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Near Term Tax Free

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The combinations range from 100% money market fund to 100% Near-Term Tax Free Fund. ... the chart, investors in all tax brackets can benefit from municipal ... – PowerPoint PPT presentation

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Title: Near Term Tax Free


1
Near-Term Tax Free Funds 5-for-1 SplitJohn
Derrick, Director of ResearchU.S. Global
Investors, Inc. January 2005
2
Investment Goals
  • Near-Term Tax Free
  • Preservation of capital.
  • Provides current income that is exempt from
    federal income tax by investing in short and
    intermediate term municipal bonds.
  • Maintains a weighted average maturity of five
    years or less.

3
Shareholder Benefits
  • Near-Term Tax Free
  • Diversified, professionally managed mutual fund.
  • Conservative maturity profile, limiting interest
    rate risk.
  • Conservative credit profile, investing in only
    investment grade securities.

4
Investment Process
5
Preservation of Capital
  • Near-Term Tax Free is not a money market fund and
    its share price will fluctuate.
  • Historically, the fund has been adept at
    preserving capital.
  • Since inception, the funds total return has been
    negative in just one year.

6
Historical Performance
In a flat to falling rate environment, such as
1995-1998 and late 2000-2003 the fund excels.
Source Steele
During the difficult market environments of 1994,
1999 and 2004, the fund has exhibited a
remarkable resilience in preserving capital.
7
Preservation of Capital
  • A rising interest rate environment is the most
    difficult time for the fund.
  • As interest rates rise, bond prices fall.
  • 1994 and 1999 are examples of this type of
    market.
  • The fund lost 0.06 in 1994, or
  • 6 per 10,000 investment
  • 60 per 100,000 investment
  • In 1999 the fund returned 0.40.

8
Interest Rate Cycle
  • Beginning in 1994 and continuing until early
    1995, the Federal Reserve raised interest rates 7
    times.
  • Interest rates rose from 3 to 6 over 12 months.
  • In mid-1999 and continuing until mid-2000, the
    Federal Reserve raised interest rates 6 times.
  • Interest rates rose from 4.75 to 6.5 in less
    than a year.
  • We are currently in the middle of another up
    cycle for interest rates, which began in mid-2004.

9
Efficient Frontier
  • By combining different asset classes that have
    different investment characteristics it may be
    possible to reduce risk while simultaneously
    increasing returns.
  • Combining a stable-NAV money market fund with the
    Near-Term Tax Free Fund results in some
    interesting revelations.

10
Efficient Frontier
  • We analyzed combinations of annual returns for
    the Near-Term Tax Free Fund and the average money
    market fund since 1991, which was the first full
    year for the Near-Term Tax Free Fund.
  • We also analyzed the risk of these combinations,
    as defined as the volatility (standard deviation)
    of annual returns.
  • The combinations range from 100 money market
    fund to 100 Near-Term Tax Free Fund.

11
Efficient Frontier
60 Money Market / 40 Near-Term
100 Near-Term
100 Money Market
80 Money Market / 20 Near-Term
Source U.S. Global Investors, Steele
12
Efficient Frontier
  • 60/40 Mix
  • 60 money market fund
  • 40 Near-Term
  • This mix provided the best risk/reward trade off.
  • Added over 0.5 in annual return vs. 100 money
    market fund, with the same level of risk.
  • 80/20 Mix
  • 80 money market fund
  • 20 Near-Term
  • This mix provided the least risk.
  • Added over 0.25 in annual return vs. 100 money
    market fund, while minimizing risk.

13
Efficient Frontier
  • Money Market Fund Average
  • Average annual return 1991-2004, 3.7.
  • Best year, 5.8.
  • Worst year, 0.6.
  • 80/20 Mix
  • Average annual return 1991-2004, 4.0.
  • Best year, 6.6.
  • Worst year, 0.9.
  • 60/40 Mix
  • Average annual return 1991-2004, 4.3.
  • Best year, 7.4.
  • Worst year, 1.0.

14
After Tax Returns
  • We will now evaluate an apples to apples
    comparison, which includes the tax benefits of
    investing in municipal bonds.
  • The subsequent slides demonstrate the significant
    benefits municipal bonds have on after tax
    returns. For example
  • You are in the 35 federal tax bracket.
  • You earn a 3 tax free yield.
  • That is equivalent to earning 4.62 in a taxable
    account.

