Welcome to the U.S. Global Investors webcast. Global Infrastructure Gets a Domestic Boost. Please note that the slides you see on your screen are controlled by the presenters. (Operator Instructions) Now, we would like to begin by introducing Michael Dunn, Director of Institutional Service for U.S. Global Investors. Thank you.

Good morning. Thank you everyone for joining us today. It’s seemed to have developed over the last several months, today’s topic could not be more timely nor could it feature a hotter investment buzzword, infrastructure. When we launched that infrastructure strategy to Global MegaTrends Fund about 16 months ago, we did not foresee that the subject of how research and bullishness, would soon be a key component in one of the most important and expensive government stimulus plans ever ventured, but here we are and we’re still bullish on the very broad sub-sectors that we define as infrastructure. Certainly, growth estimates have undergone significant changes, but this seems pretty clear; we’d planed to build our way out of recession and that model is Global. Pollster Frank Luntz, recently concluded that 94% of the Americans are concerned about the condition of our infrastructure, nearly unanimous. Perhaps even more shocking, 81% of those poled actually agreed to pay 1% more in taxes to help the effort, much as riding on infrastructure. Today we’ll discuss some of the factors that attracted us to infrastructure in the first place; update you on how they’ve changed and also speak about how they maybe affected by the ambitions of the new Obama administration. Leading our discussion today is Frank Holmes. Frank is CEO and CIO of U.S. Global Investors. Frank acquired U.S. Global Investors in 1989. From 2000, he became Chief Investment Officer and since that time his team has earned 26 local awards and performance certificates. Frank is a former President and Chairman of the Toronto Society of Investment Dealers and was a member of the Toronto Stock Exchange's Listing Committee. In 2006, Frank was the recipient of the Mining Journal’s Mining Fund Management award and joining us from San Antonio is the lead portfolio manager of the Global MegaTrends Fund, John Derrick. John is Director of Research for U.S. Global Investors and has been with the firm for about 10 years. Previously, he was with Fidelity Investments. He received this DBA in finance from the University of Texas at Arlington. John is a CFA Charter holder. To get us started today, please let me introduce Frank Holmes. Frank.

Thank you, Michael and good morning ladies and gentlemen. I’m going to try to go quickly through some of the thought process; first of all, cycles. We are very much a believer that things come in cycles and this is quite often in conflict with the comprehensive pricing model and these cycles bring important over lag and one of the big factors is the [Cruzner] cycle, which talks about the 20 year emerging market cycle. Further to that, I think it’s important that when we take a look at the presidential election cycle, that last year we had commented that 80% of time of the fourth year of the President’s term, the market is up 8%. However, 2% of the time you get the black swans where you have a mass of credit and currency prices and the market was down. So, mathematically that market decides that probability. So, now we have our new President, a brand new country due for change and with that you have lots of commentary on what’s necessary to turn this economic around. However, dramatically in the first year of a new President’s term, markets are either down or flat. So, the odds are against President Obama, but I think there’s a stimulus package which actually started in September with money being printed and it could get traction faster than normal, which would be great for the overall stock market, in particular, everything that has to deal with infrastructure and infrastructure spending. One thing when you look at government policies, it’s very important to look at the monitoring physical policies and to take a look at what they’re doing with interest rates. There was a high, high correlation of money supply and the demand for commodities. This cycle takes about nine months and the printing…

Great, thank you Frank. Actually on slide ten, this is just going to give you an idea. Frank was talking about emerging markets account for nearly three quarters of the world’s urban population and this is showing you why there’s going to be spending in those areas. As people move to the city, obviously you need a place to live; you need transportation, electricity and all those things. So you can see here, it’s estimated that $41 trillion will be invested in infrastructure over a 25 year period between 2005 and 2030. You also look at this chart on slide ten there. You can see that Asia is going to be the biggest component of infrastructure spending. While, these numbers were drawn a little while ago, I think all these numbers are going to go up. As Frank alluded to in his slide, the fiscal stimulus, not only here in the U.S., but around the world is going higher and higher and higher and infrastructure is one of the key routes that counties are going to lose their economy. So, I think it’s possible that these numbers may even be higher, but within this chart, Asia is very significant in that growth. If you turn to the next slide, slide 11; you can see that China is going to be the biggest part of Asian infrastructure spending. So, Asia is a key component, China is the dominant component of that, followed by India and you say, okay that’s great, why is that? When you turn to the next slide, slide 12 and it shows that there are roughly 25 million to 30 million people urbanizing every year in China and India combined and this is a long cycle process. This is expected to go on for at least another decade…

