American Investment Services, Inc.

Disciplined, Diversified, & Cost Effective

May 2005 – Funds and Fees: Cautious Optimism

Much has been made of nefarious practices carried out by several mutual fund companies that have been brought to light largely as a result of ambitious regulatory efforts conducted by New York State’s Attorney General. Indeed, that office has scored a number of “triumphs,” sure to be trumpeted for political gain. In our view, the most salutary effect of these investigations, however, will not be any new regulations that may emerge, but rather the reaction of investors, who will hopefully demand lower fees from mutual fund companies.

Investors are increasingly turning to passive investing, and The Vanguard Group, whose investor class funds are already among the lowest-cost in their respective peer groups, has no intentions of surrendering any ground to the competition. The firm recently lowered the threshold for investors deemed eligible to invest in their ultra low-cost Admiral shares. Vanguard has reduced the minimum required to qualify for the shares to $100,000 per fund account, from $250,000, effective May 10. The firm will begin automatically converting eligible investor class shareholders (including our recommended funds listed in the table below). These conversions are not considered sales, so they will not trigger any capital gains tax. Vanguard also rewards disciplined investors: shareholders who have $50,000 in assets in a fund account open for ten years or more, and who have registered for online access to their Vanguard accounts are also eligible for the Admiral shares.

South African High Court Ends Harmony Bid For Gold Fields

The High Court of South Africa ruled on May 20, 2005, that the offer by Harmony Gold Mining Co. Ltd. to purchase Gold Fields Ltd. “lapsed on December 18, 2004 and that the offer cannot be revised.” The decision was consistent with the position taken by Gold Fields. AIS has consistently recommended that Gold Fields shareholders reject this offer. However, Gold Fields shareholders who might have nevertheless tendered their shares after the earlier December 18, 2004 expiration date will have their tender shares returned. No comment on the ruling has been received from Harmony, but there appears to be little opportunity to appeal the court’s decision, which was unconditional.

Also in This Issue:

Vanguard Turns 30: A Look Back
Trustworthy Investment Advice: Where to Turn
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield