Q:  What core beliefs guide your investment philosophy? A : We seek to provide long-term capital appreciation by investing primarily in the common stocks of companies that own or develop natural resources and other basic commodities and in the stocks of selected non-resource growth companies. The fund's emphasis on resource-based companies is expected to provide some protection against principal erosion caused by a potential rise in inflation. Our fund gives investors a way to access the unique benefits of natural resource stocks, which could perform better than stocks in general when inflation is rising. During economic expansions, demand for resource commodities increases for some of the nation's largest industries, including construction and manufacturing. Because tangible resource assets are the raw materials that fuel many of these industries, natural resource stocks could provide particularly strong growth potential in a growing economy. A strong consumer also fuels demand for energy commodities and metals such as copper, an important element in home construction. These expansions are now occurring overseas for the most part, as the consumer rides up the economic ladder and industrial expansion fuels rapid economic growth in markets like China. Our goal is to find or pursue investment areas where capital has been withdrawn for a period of time, in other words, where there has been underinvestment as this creates a supply/demand crunch not easily resolved in the short term, other than through rising prices. Q:  How does your investment philosophy translate into the fund’s investment strategy? A : The fund will normally invest a minimum of two-thirds of fund assets in the common stocks of natural resource companies whose earnings and tangible assets could benefit from accelerating inflation. At least half of the fund’s assets will be invested in U.S. securities, but up to 50% of total assets may be invested in foreign securities as most resources are now being developed overseas. We may also buy other types of securities and use futures and options, in keeping with the fund’s objective. The natural resource companies held by the fund typically own, develop, refine, service, or transport resources, including energy, metals, forest products, real estate, and other basic commodities. In selecting natural resource stocks, we look for companies whose products can be produced and marketed profitably even when both labor costs and prices are increasing. In the mining area, for example, we might look for a company with the ability to grow production profitably even when commodity prices are not rising, resulting in earnings growth. In pursuing its investment objective, the fund has the discretion to purchase some securities that do not meet its normal investment criteria and it perceives an unusual opportunity for gain. These special situations might arise when the fund’s management believes a security could increase in value for a variety of reasons, including an extraordinary corporate event, a new product introduction, a favorable competitive development, or a change in management. Q:  Do you think that a weakening American consumer demand may affect countries like China and Australia? A : As far as supplying the U.S. market where consumption is relatively weak, it is important for China’s economic health to produce a trade surplus, but not terribly important with regards to it’s impact on their demand for commodities. But as for as exports into the U.S., a lot of the consumer goods that are produced in China aren’t as heavily resource intensive. Currently, China is developing its infrastructure as a result of its stimulus program. Fortunately, this stimulus money is not funding capacity in steel and aluminum, where excess capacity already exists, but in the building of roads, bridges and cities. Therefore, the stimulus is effective in terms of creating more sustainable employment. China is building roads on the back of the healthy growth in truck as well as automobile traffic. But the important factor in the latter is gasoline demand growth, so too the steel and aluminum that go into building automobiles. While steel can be produced in China, the country lacks sufficient iron ore and coking coal required to make steel. These imported resources come largely from Australia. This is nothing but domestic consumption, which is really positive as the leadership is trying to stimulate domestic consumption so that the economy is less dependent on exports for growth. Another sector that China is also focusing on is housing and that's a big user of copper. Electric generation from the power station to the home consumes about 48% of the copper demand in China. Again, this is domestic demand that's less directly related to the exports. Most of the heavy duty electric consumption in the industry is steel and aluminum and we don’t see them quite as prone to a downturn or weakness outside of the country, because these are not typically export industries. The Chinese leadership is working on stimulating domestic consumption to replace some of the export demand that could fall off or remain ultimately weak. We don’t think that the commodity demand in China is as dependent upon exports as it is the trade surplus and the ability of the country to continue to fund stimulus. Q:  What are the analytical steps in your research process? A : We will to focus on the company’s resource base and their management’s strategic and operational proficiency. We use several different valuation techniques to assess companies as different sub segments are prone to their own valuation metrics. But most important is we consider the present value from future cash flows of the resource base. We like to buy companies that sell at a discount, if possible, to the present value of that resource base. From a macro standpoint we take a cyclical look at a particular commodity and see what has been done in terms of investment over the last five or ten years. Generally, we like to have a good macro cycle for these stocks to work. That's part of the focus, but a lot of the focus is on the individual companies and how they are positioned for that kind of a cycle. We generally require a decent balance sheet for these companies because we are not always sure how long it will take for the cycle to develop. In other words, we want a company with staying power. First of all, when we go see a company we’ll do management interviews and often try to see some of their facilities or mines. We like to spend a lot of time with management to get a good sense of how they think about the business, what their strategy is, what they can bring to the party in a commodity business, and we do a lot of trade checks. We get familiar with certain managements that we think we can trust to give us a fair and honest opinion. They will give us a sense of their competitors, suppliers and customers. So management is a part of the process. The other part of the process is evaluating the strategy, building an earnings model, developing an understanding of their resource production capacity, how it may grow or shrink over time, and knowing what the company’s philosophy is in terms of their free cash flow and reinvestment discipline. Thus, we evaluate a company from all aspects and we favor one with good financial discipline and that doesn't just hedge up the upside in its commodities. We appraise their strategy to make sure that it's suitable for investment and then we take a valuation framework and look at it relative to its peers, whether they are U.S. or international peers, and try to get a sense of whether it’s selling at