Thank you, John. Well that’s on the road to recovery, first quarter update. It is important to know that it’s Happy New Year and this is the year of the Ox. So we would say [Foreign Language]; a happy and prosperous New Year. So, let’s take a look at history and see, we’ve gone through this horrific recession and market that decline; how long do they last? What is the average number of months for recessions and what we want to do is put this picture together for you, so you can see the length of what was the worse going back in August of 1921, it’s just 43 months. Where are we in this? We’re over 13 months. So, we’re basically at the average and it appears that there’s some traction with the money supply. It’s capturing some of the interest and we’re starting to see some numbers bottom, but unemployment is a lagging indicator. So we may witness unemployment number still rising as the economy is starting to get some traction and so hopping over in page 25, you can see that U.S. money supply did turnout. What’s important for investors’ listening is that this time last year, even though interest rates were dropping, money supply was also dropping and contracting and it wasn’t until September that the spigot was turned on. With that, it take as I mentioned earlier about nine months before you start seeing some serious traction in commodities and in economic development, but we are seeing now and as you can see has turned out dramatically and this will create a bottom for the normal GDP numbers. So, we’re feeling more comfortable, but the bottom will be as we mentioned earlier, more of a ‘U’ shape and ending like a ‘V’ shape. Hopping on…

Great thank you. Actually, real quick before I dive into that, I think one of things that I would like to point out is there’s obviously a lot of negative news in the press. I think, the unemployment data that Frank alluded to, those are lagging indicators and a lot of those numbers are going to be negative and will be negative for several more months, etc. I think what we’ve seen is, the feds been in an interest rate cutting mode for more than year, we cut them basically to zero that’s implemented kind of a quantitative easing, this mass of fiscal stimulus take effect. You’ve had mortgage rates fall to record lows, you’ve had gasoline prices have or even more than that and we’re starting to see some early signs of credit borrowing if you will in corporates, in the repo markets, in municipals, etc. So you’re starting to see some of those kind of early indicators and the news is so bad, and the sentiment is so bad, I feel like now is the time you want to look for those kind of things that are showing kind of counter trend. Everyone knows it’s bad and you really have to be on the look out for what’s positive. As Frank kind of alluded to on the recession graphic, is that we’re already 13 months into well above the average and even if it’s a worst case scenario or the worst recession since the great depression, those only lasted 16 months. So, with everything else that’s going on, with the global stimulus that’s taking place, its likely that we’re maybe even two thirds or three quarters of the way through this recession and many economists are still projecting at least the next six months will be in recession…

And John just to add to that, what percentage is related to exports from China, the domestic consumption?

Yes, roughly 5% was export driven versus the other roughly 95% that was either investment driven or consumption driven internally.

So, the idea of taking away American jobs for their economic prosperity is pretty misleading according to the data.

Yes, that’s sound right.

It’s most important; it’s what they are doing. Most of their money is being spent on their own infrastructure; then building their own roads and powers plants, etc, and then making clothes that are consumed by their $1.2 billion people, that’s a key factor in their overall economic growth.

