American Investment Services, Inc.

Disciplined, Diversified, & Cost Effective

July 2012 – “What’s Your Performance?”

Beginning this month we will present hypothetical performance figures for our recommended portfolios on a “net-of-fee” basis. This change follows an internal review of our own procedures, which have always acknowledged that we published for two audiences, our readers and our advisory clients, who arguably are better served by results presented “gross of fees” and “net of fees”, respectively.

Through our Professional Asset Management program (PAM) we manage roughly $550 million on behalf of 330 individual and institutional clients. Prospective clients often ask us what our “performance” has been. What is often sought is a summary number, typically annualized returns, which presumably will be used for comparison with alternative money managers.

As a wholly owned subsidiary of an educational organization and as fiduciaries to our clients, our first duty is to remind investors that past performance is a poor guideline for assessing future performance, whether measured in absolute terms or even when compared with a benchmark.

Second, we explain that our objective is not to beat the market in any sense. Rather it is to ensure our clients have the highest probability of meeting
their investment objectives by forming and maintaining a portfolio with targeted exposure to the overall market. We nevertheless understand the desire for a yardstick, and we do our best to provide one. Historically, in response to these inquiries we have cited the hypothetical returns provided in our AIS Model Portfolios table and in our Recommended High-Yield Dow (HYD) model (see pages 52 and 54 for our most recent calculations).

We offer these hypothetical results in lieu of actual, aggregate results for our PAM clients, because each of our 330 clients has a customized allocation plan predicated on an individual’s goals and tolerance for withstanding risk. Clients with greater risk tolerance, for example, can expect higher but more volatile returns compared with low-risk clients. It would be misleading to provide a single number that claimed to represent the experience of a “typical” AIS client because no such client exists.

Industry standards have been developed to address this dilemma. Global Investment Performance Standards (GIPS) provide exacting standards that permit the segregation of accounts by risk category (e.g. low, moderate, or high risk) and for monitoring and measuring subsequent performance. While we are confident that our performance statistics are accurate and consistent with SEC parameters, claiming GIPS compliance requires a large expenditure of time and resources and, as is the case in any business, such costs must ultimately be absorbed by our clients. We are committed to ensuring our fees remain extremely competitive. As we grow we will continue to monitor this trade-off and we will pursue formal GIPS compliance when these efforts are cost-justified.

Performance advertising is also heavily regulated. The SEC generally defines an advertisement as any written communication, which includes websites and e-mails, directed to more than one person concerning advice, or recommendations about the purchase or sale of securities, or any other advisory service. The SEC anti-fraud rules under the Advisers Act prohibit advisers from engaging in advertising practices which are fraudulent, deceptive or manipulative.

During our last SEC routine examination the examiner was of the opinion that the Investment Guide fell under the advertising rule because every month we describe our investment management services, and all performance related information in the Investment Guide must therefore comply
with SEC advertising guidelines.

Historically, we have depicted the performance statistics for the hypothetical High Yield Dow strategy and for our recommended AIS model portfolios on a “gross-of-management-fee” basis (these represent models and benchmark indexes that are not reduced to reflect management fees). Since most of our readers are not enrolled in our advisory services (and therefore incur no professional management fee) we reasoned that publishing results gross of fees would be most appropriate, and more useful, than results that were net-of-fees.

We recently revisited this practice during our annual internal compliance review. Out of an abundance of caution regarding our adherence to SEC advertising regulations we will publish our hypothetical performance statistics on a net-of-fee basis, beginning with this issue. Readers should be aware that results in the future will therefore be reduced slightly from what they would have been on a gross-of-fee basis.

Specifically, the hypothetical returns for the AIS model portfolios and the HYD model are reduced to reflect the annual fee we would assess on a $500,000 account. This equates to 0.68 percent for PAM and 0.55 percent for HYD.

Also in This Issue:

Principal-Guaranteed Products: Paying Others To Assume Risk
Immediate Annuities: Caveats Apply
Quarterly Review of Capital Markets
The Prices You Pay… An Update From The EPI
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
Asset Class Investment Vehicles