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Dear Shareholder:
Happy New Year to All! I am accumulating enough years to feel like I need to say a little prayer of thanks every time I complete another one. Some of you will understand, and to you I add “congratulations”.
Keep this End of Year Statement: It contains important information that you are going to need when you file your Federal Income Tax return. For example, if you redeemed shares, this statement will show each transaction and give your average cost per share basis for computing each transaction’s gain or loss. Along about February or March you may need that information. The End of Year Statement also shows the total amount of dividends earned on your account for the year, and while the dividends on our tax free funds are not taxable, there is a place on your return to report this amount.
1099-B: If you redeemed shares during the year you will receive a form 1099B in the last week of January, 2004. If you had more than one redemption, this form will show only the total principal amount of all redemptions, so again, you will need your End of Year Statement to compute gains or losses on each redemption.
1099-DIV: This form reports taxable dividends. Only shareholders of the Intermediate Government Bond Fund will receive this form for dividends earned in excess of $10 during the year. The Mississippi Tax-Free Income Series will receive this form for Capital Gains distributions earned in excess of $10 during the year. This form will also come the last week in January.
1099-R: This form will report total distributions made on IRA accounts. Only the Intermediate Government Bond Series holds assets for IRA’s.
The various 1099 forms will be reported to the IRS at the end of February 2004 as required by law.
Form 5498: You can continue to make contributions to your IRA until April 15, 2004. Form 5498 will be issued to IRA accounts in May 2004 showing total contributions for the year 2003 and ending market values as of 12/31/03. This is for informational purposes only.
Regardless of which of the above forms may apply to your account, it is still very important that you keep this enclosed End of Year Statement.
Don’t pay your American Express bill with a check on your Short-to-Medium Fund account! Shareholders of our Short-to-Medium Series in North Carolina, Tennessee and Kentucky have the privilege of writing checks on their account if they opt to do so. When a shareholder does this, the check is forwarded to a Lexington bank who calls us with the account number. We then identify the account and determine whether sufficient funds are available for payment.
Assuming sufficient funds are in the account, we then authorize payment of the check and redeem sufficient shares from the account to cover the payment. Obviously, the check, or a photocopy has to be in the local bank’s hands to accomplish this.
Occasionally, one of our shareholders uses a Fund check to pay their American Express bill. AMEX clears by wire, so all the local bank receives is an electronic (ACH) order to pay which does not have either the shareholder’s name or account number. Obviously we then are unable to identify the shareholder’s account and must refuse the request for payment. My best advice would be for you to not use one of our checks to pay any major credit card bills, though to date our problem has only been with American Express.
What about next year? One year ago commentators were almost unanimous in believing stocks would rise in value and bonds would fall. They were half right, stocks did rise. But bonds didn’t fall. In my Dec. 31st letter last year I said about the bond market: “So my guess (and it is a guess) is the bond market will remain at current levels, or even go a little higher for the first half of 2003.” That turned out to be almost a perfect guess. Now once again we come to a year end with almost complete agreement on the part of financial “experts” that interest rates will rise, a lot, and soon, sending bonds into a price decline. My guess (and it is a guess) is that bond prices will remain at these levels for at least the first half of the new year, though with a certain “skittishness” and will decline only slightly in the second half. Stock markets, on the other hand, look like they are just waiting for an excuse to develop a new bubble mentality, though there will be some individual stocks that will have surprisingly good earnings. All in all, 2004 ought to be a good year if we can avoid a major terrorist attack of 9-11 magnitude. But then, I had to make the same qualification about terrorism last year and on that subject we can say, “so far, so good”.
Mostly I am aware that my guesses are not foolproof. Reminds me of an e-mail one liner someone sent me. “Make it ‘idiot proof’ and someone will make a better idiot.” The more things change, the more they are the same.
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