<PAGE> 1
Registration No. 2-64233
(under the Securities Act
of 1933)
Registration No. 811-2918
(under the Investment
Company Act of 1940)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 37 ( X )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 38 ( X )
(Check appropriate box or boxes)
DUPREE MUTUAL FUNDS
-------------------
(Exact Name of Registrant as Specified in Charter)
125 South Mill Street, Vine Center, Suite 100
---------------------------------------------
Lexington, Kentucky 40507
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (606) 254-7741
-----------------------------------------------------------------
THOMAS P. DUPREE, SR.
Dupree & Company, Inc.
125 South Mill Street, Vine Center, Suite 100
Lexington, Kentucky 40507
-------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
--------------------------------------------------------
It is proposed that this filing will become effective
(check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__X__ on November 1, 1997 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a) (1)
_____ on _________pursuant to paragraph (a) (1)
_____ 75 days after filing pursuant to paragraph (a) (2)
_____ on _________pursuant to paragraph (a) (2)
of rule 485
_____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Dupree Mutual Funds has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940. On August 8, 1997, registrant filed a Rule 24f-2 Notice for the fiscal
year ended June 30, 1997.
<PAGE> 2
DUPREE MUTUAL FUNDS
REGISTRATION STATEMENT ON FORM N-1A
CROSS-REFERENCE SHEET
Part A
Item No. Prospectus Caption
1 Cover Page
2 Dupree Mutual Funds - Summary
3 Financial Highlights
4 Organization of the Trust
5 Management of the Trust; Trust Expenses
5A Performance Calculations
6 Dividends; Taxes; Organization of the Trust
7 Buying Shares
8 Selling Shares
9 Not Applicable
Part B
Item No. Statement of Additional Information
10 Cover Page
11 Table of Contents
12 General Information and History
13 Investment Objectives and Policies; Portfolio Turnover
14 Investment Adviser; Officers and Trustees
15 Not Applicable
16 Investment Adviser
17 Portfolio Transactions
18 Shares of Beneficial Interest
19 How to Purchase Shares; How to Redeem Shares;
How We Compute Our Yields
20 Tax Information
21 Not Applicable
22 How We Compute Our Yields
23 Financial Statements
<PAGE> 3
Prospectus
November 1, 1997
DUPREE MUTUAL FUNDS
P.O. Box 1149
Lexington, Kentucky 40589-1149
(606) 254-7741
(800) 866-0614
MUNICIPAL BOND FUNDS
Kentucky Tax-Free Income Series
Kentucky Tax-Free Short-to-Medium Series
North Carolina Tax-Free Income Series
North Carolina Tax-Free Short-to-Medium Series
Tennessee Tax-Free Income Series
Tennessee Tax-Free Short-to-Medium Series
GOVERNMENT BOND FUNDS
Intermediate Government Bond Series
This Prospectus is a concise statement of information about Dupree Mutual Funds
(the "Trust") that you should know before investing. This Prospectus should be
kept for future reference.
A statement containing additional information about the Trust, Dated November 1,
1997 (the "Statement of Additional Information"), has been filed with the
Securities and Exchange Commission and can be obtained, without charge, by
writing or calling us at the address or phone number listed above. The Statement
of Additional Information is hereby incorporated by reference into this
Prospectus. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Prospectus, the Statement of Additional
Information, material incorporated by reference, and other information regarding
registrants that file electronically with the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table of Contents
2 Dupree Mutual Funds Summary
3 Trust Expenses
5 Financial Highlights
12 Organization of the Trust
12 Investment Objectives
14 Investment Policies and Restrictions
16 Management of the Trust
18 Determining Net Asset Value
18 Buying Shares
20 Selling Shares
21 Dividends
22 Taxes
22 Performance Calculations
23 How to Reach Us
<PAGE> 4
SINGLE STATE MUNICIPAL BOND SERIES
Investors in our municipal bond series are investors seeking tax-free income
derived from municipal securities. The Kentucky, North Carolina and Tennessee
Tax-Free Income Series seek a steady flow of income but with greater share price
fluctuation. The Kentucky, North Carolina and Tennessee Tax-Free Short-to-Medium
Series offer less principal fluctuation, but with less yield. See "Investment
Objectives".
INTERMEDIATE GOVERNMENT BOND SERIES
Investors in our Intermediate Government Bond Series are seeking income derived
from securities of the U.S. Government and its agencies. The Intermediate
Government Bond Series should provide moderate principal fluctuation. See
"Investment Objectives."
MANAGER AND DISTRIBUTOR
Dupree & Company, Inc. serves as Investment Adviser to each series of Dupree
Mutual Funds, a Kentucky Business Trust, offering one class of shares of
beneficial interest in seven distinct series. See "Manager and Distributor" for
more information.
PURCHASES AND REDEMPTIONS
The Trust has no sales load, no redemption fees and no exchange fees. The
minimum initial and subsequent investment amount is $100.00. See "Buying Shares"
for more information on how easy it is to invest. Shares are redeemable by mail
and wire in all series and by check in each of the Short-to-Medium Series
(Kentucky, North Carolina and Tennessee) and the Intermediate Government Bond
Series. If a shareholder elects to redeem shares by wire transfer, the
shareholder's own bank may impose a wire charge. If the Custodian imposes a wire
charge upon the Transfer Agent, this may be passed on to the shareholder. See
"Selling Shares."
FACTORS TO CONSIDER
An investment in our Trust, as with any mutual fund, includes risks that vary
depending upon the series' investment policies. Investment in any of the Single
State Municipal Bond series may involve greater risk than investment in a Fund
with a portfolio of municipal securities from throughout the country. This
additional risk is due to the possibility of an economic or political
development unique to a single state. There is no assurance that the investment
objective of any series will be achieved. A series' return and net asset value
will fluctuate.
<PAGE> 5
<TABLE>
<CAPTION>
Kentucky Kentucky North North Tennessee Tennessee Intermediate
Tax-Free Tax-Free Carolina Carolina Tax-Free Tax-Free Government
Income Short-to Tax-Free Tax-Free Income Short-to Bond
Series Medium Income Short-to Series Medium Series
Series Series Medium Series
SHAREHOLDER TRANSACTION EXPENSES: Series
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) NONE NONE NONE NONE NONE NONE NONE
Maximum Deferred Sales Load
(as a percentage of offering price) NONE NONE NONE NONE NONE NONE NONE
Maximum Sales Load Imposed on Reinvested
Dividends
(as a percentage of offering price) NONE NONE NONE NONE NONE NONE NONE
Redemption Fees (as a percentage of
amount redeemed, if applicable) NONE NONE NONE NONE NONE NONE NONE
Exchange Fee NONE NONE NONE NONE NONE NONE NONE
ANNUAL TRUST OPERATING EXPENSES: (as a percentage of average net assets)
Management Fee
(after fee reimbursements) 0.439% 0.499% 0.00%* 0.00%* 0.273%* 0.123%* 0.134%*
12b-1 Fees NONE NONE NONE NONE NONE NONE NONE
Other expenses
(after fee reimbursements)
Transfer Agent 0.122 0.130 0.082 0.060 0.150 0.150 0.150
All other expenses 0.072 0.088 0.163 0.169 0.123 0.196 0.212
------ ----- ----- ----- ----- ----- -----
Total other expenses 0.194 0.218 0.245 0.229 0.273 0.346 0.362
------ ----- ----- ----- ----- ----- -----
Total fund operating expenses 0.633% 0.717% 0.245% 0.229% 0.546% 0.469% 0.496%
====== ====== ====== ====== ====== ====== ======
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<S> <C> <C> <C> <C> <C> <C> <C>
1 year $7 $8 $3 $2 $6 $5 $5
3 years $21 $24 $8 $8 $18 $15 $16
5 years $36 $41 $14 $13 $32 $27 $29
10 years $81 $92 $33 $30 $71 $61 $64
</TABLE>
You would pay the same expenses on the same investment, assuming no redemption.
The purpose of this table is to help you understand the various costs and
expenses that you, as a shareholder, will bear directly or indirectly. The table
should not be considered a representation of past or future expenses. Actual
expenses and returns on investment may be greater or lesser than those shown.
For further information concerning advisory fees, see the section entitled
Investment Adviser and Advisory Agreements. In addition, more complete
information on costs and expenses is found in the Statement of Additional
Information.
<PAGE> 6
Annual fund operating expenses (as a percentage of average net assets) are based
on actual amounts incurred for the fiscal year ended June 30, 1997.
