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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.

South Africa Strike Boosts Platinum Prices, Opens Opportunity for American Producer
June 12, 2014

All eyes are on South Africa, where a labor strike, now in its fifth month, has brought a halt to the production of platinum and palladium. As a result, platinum prices have inched up 8.25 percent this year to just under $1,500 an ounce, while palladium prices have surged 19.28 percent to over $850 an ounce, a three-year high.

The downside to this activity is that even before the strike broke out in January, platinum and palladium had supply issues. A British geological survey, in fact, placed the platinum group metals (PGMs) on its supply risk index in 2012, ranking them 13th among 41 “endangered” elements of economic value. One of the primary reasons for this is that approximately 80 percent of palladium and 70 percent of platinum production is concentrated in only two countries, South Africa and Russia.

Now, with the former country in the throes of its costliest strike ever and the latter experiencing economic sanctions because of its aggression against Ukraine, the world faces an even greater shortage risk of the precious metals.

Stocks are running low.
The worldwide demand for palladium is strong, driven predominantly by the automotive industry, which uses 67 percent of the metal’s global supply to manufacture catalytic converters, or mufflers. Because a growing number of countries are tightening carbon emission standards, the demand for the metal is increasing. So too are supply deficits, which might soon reach a 30-year high.

The largest South African producers have so far managed to make good on their deliveries by tapping into their reserves. But the well is drying up fast.

“We probably have another six to eight weeks to go before producers run really low on material they’ve stockpiled,” Standard Bank analyst Walter de Wet told Reuters in late May.

Even if a firm resolution were reached this week between top PGM producers and the Association of Mineworkers and Construction Union (AMCU), the group leading the strike, active mining wouldn’t resume for at least another three months.

“AMCU members are steadfast,” Joseph Mathunjwa, President of the AMCU, told Reuters, “and we are not turning back” on the demand for a wage hike to 12,500 rand ($1,200) a month.

Neither, it seems, are the producing companies, who claim they can’t meet the AMCU’s wage demands without being forced to slash jobs and shutter mines.

At the same time, companies are eager to resume production, having already lost a combined $2 billion. For each day the strike drags on, 10,000 ounces of platinum and 5,000 ounces of palladium are lost.

As of this writing, the production companies have offered the AMCU a wage deal which Mathunjwa has yet to sign, despite urges from his fellow mine workers.

When one door closes…
As worrisome as this news might sound, there is a silver—or, shall I say, platinum—lining. The strike in South Africa and Western tensions with Russia have given Stillwater Mining Co., the only U.S. producer of PGMs, an opportunity to grow its global market share.

The company, which we own in our Global Resources (PSPFX) and Gold and Precious Metals (USERX) Funds, announced in a press release last month that it has agreed to a five-year, multimillion-dollar refining and sales contract with Johnson Matthey, the third-largest manufacturer of auto catalysts in the world.

“We believe that this agreement provides numerous benefits to both parties at a time in the PGM industry when supplies are constrained and demand for our products continue [sic] to grow,” noted Mick McMullen, Stillwater’s president and CEO.

Located in Billings, Montana, Stillwater extracts its PGMs from the J-M Reef in southern Montana, the only known large-scale source of the rare metals in the U.S. The mine contains some of the world’s highest-quality ore grades.

Although McMullen sees the strike in South Africa as an opening to a stronger foothold in the global PGM market, he is hesitant to ramp up production too impulsively. Speaking with the Wall Street Journal, he explained that he would prefer to keep production costs down to maximize shareholders’ returns.

Stillwater’s net income in the first quarter, $19.6 million, was up 34 percent from the same time a year ago.

To receive the latest updates on this story, be sure to follow our Investor Alert.

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. 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. 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% to 10% of your portfolio in these sectors.

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of 03/31/2014: Stillwater Mining Company 0.95%. Holdings in the Gold and Precious Metals Fund as a percentage of net assets as of 03/31/2014: Stillwater Mining Company 0.26%.