Right. Great, thank you. Slide 31, this is also very interesting. We’ve seen bank lending in China. Basically new bank lending broke a record in December. Very counter to what’s happening in other places around the world and this is new loans. So, this is very significant. So the government has stepped in; the government has a lot of influence and the government is saying, “Hey, we need to lend; we need to get activity going again” and the banks are responding; a very, very positive development. So, we’re definitely seeing China buck the trend internationally and we’re all aware that China has been a significant growth driver over the last, say five or ten years. Then it actually on the next slide, I’ll kind of wrap it up with kind of how we’re approaching it from our perspective and with our funds; the Global MegaTrends Funds. Historical when we were looking at this and we brought this fund out, a lot of the infrastructure alternatives out there were utility based, a lot of the infrastructure industries that you look at were more or less Global Utility Funds. We’re taking a little bit broader perspective on that and not only or we’re looking at kind of the utilities if you will, whether it’s electric or water, gas etc, but we’re also looking at really the building blocks of infrastructure. We are looking at steel, iron ore, construction and engineering firms, summit, all those kind of things that basically you need to build out all these projects. We believe that there’s going to be a significant growth aspect for those areas. I’d like to call it a fix and troubles approach. You buy that the building blocks and like in Gold Rush in1849 in California, the people there really made the money where the business is selling picks and shovels; not necessarily the local prospect are trying to find a nugget of gold. So we think to a certain extent we’ll see a similar dynamic develop here. We feel like that’s a little bit more of a growth oriented strategy, more emphasis on emerging markets to a certain extent, but we believe that’s where the growth is and I think some of the slides that we presented today I think tell that story as well. So we’re broadly diversified. We have that utility type exposure, but we also have more of the growth type exposure that I talked about, we also have alternative energy exposure like solar and land and those kinds of things. We had classic infrastructure investments like airports and toll roads and those kind of things and also wireless and telecommunications infrastructures is also a part of what we’re doing, which is across our utility, but maybe have a little bit more growth profile to it. So with that I’ll turn it back over to Michael Dunn.

Thank you very much. Thank you, Frank and John. Now I’d like to take questions from our guests. If you have a question, if you look in the upper right hand corner of your screens, you can click on the questions button. Our first question has to do of course with that the debate that’s going on in Washington and the way it is boiling down along party lines is a debate over tax cuts versus infrastructure investment among a package of additional spending. Does U.S. Global have an opinion on the better route to growth?

I’ll jump in on that and Frank if you have anything you want to add, definitely do jump in. I think when you look at Obam’s stimulus plan that was announced in that American Recovery and Reinvestment Bill, I think it’s a very balanced program, that’s what it is and I think that while infrastructure’s obviously an important component, if you think about it, Frank mentioned that $1 billion in infrastructure investing creates roughly 35,000 jobs and has a multiplier effect of roughly $6 billion in the economic activity. I think if you look at how much has been invested in infrastructure, roughly $174 billion. That’s a significant amount of stimulus to the economy. I mean you could so the math in your head if you want, but its a significant investment back into America and that’s in addition to the normal amount of money that’s being spent on highways and road construction and all those other projects that are going on, so this is incremental. So, I think you look at the tax cut and some of the other program, I think those are also an important component, because that will get the whole economy coming back, also giving some money to the state local governments to spend as they see to that and then obviously this is kind of more of a social program aspect that was to deal with unemployment and some of those kind of things. So I think it’s a very balanced plan, I think it’s a very reasonable plan, but I think at the same time, I think it does carry enough on the infrastructure side to make a different. So I look at this plan and I’ve been very impressed so far.

Very good. Frank any follow-up to that.

That’s fine. John echoed to it perfectly, the thoughts.

Thank you. Some time ago, actually not that many months ago, there’s a lot of discussion about the importance of building out the energy infrastructure and the U.S. to combat rising prices there, but with prices coming in like they have, what are some of the possibilities for energy infrastructure in the U.S.? Will there be refining capacity that’s addresses, L&G facilities and also regarding the Obama administration, do you have an opinion about the future of domestic nuclear power generation?