*The Investment Adviser for each of the series may waive management fees and
assume and pay other operating expenses to reduce expenses which could be passed
on to the shareholders. For the year ended June 30, 1997 if the Investment
Adviser had not waived management fees and assumed or paid other operating
expenses, the following expenses would have been incurred by the two North
Carolina Series, the two Tennessee Series and the Intermediate Government Bond
Series:
<TABLE>
<CAPTION>
North North Tennessee Tennessee Intermediate
Carolina Carolina Tax-Free Tax-Free Government
Tax-Free Tax-Free Income Short-to Bond
Income Short-to Series Medium Series
Series Medium Series
Series
<S> <C> <C> <C> <C> <C>
Management Fee 0.500% 0.500% 0.500% 0.500% 0.200%
Other Expenses
Transfer Agent 0.150 0.150 0.150 0.150 0.150
All Other Expenses 0.163 0.169 0.123 0.196 0.212
----- ----- ----- ----- -----
Total Other Expenses 0.313 0.319 0.273 0.346 0.362
----- ----- ----- ----- -----
Total Fund Operating Expenses 0.813% 0.819% 0.773% .0846% 0.562%
====== ====== ====== ====== ======
</TABLE>
<PAGE> 7
FINANCIAL HIGHLIGHTS
Kentucky Tax-Free Income Series
The financial highlights in the table below for the fiscal year ended June 30,
1997 have been audited by Ernst & Young, LLP, independent auditors. Prior years
were audited by Coopers & Lybrand, L.L.P. Financial statements for the year
ended June 30, 1997 and the independent auditors' report thereon are included in
the Statement of Additional Information.
FINANCIAL HIGHLIGHTS Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $7.35 7.29 7.21 7.60 7.16 6.87 6.77 6.76 6.52 6.59
-----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.40 0.40 0.40 0.41 0.43 0.44 0.45 0.46 0.47 0.48
Net gains or losses on securities
(both realized and unrealized) 0.12 0.06 0.13 (0.34) 0.44 0.29 0.10 0.01 0.24 (0.07)
-----------------------------------------------------------------------------------
Total from investment operations 0.52 0.46 0.53 0.07 0.87 0.73 0.55 0.47 0.71 0.41
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- (0.05) (0.05) -- -- -- -- -- --
Dividends (from net investment (0.40) (0.40) (0.40) (0.41) (0.43) (0.44) (0.45) (0.46) (0.47) (0.48)
income)
Returns of capital total -- -- -- -- -- -- -- -- -- --
distributions
-----------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.47 7.35 7.29 7.21 7.60 7.16 6.87 6.77 6.76 6.52
===================================================================================
Total return 7.14% 6.38 6.90 0.75 12.45 10.95 8.43 7.19 11.32 6.54
Net assets, end of year (in thousands): $327,304 295,029 269,355 257,132 237,781 169,269 113,659 87,594 73,062 60,447
Ratio of expenses to average net assets 0.63% 0.62 0.63 0.69 0.67 0.71 0.75 0.76 0.78 0.81
Ratio of net investment income to
average net assets 5.32% 5.39 5.60 5.82 5.79 6.28 6.63 6.82 7.44 7.40
Portfolio turnover 6.64% 4.29 18.05 30.53 31.79 11.93 18.08 35.82 43.70 87.37
rate
</TABLE>
<PAGE> 8
FINANCIAL HIGHLIGHTS
Kentucky Tax-Free Short-to-Medium Series
The financial highlights in the table below for the fiscal year ended June 30,
1997 have been audited by Ernst & Young, LLP, independent auditors. Prior years
were audited by Coopers & Lybrand, L.L.P. Financial statements for the year
ended June 30, 1997, and the independent auditors' report thereon are included
in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(a)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $5.20 5.18 5.17 5.29 5.17 5.05 4.99 4.97 5.00 5.00
------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.22 0.21 0.21 0.21 0.23 0.26 0.28 0.29 0.29 0.20
Net gains or losses on securities
(both realized and unrealized) 0.02 0.02 0.02 (0.12) 0.12 0.12 0.06 0.02 (0.03) --
------------------------------------------------------------------------------------
Total from investment operations 0.24 0.23 0.23 0.09 0.35 0.38 0.34 0.31 0.26 0.20
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- (0.01) -- -- -- -- -- -- --