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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From Constantinople to Istanbul, Turkey Has Never Been Better
June 2, 2014

Istiklal Caddessi, the main shopping street in Instanbul, TurkeyEvery time he travels to Turkey, portfolio manager of our Emerging Europe Fund (EUROX), Tim Steinle, says the country continues to develop. Although technically classified as an emerging market, one wouldn’t think to label the country as such upon arrival. The population is young and growing, there are improvements to infrastructure everywhere you look, beautiful green parks are more prevalent, and the professional staffs that run many of the shops and businesses are both well organized and thriving.

Tim told me the entire taxi system has improved upon each visit that he makes. There are newer, cleaner cars, and more professional drivers who run meters without being asked to do so. The same higher quality of service holds true when it comes to hotels, restaurants and employees of bus systems and airlines. Tim says these kinds of improvements are merely a side show in comparison to even larger companies that are run by world-class management teams.

A sweet spot in Turkey.
As Tim saw first hand, wanting the richer things in life can start with something simple, like chocolate. During his time in Turkey, he visited the Ulker Chocolate factory, a highlight for him and the group of individual investors he was traveling with.

Ulker Chocolate FacotryThe Ulker family owns the global Godiva brand through its Yildiz holding (a major Turkish manufacturer of food products), while the remainder is held by the publicly listed Ulker company.

Ulker, the market leader among Turkish chocolate companies, processes its cocoa beans in-house, unlike many of its competitors. Ulker has started a pilot farming project in Ghana. Although there were no photographs allowed inside the Ulker plant, Tim was very impressed with what he saw and shared this observation, “The plant was spic-and-span, and the cocoa bean processing hardware was just as complex as I have seen at a petroleum refinery.” Ulker is one example of the dynamic nature of many companies in Turkey; nothing is static for them, and innovation is constant.

Car purchases continue to drive growth.
Fiat is another company that is capitalizing on the consumer-oriented growth in Europe. Fiat-branded cars are manufactured around the world, but the company also has joint ventures in several countries including Turkey. Fiat S.p.A. is a majority shareholder in Chrysler and parent company to the Fiat Group.

Tim visited Tofas headquarters during his trip, and as you can see in the photo below, he and the rest of the group were able to check out the Fiat Doblo, a vehicle that looks very similar to a van but also has characteristics of most sports utility vehicles.

The Flat DobloIn 2010, Tofas, Fiat’s JV partner, began building the newest version of the Doblo in Turkey. There are several versions of the vehicle, including the Doblo EV, which is the all-electric version. The Doblo is also coming to the U.S. as Dodge Ram, and will be branded as a light commercial vehicle.

Tim pointed out to me the growing number of European-made vehicles that we see today, including the Ford Transit which is similar in style to the Doblo. The Transit was the first product of Ford of Europe, a subsidiary of Ford Motor Co., and won the 2010 Truck of the Year award. Volkswagen is yet another car company with European roots. “Just look under the hood,” says Tim, “these cars’ engines are made in Hungary.”

Money in the bank.
We know an increasing majority of the Turkish population has more money in their pockets, but how are Turkish banks doing? It seems the financial sector and individual banks are keeping up with the demand for innovation. One of the companies Tim met with while in Turkey was Garanti Bank, the second-largest private bank in the country.

Garanti Bank's ATM MachinesTim was impressed with the bank’s presentation and the incredible functionality of Garanti’s ATM machines. In the U.S. it is common to use an ATM to withdraw money, check your account balance, and in some instances deposit money. The Garanti ATM allows users to make over 100 different types of transactions!

Available to both Garanti customers and those who do not bank with the company are unique packages of cardless services in a network of over 200 ATMs from all over the country, according to Garanti’s website. A few examples include mobile phone recharges, exchange transactions with different currencies, invoice payments and deposits, all without needing to have your bank card with you.

Yet again we see world-class innovation from a Turkish company. The financial sector in Turkey, as well as in Greece as I've written about recently, has taken off in the last year. After concerned investors sold their emerging markets holdings last year, the central bank in Europe took action by raising rates this February. It was at this time that we saw a tremendous rally in Turkish banks and the lira began to stabilize. Strength returned to financials.

