|
Dear Shareholder:
An Oversight Corrected: Enclosed is a replacement page 48 for your recently received December 31, 2002 Semi-Annual Report. Our word processor dropped off Mr. Patterson’s name as a Trustee. This page will correct that error. We are aware, however, that he is included in another listing on page 49 but, in order for you to have a complete and correct report you may insert this page where indicated.
Gulf War II and the Market: Doubtless you have witnessed the sharp rise and fall of the stock market during the first days of the new Gulf War with some wonderment. What does the market know that we don’t?
Well first, it is never safe to assume it ever does whatever it does because it has certain inside information, or a deeper understanding, perhaps, than that of the public. Markets react to rumor and copy-cat psychology every day it seems. In the case of the run-up in stock prices just prior to and during the first few days of this war, you also had at that time what’s known as the “witching hour” during which derivative positions had to be rebalanced. This can produce a lot of activity during which long and short positions are covered and may have a net result, which does not indicate a trend at all. Indications from brokers are this was what was going on, and that it was not an ordinary investor movement at all.
Then there was relief that the oil supply might not be disrupted as badly as was feared and that was better news for the economy. But there have been many others writing in various financial journals who are warning us that there are a lot of economic problems remaining after oil comes down in price, should that occur. I would steer a careful course until the economy has a few months of non-war activity before making any big bets.
February is always a short month: If you are a shareholder of one of our Short-to-Medium Series in Kentucky, Tennessee or North Carolina, or of our Intermediate Government Bond Series, you receive your dividends monthly. February had 28 days this year, and following on 31 days in January, that looks like a dramatic drop in the level of dividend. For example, a $100 dividend paid in January pays only $90.32 in February because of the lesser number of days.
The subject of tax cuts is so much in the news that it seems appropriate to print here (slightly paraphrased) an internet dissertation on the subject. Credit goes to Tom L. Davies of the University of South Dakota.
Once upon a time there were ten men who went out to dinner together every day. The bill for all ten came to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men, the poorest, would pay nothing; the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18 and the tenth man, the richest, would pay $59. That’s what they decided to do. They were quite happy with the arrangement until one day the restaurant owner threw them a curve: “Since you men are such good customers”, he said, “I am going to reduce the price.” So now dinner for the ten only cost $80 (in tax language, a tax cut).
The group still wanted to pay the bill the way we pay taxes. So the first four men would still eat free. But, what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his fair share? $20 divided by six is $3.33. If they subtracted that from each share, the fifth and sixth man would end up being PAID to eat their meal. So the restaurant owner suggested it would be fair to reduce each man’s bill by a formula he thought fair and he proceeded to work out the amounts he thought each should pay.
And so the fifth man paid nothing instead of his usual $1, the sixth paid $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of $59. Each of the six was better off than before and the first four continued to eat free.
But once outside the restaurant the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man, “but he”, pointing to the tenth, “got $7!” “Yeah, that’s right” exclaimed the fifth man. “I only saved a dollar too….it’s unfair that he got seven times more than me!” “That’s true!” shouted the seventh man. “Why should he get $7 back when I only got $2? The wealthy get all the breaks!” “Wait a minute” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up. The next night he didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered, a little late, what was very important. They were FIFTY-TWO DOLLARS short of paying the bill!
There will be some who think the above is a political commentary. It isn’t. It is a simple homespun way of pointing out that “the rich”, by one definition, pay almost 90% of the income tax. A proportional tax cut will always favor the “rich”.
|
|