Dividends (from net investment (0.22) (0.21) (0.21) (0.21) (0.23) (0.26) (0.28) (0.29) (0.29) (0.20)
income)
Returns of capital total -- -- -- -- -- -- -- -- -- --
distributions
------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $5.22 5.20 5.18 5.17 5.29 5.17 5.05 4.99 4.97 5.00
====================================================================================
Total return (b) 4.59% 4.51 4.27 1.71 6.91 7.67 7.03 6.36 5.42 5.53
Net assets, end of period (in $53,829 66,574 57,064 69,550 55,525 34,178 13,972 6,678 7,309 3,125
thousands)
Ratio of expenses to average net 0.72% 0.75 0.72 0.72 0.76 0.76 0.76 0.76 0.75 0.75
assets (b)
Before expense reimbursement (b) 0.72% 0.75 0.72 0.72 0.77 0.83 0.85 0.89 0.92 0.75
Ratio of net investment income to
average net assets (b) 4.11% 4.04 4.00 3.92 4.37 4.96 5.58 5.79 5.88 5.48
After expense reimbursement (b) 4.11% 4.04 4.00 3.92 4.36 4.89 5.49 5.63 5.71 5.48
Portfolio turnover rate 20.03% 57.80 4.07 17.62 22.89 29.35 26.41 57.61 41.31 103.35
<FN>
(a) Commenced operations September 15, 1987.
(b) Annualized for periods less than a full
year.
</TABLE>
<PAGE> 9
FINANCIAL HIGHLIGHTS
North Carolina Tax-Free Income Series
The financial highlights in the table below for the fiscal year ended June 30,
1997 have been audited by Ernst & Young, LLP, independent auditors. Prior years
were audited by Coopers & Lybrand, L.L.P. Financial statements for the year
ended June 30, 1997, and the independent auditors' report thereon are included
in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended
June 30,
---------------------
1997 1996(a)
---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.88 10.00
---------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.54 0.32
Net gains or losses on securities
(both realized and unrealized) 0.45 (0.12)
---------------------
Total from investment operations 0.99 0.20
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- --
Dividends (from net investment (0.54) (0.32)
income)
Returns of capital total distributions -- --
---------------------
NET ASSET VALUE, END OF YEAR $10.33 9.88
=====================
Total return: 10.18% 3.23
Net assets, end of period (in thousands) $3,586 1,063
Ratio of expenses to average net assets (b) 0.25% 0.18
Before expense reimbursement (b) 0.81% 2.47
Ratio of net investment income to average net assets (b) 4.72% 3.27
After expense reimbursement (b) 5.29% 0.98
Portfolio turnover rate 24.13% 22.83
(a) Commencement of operations November 16, 1995.
(b) Annualized for periods less than a year.
</TABLE>
<PAGE> 10
FINANCIAL HIGHLIGHTS
North Carolina Tax-Free Short-to-Medium Series
The financial highlights in the table below for the fiscal year ended June 30,
1997 have been audited by Ernst & Young, LLP, independent auditors. Prior years
were audited by Coopers & Lybrand, L.L.P. Financial statements for the year
ended June 30, 1997, and the independent auditors' report thereon are included
in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------
1997 1996(a)
----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.99 $10.00
----------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.41 0.24
Net gains or losses on securities
(both realized and unrealized) 0.13 (0.01)
----------------------
Total from investment operations 0.54 0.23
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- --
Dividends (from net investment income) (0.41) (0.24)
Returns of capital total distributions -- --
----------------------
NET ASSET VALUE, END OF YEAR $10.12 $9.99
======================
Total return 5.49% 3.79
Net assets, end of period (in thousands) $1,458 1,159
Ratio of expenses to average net assets (b) 0.23% 0.16
Before expense reimbursement (b) 0.82% 1.78
Ratio of net investment income to average net assets (b) 3.46% 2.47
After expense reimbursement (b) 4.06% 0.85
Portfolio turnover rate 17.20% 17.18
(a) Commencement of operations November 16, 1995.
(b) Annualized for periods less than a year.