15
Tax Equivalent Yields
  • This table provides an example of tax equivalent
    yields based on your federal tax bracket.
  • As you can see from the chart, investors in all
    tax brackets can benefit from municipal bonds.

Source U.S. Global Investors
16
Tax Efficient Frontier
Assumes 90 tax exempt income and 35 tax rate
100 Near-Term
80 Money Market / 20 Near-Term
60 Money Market / 40 Near-Term
100 Money Market
Source U.S. Global Investors, Steele
17
Tax Efficient Frontier
  • 60/40 Mix
  • 60 money market fund
  • 40 Near-Term
  • This mix provided the best risk/reward trade off.
  • Added over 1.5 in after tax annual return vs.
    100 money market fund, with the same level of
    risk.
  • 80/20 Mix
  • 80 money market fund
  • 20 Near-Term
  • This mix provided the least risk.
  • Added over 0.75 in after tax annual return vs.
    100 money market fund, while minimizing risk.

18
Tax Efficient Frontier
  • Money Market Fund Average
  • Average annual return 1991-2004, 3.7.
  • Best year, 5.8.
  • Worst year, 0.6.
  • Tax Equivalent 80/20 Mix
  • Average annual return 1991-2004, 4.5.
  • Best year, 7.5.
  • Worst year, 1.0.
  • Tax Equivalent 60/40 Mix
  • Average annual return 1991-2004, 5.2.
  • Best year, 9.2.
  • Worst year, 1.3.

19
Efficient Frontier Comparison
After Tax Returns
Nominal Returns
20
Targeted Investor
  • The strategies proposed in this presentation are
    designed for long-term, total return oriented
    investors.
  • It is possible to lose money following this
    strategy.
  • The proposed strategy also assumes annual
    rebalancing, which is essential to maintain
    proper balance in any asset allocation plan.

21
Current Statistics - 12/31/04
  • 30-Day SEC yield
  • 2.18
  • Tax equivalent yield (35 Tax Rate)
  • 3.35
  • Weighted average maturity
  • 2.64 years

22
Near Term Split Info
  • U.S. Global Investors, Inc. instituted a
    five-for-one share split for its Near-Term Tax
    Free Fund (NEARX) effective on the close of the
    first business day of 2005.
  • The goal of the split is to reduce daily
    volatility as measured by one-cent moves in the
    NAV per share of the Near-Term Tax Free Fund.

23
NAV Fluctuation
  • Near-Term NAV
  • Over the past 500 trading days (2 years), the
    fund moved by a penny or more 59 of the time
    (293 days).
  • Split Adjusted NAV
  • Over the past 500 trading days (2 years), the
    fund would have moved by a penny or more only 18
    of the time (92 days).
  • There were no instances of the fund moving by
    more than one penny per day.

This historical analysis does not necessarily
predict future market activity.
24
Money Movement
  • This split allows investors to move between our
    money market funds and Near-Term Tax Free Fund
    with less risk of daily NAV (net asset value)
    fluctuation.

25
Summary
  • For long-term money market fund shareholders,
    there are numerous advantages to allocating a
    portion of those assets to the Near-Term Tax Free
    Fund.
  • The 5-for-1 split reduces daily NAV fluctuations.
  • Historical performance demonstrates an allocation
    to Near-Term has beneficial risk/reward
    attributes.
  • Monthly tax free income.

26
Disclosure
For more complete information about
the Near-Term Tax Free Fund (NEARX), or any U.S.
Global fund, including charges and expenses,
obtain a prospectus by visiting us at
www.usfunds.com or call 1-800-US-FUNDS
(1-800-873-8637). Please consider carefully the
funds investment objectives, risks, charges and
expenses. Read it carefully before investing.
Distributed by U.S. Global Brokerage, Inc.
Annualized Total Returns of the Near-Term Tax
Free Fund as of 12/31/04 1-Year 1.755-Year
4.6510-Year 4.55 Performance data quoted
above is historical. Past performance is no
guarantee of future results. 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. An investment in a
money market fund is neither insured nor
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the fund seeks to preserve the value of
your investment at 1.00 per share, it is
possible to lose money by investing in the fund.
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. Bond funds are subject to
interest-rate risk their value declines as
interest rates rise.
J\PR\Presentations\China Wealth Advisor Forum
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