Turkish Banks Rally After Central Bank Stabilizes the Lira
click to enlarge

Investing in the best.
At U.S. Global Investors we are always looking for companies that are growing. As an emerging market, Turkey is dependent on foreign inflows, but the positive growth throughout the country is incremental and simultaneously wide-spread in many companies both big and small. Within our EUROX fund, it is companies like the ones Tim visited that we like to invest in; those that are in growing sectors of the market and display robust fundamentals.

To see the industries and names we feel are promising within emerging Europe, check out the composition of our Emerging Europe Fund.

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 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.

F 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 of 03/31/14: Chrysler Group LLC 0.00%, Fiat S.p.A. 0.00%, Ford Otomotiv Sanayi AS 0.96%, Turkiye Garanti Bankasi AS 2.58%, Tofas Turk Otomobil Fabrikasi AS 3.00%, Ulker Group 0.00%, Volkswagen 0.00%, Yildiz Holding 0.00%.

F All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The Borsa Istanbul-Banks Index (XBANK Index) 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.

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It’s Morning in India: Narendra Modi’s Pro-Business Policies Point to Strong Sectors Growth
May 29, 2014

As some of you might recall, Ronald Reagan’s now-famous 1984 presidential campaign, “Morning in America,” renewed many Americans’ confidence in this country’s financial future. Likewise, the May 16 election of Narendra Modi—whose campaign slogan, “Good times ahead,” taps into the same sense of optimism—couldn’t come at a better time for India and the surrounding region.

Sworn in on Tuesday, Modi’s pro-business, small-government policies have already prompted many citizens of the world to liken him to such transformative leaders as Reagan and Margaret Thatcher. Because he has vowed to widen India’s doors to foreign investment, rehabilitate its crumbling—or, in many regions, nonexistent—infrastructure, deregulate the retail industry and loosen the red tape that has halted domestic coal production, investor confidence in the South Asian country has surged like never before.

For the past six months, foreign investors have bought up more than $16 billion in Indian stocks and bonds in anticipation of Modi’s win and hold approximately 22 percent of Mumbai-listed equities, valued at nearly $280 billion. Since the election, the Indian markets have been bullish, with the rupee crossing 59 levels against the dollar. These activities have made the world’s largest democracy the top performer this year among the four BRIC economies.

“We want more strength for the wellbeing of the country,” Modi said after declaring victory. “I see a glorious and prosperous India.”

Modi has a proven track record of turning economies around.
As head of the state of Gujarat, a position he held prior to being elected prime minister, he oversaw annual economic growth of 10 percent. He is also credited for bringing electricity to all 60.4 million Gujarat residents—a first for India.

One of his loftier goals is to do the same for all 1.2 billion Indians using clean power generation such as wind and solar. Currently, 400 million citizens—more than the combined populations of the U.S. and Canada—are without power. The plan is that by 2019, every home will be able to run at least two light bulbs, a cooker and a television.

Such a colossal undertaking as bringing power to every home will require the import and production of untold amounts of metals such as copper and steel, not to mention the construction and rehabilitation of the nation’s poor infrastructure, which is decades behind China’s.

According to Ajay Piramal, Chairman of the Piramal Group, one of the roads to India’s prosperity is “infrastructure development. Reviving infrastructure projects by streamlining approval and decision-making processes will be critical. By 2019, the structural growth rate of India should be at 8 percent or higher.”

Under the new prime minister’s watch, the growth of industrials and materials is very promising.
India is already the fourth-largest steelmaker in the world, having produced 7.25 million tonnes in March alone. But with the implementation of new infrastructure and energy projects, steel production has the potential to explode.

The same can be said of coal. Even though India, the world’s second-most populous country, is rich in coal, mining has historically been stymied as a result of tortuous bureaucracy and stateism. To facilitate foreign investment in the resource and boost product output, Modi is considering breaking up Coal India Ltd., India’s state-controlled mining company.  

