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Dear Shareholder:
Somewhere right after the beginning of this year, a shareholder came in to redeem some shares of our Kentucky Income Fund in order to buy shares of Qualcom. Qualcom was selling at about $160 per share at the time, and a broker had recommended its purchase. Though this looked like insanity to us, who was to say that while insanity reigned, the stock would not go to $300 as some "analysts" were then predicting? If we had offered unsolicited advice to the contrary, and the price had continued to rise, we would have cost a good client a lot of money, and lost ourselves a friend. Our advice was not solicited, so we offered none. Qualcom, still one of the more solid tech stocks, is selling at about $60 today. Meanwhile some of the more ephemeral dot-coms of that day, only seven months ago, are out of business today, and almost certainly more will follow.
What's the lesson?I expect the person I have in mind did not bet the whole farm, and will readily survive the experience with only a little remorse as lasting damage. The stock could eventually recover, but using the term "bet" is appropriate. The kind of current volatility that results in a stock dropping 63% puts investing in tech stocks today in a category with gambling. Warren Buffet, a risk taker in his own right says, "The dumbest reason in the world to buy a stock is because it is going up." And yet, that is exactly what many folks do. Historically overpriced stocks, bought for speculation, and high quality tax-free bonds are about as far apart on the investment spectrum as you can get. To shift from high quality tax-free bonds to speculative stocks is an enormous jump in investment strategy. The hoped for before-tax return on the stock is very questionable. The after-tax return on the bond, particularly a widely diversified bond fund, is a near certainty, subject to very little risk.
Here's the lesson. Everybody needs some "safe money". As we grow older we need to pull some chips off of the poker table and buy ourselves at least a minimum secured income. This has been prudent advice throughout the history of mankind. Nothing in the current highly volatile stock market has changed that.
Meanwhile, if you want to see daily quotes on one of our funds not listed in the newspaper, you can find it on the Internet at www.dupree-funds.com.
Morningstar Ratings: As of July 31st our seven rated funds were as follows:
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The Mississippi and Alabama Tax-Free Income Funds will not be rated by Morningstar until they have been in business three years, but we have every reason to hope we will do as consistently well with them as the above funds, though, of course there are no guarantees. However, we are using exactly the same techniques in the management of the Mississippi and Alabama funds as we have used in our rated funds.
Morningstar's five star rating is their highest, placing those funds in the top 10% of all funds in the country in the same category. Morningstar is arguably the premier firm in the fund rating business today.
There are folks in New York that would kill to get ratings like this. I am just a Kentucky boy with Tennessee schooling and a Mississippi wife so I know we don't deserve it. Gosh, there's not a Harvard MBA on our staff! But, we'll take whatever life brings us, and just be thankful like we always have.
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