Q:  What is the history of the municipal bond industry? A : The municipal bond industry began a long time ago. In fact, there is historical evidence of issuance during the Colonial period. Since then, one of the big changes has been the federal income tax, which did not come about in America until 1913. With certain exceptions, muni income has never been federally taxable. So actually, the advent of the federal income tax made munis generally more attractive and set them apart from other fixed income investments. The municipal market has become more and more important to state, county, and local finance. These days it is almost hard to find a public project that is undertaken without municipal bonds; be it roads, highways, bridges, hospitals, or water and sewer systems. Infrastructure projects are so intimately interlaced with municipal bonds that it’s hard to find a large project that isn’t bond-financed. It seems like recent times are divided into pre- and post-2008. During the financial crisis, the market took a hit just like other asset classes, but since then we have been pleased with the market’s performance. There have been various folks who predicted or are predicting a complete collapse of the municipal bond market—one rather famously. Certainly there are challenges out there, particularly in communities with tough demographics, but we feel there are still great investment opportunities out there and the risk/reward ratio will remain favorable for the right kind of investor into the future. Also, there is a community aspect to municipal bond investing. An example of where municipal financing is helping a good cause is in our Tennessee fund (TNTIX), where we own bonds from St. Jude’s Children’s Research Hospital. There is a continuous stream of projects financed by bonds that benefit the community. For example, a new psychiatric hospital was recently built here in Lexington using bond financing. There are school bonds outstanding that are critical to the school system. In fact, generally every project financed by bonds helps out the community one way or another, be it through roads or infrastructure or even private activity bonds that might create jobs. Q:  Are there any tax consequences that investors should be aware of? A : The word tax-free is right in the name of eight of our funds, but that has a very specific meaning. What it means is that the dividend income from those funds is generally not taxed as income at the Federal level. In our states, that income is also generally not taxed at the state level. There aren’t that many ways to get tax-exempt income these days. However, just like any investment, if you buy shares and they appreciate and you sell them, you will likely owe capital gains on the appreciation. Also, as we buy and sell bonds in the portfolio, occasionally we generate capital gains we must distribute to shareholders. So there are a couple of asterisks here, but in general, the tax-free dividend income is what investors are looking for. We invest for income, not capital appreciation, so unlike a stock fund you probably wouldn’t expect the share price to climb consistently over a long period of time. The capital gain exposure is not that bad in many cases. Even looking at “tax-free” funds, investors have to be careful. Some municipal bonds are federally tax-free but are not excludable from AMT calculations. AMT is the Alternative Minimum Tax, which catches more taxpayers in its net every year. Income from our single-state funds is generally tax-free and also AMT-free. All of our funds are no-load and we do not have a 12b-1 fee, which are two common pitfalls for investors in single-state muni funds. This gets a little bit away from the question about tax, but something that is evolving recently is another muni mutual fund pitfall, which is the situation in Puerto Rico. Over the years, they relied very heavily on an almost unlimited ability to issue bonds to finance projects. There was a big market for those bonds because the yields were attractive. It was fine while it lasted, but situation seems to be going downhill right now. We have never owned Puerto Rico bonds, or any U.S. territory bonds, and we do not intend to in the future. The little bit of extra yield from Puerto Rico is not the attractive risk/reward-wise in our opinion. If municipalities issue a series of bonds to finance, say, a sewer project and their financing looks good, and their revenues look like they are going to be solid, then it is probably a good idea. But, if you are issuing bonds to finance your day-to-day operations, that is when you start getting in trouble. Q:  Can municipal bond issuers seek bankruptcy protection? A : Chapter 9 of the Bankruptcy Code states that municipalities can file for bankruptcy, and that does happen periodically. Recent examples include Detroit, as well as communities in California and Rhode Island. It is similar to a corporate bankruptcy where they get into a situation where they are having trouble meeting all their obligations. You go before a judge and list out all your obligations, which include things like retirement payments, retiree healthcare, employee salaries and bonds that you have issued. Eventually, through the bankruptcy process, it works out to where those obligations are extinguished or rearranged using the money that is available. It’s important to note that just because you own bonds from a municipality that goes bankrupt, that does not necessarily mean you don’t get anything. States and territories cannot actually file for bankruptcy. States are considered sovereign, the same way that the U.S. cannot declare bankruptcy. If a state ever got to the point they could not meet their obligations, they would be forced to find a solution rather than declaring bankruptcy. If you have a holding that looks like it is going to get in trouble, even if it’s not there