shareholder report - u.s. global investors · for copper, crude oil and industrials during the...

Shareholder Report2014 Vol. 2

Witnessing the Dynamic Growth of Albania | Municipal Bond Shock Absorbers

China’s Resource

2 Volume 2, 2014 • www.usfunds.com Volume 2, 2014 • www.usfunds.com 3

LETTER FROM THE CEO

Dear Shareholder, There is a way to sift through the information overload in order to better understand the big picture factors influencing the interconnected global markets.

There are three indicators I believe investors should keep an eye on: The global manufacturing Purchasing Managers’ Index (PMI), money supply and railway statistics. These numbers are broad reflections of how economies around the world are faring, and more importantly, if the numbers are positive, then the growth should continue moving forward.

The JP Morgan Global Manufacturing PMI gives investors an idea of how the manufacturing sector is doing by gathering information on global output, new orders, employment and inventory levels. The PMI is also a reliable indicator of how the overall economy is doing. At U.S. Global Investors we don’t just read the monthly PMI number, we monitor the historical trend of this number. More specifically, we watch to see if the current PMI number moves above the three-month moving average, suggesting a trend higher.

According to our research, when the current PMI number crosses above the three-month moving average, such a move has historically been positive for copper, crude oil and industrials during the following month. May was the eighteenth-consecutive month the global PMI increased, and I expect steady, continued growth in global manufacturing production looking into the second half of 2014.

The market is a lot easier to understand if you

know what to look for. By narrowing your focus, the onslaught of data in a complex, constantly

evolving investment realm can be simplified.

Frank Holmes, CEO and Chief Investment Officer

PAY ATTENTIONto These Positive Market Indicators

INSIDE

We want to hear from you. Send your questions, comments or suggestions for the Shareholder Report to [email protected]. For account information, call 1-800-US-FUNDS (1-800-873-8637) or email [email protected].

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.All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. 14-292

www.usfunds.comThe arrow inside means you can find expanded coverage online.

continued •

Letter from the CEOOvercome data overload with these positive indicators.

About the Cover:The Three Gorges Dam on the Yangtze River in China is an

energy infrastructure project of epic proportions. The

beauty of the Yangtze River Valley has historically been plagued by flooding, killing

hundreds of thousands of people. Nearly a century ago, Sun Yat-sen, former president of China, envisioned a dam

across the river as a solution. Even Mao Zedong wrote the

poem, “Swimming,” after over 33,000 people died in

the flood of 1954. The project began construction in 1994, is five times larger than Hoover Dam, and now produces one-tenth of China’s energy needs.

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8 Recent years have brought a wealth of opportunities to the European country of Albania. Frank Holmes traveled to Albania

recently and witnessed first-hand the dynamic growth brought about by new leadership and the favorable geology for oil and gas investors.

Byron King on Oil ProductionWhat does Iraq’s oil output mean for the U.S.?

Shock AbsorbersA closer look at tax-free, short-term municipal bonds.

China Cleans UpDriving environmental improvement with government policy.

Minute with the ManagerAccording to Tim Steinle, Turkey has never been better.

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Dec-11 Dec-12 Dec-13

JP Morgan Global Manufacturing PMI Crossed Above Three-Month Average in May

1-Month3-Month

Source: Bloomberg, U.S. Global Investors

52.7

http://www.usfunds.com




Money supply growth is another aspect of the market we keep an eye on because it provides a good indication of what the economy could do in the near term as well as the economy’s health on a more long-term scale.

When money supply grows, interest rates tend to drop, typically a positive sign for the economy, and more specifically, for the business cycle. A growing money supply means more money in the pockets of consumers, and as consumer spending increases, business activity inevitably picks up.

Currently, money supply is growing in the United States. History shows that during times of economic expansion, money supply will accelerate at a faster rate than during times of contraction.

Take a look at money supply in the seven countries with emerging economies, better known as the E7, including China, India, Brazil, Mexico, Russia, Indonesia and Turkey. Over the last several years we’ve seen slowing money supply growth in the E7 because their economic policies have not been as expansive as those in the United States. The good news however, is that E7 money supply is growing again, just at a slower rate.

