Dear Shareholder:
Under Escheat Laws the State may Seize Your Account: But, not if you return your proxy which has been sent to you in the last week. If we can prove we have communicated with you at least once in the past seven years, we do not have to turn your account over to this unclaimed property account. This communication with you has to be in writing, with your signature affixed. What better way than a signed proxy?
Sending in your proxy not only helps us get a quorum, needed to conduct business at the annual shareholder meeting, it also lets us know if anything has changed with your vital information. Sometimes we find your address has changed and you didn’t notify us. Other times we will find that someone has died on a joint account registration and we haven’t been notified. We get a lot of account maintenance done at proxy time, so please do not throw your proxy away, return it! Thanks!
Hurricane Katrina!: With the Gulf Coasts of both Alabama and Mississippi heavily battered by Katrina, we had to sit down and reassess the credit quality of our portfolios in the two Alabama & Mississippi Tax-Free Income Series that we offer. I am delighted to say that we do not have a bond in either state that we expect to be actually downgraded by either Moody’s or Standard & Poor’s. About 10% of the Mississippi Tax-Free Income Series portfolio is in Mississippi General Obligation bonds that have been put on CreditWatch by Standard & Poor’s but we don’t expect them to actually lower the rating. The bonds are secured by a variety of taxes and are of excellent quality. (A detailed report will be sent to Alabama and Mississippi shareholders.)
By limiting our investments to excellent quality bonds in Alabama and Mississippi we have probably been wise, but in addition we feel very thankful that we have come out of this tragedy with our portfolios intact. It helps to try to be smart, but it’s good to be lucky, too!
Morningstar’s Take: About twice a year a professional analyst for Morningstar interviews us for a written commentary they include in a detail sheet descriptive of our fund. In the spirit of bragging I would like to give you excerpts from those comments dated July 1st. (The subject is the Dupree Kentucky Tax-Free Income Series)
“This funds modest price tag gives it a significant advantage over its rivals.
Dupree KY Tax-Free Income charges investors a very reasonable expense ratio. At just 0.58%, the fund is the least costly of the Kentucky municipal options available. Being the largest fund in the tiny subgroup has no doubt helped on that front, but this fund family was committed to keeping costs down long before that.
The fee edge has allowed lead manager Thomas Dupree to accomplish the fund’s primary goal: to provide strong tax-free income. Because expenses are subtracted from a fund’s income stream, an offering like this has a natural head start over its competitors……..”
Then they went on to say lots of other nice things!
The Federal Reserve Continues to Raise Interest Rates: On September 20th the Federal Reserve’s Open Market Committee raised the federal funds interest rate to 3 ¾%, the eleventh rate hike in a row. Shareholders have been asking us what this means in relation to our share price and the future course of interest rates.
Normally, when the Fed starts increasing the federal funds interest rate (this is the overnight rate for banks to borrow from other banks) the result is that all interest rates rise with the fed funds rate. Even though the fed funds rate is a very short term interest rate (overnight) it effects longer term rates as well, and in the same direction. That is, “normally it does”. Lately, things haven’t been “normal”. Longer term interest rates that seemingly should have risen, including municipal bond interest rates, have actually fallen since June of 2004 when the Fed started raising its rate. This has really confused the “gurus”.
Bill Gross, Managing Director of PIMCO, the largest investment manager of bond portfolios in the country, thinks the market is looking ahead to housing price deflation and a subsequent slowing of the economy which will lead, before long, to the Fed reversing its position and beginning to lower rates. So Mr. Gross fears housing price deflation more than the Federal Reserve interest rate increases. You have to pick your greatest threat. I lean towards Gross’ idea.
Speaking of picking the greatest threat reminds me of a story my brother tells about a brand new dispatcher for the State Police down in London, Kentucky. Seems the London office was planning a raid on a bookie joint in town and needed all the personnel they could muster. So they pulled the dispatcher from his desk, handed him a sawed-off shotgun and told him to come along.
When they broke down the door of the bookie joint they found a man sitting at a desk in an office next to the front door. They told the dispatcher to guard him and, in turn, the dispatcher told the man to put his hands on the desk and not move. In about fifteen minutes an officer came in with a .44 caliber pistol and told the man to stand up. The man looked at the pistol, then at the sawed-off shotgun, held very still and said, “The man with the shotgun says ‘don’t move’”.
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