a premium or discount on different bases. The fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities. For example, in oil and gas, we are looking at the present value of future cash flows discounted at a reasonable rate like 8 to 10%, but when we do a discounted present value for gold companies, the discount rate is often zero. We will look at the present value of cash flows on proven reserves with regards to the exploration production companies but add a premium for new discoveries that might not be fully reflected in proven reserves in order to calculate a private market asset value. But really that valuation framework is very important as the second hurdle. The first hurdle is getting comfortable with the company, their strategy and the asset base. So, if a company passes the two hurdles, it's a candidate for consideration and then, and if we have a favorable view of the commodity that they are in, the stock becomes a candidate for inclusion in the portfolio. And as part of the process, the analyst or I go out and see the company and discuss its suitability for the portfolio. The process is rigorous but that the ultimate decision is often made based on just a short communication after we've done all the homework and the price is right. Q:  Can you give a few examples to illustrate your research process? A : Schlumberger Limited, a global oilfield and information services company with a major focus on energy is a company that we have known for years. They have been through a lot of bad investments and diversification attempts out of the oil service business. When Andrew Gould took the reins of the company as the new CEO, the company had assets that no longer really made sense in the portfolio and would not be leveraged to an oil service cycle so he disposed them and honed it down to an oil service company. And within the category of oil service companies, it is a value-added company. Its technology is such that it really adds a great deal of value to anyone drilling a well. So they can price their product based on the value that they provide. As part of their strategy, they diversified overseas before most of the other companies, they've got a very good foothold in Russia which has been a very profitable area for them, and they’ve avoided pitfalls like Venezuela. Hence, all the evidence is that management really has a very keen sense of where they belong, how to price their product, how to grow earnings and have a discipline to reinvest well. All in all, it's been a very successful investment for us. There are times when like late in 2007 and early 2008 we traded a little bit based on a slowdown in earnings growth, but it’s a core holding and a very solid company. We know that it is going to stand the test of time and be very successful in the next five years. Another example is from another industry, Potash Corporation of Saskatchewan Inc., which is an diversified fertilizer producer. We had developed a thesis that we felt that grains, particularly corn, were a very good area to be involved in. We could see increasing demand from China, in particular, where they have become a net importer of soybeans years ago and that changed the way the soybean market acts. Also, the demand for corn in that country is growing significantly. When the demand for corn and grains in general grow, the demand for potash grows with it. It’s a concentrated industry with only a few players of size. Potash Corp. is run by William J. Doyle, who has been very disciplined in terms of taking down time in his own company’s production most recently to help bring inventories into line. He has also been very good at giving a sense to where pricing was going to go. He has low cost mines and was able to bring on mines to fill a global production gap for the last three years. We have had a slowdown in potash demand recently due to third world farmer credit issues and resistance to higher prices. So, we’ve traded the stock but it continues to be a very good idea from our standpoint as farmers can only deplete the soil of necessary nutrients for a year or so before yields are negatively impacted. Q:  How is your portfolio construction done? A : We have 100 plus names in the portfolio. In terms of focusing on diversification we look at all of different opportunities to invest in the resources and resource-related companies. The optimal positioning may be upstream in the resources themselves or it may be downstream in the companies that actually utilize their resources, whether its refiners or steel, or aluminum. Our benchmark is the Lipper Global Natural Resources Index. Generally, we use a combination of top down and bottoms up approaches in our portfolio construction. We start with energy and look at what’s the most attractive area within energy and oil services for us right now. And, generally, if we can’t get the sufficient oil price exposure that we desire, we’ll raise the oil beta of the portfolio so we can get some traction that way. The portfolio weighting actually is partially dependent upon the available investment set relative to how much money we’re investing and how liquid these stocks are. For instance, precious metals is about 5% or 6% right now and is limited by the quality and liquidity of companies in that space. Currently, we’ve got relatively low exposure in building and real estate given our view of that sector. We tend to have higher weightings in coal and agriculture than our peers as we view the long term case as quite good for those segments. When we consider an industry or company to invest in, we compare its outlook to that of the energy sector, since that is the most significant part of our investible universe and the only investment set for some of our peers in the Lipper Global Natural Resources Index.. Diversifying has proven valuable in terms of reducing risk and this has been in evidence as the standard deviation of returns has been lower, which means the strategy has been providing returns that are comparable with the index yet with taking lower risk. Thus, diversification provides that additional aspect. Q:  How do you view risk, and what do you do to manage it or contain it? A : We want to invest in a company that has a good balance sheet particularly when we don’t know the precise timing of an upturn in the commodity cycle. So, we’ll start with low financial risk at the beginning of the commodity cycle. As we move further into the cycle and we see that it’s sustainable, we’re willing to take more balance sheet risk with a company that may have a bit more debt, a high cost producer when commodity prices rise and has the most impact on earnings. Generally, we are not going to take positions much over 4% or 5% of max in a particularly company. So we're not going to have a position size risk from that standpoint. We really don’t want to take risk with the company where we don’t like the management. We do a lot of trade checks. For example, we may talk to the service companies to know how promptly they are being paid by the exploration production companies, so that we know by virtue of that how healthy those particular companies are. When a company is drilling in one area and has the partner that we know, we'll find out from the partner how successful that well is or how attractive that particularly acreage area is. Then, we can go back to the first company and if they're leading us on we'll challenge their assumptions. But in general, the biggest risk that we face is the commodity price. We do the best homework we can on the long-term supply/demand picture for most of the commodities. That is really the best thing we can do to keep risk at bay.