yet, there is no penalty for selling it and buying something else that seems more stable. This is especially relevant when you run a high-grade fund, like our series of funds. The last thing you want to do is to have to work out tough situations involving troublesome holdings. It is much easier to try to shift out of those things before they become front-page news than it is to invest a lot of time and research into a bankruptcy workout. We actually don’t want to be experts on municipal bankruptcy. There are so many hours in the day, and we feel it’s a better idea to focus on trying to own bonds with less daunting challenges on their horizons. There are high yield funds and funds that try to study workouts and profit from those situations, and we are definitely not that type of fund. Q:  What is the history of the company and the fund? A : The firm was founded in the early 1940s as a brokerage company by F.L. Dupree, Sr. in Harlan, Kentucky. We ended up focusing primarily on bonds, specifically on municipal bonds, because even back then we felt there was generally a good risk reward ratio in the muni market. The firm then got into working with issuers doing some underwriting and fiscal agency work. When a municipality goes to issue bonds they need someone to underwrite the issue and sell the bonds. Often there is a bit of a conflict of interest because the municipality wants to get the best deal they can-- a low yield and high price for their bonds-- but the people who are issuing the bonds want to be able to sell them easily, which generally means the opposite, namely a higher yield and lower price for the same issue. The fiscal agent is a financial professional hired by the issuer to advise them on the deal and advocate for a fair deal. When a municipality gets toward the end of the process of financing a project, essentially the underwriter gets to the point where they’ll agree to write the issuer a check to the city for the money they want to raise—sometimes hundreds of millions of dollars—and in exchange the city will be on the hook for paying principal and interest on bonds at various coupon rates over various periods of time. It’s not like they get to go think about it for a week, it’s a pretty dynamic process and the municipalities get the advice on how to proceed from the Fiscal Agent. Tom Dupree, Sr., began working with his dad not long after the firm was founded, and has led the transition from the early days to what Dupree has become today. The firm moved to Lexington, Kentucky in the 1960s, which sort of ushered in the modern era for us. There was a big change for the firm starting in 1977; prior to this, you could own tax-free municipal bonds but if you owned them through the structure of a mutual fund, the income that was passed to you through the mutual fund was not tax-exempt. The change essentially allowed mutual funds to maintain the tax-free characterization of muni income paid out to shareholders. Inspired by this rule change, in 1979 we launched the Kentucky Tax-free Income Series, which as far as we can tell is the third oldest single state municipal bond fund currently available in the country. We started getting out of the brokerage business in the 1980s and began focusing exclusively on the mutual funds. That process has evolved to the point today where we have eight single state mutual funds in five southeastern states. We also have a taxable municipal bond series and a government bond series, which primarily buys U.S. agency bonds. Those two taxable funds are more for investors such as foundations and IRAs that don’t benefit from tax-free income. Today Tom Dupree, Sr. still is active in the office, and Allen Grimes, III has assumed responsibility for the day-to-day management of the firm. Vincent Harrison and I work on the Portfolio Management together, and there is a wonderful team of professionals performing our investment accounting, transfer agent work and shareholder servicing in-house each day. Q:  What is your investment process? A : There are no guarantees in investing, but we try to achieve a high level of tax-free or otherwise taxable income, depending on the fund, without undue risk to principal. That means a lot of different things to a lot of different people, but in our case we try to err on the side of caution rather than being risky. We want to have a high level of income but at the same time we want it to be as consistent a stream as possible. We tend to avoid some opportunities at times that might have gotten a little more income, but we did not feel were a good risk to take. We have a four-step process that we use when looking at bonds for potential investments. The first thing we want to make sure it that it is a good investment now, today. We look at investment-grade bonds. We want to see a strong debt service coverage ratio. Good reserves, good evidence of fiscal prudence by the issuer. When a new issue comes out, we look at the documentation that comes with it, which answers many of these areas. This shows a snapshot in time, and is by definition backward-looking. The next thing we consider is what we think the landscape will look like in the future. Position and yield curve aside, when we buy a bond we want to feel as though we could hold it indefinitely. For example, if we were to buy a 20-year bond today, we would want to be able to hold it until 2033. We want to think about the projects we are getting involved with and their impact on the community. We want to know what money they have in the bank now and their income and tax base today, but also what those things might look like in the future. The third thing we look at is portfolio construction. If we find a bond we like we have to make sure it fits in our fund. We have very specific diversification requirements. We want to make sure we are not overweight in any particular sector. We want to make sure