Dear Shareholder:
Ben Stein, the New York Times financial columnist wrote a wonderful piece on “being grateful” about six weeks ago. In it he recognized the fortuitous events of his past that led to his present good fortune and it touched me deeply. This year, 2005, is the fiftieth year of marriage to my wife, Clara, and the year in which we both had our seventy fifth birthday. Fifty years ago, in the fall of 1955 I went to work for my father’s brokerage firm in Harlan, Kentucky; calling country banks in the morning to sell them municipal bonds (they were supposedly more receptive in the morning while rested), and in the afternoon I studied files to learn how to do school bond issues for an issuing school district, or a water and sewer bond issue for a City, or a new courthouse for a County. Over the years we graduated to selling bonds to big regional banks (almost all the big New York City banks) and to nationally known insurance companies. The list of clients whom we represented in the issuance of bonds ranged from cities, counties and small school districts to most of Kentucky’s universities, many state agencies and large public corporations such as Lexington Center/ Rupp Arena. Our firm has assisted over the years in the issuance of over 3 billion dollars of new municipal issues.
In the early 1970’s while all the above wheeling and dealing was going on, we developed a computer program that accounted for and priced municipal bond portfolios for country banks. While we knew it was unique, we didn’t know at the time that this computer program was going to give us entrée to the world of tax-free municipal bond mutual fund management. The IRS didn’t permit tax-free pass-through of dividends until 1978. But when that pass-through was authorized, we realized that we had all the ingredients to run a single-state tax-free municipal bond fund in Kentucky, and other states also. We knew well the credit quality of every issue in the state, and with our computer program, we knew we could price the fund daily as required by SEC regulations. Ironically, the New York attorneys retained to register our new mutual fund were doubtful that we could do accurate pricing. They had been told by a large mutual fund that there wasn’t anyone west of the Hudson River that could do that job. After some delay we succeeded in convincing them. I’m grateful that we were in the position of having developed that program, never dreaming how it would affect our future.
In July of 1979 we sold our first shares of the Kentucky Tax-Free Income Fund. That turned out to be a perfectly awful piece of timing. In October of 1979, then Federal Reserve Chairman Paul Volcker, raised interest rates suddenly and sharply, driving our shares down in price and decimating what had, until then, been a wonderful start. It took several years of our paying to run the fund before it made us the first cent. Those were hard times, but we learned a lot about running a fund efficiently and, as silly as it may sound, I am grateful for the learning experience that difficult time brought us.
Somewhere around 1990 we passed the mark of having $100 million dollars of mutual fund money under management. I can remember telling Clara that I was able to imagine having as much as $250 million under management “some day” in the future, though when I said it, I felt I was being recklessly optimistic. We passed that number in the next two or three years. I don’t know exactly how that happened, but I’m grateful!
At this same time we learned that Morningstar had rated our fund at their top five star level. I learned this through our daughter who was working for a Richmond, Virginia brokerage firm at the time. She passed on this information in an excited voice, to which I replied casually, “Is that right, five stars you say? Well that’s wonderful. How is Spanky doing?” (her Westie puppy) There was a pregnant pause and then she said, “Daddy, you don’t get it, do you? A Morningstar five star rating is something mutual fund managers would give their eye teeth for.” She was right. I didn’t understand. So top Morningstar ratings came to us and we didn’t even know what that meant, much less having sought the honor. What’s not to be grateful for in that?
But most of all I am grateful for your business. You shareholders are the source of everything good for Dupree Mutual Funds. Looking back just ten years to the end of 1995, you had 8,204 accounts with us (some of you had multiple accounts) with a total value of $367,276,000. At the end of this year (2005) you have 10,970 accounts with us with a total value of about $980,000,000. The average size of an account in 1995 was $44,767. The average size account in 2005 has risen to $89,334.
I am grateful for this support, and I want to tell you what we are going to do in return. First, I have arranged my estate planning in such a manner that it will be unnecessary for my heirs to sell the company. That means the same people should be here, providing the same level of service for years to come, long after I am gone. We will not only have the same portfolio management style which has resulted in five star ratings for most of our outstanding series, but we will be continuing to do the mundane things like answering our telephone with live people, instead of dragging you through a menu program. We will continue to have Series 7 licensed advisors to give you the same level of advice as other firms, and they are salaried, not commissioned. To the extent you will let us, we are going to try to treat you like family.
Finally, a test of true gratefulness is generosity. Clara and I work hard to give generously to worthy causes. You are the source of the income we allocate in that way. It is a right use of money. A shareholder came by a week ago to repeat a maxim about generosity many of you will recognize: “Money” he said, “is like manure. Spread it around and it does wonderful things. Pile it up and it tends to smell bad.”
Thank you, and have a Happy New Year!
|
|
