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Dear Shareholder:
Do You Receive your Dividends by Check?: If you do, we would encourage you to allow us to direct deposit your dividends to your bank account using an ACH (automatic clearing house) transfer. This cuts the fund’s mailing and processing cost and gets money in your bank account earlier than mailing your check to you.
We will make this change for you free. Just mail us a voided check with a signed letter telling us you want your cash dividend switched to “Direct Deposit”.
Some wag has said that “bills travel thru the mail at twice the speed of checks”. That might be true. We’re willing to help.
Sometimes Right, Sometimes Wrong: Recently we have been right at least once. We wrote you on March 31st that the bond market looked like it might drop some in price. We suggested at that time, if you were worried about price, rather than focused on income, perhaps you should sell your shares immediately. Though we had our neck out a mile, that prediction turned out to be right on the money. Interest rates began rising almost immediately.
Now, three months later, the prices of our longer term income series are down about 3.5% to 4%. That’s the bad news. The good news is that your dividend has not declined. We can now invest at 5.00% in quality municipal bonds as opposed to only 4.50% for the same quality bond on March 31st. We are in a position to begin gradually improving the portfolio dividend.
Furthermore, it seems possible that the rate rise (price decline) may have bottomed out for now. That is not to say there is no further downside risk. Perhaps rates will continue to rise a little bit as the Fed raises its own rate, but I think the market has already anticipated a bigger Fed change than will occur this year. My guess is the Fed will raise their fed fund rate by one quarter of one percent at the June meeting (which is going on as this is mailed).
Sometimes we’re right, sometimes we’re wrong. It will be obvious whether we are right about the Fed’s June meeting by the time you receive this. But if we are right, we’re mostly lucky. I remember employees asking me to let them buy a fax machine a few years ago. I finally agreed, but only after getting in my parting shot, “you can buy it but you won’t use it twice a year.” Well, we currently have two that look to me like they run all day. I don’t always get it right.
Selling Now a Mistake?: Believe it or not, there are still a few folks who look at today’s lower share price and say, “Oh my gosh, I’ve got to get out, I’m losing money!” Well, that is not completely correct.
First, the income on the shares you own is not down. Your tax-free dividend is right where it was before the price decline began. You’re not losing money there.
Second, unless you are forced to sell to meet some financial obligation, today’s price is not one you have to take. If you don’t have to sell you haven’t lost money. (It’s actually probably a better time to buy.)
If you invest for a longer term period your average total return will be very close to your average annual tax-free dividend. Getting the “willies” and selling your shares is probably a mistake. Some shareholders have done this more than once and have ended up repurchasing shares at a higher price than they sold. For these folks there is a word: “Experience is a wonderful thing. It enables you to recognize a mistake when you make it again”.
New S.E.C. Regulations: You have doubtless seen more than one news article about proposed S.E.C. regulations requiring Mutual Fund Boards to elect the Board Chairman from the independent board trustees. Some funds have vigorously objected to this rule, but the S.E.C. contends this gives the Board more independence in regulating the manager.
You should find it interesting that an independent trustee has been our fund’s Board Chairman for several years.
The rule is also going to require that at least 75% of the trustees be independent. Currently 71% (five out of seven) are independent. We will have no problem reaching that new threshold.
We have been way ahead of the S.E.C. on this particular rule. But I need to be cautious about bragging. To paraphrase Lady Margaret Thatcher; “Saying you are (honest) is like saying you are a lady. If you have to say it, you aren’t.”
So instead I’ll say thanks for your continued business. We are going to continue to try hard to deserve it.
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