Railway freight traffic is another significant indicator of a nation’s economic health. Watching the movement of freight traffic, as well what type

www.usfunds.comWatch Frank’s interview on CNBC Europe, where he talks about signs of strength in the latest PMI reports.

•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.

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 (USCOX) and Emerging Europe Fund (EUROX) as a percentage of net assets as of 6/30/2014: Bankers Petroleum (EUROX 1.25%); Beijing Enterprises Water (USCOX 2.00%); China Everbright International (USCOX 2.80%); Fiat 0.00%; Ford Otomotiv Sanayi AS (EUROX 1.22%); Petromanas Energy (EUROX 0.31%); Royal Dutch Shell 0.00%; Tofas Turk Otomobil Fabrikasi AS (EUROX 3.40%); Turkiye Garanti Bankasi AS (EUROX 3.06%); Ulker Biskuvi Sanayi AS (EUROX 0.82%); Volkswagen 0.00%; Yildiz 0.00%

Susan McGee Accepts Award for Top Women in Asset Management

President and general counsel of U.S. Global Investors, Susan McGee, was awarded with the title of Top Women in Asset Management by Money Management Executive, along with nine other women in the financial industry. The publication says recipients are those who stand out for their exceptional leadership positions and styles along with their propensity to help others rise in the field. Susan’s service and commitment to the company, and her recognition as a role model for women in the financial industry, even earned her name in lights in the middle of Times Square.

of cargo the freight cars are hauling can provide important information for investors, most notably commodity demand and industrial activity.

Just by looking at a year-to-date comparison of carload components in the U.S. helps to put economic growth into perspective. For example, since 2013 we have seen an increase in total carloads and commodities including petroleum, grain and coal being shipped.

Since last year, nearly every type of cargo shipment has increased, a positive sign for our nation’s economy. The broader reading of railway traffic also looks encouraging. According to the Association of American Railroads (AAR), total weekly inter-modal volume was 227,097 units, up 10.5 percent compared with the same week last year.

Intermodal freight transport involves the use of multiple modes of transportation, including rail, ship and truck. As an investor, understanding and taking notice of indicators such as rail traffic helps boost your confidence in managing the emotions of investing.

As professional investors, it’s crucial to stay aware of current events as well as the ins and outs of each market we invest in, but for an overview of market movers, I believe global PMI, money supply and railway freight traffic are excellent starting points to see how an economy is doing as a whole.

I encourage shareholders to read our weekly Investor Alert newsletter as well as my Frank Talk blog where we keep you up to date on these indicators and others that have caught our attention. These emails are the best way to stay informed of the strengths and weaknesses we see in the market each week, and to bring attention to the opportunities and threats that have the potential to affect your investments looking ahead.

Happy Investing,

Frank Holmes CEO and Chief Investment Officer U.S. Global Investors, Inc.

0%

10%

20%2014 Year-to-Date vs. 2013

TotalCarloads

Chemicals Coal Farmand FoodProducts

ForestProducts

Grain MetallicOres andMetals

MotorVehicles

and Parts

NonmetallicMinerals

Petroleum and Products

Other IntermodalUnits

TotalTra c

U.S. Railroad Tra�c Carload Trends

Source: Association of American Railroads, U.S. Global Investors

$10,400

$10,600

$10,800

$11,000

$11,200

$11,400

6/3/13 7/3/13 8/3/13 9/3/13 10/3/13 11/3/13 12/3/13 1/3/14 2/3/14 3/3/14 4/3/14 5/3/14

Note: M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.


U.S. Money Supply is GrowingM2 Money Supply

8

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16

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20

Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14

Money Supply Growth Has Slowed in E7 Countries


Note: Data calculated as simple average of E7 countries. Three-year data through 3/31/2014.M3 instead of M2 used for India and Mexico due to unavailability of M2.

Year-Over-Year Percentage Change

Money supply affects the

business cycle. When the

money supply is growing it puts

more money in the pockets of

consumers, and when consumer

spending increases, business

activity inevitably picks up.

