The Thomas White International Fund primarily invests in equity securities of companies located in the world’s developed countries outside of the U.S. There may also be a portion of the Fund’s assets invested in companies from emerging market countries.

Fund Manager Commentary

June 30, 2011

International equity prices managed only marginal gains during the second quarter, as sentiment weakened on renewed concerns over slower global economic growth. Recent readings from key indicators suggest that global economic activity is slowing down across most regions, and it is now expected that global growth will likely fall short of earlier forecasts. The quarter began on a strong note with developed markets continuing to lead, but equity prices came under pressure in May as manufacturing surveys revealed early indications of the slowdown. Persistent concerns about the sovereign debt crisis in Europe and fears of a Greek default depressed equity prices further. However, sentiment improved towards the end of June after Greece accepted the deep spending cuts that were the precondition for further financial assistance from the EU.

The Thomas White International Fund returned +0.95% during the second quarter of 2011, compared to the benchmark MSCI All-Country World ex US Index, which returned +0.38% for the same period. The Fund returned +30.12% for the trailing one-year period, outperforming the benchmark return of +29.73%.

In recent months, there has been a marked slowdown in manufacturing activity across the globe, including the fast growing emerging economies. This trend continued in June when surveys suggested that manufacturing output growth declined across major economies, with the exception of the U.S. Part of the weakness is believed to be due to the supply chain disruptions in the aftermath of the Japanese earthquake disaster, which are expected to moderate during the second half of 2011. Manufacturers may also be responding to early signals of slower global demand for both industrial and consumer goods, the likley result of persistently high inflation rates in the emerging economies coupled with the perceived risk of higher inflation over time in many of the developed economies that are running unsustainable fiscal deficits.

Prices of select industrial materials and precious metals scaled their recent highs during the early part of the review period, but corrected after the moderation in global demand outlook. Oil prices plunged following the effort to tame fuel costs with the unexpected release of over 60 million barrels from strategic reserves by the leading consuming countries. This action may result in a continued subdued demand oulook for energy and commodities in the near-term, despite the support by Japanese reconstruction efforts. Prices of agricultural commodities, especially wheat and corn, have also retreated, and will likely restrict consumer price gains, especially in developing economies.

Emerging markets lagged for a second consecutive quarter, as most are struggling to rein in persistently high inflation. In most instances, the correction in international energy and other commodity prices has not fully reflected in retail prices in most emerging markets, as fuel and food are subsidized in most of these countriesCentral banks in China, India, Korea, and Brazil continued to tighten interest rates and deploy other policy tools to limit credit growth, as their earlier initiatives have not produced the desired results.

The U.S. dollar weakened against most currencies during the quarter, accentuating the returns of investors holding international assets. Though the dollar strengthened mid-way through the quarter on heightened global growth concerns, weaker U.S. economic prospects and the continuing impasse over raising the U.S. government’s borrowing limit dragged down the currency again towards the end of the review period.

Performance data is based upon past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. Please call 1-800-811-0535 to obtain performance data as of the most recent month-end. The Fund imposes a 2% redemption fee on share held less than 60 days. Performance data does not reflect the redemption fee. If reflected, total returns would be lower. Please click here for standardized performance.

Portfolio Review

After lagging marginally during the first two months of the review period, the Fund managed strong relative performance against the benchmark index during the down market in June, when renewed concerns over slower global economic growth weighed down market sentiment. Best performers during the second quarter were from sectors like consumer durables and consumer retail, on spirited demand growth in select markets and segments. Healthcare and consumer staples found favor among investors who are increasingly anxious about the uncertain global economic outlook. As expected, energy and metals producers were affected by the correction in energy and commodity prices.