the fund as a whole is positioned properly on the yield curve. The last thing we look at is income. If we had two very similar investments we would obviously look at the one offered with the higher yield. When you look at callable bonds there are two yields associated with it. There is a yield to maturity, which is what you get paid on an annualized basis if the bond makes it to maturity, and also a yield to call which is what you would get income-wise if it were to be called at the first opportunity. The most useful yield measure in our opinion is the yield-to-worst, which looks at the possible redemption dates and creates a price for the bond based on the lowest yield outcome likely to be realized. Since issuers get to decide whether or not to call bonds, you have to assume they will make the rational choice which results in them paying the least yield, even if they don’t always do that. So when someone talks about a “kicker” bond, they mean that a bond will have a somewhat lower yield to call, but if it makes it past that date without being called it will “kick” to a higher yield. We do buy those sorts of bonds but we expect not to get the “kick” in most cases and are pleasantly surprised if we do. Q:  What is your bond selection process? A : Before we even get into the four step process I mentioned above, we have to generate a short list of securities to consider. We accomplish this with a hybrid process. Our four step process I mentioned above is bottom up, but to get a short list we cut from the top with an overlay of sector and issue avoidance. Let’s talk about putting some money to work in a single state muni fund; for example one of our Tennessee funds. There is a primary issue calendar with a list of bond issuers that are coming this week, next week, and going into the future, and those are potential investments. Then there is the secondary market, which includes all the bonds that are available through various dealer channels that have already been issued. The first thing we do is to look at the entire universe and start removing things. For example, we would not consider anything from Puerto Rico, tobacco bonds, or lines rated below investment grade these days. We ignore all the AMT bonds, as I mentioned before those are bonds that pay tax-free income except that the income is not excludable from AMT. We disregard all the bonds from projects we don’t believe in. I don’t want to list them out here, but we feel some specific projects, even some that are highly rated, are not necessarily going to work out well in the end. We are very selective in other areas of the market that are considered more speculative, such as airports and hospitals. We will get involved with those from time to time, but as a first step we generally screen those out. We limit our exposure to issuers located on or near the coast. There’s nothing wrong with these issuers, it’s just that in the east coast states a hurricane is always a possibility. In the past, hurricanes and floods have not left widespread bond defaults in their wake, but the market value for coastal bonds tend to drop off as the impact to the communities is evaluated. It’s like the called strike analogy that Warren Buffet and others have used. Why take a swing at every coastal credit when there will be plenty of other pitches coming right over the plate? At that point we are left with a handful, usually no more than five or 10 new issues and secondary bonds available, and from there we begin our bottom up analysis. Once we have narrowed down the list as far as possible, we then begin pulling up the documentation to try and make the best choice using the four step process. We look at the debt service coverage number. We look at the general income statement and balance sheet of the issuer. It is not only important what they have done in the last few years but also what is on the horizon. We do not have a specific target for any of the ratios or numbers, but when you look at official statements and documents a lot you almost get into a zone where you can almost just have a feeling if the municipality has a good plan and if they are good stewards of what is available to them and if they are behaving responsibly. If we were looking for bonds to buy for our Tennessee fund and we got down to three that we felt comfortable with, at that point we would look at the price they are offered at to see if one was particularly attractive from that perspective. After we take into consideration all the other aspects, then the one at the best price would probably be the one we select. And of course, we don’t just buy them at list price, often we try to negotiate and make sure we pay what we think they’re worth. Q:  Do the nature of bonds differ from state to state? A : Each issuer has a different credit profile, and there are some trends from state to state. At the state level, each state is rated on their own merits, anywhere from AAA on down. North Carolina and Tennessee are two states that typically have AAA-type ratings, but that actually makes their bonds less attractive to us due to the correspondingly low yield. There are certainly challenges in all states, and some states don’t have AAA ratings. That actually can be a good thing, since their rating is slightly lower, the bonds yield a little more. Since we feel very confident in the long term for the future of states like Kentucky, Alabama and Mississippi where we operate, we feel comfortable getting involved with state credits in those states. As a state, Kentucky is a little bit unique. They do not issue general obligation bonds. Instead, they issue appropriated revenue-type bonds, which is a bonus as we do not have any reason to believe that Kentucky will not appropriate the money for the debt service for the bonds. We feel it is a reasonably safe investment, but at the same time it might offer a little bit more