12-Week Average Year-Over-Year25%20%15%10%5%0%

-5%-10%-15%-20%

4/24/08 9/11/08 2/12/09 7/2/09 11/25/09 4/15/10 9/2/10 1/28/11 6/23/11 11/11/11 4/5/12 8/15/12 1/2/13 5/22/13 11/18/13 3/28/14Source: Orcam Financial Group, LLC, U.S. Global Investors

Weekly Intermodal Rail Trac in the U.S.





For those keeping score, the world of municipal bonds set a new record in the first quarter of this year. Puerto Rico issued $3.5 billion worth of junk bonds, the largest sale of its kind in U.S. history, and even though they only came on the market in mid-March, they were the most heavily traded securities of the quarter. With a maturity date of July 2035, the munis feature fat 8 percent coupons and, as of this writing, have a yield hovering just above a robust 9.46 percent.

As attractive as this sounds, Puerto Rico bondholders must remain constantly vigilant. The Caribbean commonwealth’s junky credit rating — coupled with the long duration of the bonds, not to mention the likelihood of rising interest rates — make owning this debt risky business.

If you don’t have the stomach for the uncertainty that accompanies high-risk debt securities, it’s time to give short-term, investment grade munis a second look, especially if you’re retired or near retirement. Indeed, after a dismal 2013 performance, munis have steadily risen from the ashes.

Our Near-Term Tax Free Fund (NEARX) invests at least 80 percent of all assets in investment grade municipal bonds, whose average term to maturity is 2.99 years. This prudent investment strategy has historically given our investors confidence that their money is growing at a reasonable rate. For the past five years, NEARX has delivered clients an average 3.07 percent return, which is safely above the 1.5 percent rate of inflation that Morgan Stanley projects will persist for the next couple of years.

Because of the short-term, investment grade nature of NEARX’s holdings, you’re not facing nearly the same degree of risk you’d encounter in Puerto Rican junk bonds.

One of the most attractive features of municipal bonds, especially for investors in higher tax brackets, is their exemption from federal income tax, including the federal alternative minimum tax. So even though highly-rated munis won’t yield as much as a stellar stock portfolio, you get to keep more of your return, which can serve as a cushion if your stocks don’t perform as well as you expected.

In the June issue of Journal of Financial Planning, Larry Frank, a California-based investment advisor, highlights this valuable role short-term munis can play in your portfolio:

“[I]f you use the short-term bonds exclusively throughout whatever [interest rate] environment, you get more of that shock absorber effect and are able to manage the volatility of the portfolio more from dissimilar price movement.”

Meaning: Short-term bonds won’t see as dramatic a drop in yield when interest rates rise. That’s peace of mind that will allow you to sleep soundly at night.

Total Annualized Returns as of 6/30/2014

One-Year Five-Year Ten-Year Gross Expense Ratio Expense Ratio After Waivers

Near-Term Tax Free Fund (NEARX) 3.68% 3.07% 3.16% 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, 2014, 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.

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. Bank icon designed by Emily L from the Noun Project.

Tax-Free, Short-Term Municipal Bonds:

Shock Absorbersin a Volatile Climate

GUEST COLUMNIST

Byron King, Editor,

Outstanding Investments, Byron King’s Military-Tech

Alert, and Real Wealth Trader.

MIDDLE EAST TURMOIL — INVESTORS MUST FOCUS ON OIL SERVICE PLAYS

Let’s set the stage. In February of this year, Iraq achieved a milestone of producing 3.5 million barrels of crude oil per day, a 35-year high. On any given day of late, Iraq has exported over 2.5 million barrels, making the country a significant contributor to global energy supply.

The good news was that, over the past decade — and during the worst times of war — Iraq’s oil output grew steadily. Indeed, energy forecasters pinned big hopes on Iraq’s oil output to meet growing global energy demand. Now, however, in the wake of renewed conflict, these forecasts appear bleak.

Global oil prices have risen recently due to supply uncertainty from Iraq. So if Iraq’s where oil output is falling, where is output growing? I like to follow the barrels, and here’s one intriguing chart that illustrates oil supply growth in the U.S. versus the rest of the world.

As the chart shows, oil output across the globe has been flat or — at best — growing slowly in the past eight years. In the U.S., however, oil output is up sharply at an increase of over three million barrels every day, which coincidentally is equivalent to the output the world now sees at risk in Iraq.