The biggest outperformers in the Fund’s portfolio during the second quarter were the consumer-oriented holdings, such as Indonesian specialty tobacco manufacturer Gudang Garam Tbk PT (+20.8%), South East Asian auto retailer Jardine Cycle & Carriage Ltd. (+20.6%), and Japanese electronics retailer Yamada Denki Co. Ltd. (+20.3%). Among the Fund portfolio’s consumer durables holdings, South Korean automobile manufacturer Hyundai Motor Co. (+20.0%) benefited from the company’s impressive market share gains across the world, while German luxury carmaker BMW AG (+18.5%) was helped by the sustained volume growth in the luxury end of the market. Canadian technology outsourcing and consulting company CGI Group Inc. (+17.7%) was buoyed by the increased contract wins during the quarter as well as the improved demand outlook for the sector. Thailand-based power producer Glow Energy PCL (+17.2%) added value after the company completed a major acquisition and announced diversification into wind energy.

Norwegian marine produce exporter Marine Harvest ASA (-35.4%) was the worst performer in the Fund’s portfolio, largely due to a nearly 6% drop in salmon prices in late April and early May combined with a soft short-term outlook, which negatively impacted the company’s price performance during the period. German construction company Hochtief AG (-23.9%) gave negative returns as the company lost senior management personnel following its acquisition by a Spanish rival. Canadian silver miner Silver Wheaton Corp. (-22.4%) lost value as silver prices declined towards the end of the quarter, while African gold miner Gold Fields Limited (-16.2%) underperformed over production loss concerns due to labor strikes and rising costs. The correction in global energy prices following the International Energy Agency decision to release emergency oil reserves affected the Fund’s energy holdings such as Canadian Natural Resources (-15.2%) and Petroleo Brasileiro SA (or PetroBras) (-13.0%). Chinese lender Bank of Communications Co., Ltd. (-13.0%) also lost value over concerns about lower credit growth after successive monetary policy tightening.

Outlook

While the growth outlook for the global economy has moderated, the extent of the slowdown is not very significant for some of the largest economies. It should be noted that, in its most recent report, the International Monetary Fund has lowered the global Gross Domestic Product growth forecast by only 0.10% from its earlier estimate of 4.3% to 4.2%, compared to 5.1% achieved for 2010. Among the large economies, aggregate output growth for the current year is now expected to be lower in the U.S., Japan, Brazil, and the U.K. The Euro-zone is expected to gain pace while forecasts for China, India, Russia, and Mexico have held steady and remain healthy when compared to the average growth rates achieved by these economies in recent years.

We believe the highly stressed fiscal situation will likely prevent most governments from contemplating further fiscal stimulus measures, and the major central banks have not yet signaled further quantitative easing programs. Though interest rates have moved up in Europe, monetary policy remains highly accommodative across the developed world. While domestic consumption growth will likely slow down in the emerging economies as monetary policy turns more restrictive, the central banks in these countries are expected to be more measured in their policy actions due to the weaker global economic environment. The sluggishness in the manufacturing sector has attracted the most attention, but the deceleration in the sector has come only after the vigorous growth over the past two years.

The sovereign debt crisis in Europe remains unresolved, even as protests have escalated in the troubled countries against the fiscal austerity plans. The last minute bailout package for Greece and the agreement by European banks to reinvest their maturing bond holdings in new issues by the distressed sovereigns might prevent the crisis from worsening, but in our opinion do not add up to a long term solution. Rating agencies have lowered the credit rating of some of the affected countries to below investment grade and have warned that the proposed restructuring plan for Greece may still be considered as a technical default. Apart from eroding investor confidence, the political opposition to restructuring efforts in these countries and rating downgrades have further complicated the efforts to find a long-term solution to the crisis. If this scenario prolongs, we believe it will further weaken the outlook for Europe’s banking industry, which has a large exposure to debt issued by the troubled countries.

We value your continued confidence in the Thomas White International Fund. We continue to focus on our extensive and thorough investment research process to develop investment strategies aimed at delivering long term returns and better capital preservation, even when the economic environment is uncertain as it is now.

Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Please click here for fund holdings.

Opinions expressed are subject to change at any time, are not guaranteed and should not be considered investment advice.

Mutual fund investing involves risk. Principal loss is possible. Investing in international markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investments in smaller companies involved additional risks such as limited liquidity and greater volatility.