August 2011

The longer term debt of the U.S. Treasury was recently downgraded from its AAA rating to a AA+ by credit ratings agency Standard & Poor’s. We, at Huntington Asset Advisors (HAA), had been expecting such an action by S&P due to the levels of aggregate debt to GDP and the deficit to GDP. Both statistics were significantly below that of other AAA-rated countries. The political wrangling and last-minute economic compromise associated with the Congressional approval of raising the debt ceiling limit also contributed to the rating assessment. Consistent with S&P's Treasury downgrade, the ratings of Fannie Mae and Freddie Mac were also reduced. It is expected that the rating of other debt-issuing entities associated with the government are likely to be subject to downgrade as well. That may include several municipalities, agencies and educational entities. The two other rating agencies (Moody’s and Fitch) reaffirmed the AAA status of the Treasury on their August 2, 2011 assessments.

The bond market has not experienced much market action as a result of the downgrade, nor has LIBOR or most short-term rates. Credit Default Swaps based upon the U.S. are among the lowest in the world, which is indicative of world-wide investor confidence in the Treasury. Likewise, the dollar is stable and money has been flowing into the banking system. Keep in mind that the rating decline only applied to longer term Treasuries, while the shorter term maturities (money markets) retained the highest rating. The stock market, however, is viewing the steps by S&P as a diagnosis of a weakening economy and fiscal instability. Together with recent weak GDP growth numbers, the debt ceiling crisis and the imponderable (yet contagious) fiscal status of European nations such as Italy, Spain and Greece, the rating downgrade represents the latest in a series of “body blows” that the economy and stock market have had to face. Equity investors have become weary over the lack of economic progress throughout the world and have been reducing stock exposure. The European Central Bank also took action over the weekend to stabilize the sovereign bond markets for Italy and Spain, which should be helpful to calming fears around the Euro.

At Huntington, we feel that there is, indeed, a growing chance of recession. However, our economist, Dr. George Mokrzan, indicates that the chance of recession is only about 30% according to his models, although we are certainly experiencing a period of economic weakness. There is plenty of liquidity within the system and, using the examples of when Japan and Canada were downgraded, both countries’ stock markets appreciated significantly in the ensuing year. That market performance was stimulated by significant policy reforms that both countries undertook which were viewed favorably by market investors. We hope that Washington will, likewise, aggressively attack the fiscal problems and develop a more comprehensive tax policy together with some regulatory reform. We feel these two issues would be the catalysts that could propel our markets upward, as was the case in Canada and Japan. We have experienced a 15% decline in market values from the spring highs and traditional market corrections are in the 14% range. This indicates good value in U.S. equities and, if we experience meaningful tax and regulatory reform, the potential for reasonable market recovery. At Huntington, we have created a number of products and strategies to help play both offense and defense in this unsettled marketplace. Our Global Select Markets Fund invests in those countries that have the favorable demographics which would provide growth and also have noted fiscal responsibilities. The Disciplined Equity Fund has extensively hedged positions that have a demonstrable track record in periods of volatile market performance (Beta of .3). Our Dividend Capture Fund and World Income Fund produce yields to offset the swings in the marketplace.

Our specialists in commodities (gold hit a recent new high), option strategies, international investments and bonds are available to assist in finding those potential opportunities that can help protect and help grow your assets in the future environment. Many of our investment selections have annuity provisions that are attractive and provide incremental protection as we seek to temper the market gyrations.

As always, we appreciate your business at Huntington Funds and look forward to assisting you with your long-term financial goals.

Sincerely,

Randy Bateman, CFA
President, Huntington Asset Advisors
Chief Investment Officer, Huntington Private Financial Group

Views are as of (4/15/11) and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security.

Diversification does not assure a profit nor protect against loss.

International investing involves special risks including currency risk, increased volatility of foreign securities, political risks and differences in auditing and other financial standards.

Mid- and small-cap investing involve greater risk not associated with investing in more established companies, such as greater price volatility, business risk, less liquidity and increased competitive threat.

The Funds are distributed by Unified Financial Securities, Inc. (Member FINRA) a wholly owned subsidiary of Huntington Bancshares, Inc. and an affiliate of Huntington Asset Advisors, Inc. the advisor to the Huntington Funds.

For more complete information about the Huntington Funds, call 1-800-253-0412 or view the prospectuses on huntingtonfunds.com. You should consider the fund’s investment objectives, risks, charges, and expenses carefully before you invest. Information about these and other important subjects is in the fund’s prospectus, which you should read carefully before investing.

Not A Deposit ∙ Not FDIC Insured ∙ Not Insured By Any
Government Agency ∙ No Bank Guarantee ∙ May Lose Value