Almost all increased U.S. oil output comes from the so-called “shale gale,” based on horizontal drilling

and fracking in tight rock formations, which brings me to the investment takeaway.

New Tech in the Oil PatchThe U.S. energy revolution comes after decades’ worth of technology improvements in the energy biz. Pressuring rock with fluids — classical “fracking” — has been around for nearly 70 years. In the olden days of vertical drilling, the drill bit might have penetrated 30, 50 or even 100 feet of “pay” rock. That was adequate back then but not today. Now, horizontal drilling makes it possible to expose many thousands of feet of hydrocarbon-bearing rock to the magic of super-high pressure.

With geo-steering drill-bits and precise placement of the well bore, an operator can gain access to literally miles of deep, exposed rock face. Then come many “stages” of fracking, which release the oil and gas. It’s complex technology, and not every company can make it work.

New technology includes better computers and software. Better math, physics and geophysics. Better directional control. Better drill bits. Better drilling fluids. Better power technology, such as “top drive” drilling systems. Better metallurgy for drill pipe, and even “coiled tube” drilling with metal that bends more easily than you might suspect. Better valves and pressure control. All that, and more.

Enablers of Oil Supply GrowthOutput in the rest of the world looks to remain flat, if not in decline. More and more U.S. oil will have to make up for less and less oil available on world markets, as politics and war place regions such as Iraq at risk.

The bottom line is that, with less oil available for international trade, the U.S. is growing output thanks to new tech such as fracking. The tech comes from key oil service plays, which should make up a strong core position in your portfolio for many years to come.

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5

4

31994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Source: Energy Information Administration, DailyReckoning.com, U.S. Global Investors

World (Left axis)U.S. (Right axis)

Crude Oil Production (barrels per day, millions)An American Silver Lining




Oil Opportunities

Albania’sFertile Grounds for

A palette of vibrant colors is brushed across many of the buildings in Tirana, Albania, a symbol of political change that the capital city owes to its Mayor Edi Rama. Rama was involved with the first Democratic changes to Tirana after the city had been oppressed for many years. Being a trained artist, Rama decided first things first: Tirana needed a makeover to match its brighter future ahead, and that’s where the concept of colored architecture came in. The story of this city’s revival is fascinating and the TED talk, Take Back Your City with Paint, details the complete transformation.




T exas is oil country. The state U.S. Global Investors calls home leads the nation in oil production and would be one of the top oil-producing nations if it were its own country. But that doesn’t stop us from exploring other promising oil opportunities further afield. Frank

Holmes recently traveled to Albania to check out a drill site of Petromanas Energy, a Calgary-based international oil and gas company focused on exploration and production throughout Europe and Australia.

To many, Albania is an unknown country yet it has a very rich history. It declared independence from the Ottoman Empire in 1912, was conquered by Italy in 1939 and occupied by Germany in 1943. Albania allied with the USSR until 1960 and then with China until 1978. Democratic development progressed since its first multiparty elections in 1991. The 2009 general elections resulted in the country’s first coalition government and the 2013 election saw a peaceful transition of power. As a parliamentary democracy, Albania has steadily been welcoming foreign direct investment (FDI) since it shifted away from communism.

Third Time’s a CharmThe last time Frank visited Albania was in 2004 when U.S. Global was a seed investor in another oil play there, Bankers Petroleum. Today its Albanian discovery is the largest onshore oilfield in Europe. Bankers is now close to 40 percent of Albania’s FDI and is reinvesting all cash flow back into the country, about $300 million per year. Bankers has done an amazing job cleaning up the environmental disaster left behind by previous operators of the assets which it’s developing. Today the fields are green and sheep roam freely. Older, dirty rigs have been replaced with new safer, cleaner technology.

Now the country is more prosperous and the capital city Tirana’s infrastructure has improved by a quantum leap in the past 10 years.