yield than in some other states that issue General Obligation bonds. When you get to the county and the local level there are some structural differences. North Carolina is a good example where you primarily see COPs, or Certificates of Participation, due to the way their state laws work. In Alabama, a lot of the bonds that are issued are called warrants, which in most investing circles means something more akin to options. Again, due to unique state laws, in Alabama the term “warrant” is more or less interchangeable with “bond” in the Alabama context. You’ll see “General Obligation Warrants” and so forth. These are just a few examples of little differences, but in the end munis are munis. There are riskier munis and safer munis. Each city, state, county, or project has a certain amount of money coming in, a certain amount of money going out, a certain number of bonds issued and structured a certain way, and a certain number of other obligations and risks. An example of a perfect bond for Dupree Mutual Funds is something like an essential service bond from a midsize community, such as a water and sewer bond. It’s unlikely this bond would have as high a rating because they are not a big community, but maybe a solid A+ or AA- rating with good demographic trends and what seems to be a responsible government. That might be the sweet spot between safety and picking up some yield. In the good old days, the General Obligation was the gold standard. Now some investors believe that a revenue bond with a stream of pledged revenue might be a better bet if things get rocky. This concept will probably be explored in the Detroit bankruptcy. My understanding is that they will need to decide if GOs have a higher priority than certain other claims or if GO bondholders will be considered general unsecured creditors. Q:  What is your portfolio construction process and what kind of diversification do you prefer in your funds? A : There are regulatory requirements for diversification. From that perspective, two of our 10 funds are diversified funds, according to the definition, and the remaining eight are not. All that means is the amount of concentration you can have in particular issuers. We abide by those guidelines but we also do our best to minimalize our margin to those guidelines. Some of these funds have been around for a very long time-- The Kentucky Tax-Free Income fund (KYTFX) is over 35 years old. As time goes by, we become increasingly familiar with the issuers and the states and what they bring to the table. One way we focus on diversification is if we see something, especially in the secondary market, from an issuer that does not issue or trade very frequently, we would have a bias toward trying to look into buying those for our funds. This would help our diversification if we can acquire bonds that meet our criteria that we do not already hold in great quantities. In our Kentucky-focused funds we do have a pretty healthy allocation to Kentucky state property and building bonds, which would seem like it impacts diversification, but there are a lot of different projects that those bonds pay for. It is not like they are just issuing these to bolster their general revenues. There are separate income streams, so that is reassuring. Most states have a number of different conduits by which they issue bonds. Each county can typically issue bonds and there are anywhere from 60 to 120 counties in the states where we have single state funds. From there, any number of municipalities can issue bonds, resulting in a lot of diverse opportunities. Other municipal bond fund managers say they cannot find much issuance in their state and have diversification problems, but we never seem to run into that problem. There are very diverse sets of issuers in each of the five states in which we operate. Sometimes managers seem to use that as an excuse to “need” to buy US Territory bonds like Puerto Rico, but we’ve never succumbed to the siren song and done that. Any time you buy a single state municipal bond fund, you expose yourself to the fate of the state itself, and concentrate that risk geographically and politically. State bonds often do make up a reasonably healthy portion of the allocation of single state muni funds, that’s undeniable, and local credits are affected by the fortunes of their states in a big way. In general, we do believe we can achieve significant diversification even within the context of a single state fund. We do not have a specific rule of thumb size-wise when we are looking to buy. In general, we only occasionally buy a particular security in excess of half a percent of the net assets of the fund at any given time. Any more than that, we would consider trying to break it up and buy a couple of different issues, or maybe even split it up in time. Over time we do accumulate more than half a percent of a particular issuer or security, but we would hate to make an extremely large purchase one day and then see the market drop off precipitously the next. One of the things that set our funds apart is that we focus on cash management quite religiously, and by that we mean minimizing the amount of cash held by the funds to the extent possible. We are fortunate because we do not have much turnover in our shareholder base. We have a lot of shareholders who hold directly with us and have for a long time. Perhaps they are high net worth individuals looking for the tax exemption, or they are retirees seeking current income, but they seem to have a long term horizon. We believe our shareholders invest with us because they want to invest in the municipal market; if they want to hold cash, they are welcome to do that on their own but we do our best to stay fully invested. That might hurt us a little bit if there is a downturn in the market, but over the long-term we believe that the additional income you pick up by not