Dear Shareholder:
The Bond Market and Municipal Bonds: In spite of the Federal Reserve’s raise of the fed funds rate to 4.5% and in spite of almost unanimous belief by market makers that the Fed will go at least to 4.75% before stopping, the market for intermediate and long term municipal bonds has remained almost unchanged. At this level there seems to be resistance to the Fed increases from the municipal market. Part of the reason seems to be a smaller than average supply of new issues in this first quarter. Another possible answer is that municipal bonds had already gotten unusually cheap by comparison with treasuries and corporate bonds.
An interview in the February 13, 2006 edition of Barron’s of Theresa Havell of Havell Capital Management revealed information that you might be interested to know and of which I was not entirely aware of. She states categorically, “In the last five years, tax-exempt bonds on an after-tax-equivalent basis have outperformed all categories of taxable securities. They’ve beaten the S&P 500, the Dow Jones Industrial Average, and they have had the same return as the Russell 2000 with about one fifth of the risk. If you taxed all the others at the federal tax rates, municipal bonds would have given a much better rate of return than all those other asset categories.”
If she is correct, and I expect she is, that makes our shareholders look smart!
Redundancy, Redundancy, Redundancy: This has been an unspoken mantra at Dupree & Company for a long time and continues to be a high priority for us. We have redundancy in our staffing, which has proved time and again to be valuable, and we have redundancy in our shareholder accounting and computer systems. As you can imagine, our computer systems hold all of the data about our nine funds, from shareholder information to information about the individual bond portfolios themselves. To fail to protect this information is unthinkable! Rest assured we are constantly thinking of ways to improve our procedures and systems to provide you with the best service we possibly can while at the same time maintaining the highest level of security for our data.
We have to consider any situation which may present itself, even worst case and seemingly ridiculous scenarios. Accordingly, we are in the process of establishing a secure offsite location for a back-up computer server that will enable our data to be instantly duplicated and stored. All of this redundancy costs money, but I am convinced it is insurance that is needed and we are well underway with the improvements. The expense will be covered by Dupree & Company, Inc. and not by the funds themselves.
Telephones: We are also replacing our ten year old telephone system. We have been informed that our existing system is obsolete, and while we have had very little trouble with it, we have been warned that replacement parts might be unobtainable should it break down. Our business cannot exist without an efficient telephone system. Everything would grind to a halt if we found ourselves unable to communicate.
You will not be aware of any change. The same person that answered your call before will still be on the line when you call again. You will not be subjected to a menu, and the person you reach will be here in our office, not in an offshore location. He or she will be able to answer your questions or solve your problem quickly. We have always communicated in that way and we do not expect to change.
Once upon a time all telephone communication had a personal touch. When you picked up your telephone you found yourself in contact with a wonderfully helpful lady who identified herself as the “operator”. Shareholders in my age group will remember this well. An operator (usually a woman) took you under her control and put your call through to the number you wanted. If you were making a long distance call outside your local system she would stay on the line with you until you got the party with whom you wanted to speak.
In those days numbers were much simpler and therefore easier to remember. Our office number in Harlan, Kentucky was 793. A telephone system in a small town didn’t have large numbers and the operator often knew everybody’s business because they knew who was talking to whom.
One of the best stories I know had to do with Minrose Lucas of Crane, Missouri. Minrose was a roommate of my wife, Clara, in New York City in the early 1950’s. Yes, even New York used operators in those days for long distance calls and they were terribly efficient, refusing to let you say a word until you were connected with your party and the “meter” was running. One day Minrose decided to call her mother in the little town of Crane. The New York operator took her order and rang up the Crane operator saying officiously “New York calling Mrs. Porter Lucas.” The Crane operator paused a second and then said, “Operator, that must be Minrose. Tell her, her mama went to Springfield for the day and won’t be home until five o’clock.”
We hope when you call us, our “operator” will be equally helpful.
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