Meeting a Man of Many ColorsDuring his visit, Frank met the prime minister of the country since 2013, Edi Rama, who also served as the mayor of Tirana from 2000 to 2011. A fascinating leader and native of Tirana, Rama was involved with the first democratic movements in Albania. He is also an artist and a former basketball player for the Albanian national team. He is, to a large degree, responsible for the vibrancy in the country. His Clean and Green project resulted in nearly 100,000 square meters of green land and parks, and his creative efforts to use art and color helped to curb corruption and revive civic pride and responsibility. Rama has helped form a stable political environment in Albania, one reason Petromanas Energy has invested there.

Fertile Ground for Oil and GasPetromanas’ assets in Albania cover more than 1.1 million gross acres, and according to the company’s management, Albania’s landscape is key. The company is exploring for large, deep, fractured carbonate structures of Eocene-Cretaceous age, similar to those in southern Italy, the sites of several prolific oil fields.

Located across the country’s Berati thrust belt, there are multiple wells where Petromanas is looking for a light oil deposit: Papri, Shpirag and Molisht. Super major Royal Dutch Shell has invested $200 million to partner in these plays.

While at Petromanas properties, Frank saw a few of these wells, the most notable being the Molisht-1 well that is currently being drilled. Keith Schaefer pointed out in his Oil and Gas Investments Bulletin on the trip, that the Molisht-1 well has the potential to be an 8,000-10,000 barrels of oil production per day well, an absolute company maker. According to Petromanas’ presentation, the Molisht-1 well could potentially hit earlier than expected, which would be a positive surprise.

What Do the Founder of Lionsgate Entertainment and a Former NATO Commander Have in Common? Petromanas Energy is an example of a company that is currently in a strong area of the market and exhibits robust fundamentals. Its management, research and location are only a few reasons we see great potential for this organization. Escorting Frank and the group on the research trip were two

of the company’s directors, Frank’s good friend the legendary Canadian venture capitalist and philanthropist extraordinaire Frank Giustra, and General Wesley Clark, who as the former Supreme Allied Commander Europe, led the charge to stop Serbian forces from committing genocide in Kosovo. Frank also has the privilege of working alongside these gentlemen with the International Crisis Group, a non-profit, non-governmental organization committed to preventing and resolving deadly conflict worldwide.

The Path from War to Peace and Prosperity in 20 YearsAlbanians and their Balkan neighbors have seen more than their share of conflict. The trigger for World War I was the assassination in Sarajevo of Archduke Ferdinand, heir to the throne of Austria-Hungary, by a Yugoslav nationalist in 1914. The Yugoslav Wars fought from 1991 to 1999 on the territory of former Yugoslavia have been described as Europe’s deadliest conflict since World War II and the first since the Great War to be formally judged genocidal. In the last of these ethnic conflicts, the Kosovo War, a million ethnic Albanians fled or were driven from Kosovo by Yugoslav troops. Under the command of General Clark, NATO forces bombed Serbian forces to prevent the continued displacement and persecution of the Albanian people.

Prime Minister Rama told us that he is profoundly grateful to the American people, President Clinton, and NATO for saving the lives of at least 900,000 Albanians, ushering in stability and positioning the region for progress. It was a case study in the successful use of force to bring peace to a region and a consequent drive for prosperity. Our collective investment in this humanitarian success story is paying dividends for a new generation of Albanians. The country’s transition to a free market economy has been difficult and there are many economic challenges on the road ahead, but the government believes in creating a path favorable for business. Companies such as Bankers Petroleum and Petromanas are helping Albania to develop its natural resources, improve its economy and create growth opportunities for investors who see the potential of this country.

Papri-1E

Shpirag-2Molisht-1

Existing CarbonateOil Fields

Oil FieldsGas Fields

ProspectsLeadsPetromanas PSCThrust Belts

Gas Condensate Fields

Geology of Petromanas’ Albanian Operations

Source: Petromanas, U.S. Global Investors

www.usfunds.comKeep up with Frank’s travels when you follow his blog, Frank Talk.

•

Frank Holmes explores energy opportunities during his time in Tirana, Albania, accompanied by Canadian venture capitalist Frank Giustra (bottom photo, left) during his trip.



http://oilandgas-investments.com/



www.usfunds.comRead more about developments in China that Xian observed during his trip to Beijing.

•

One sector in particular that deserves investors’ attention is clean energy, which has grown dramatically in recent years.