I’ll ump in again. I think one of things that you have to consider is while we’ve had a fall in energy prices; we’ve had a fall in demand for energy and those kinds of things, because of what’s going on with the economy. You have to understand, these are long term problems and from what I’ve gathered from what President Obama has been saying is that this is going to be a priority for them. They are going to develop alternative energy sources; they are going to use domestic energy sources more than ever. They are going to really commit resources to develop that out and they are going to try to lessen their dependence on oil probably more than ever. So I think there’s going to have to be a significant investment as far as gas turbines, wind power and even nuclear to a certain extent and then you have to have the transmission grid and all those kind of things that hook them up; the transmission kind of distribution and transmission grid, electricity transmission grid. We saw blackouts a few years ago, we’ve had all kinds of issues; it’s an old grid, it definitely needs to be upgraded. So, I don’t think its going to derail those things. I think if anything, you’ve seen a little bit of delay and I think what it does is I think it buys us a little bit of time. I think as a country to a certain extent we were kind of shocked by what happened with energy prices and obviously we’ve seen the impact of some of that and I think what it does is it buys us a little bit of time, but I honestly don’t believe there’s going to be that much of time. I think is as I kind of point out earlier, a lot of the story here is the emerging market growth and China is a big part of that, but also other parts of the world, Russia, Middle East, Brazil, those kind of places are all a big part of this story and they’re going to continue to consume energy and I think what it’s done is it’s given us a little breather, but we’ve got to act quickly.

Thanks, John. On a related note, do you think that the prospects for alternative energy; green energy is still strong currently in the U.S. and in particular, I suppose comments from Mr. Pickens recently, about how the emphasis for wind energy has all, but stalled?

Yes, I’ll follow those comments as well. They’re basically saying it’s that for right now, but I think it goes back to and I think if you’re going to lessen your dependence on foreign oil and foreign energy, I think that renewals aspect has to be a component of kind of an integrated plan, energy plan and so, once again I’m going to use the words delayed. I think things have been delayed by maybe six months or may be 12 months, I’m not sure, but I think the idea is that it’s not derailed. Things have not been, just passed off to the side, never to come back to again. I think, what it is, is it’s been delayed a little bit, but fortunately we live here in San Antonio, right here on I10 and I’ll be honest; I watch those trucks go down I10 with those huge propeller blades and huge structures for those wind powers to go out to West Texas and so, I saw one yesterday actually as a matter of fact. So, I know it hasn’t come to a complete stop, but obviously they’re going to be have headwinds just from a competitive standpoint or can you competitively provide electricity at competitive rates and those kinds of things; but I think in the long run, I think they’re still going to be very viable.

I think just to complement John’s thoughts is that listening to Obama speak this morning, there is a big push to have alternative source of energy, so that we can protect ourselves from the chaffers of the world and the Iran’s of the world who are manipulating energy prices and playing games with us. There is just a huge commitment to infrastructure spending for transition lines, both for power and that’s a big factor of the cost is besides putting huge wind fans in West Texas, how do you get that electricity centered around the nation. So, we’re going to work on building on muscle tissue if you want to take a look at this, you apply that metaphor, muscle tissue, internally so that we have greater connectivity, all sources of energy, gas. We have an abundance of gas with new technology with all these sale deposits and these gas prices are below that price, but as fixed dollar as mcf, we could turnaround and become much more independent and as clean energy. So I think we are going to use that and see that this program, as the government is going to reallocate taxable money into clean jobs that are both short-term and long-term as we did in building interstate highways and as we did building the Internet hub.

A number of investors have asked about the [Inaudible] Shipping Index and where you see that today, is their a sign that perhaps there is a bottoming event?

As far as our technically indictors, they have bottomed, John?

Yes, no I would agree. Obviously they are in a modest uptrend right now, it appears that they bottomed, I think the Baltic is maybe a good proxy for other commodities and other even in emerging markets to a certain extent and so, we’re seeing some positive signs there. I think natural resource stocks in general energy stocks have gone through a very similar kind of bottoming process started in probably October of last year and continued to consolidate for the last several months, and are starting to turn up a little bit as expectations more or less are staring to come inline with reality. So, yes I think it is a positive sign and as Frank was alluding to, our technique indicators are saying things are back in an uptrend.

