philippines are flat or slowing, India’s is growing rapidly and projected to have a 7.2-percent growth rate by 2016, a 60-percent jump since 2012.

India's Economic Growth Forecast Leads Other Asian Emerging Economies by 2016
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With Modi actively seeking partnerships with some of America’s largest companies, it appears more and more likely that India can realize this optimistic growth rate.

The Challenges Ahead  

Despite all of the good news, India has many economic and political challenges to overcome before it can truly take off and achieve legitimate powerhouse status. According to the World Bank Group, the country ranks 134 in its Ease of Doing Business 2014 Rank, just below Yemen and Uganda. And out of 144 countries, India ranks 71 in the World Economic Forum’s recently-released Global Competitiveness Report 2014-2015, scoring 4.21 out of 7.

Tortuous trade barriers, which Modi has expressed his resolve to liberalize, still hinder constructive international business dealings. Gold import duties remain in effect, which has allegedly led to an increase in smuggling.

Also, although India’s manufacturing sector in September showed modest growth for the eleventh consecutive month, the pace at which it grew is the slowest we’ve seen since December 2013. For the first time since March, the one-month moving average for the country’s purchasing managers’ index (PMI) crossed below the three-month. This move contributed to the J.P. Morgan Global Manufacturing PMI’s recent cross below the three-month, which, as I discussed recently, could be a headwind for commodities and commodity stocks.

India's Manufacturing Sector Continues to Expand, But as Slower Pace
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But such challenges don’t appear to daunt the new prime minister.

“India is going to march ahead at a very fast pace,” Modi told his nearly 20,000 attendees at Madison Square Garden on Sunday. “The 21st century will be that of India. By 2020, only India will be in a position to provide workforce to the world.”

We at U.S. Global Investors wish Prime Minister Modi, his new government and the 1.25 billion Indians all the best.

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.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Stock markets can be volatile and can fluctuate in response to sector-related or foreign-market developments. For details about these and other risks the Holmes Macro Trends Fund may face, please refer to the fund’s prospectus. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. 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 HSBC India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Indian GDP. The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

ZyFin Research’s Consumer Outlook Index is India’s monthly barometer of consumer sentiment. The index is based on a monthly survey of 4,000 consumers across 18 cities. The Index reflects consumers’ current and future spending plans, employment and inflation outlook. The Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations.  The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 6/31/2014: Google (1.98% in All American Equity Fund, 2.25% in Holmes Macros Trends Fund); Boeing (0.00%); PepsiCo (0.00%); General Electric (0.94% in All American Equity Fund); Lockheed Martin (0.00%); Sikorsky (0.00%); Raytheon Co. (0.00%).

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content. This news release may include certain “forward-looking statements” including statements relating to revenues, expenses, and expectations regarding market conditions. These statements involve certain risks and uncertainties. There can be no assurance that such statements will prove accurate and actual results and future events could differ materially from those anticipated in such statements.

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Net Asset Value
as of 06/22/2018

Global Resources Fund PSPFX $5.81 0.12 Gold and Precious Metals Fund USERX $7.67 0.10 World Precious Minerals Fund UNWPX $3.87 0.08 China Region Fund USCOX $11.23 0.10 Emerging Europe Fund EUROX $6.74 0.09 All American Equity Fund GBTFX $25.78 0.01 Holmes Macro Trends Fund MEGAX $19.87 -0.05 Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change