China follows the old Soviet five-year plan (FYP) model, meaning once every five years the Chinese government clarifies its national strategy and sets priorities on certain policies. One of the many goals of the current 12th FYP (2011 – 2015) is to focus on shedding China’s unwelcome distinction of being the largest carbon emitter on the planet. Reportedly, the environment will take center stage during the upcoming 13th FYP (2016 – 2020), an understandable decision. We’ve all seen the photos of Chinese men and women commuting to and from work in a thick cloud of brown fog, their noses and mouths protected by white surgical masks. Sixteen percent of all land surveyed in China is polluted. According to a 2013 Pew Research poll, when asked why they might consider emigrating, close to half of Chinese respondents cited poor environmental conditions. This answer handily beat out other responses such as higher income, retirement, career development and the notorious one-child policy. (“Children’s education” came in at number one.)

China Leads the World in Clean Energy Investment

To help turn the trend around, new environmental policies — the first overhaul of such legislation since 1989 — were rolled out earlier this year. New laws include stricter emission standards, higher fines for pollution and an outright ban on soil pollution. What’s more, the executives of offending companies may be detained, and negligent government officials may be fined.

There are many who object to government intervention where the environment is concerned, arguing it hinders progress, handcuffs executive decision-making and kills jobs. But make no mistake: green energy is inextricably tied to greenbacks. Renewables and clean utilities companies in China are attracting billions of dollars from global investors — $54.2 billion in 2013 alone. China, in fact, currently leads the world in clean energy investment, beating the U.S. by nearly $20 billion.

Two Chinese companies U.S. Global is proud to own are Beijing Enterprises Water and China Everbright International, both of which are committed to providing clean resources and energy.

With a 5 percent market share, Beijing Enterprises is the largest water company in China, a position it’s determined to secure by building more plants and water renovation facilities. The company’s plan is to increase its market share to 10 or 12 percent within five years.

The future of China Everbright, a waste-to-energy company, looks just as bright. Prompted by the latest Environment Protection Law and soil pollution prevention standards, the hazardous waste and sewage treatment market has the potential to thrive like compost-fed grass. Because landfills have reached maximum capacity and conventional trash incinerators produce toxic smog, China Everbright is looking into using plasma gasification, a process that converts organic waste into electricity.

After attending the CLSA Forum, Xian’s confidence in China as an attractive place to grow your money remains strong. It remains to be seen what impact China’s clean-up effort will have on its environment in the coming years, but for now, the investment opportunity is ripe.

In May, Xian Liang, co-portfolio manager of our

China Region Fund (USCOX), attended the 19th

CLSA China Forum in Beijing. There he and

hundreds of other global attendees were given

the opportunity to meet with representatives from

Chinese corporations, some of which U.S. Global

Investors owns. Xian also managed to get a sense

of how the nation’s recent governmental policy

reforms might affect its investment outlook.

Although China remains an emerging market,

it has lately taken a number of considerable

strides to position itself as one of the world’s

most attractive places to invest.

CLEANING UP ITS ACT:





MINUTE WITH THE MANAGER

What did you notice about Turkey during this visit?Turkey continues to develop every time I visit. Although classified as an emerging market, one wouldn’t think to label the country as such. The population is young and growing, infrastructure improvements are everywhere, and the professional staffs that run many of the shops and businesses are well organized and thriving.

The entire taxi system has also improved. There are newer, cleaner cars, and the more skilled drivers run meters without being asked. This high-quality service holds true when it comes to hotels, restaurants

and employees of bus systems and airlines. These improvements are merely a side show in comparison to even larger companies that are run by world-class management teams.

Turkey’s population is also becoming more consumer-oriented. People have money to spend and they want to spend it: on cars, apartments and luxury items.

Tell us about some of the companies you met with.A highlight during the trip was visiting the Ulker Chocolate factory. The Ulker family owns the

www.usfunds.comLearn more about the growing countries of emerging Europe in our interactive map.

•

Tim Steinle, co-portfolio manager of our Emerging Europe

Fund (EUROX), traveled to Turkey recently. We asked him to

reflect on the changes he’s seen in the country over the years,

as well as what investment opportunities he has found.