And a complement there for listeners, it’s very important to follow what the U.S. dollar is doing. Last year, in ‘08 in the first six months, the dollar was under tremendous pressure as it tested all-time lows and oil soared to 147 square, one parabolic on the upside. From July until December, we had the dollar going on up on parabolic move on the upside. Then we’ve had a modest collection and I think it is key that we’ve seen is a strong inverse relationship to commodity prices and emerging market prices to the dollar. So when the dollar is strong, in the emerging market commodity prices are weaker, as vise versa with the dollar falling, then these commodity prices and emerging market prices are to rise. We’ve seen a collection here and it appears if the dollar was to settle down and get back to a lower level then you could have the Baltic shipping rates, that was a very sensitive to was having global and emerging market economic activities rise further and then you will see that tracks take place in the various commodities. We have to be careful obviously because these are just price moves off the dollar. We have to make sure if there really is jobs being created, that there is economic activity and that’s what we are still focused on moderating day-in, day-out what’s the G7 countries, what’s E7 countries doing on this job creation and how they are going to resolve the banks’ not being able to facilitate loans. I think the worst is behind us, but it will be a slow process as we are watching and monitoring it.

John, a question that is fund-specific. Could you take about some of your top holdings and in addition to that, give folks a little bit of insight into the role of technology investments within the fund, which you might not find in some of those facility-oriented funds that you comment on?

I think that technology oriented investments are going to be more of the alternative energy type investments. So, First Solars’ that we owned, that we have had for quite some time and obviously solar energy, we believe in that technology if you will. And so, we believe that, that is going to be a good place to be in the long run. The other kind of technology areas, honestly like even the winter wine-makers and blade-makers, that’s very highly engineered, very precise product and so I think there is some technology aspects to that. I think those that are primarily our technology plays if you will within that space currently, but I now there is also been some other investments in this new bill that has been proposed, essentially broadband infrastructure build out and some of those kind things and those things may provide opportunities going forward. I think in the current environment, we have taken a little bit more of a broad-based approach. We continue to own several of the domestic utilities that we feel are well- positioned through either alternative energy sources like nuclear or wind et cetera like FPL, Excellon those are a couple of examples of those, but then we are trying to balance that out with some more growth characteristics something like a China Mobile or something along those lines to take advantage of our view on China, but also benefit from telecommunication infrastructure build out that has taken place in China and so hopefully that more or less answers your question.

For a moment, could you reflect on the strong dollar? Is that a risk for the portfolio or is it strength in fact?

I actually it’s more of a strength actually, I’m sorry a strong dollar?

Yes, strong dollar.

A strong dollar, I think would be a little bit more of a risk, because generally speaking it’s going to weigh in commodity prices. So, I think our longer-term view is that the dollar is likely to weaken in the long-run, obviously there is a lot of other factors taking place right now, that have given us some strength, but a strong dollar would generally be negative for commodities and for emerging markets and those kind of things, which have to a certain extent a fairly high correlation with some of the things that we’ve talked about today, so that more growth strategy does entail some of those kind of risks. So, it would be on the margin a headwind for us if the dollar remained strong.

Thank you. Could you share a comment or some insight on how the investment team regards the importance of the environmental issues with respect to China’s growth opportunities? In the past, they presented perhaps the most significant headwinds? Where is that today?

Well I think, particularly leading up to Olympic, I think China recognized that there is obviously a pollution issue in China and so some of the environmental impact is that the industry have. The Chinese government is pretty good about going in and shutting down some of the smaller, inefficient operators in a variety of industry. Really trying clean up their act, if you will, that kind of thing, and so I think there is awareness there and I think things are getting better. I think to a certain extent, economic growth has a cost to it and in China there is obviously going to be some environment impact and those kind of things, but at the same time, I think the ability for social progress and those kind of things probably out-weigh most of those things at least for those people that are in China. So, I don’t have a strong opinion about what China as a government policy should be doing other than, I think generally speaking a cleaner environment is better all things equal, but it’s definitely balancing that.

Thank you. Have you noticed as a group, any change in the way the petrodollar rich nations, such as Russia, countries in the Middle East, Brazil and others have begun to allocate their capital and the last several months there has been some change dramatically?