having a big cash position on average often will benefit the fund. Chasing the market by dramatically raising and lowering your cash position is a good way to pay a healthy bid-ask spread and generate capital gains, but we think it’s not a good way to manage an income-focused fund. And historically it’s hard to find anyone who can time the market consistently. Q:  How many funds do you have? A : We have eight single-state funds in five states. That means in all five states we have our Tax-Free Income Series funds: Kentucky, Alabama, Mississippi, North Carolina, and Tennessee. Those funds are intermediate funds. We try to buy when the yield curve stops getting steep and let the bonds roll down the yield curve. We generally buy about 20 years out these days but the portfolio drifts down over time because we are not big traders in and out. If you look at our average maturities and durations, generally the income series funds are much shorter than a 20-year nominal maturity. In Kentucky, Tennessee, and North Carolina we also have our Short-to-Medium Series funds, which we manage in a very similar way to our Income Series funds except that we do buy bonds generally that are shorter in those funds. The idea would be that if you are particularly concerned about a sharp rise in interest rates or if you have a somewhat shorter time horizon, you might be more comfortable investing in the short and medium term funds depending on your situation. If you are in it for the long term and are willing to accept more volatility in share price, generally the yields in our Income Series funds are higher than in our Short-to-Medium series funds. The vast majority of our investors seem to prefer the Income Series funds. We benchmark all of our funds to the Barclays Municipal Bond Index. In up years for the market, our Income Series funds seem to look better compared to the benchmarks, but in down years our Short-to-Medium series funds tend to look better, relatively speaking. We are really in it for the long haul so at the vagaries of inter-month or inter-quarter or even annual performance relative to the benchmark will not make us dramatically reposition the portfolio. The total assets under management across all of our funds are just over $1.3 billion. Q:  How do you define and manage risk? A : At any given time there seem to be three major risks in the municipal market that influence the pricing and the expectations. The first one is the tax exemption itself. There is a consistent ebb and flow of talk about somehow limiting or halting the tax exemption for municipal bonds. And we are fortunate to have a lot of perspective available to us here on that issue. The big boss here at the office, Tom Dupree Sr., first started working in the industry in the fifties with his dad, who founded the firm. He has seen a lot of comings and goings in the municipal market. He said that even back in the 1950s there were people working for the IRS and Washington that absolutely loathed the tax exemption and were trying to make it go away back then. It did not change in the sixties or the seventies. It changed a little in the 80’s with the ’86 reforms, but didn’t go away. After 27 more years, the tax exemption is still going strong. It’s important to remember that this muni tax exemption is not some kind of hastily implemented loophole. It’s a matter of state sovereignty. Since the beginning with the 16th Amendment in 1913, over the 100 year history of the Federal income tax in America, Federal income tax has never applied to tax-free muni income. Of course, the Supreme Court has essentially come out and said muni income could be taxed if Congress decided to, but that doesn’t mean it’s going to happen. When there is more talk about challenging the exemption, municipal bonds tend to struggle, and then they tend to rally when the discussion subsides again. Municipal bonds are so important to state and local financing that it is hard to imagine Congress would do anything to make things more difficult for states, counties and cities right now. There would be a lot of unhappy governors, mayors, and voters if they did that. That’s something that the media misses. Municipal bonds don’t just benefit bondholders. They benefit everyone. Look around your city and try to find a big public works project that wasn’t financed by bonds. It’s hard to do! And those bonds aren’t issued for the heck of it, they are issued because public projects need financing, and public financing is municipal bonds. There’s always a feeling that “this time is different,” but unless something concrete happens someday, we’re not going to try to trade around the issue. We believe that even in the worst case scenario, it’s likely that currently issued bonds would be grandfathered in, so ironically if the tax-exemption was eliminated, if anything the value of existing tax-exempt bonds might rise, not fall. We do have a Taxable Municipal fund that we’re managing and establishing a track record with right now. Even if the tax exemption went away, munis could still be good fixed income investments for the right investor. The second risk is the notion that the municipal market has an impending day of reckoning on the horizon, similar to what happened in the housing market a few years ago. This drifts in and out of the news and causes volatility, but we do not think a massive wave of defaults will happen despite bumps in the road for municipal issuers. If you compare municipal bonds and municipal issuers to companies, in some ways they are very similar insofar as they have a certain income stream and they have pay out expenses etc. That’s true, but the one thing that companies and corporate bonds do not have going for them is the power to tax. It is almost impossible to overstate how strong an enhancement that taxing power is to municipal credit quality. That taxing power does have