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 is the market leader in Turkish chocolate companies and it processes its cocoa beans in-house, unlike many of its competitors, and started a pilot farming project in Ghana. We couldn’t take pictures inside the Ulker plant, but I was very impressed with what I saw. The plant was spic-and-span, and the cocoa bean processing hardware was just as complex as I’ve seen at a petroleum refinery. Ulker is one ex-ample of the dynamic nature of many companies in Turkey; nothing is static, and innovation is constant.

How are car companies doing in Turkey?Fiat is capitalizing on consumer-oriented growth in the country. Fiat-branded cars are manufactured around the world, but the company also has joint ventures in other countries including Turkey. Fiat S.p.A. is a majority shareholder in Chrysler and parent company to the Fiat Group.

I visited Tofas headquarters and checked out the Fiat Doblo, a vehicle that looks very similar to a van but also has characteristics of most sports utility vehicles. In 2010, Tofas, Fiat’s JV partner, began building the newest version of the Doblo in Turkey. The Doblo is also coming to the U.S. as Dodge Ram, and branded as a light commercial vehicle.

The number of European-made vehicles that we see today is growing. This includes the Ford Transit, similar in style to the Doblo, and the first product of Ford of Europe, a subsidiary of Ford Motor Co. Volkswagen is another car company with European roots. Just look under the hood — these cars’ engines are made in Hungary.

What about banks in Turkey?It seems the financial sector and individual banks in Turkey are keeping up with demand for innovation. I also met with Garanti Bank, the second-largest private bank in Turkey, and was impressed with the company’s presentation and the functionality of its ATM machines. In the U.S. it is common to use an ATM to withdraw money or check your account balance, but the Garanti ATM allows users to make over 100 different types of transactions.

Available to anyone, Garanti customer or not, the company offers unique packages of services like mobile phone recharges and currency exchange transactions — all without needing to have your bank card. Yet again we see world-class innovation from a Turkish company.

As an emerging market, Turkey is dependent on foreign inflows, but the positive growth in the country is incremental and simultaneously wide-spread in companies both big and small.

GET TO KNOW

Tim Steinle, CFA Co-Portfolio Manager

What is your favorite thing about working at U.S. Global? I enjoy having first-hand observation of local and geopolitical conditions, as well as specific companies and projects.

What is one thing that investors should always keep in mind? Investors must to be able to deal with the consequences of their investment decisions.

If you could meet anyone, past or present, who would it be? Pope Francis, the leader of the Catholic Church. The Economist writes that he is a “turnaround CEO,” meaning he has introduced sweeping change by focusing on three management principles relating to the church. He is putting action behind his words of peace, reconciliation and mutual understanding, and is someone I would be eager to learn from.

Where haven’t you traveled that you’d love to go? I’d like to go to Tanzania in East Africa to see the medieval ruins of island port cities, beaches along the Indian Ocean, Lake Victoria which is Africa’s greatest lake and Mount Kilimanjaro, the highest peak in Africa. Tanzania is an amazing country, unlike any other in Africa.

Istanbul, Turkey




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Gaming MarketsIN ASIA

Casinos, or integrated resorts (IRs), are one of the fastest growing industries in the Asian market, generating $63 billion in 2013. By 2018, however, it’s expected to reach $110 billion, surpassing the U.S. casino market. The reason for this is simple. As the Chinese middle class swells in rank and becomes wealthier, it will have more disposable income to spend on leisure and travel. The country’s nominal GDP growth is projected to hit 11.7 percent by 2016, which means we’ll see more money being spent on tourism.

Source: DICJ, PAGCOR, Goldman Sachs Global Investment Research, U.S. Global Investors

Vladivostok, Russia(U.S. $0.9 billion, 2018e)

Japan(U.S. $15.1 billion, 2020e)

South Korea(U.S. $2.5 billion, 2013)

United States(U.S. $65.0 billion, 2013)

Philippines(U.S. $1.8 billion, 2013)

Macau(U.S. $45.0 billion, 2013)

Singapore(U.S. $6.0 billion, 2013)

Vietnam(U.S. $0.2 billion, 2013)

Malaysia(U.S. $1.9 billion, 2013)

Cambodia(U.S. $0.5 billion, 2013)

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