Well, I think part of it is, projects have been delayed. So, revenues are not as robust as they once were. I was in Russia in July and there was at that time a big push to increase living standards and rebuild housing, rebuild the real network and those kind of things and I still think there’s a commitment to do those kind of things, because I think most of these counties that you mentioned I think look at things in the long run and I think the key things very similar to how we see them and I think in the long run, the demand dynamics are still very favorable overall in general and for energy and commodities and those kind of the things. So, while I think things have been delayed some, I still think those projects are still more or less on the table; it just may take a little longer to get them done.

Thank you. $41 trillion, is an incalculable sum for most people, where is that money going to come from?

Actually, it’s going to come from what government has dedicated. I think what people have seen is they’ve seen the success of China and they’ve seen how China had put government polices in place, dedicated itself to improve the infrastructure of the country, improve social structure and those kind of thing and they reaped massive rewards from it and I think a lot of the countries have look at that model and said we can do this too. I think one of the other factors is just a significant amount of under our investment that’s taken place globally in infrastructure. Like Frank talked about on the very first slide or first couple of slides, about the amount of money -- I’m sorry, that the urban population is now greater then the entire world population was in 1965. I mean think about all the infrastructure in the U.S. that was built before 1965, there’s a lot of infrastructure that’s 40 years old and needs to be replaced here in the U.S. and so, I think what happens is that the economies develop. I think that $41 trillion I kind of talked about a little bit on in the Gulf countries. There’s $6 trillion right now and just of all averages $70 over 14 years. I thinks it’s those kind of place. So, China has a huge foreign currency reserve, they have this huge growth profile from an economic perspective, there’s a good chunk. You have kind of countries like that; the Gulf countries or Russia etc and then you have rededication to it in places like U.S. The U.S. has dedicated a significant amount. A couple of years ago, the U.S. did a highway bill, $287 billion over five years and that will come back up. So, all the things that we’re seeing here is in addition to that. So that $41 trillion globally really doesn’t seem to be that much of a stretch considering in my view how dated maybe some of the infrastructure here is in the U.S. and in Europe to a certain extent and then the economic growth that just needs to take place in these others countries.

Just a complement to the thought process, I think that there is a balance between good government policies and free markets and America’s machinery is just incredible, it is in a resilient economy and it has the ability to create wealth internally and just start being able to pay for this whole program, if money is used wisely. Building infrastructure for our children’s children, that is smart, there is huge dividends being paid for that. Updating our school system and education is another great program. The biggest risk I see is the pro-union movements and we’ve seen what takes place in [Detroit]. One of the biggest problems in Detroit region is the union has so much power and they won’t reinvent themselves, they are more for protectionism than they are about education and learning and I think that’s a key factor they could be a headwind against this whole program. I’m still bullish as John is and we’re now getting a good balance between good government policies with the strongest economy. The intellectual capital of this country is amazing. We’re going to attack this energy issue of not being, we depended upon Middle East and troublemakers with such focus like it was with the Manhattan Project. I think as Voltaire said, “nothing can withstand your assault of continuous brainpower” and America has phenomenal depths of brainpower.

Actually, just a quick thing I would add to that is, while government is actually a good component of this story, but there is also a private component too. It’s a private investors investing in this sector as well. There is a lot of public-private kind of partnerships that take place in infrastructure build-out. And so, I think once we get through this credit crisis that will resume and things will continue to develop. So it’s not just the government spending, it’s a combination as Frank was kind of talking about, you have positive good government policies in place that encourages this kind of spending, then you get the private sectors to step in and also contribute a significant amount maybe even the bulk of it, before it is all said and done.

Thank you, John. Thank you, Frank. That is actually the end of our questions today and the end of the presentation, we want to thank everyone for joining us. We appreciate your comments and yours questions and as we conclude, please let me remind you that you will find replays of our webcast including our recent outlook for natural resources 2009 by visiting www.usfunds.com. There is a lot of interesting investment commentary there and take a moment to get hooked on Frank Holmes blog, which is entitled with Frank Talk. It is located on that homepage. Please call us, if we can assist you in anyway, 1800-US-funds that’s 1800-873-8637. Once again, thank you for joining us. Take care.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.