August 18, 1998 Newsletter
August 18, 1998
Dear Shareholder:
Assets Under Management: Earlier this month we passed $500,000,000 in assets
under management in all our Kentucky, North Carolina and Tennessee series combined, plus
our Intermediate Government Bond Series. Total assets under management are up almost
19% during the period while the price of the various series were only up about 2%,
indicating that most of this growth was new money added to accounts. Total of accounts
were only up about 4%, indicating that much of this new money probably came through
existing accounts. So, as usual, we owe a debt of gratitude to you, our existing
shareholders, for your direct support, as well as your indirect support through
referrals.
The Year 2000 Computer Problem: If you are really up to date on your financial
lingo you will recognize this as the "Y2K" problem. Back in the 1960's, when computers
were first being used, they only had a few registers in which information could be
stored and used. The amount of data you could store and use was so limited that
everybody wanted to find ways to cram in more information, and so they abbreviated
whatever could be abbreviated. One way to save space was to enter a date, such as
February 15, 1900 as 15/02/00 instead of 15/02/1900. That way you saved two columns of
data that you could use to provide additional descriptive or mathematical information
which could also be manipulated. So this shorter method of entering dates in computers
became the norm and virtually all computer programs used this format. So, when
2000 arrives, if you enter 00 for the year, most computers in service today will read
that entry as 1900. This could lead to all kinds of program failures, some small and
some large.
There has been a lot written about the Y2K problem in the secular and business
press. Some of these articles have been sensationalized to a level that is scary. Indeed,
it is at least possible to imagine that the Federal Reserve System, or the Internal
Revenue System might somehow fail to operate on January 1, 2000 though that is
unlikely. Others suggest our air traffic control system could fail, and if you are
caught aloft at that time you may never get down! And some go so far as to suggest
that all systems will fail, electric power will shut down and if you are not armed
with guns, furnished with gold for currency and have a cache of food, then you may not
survive the transition.
This sensationalism, while overdone, has probably not been wasted. Both business
and government have been viewing the problem as serious, and are working diligently to
correct dating problems before January 1, 2000 rolls around. While there will undoubtedly
be glitches uncovered as the millennium rolls by, I seriously doubt that there will be
anything that even remotely resembles the doomsday scenarios currently being suggested.
But how about us? Where do the Dupree Funds stand in Y2K readiness?
First, we have been dealing with bonds maturing in the year 2000 and longer for at
least twenty years. So, some of our more complex portfolio pricing systems have been
pretty much "Y2K ready" for quite a while. Meanwhile, we have been working with our
auditors since 1997 to systematize the process of discovery of Y2K errors in any other
programs we use. We are well along in this process and expect to be running test trials
before long. As you might imagine, a large part of this process is to determine whether
suppliers of services to the Fund, such as the custodian and other interrelated banks,
have their computers corrected as well. I expect to be all tested and ready to go well
before the time the date arrives.
If there are problems, my guess is they may surface in some of those enormous
systems that are interdependent and interlinked, such as the telephone system and maybe
parts of the banking system. There will also almost certainly be many problems with
state and federal agencies, but none so serious as to bring everything to a halt.
Ticker Symbols: All of our funds now have ticker symbols. They are as follows:
Kentucky Tax-Free Income Series KYTFX
Kentucky Tax-Free Short-to-Medium Series KYSMX
North Carolina Tax-Free Income Series NTFIX
North Carolina Tax-Free Short-to-Medium Series NTSM
Tennessee Tax-Free Income Series TNTIX
Tennessee Tax-Free Short-to-Medium Series TTSMX
Intermediate Government Bond Series DPIGX
The Presidency Scandal and the Market: Putting aside politics, there are some
economic observations that I think are pertinent as we experience Presidential apologies
for his less than honest personal behavior and untruthful answers. We have all derived
wealth from an expanding free market. Free markets are dependent upon trust for efficient
operation. Indeed, it can be argued that markets ultimately collapse where people cannot
be relied upon to keep their word and honor contracts, verbal or written. Three centuries
ago the Dutch could borrow money at 6% while the Spanish paid 16%. Why? The Dutch would
pay you back, the Spanish Monarchy regularly repudiated its debt. The Dutch honored
contracts, and, in those days, the Spanish did not.
Much of the problem in Asia today, as well as Russia and other Eastern European
countries, is that folks there cannot be relied upon to honor contracts. Officials want
bribes, debts are created and then undercut by devaluation, political and ethnic
opponents are brutalized and the old Protestant Dutch rules of honesty and fair play,
the rules upon which our economy were founded, are widely ignored.
When polls tell us Americans are not really concerned about a leader's dishonesty,
I believe we need to think again. That attitude is dangerous to our economic health.
Yours truly,
Dupree Mutual Funds
Thomas P. Dupree, Sr.
President
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