limits. It can get to the point where the potential tax can be so burdensome or the liquidity problems so acute that leaders feel they have no choice but to look at bankruptcy. One recent example is Detroit, Michigan. Over a few decades Detroit went from having two million people to losing 60% to 70% of their population. If you had a company who had constant expenses and fixed costs but lost 60% to 70% of revenues, then of course that company would have to close their doors. The good news is that usually these problems don’t just materialize out of nowhere. There are usually years of signals that show trouble brewing, and investors that keep a finger on the pulse of their bonds are able to take measures to sidestep the big problems. For example, we have an Alabama fund (DUALX). Jefferson County had a bad situation brewing for many years and we used to own some of their bonds. It is a very long process from the first whiff of trouble to a Chapter 9 bankruptcy being on the front page of the papers. With our Jefferson County bonds we were able to sell them, not only before the bankruptcy, but before they even started trading at distressed levels. We are buy and hold investors, but there are no awards for being stubborn and holding bonds in a declining situation. So, managing risk to us means keeping out of any credit events. We would much rather take less income than see some kind of default happen in one of our portfolios. Even if it did not have a big financial impact, any kind of default situation is not good for investor confidence in your ability to take good care of shareholder money in your fund. The third municipal market risk lies in the bonds themselves. After you overlay the municipal factors on them, at the end of the day they are still fixed income investments that are subject to the ups and downs of the interest rate environment and idiosyncratic credit risk just like every other type of bond. That’s where you get into the classic interest rate risk, credit risk, prepayment risk, and inflation risk. Risk means volatility to some extent, but we would much rather take some volatility in our funds than try to “chase the market” and get eaten up with bid-ask spreads and capital gain exposure. The municipal bond market is liquid but not overly so. We avoid buying and selling too much by buying bonds to hold for the long term, but we do not hesitate to sell if we feel we need to do so. As a thought exercise, we took the share price of our Kentucky Income Series fund and put it on a graph and overlaid the historic Fed funds rate and 10-year Treasury rates. It was interesting because there was a correlation, but it was evident that it was not a one to one correlation. I think that is because often what sets bond prices and yields is not necessarily interest rates, but rather the expectation of interest rates changing. So there were times when we saw similar levels in the muni market where the Fed Funds rate was much higher than it is today. At the same time, if you look at where municipal bonds yields should be now—by looking at municipal yields as a percentage of treasury yields– munis are undervalued relative to treasuries because the AAA muni curve shows yields comparable to what Treasuries yield or even a little bit more. Municipal bonds are unique because of the tax exemption. Historically, if you looked at a 10-year treasury, say it would yield 5%, and a municipal bond might yield 4% because municipal bonds tend to yield about 80%-90% of like-maturity treasuries. That is because if you look at the after tax yield of a muni after the tax exemption is taken into account, then you’d see the normal scenario where treasury yields are the risk free rate and everything has a positive spread up from there. That is the historical norm. What we are seeing right now is municipal bonds are yielding as much or more than treasuries, even before the tax-equivalent yield is considered. It is almost like you are getting paid to take the tax exemption. The reason for that may be in part because there is the expectation of interest rates rising; therefore, people are not willing to pay as much for fixed income investments right now. But the muni-treasury yield relationship we’re seeing means maybe some eventual price decline in bonds, at least in municipal bonds that we invest in, may already be priced into the market. I have no doubt that if the Federal Reserve started raising the Fed funds rate, or if we saw a big change in treasury yields like we did earlier this year, we would see a decline in the municipal market. That decline may not be dramatic though, and it may be already partially priced in. Investors that check the share price every day and focus on a movement of a few cents up or down are often not as happy with our funds. Our most satisfied single-state shareholders seem to be the ones that take satisfaction in the tax-free dividend distributions that are paid to them or reinvested for them and have a longer time horizon. Think about a hypothetical fund paying 3% interest with a $10 a share price. If a clever investor closed out their account because they were worried about interest rates, and the fund fell to $9.75 a share over a year, that investor might pat themselves on the back. But what happened is that the investor missed out on about 30 cents of tax free dividend during that same period. There aren’t many people that consistently time the markets successfully. So in the short term, a shareholder might win trying to do that, but over the long term, our most satisfied shareholders seem to be the ones who accept the rise and fall in share price and just cash those dividend checks. As long as we are being prudent in selecting what we perceive to be good quality income-paying investments for the long-term, even in challenging rate environments, the right investor can still find value in funds like ours.