With more jobs up for grabs, more Indians will be able to afford the sort of lifestyle and consumption habits that many Americans enjoy. As I’ve previously discussed, gold is a prime gift to give and receive in India during religious holidays and celebrations. A robust working class will ensure that gold continues its trend as a desired and accessible commodity.

It’s too early to tell if morning has indeed arrived in India. To be sure, the nation faces many challenges that block its path to prosperity, including debilitating bureaucracy, an inefficient agricultural sector, low literacy rate and widespread poverty. But as I often say, government policy is a precursor to change, and with Modi at the helm, “good times ahead” sounds like more than an empty promise. Provided his administration can make good on his many ambitious plans, investment in the energy, industrials, materials and utilities sectors could conceivably see fair returns.

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 links above, you will be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content. None of U.S. Global Investors Funds held any of the securities mentioned in this article as of 3/31/2014.

The Bombay Stock Exchange Sensitive Index (Sensex) is a cap-weighted index.  The selection of the index members has been made on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation.  Sensex has a base date and value of 100 on 1978-1979.  The index uses free float. The MSCI India Index is a capitalization weighted index that monitors the performance of stocks from the country of India. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI BRIC Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the following four emerging market country indexes: Brazil, Russia, India and China.

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New Opportunities for an Ancient Culture
May 16, 2014

The latest edition of our Shareholder Report features a striking scene on the front cover—a traditional Chinese junk boat floating calmly in Hong Kong’s Victoria Harbour against the backdrop of a contemporary Chinese cityscape. The contrast between old and new China is an astounding sight, though a closer look at this culture reveals that the same innovation in design, technology and problem-solving attitude is still being used from one century to the next.

During the Han Dynasty, the Chinese had to build a ship that could sail long distances, and in often unsteady waters. About 2,000 years ago, the Chinese developed the hull design and sail plan for the junk boats, allowing these important vessels to operate and sail efficiently.

In 2014, the Asian nation still uses its innovation to deal with present-day challenges, two of which are pollution and traffic congestion, as we see its population growing every day.

In the March Government Work Report, Chinese Premier Li Keqiang declared war on pollution, and we are now witnessing clean energy reforms put in place in an effort to improve air quality. The country is not immune to criticism and concern from around the world, but I think Xian Liang, the co-portfolio manager of our China Region Fund (USCOX), puts it best when it comes to China’s ability to adapt to challenges.

Xian says, “Polluting industries continue to de-rate in performance, but keep in mind that well-managed health care and clean energy companies have outperformed, as they provide solutions to the problem and enjoy favorable policy support.”

China may be facing global growth challenges, but as Xian explains, being selective in the country allows us to avoid weak areas and pursue promising themes, especially those which concentrate on government policies such as the clean energy reforms.

I invite you to explore what’s inside our latest Shareholder Report to see what challenges and opportunities are facing not only China, but other countries and industries in 2014.

 

Explore the Shareholder Report

 

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.

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

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The Good, the Bad and the Opportunity
May 12, 2014

With so many headlines, it can be tough to sort through the market news.The press is demanding the attention of investors more than ever. Whether it was the recent jobs report or last week’s testimony from Janet Yellen, sorting through the market noise is no easy task. Since the world is so interconnected from Facebook to WhatsApp, a spark of news can ignite unfounded fear in an instant. What’s truly significant when it comes to your investments?

Twice a day, in the morning and at lunch, our investment team sits down together to discuss what’s important and what’s immaterial. Last week, in my opinion, the good outweighed the bad. Much of the economic news was a direct result of government policies, both fiscal and monetary. Here are my findings, which I hope will help you filter through the noise.

Government Policies are a Precursor for ChangeWhat are the challenges?
1. As you probably know by now, the Global Purchasing Managers’ Index (PMI) is one of the key metrics we pay attention to as a gauge of the global economy’s strength. In April, the Global PMI fell from 52.1 to 52.0, and though the drop was small, investors who previously were encouraged by a synchronized growth cycle, lost some confidence. Japan’s services and manufacturing PMI readings dropped precipitously. The services PMI plunged to 46.4 in April and the manufacturing PMI fell to 49.4. Both numbers were above the 50 mark in the previous month.

A Setback From Japan's Prime Minister's AbenomicsThe reason for Japan’s slump lies in the consumption tax rate hike, from 5 percent to 8 percent, imposed on the country on April 1. The tax increase was aimed at decreasing the country’s huge public debt, nearly 245 percent of GDP. Just when Japan was finding its economic foothold for recovery, the restrictive fiscal policy caused economic activity to stumble.

Why it matters: The reason for the fall in Global PMI is directly related to Japan’s fall in PMI. Japan has become a drag on global growth. It’s important to recognize the root cause – increased taxes just as monetary stimulus measures were seeing results. This is not good for economic growth and should serve as a cautionary tale for other countries.

Is Japan's Composite Purchasing Managers' Index Dragging Down Global Growth?
click to enlarge

2. Another challenging area of the market is China. China’s manufacturing PMI came in lower at 48.1 in April, contracting for the fourth month in a row, and the country also saw a decline of 0.3 percent in its consumer price index (CPI). Employment in the Asian nation is also at a seven-month low, adding growth concerns for the country.

Why it matters: This negative data means there is potential for fiscal policy easing, allowing the Chinese government to boost the economy in the coming months.

Focus on the strong points.
1. The rate of change of global industrial production (IP) was slowing until the close of 2013. Now, however, the global growth outlook is improving. You can see that an inflection point was hit in mid-2013, reaccelerating IP and coinciding with the global GDP outlook for 2014.

Global Industrial Production is Rising
click to enlarge

Europe is also doing well. The eurozone composite PMI, a good indication of growth, rose to 54.0 in April. In addition, Spain and the U.K. saw increases in GDP in the first quarter and Spanish banks are seeing a decline in bad debts.

Eurozone Composite PMI Sees a Boost
click to enlarge

Why it matters: When global IP moves up, this is a sign that momentum in the global economy has changed – for the better. This is good for commodities such as oil, gas and copper, but also for cyclical areas like energy and industrials. There is no doubt that people in every country want upward mobility for their families, and as the demand for better education, cars, etc. continues, commodities and cyclicals should benefit.

As wages begin to rise, workers have more money to spend, boosting the economy.2. In a recent report, ISI also highlights that minimum wages are going up in the U.S., citing examples of multi-year wage increases for those who had not received pay increases for the last several years. Various groups who received no increase before will now see a 4 percent rise per year, a leading indicator of wage growth trends. Consumer net worth is also expected to rise by $7.1 trillion in the second quarter, taking it to $82.5 trillion.

Why it matters: Real incomes are expected to rise as wage increases outpace inflation. With the uptick in consumer net worth and steady job growth, consumers will feel more comfortable spending.

3. Bank loans have seen an increase of 10.4 percent annualized over the last 14 weeks. As you can see in the chart below, the number of loans continues to increase. According to the Wall Street Journal, one area where bank lending has accelerated is to commercial businesses.

U.S. Bank Loans Continue to Increase in 2014
click to enlarge

Why it matters: This positive trend is a potential inflection point for the economy because it indicates economic acceleration. Not only are banks making it easier to borrow by relaxing lending standards, companies are confident enough about the economy to want more money to grow and invest. The WSJ goes on to say that earnings in April from the six largest banks in the U.S. pointed to an increase in commercial loans of 8.3 percent in the first quarter from last year.

Economic data around the globe continues to remain supportive. Even among challenges, there are opportunities to be found. For example, on Thursday we heard that the European Central Bank is likely to ease interest rates in June. This could be another catalyst for Europe, which is already showing improving economic activity.

Keep Calm and Invest OnSimilarly, China’s inflation is at an 18-month low as of yesterday, which could increase the odds of a policy response, a positive stimulus for the economy. Japan is dealing with the same thing; the country committed to Abenomics and will likely respond with additional policy support to get back on the recovery track. Don’t let negative news overshadow good news and keep in mind that bad news tells you where the opportunities are.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 03/31/2014: Facebook.

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 links above, you may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. 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.

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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