</TABLE>
<PAGE> 11
FINANCIAL HIGHLIGHTS
Tennessee Tax-Free Income Series
The financial highlights in the table below for the fiscal year ended June 30,
1997 have been audited by Ernst & Young, LLP, independent auditors. Prior years
were audited by Coopers & Lybrand, L.L.P. Financial statements for the year
ended June 30, 1997, and the independent auditors' report thereon are included
in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the year ended June 30,
------------------------------------------
1997 1996 1995 1994(a)
------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.17 10.05 9.51 10.00
------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.54 0.54 0.54 0.28
Net gains or losses on securities
(both realized and unrealized) 0.36 0.12 0.54 (0.49)
------------------------------------------
Total from investment operations 0.90 0.66 1.08 (0.21)
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- -- --
Dividends (from net investment income) (0.54) (0.54) (0.54) (0.28)
Returns of capital total distributions -- -- -- --
------------------------------------------
NET ASSET VALUE, END OF YEAR $10.53 10.17 10.05 9.51
==========================================
Total return (b) 8.96% 6.65 11.65 (4.17)
Net assets, end of year (in thousands) $13,678 8,056 5,010 794
Ratio of expenses to average net assets (b) 0.55% 0.54 0.34 0.12
Before expense reimbursement (b) 0.77% 0.90 1.16 4.01
Ratio of net investment income to average net assets (b) 4.92% 5.27 5.59 2.83
after expense reimbursement (b) 5.15% 4.91 4.77 (1.06)
Portfolio turnover rate 5.14% 9.13 6.84 15.88
(a) Commencement of operations December 20, 1993.
(b) Annualized for periods less than a year.
</TABLE>
<PAGE> 12
FINANCIAL HIGHLIGHTS
Tennessee Tax-Free Short-to-Medium Series
The financial highlights in the table below for the fiscal year ended June 30,
1997 have been audited by Ernst & Young, LLP, independent auditors. Prior years
were audited by Coopers & Lybrand, L.L.P. Financial statements for the year
ended June 30, 1997, and the independent auditors' report thereon are included
in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
1997 1996 1995(a)
--------------------------
<S> <C> <C> <C>
Net Asset Value, beginning of year $10.25 10.20 10.00
--------------------------
Income From Investment Operations:
Net investment income 0.42 0.42 0.28
Net gains or losses on securities
(both realized and unrealized) 0.07 0.05 0.20
--------------------------
Total from investment operations 0.49 0.47 0.48
Less Distributions:
Distributions (from capital gains) -- -- --
Dividends (from net investment income) (0.42) (0.42) (0.28)
Returns of capital total distributions -- -- --
--------------------------
Net Asset Value, end of year $10.32 10.25 10.20
==========================
Total return (b) 4.83% 4.62 7.41
Net assets, end of period (in thousands) $2,993 2,455 1,535
Ratio of expenses to average net assets (b) 0.47% 0.50 0.28
Before expense reimbursement (b) 0.85% 1.19 2.05
Ratio of net investment income to average net assets (b) 3.67% 4.05 2.80
After expense reimbursement (b) 4.04% 3.36 1.03
Portfolio turnover rate 24.49% 23.17 0.71
(a) Commencement of operations November 1, 1994.
(b) Annualized for periods less than a year.
</TABLE>
<PAGE> 13
FINANCIAL HIGHLIGHTS
Intermediate Government Bond Series
The financial highlights in the table below for the fiscal year ended June 30,
1997 have been audited by Ernst & Young, LLP, independent auditors. Prior years
were audited by Coopers & Lybrand, L.L.P. Financial statements for the year
ended June 30, 1997, and the independent auditors' report thereon are included
in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------------------------------
1997 1996 1995 1994 1993(a)
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.85 10.15 9.65 10.60 10.00
----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.72 0.72 0.69 0.63 0.59
Net gains or losses on securities
(both realized and unrealized) 0.04 (0.30) 0.50 (0.95) 0.60
----------------------------------------------------
Total from investment operations 0.76 0.42 1.19 (0.32) 1.19
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- -- -- --
Dividends (from net investment income) (0.72) (0.72) (0.69) (0.63) (0.59)
Returns of capital total distributions -- -- -- -- --
----------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.89 9.85 10.15 9.65 10.60
====================================================
Total return (b) 7.95% 4.15 12.78 (3.32) 12.64
Net assets, end of period (in thousands) $8,288 7,765 7,713 8,372 5,897
Ratio of expenses to average net assets (b) 0.50% 0.40 0.40 0.40 0.40
Before expense reimbursement (b) 0.56% 0.62 0.61 0.65 1.34
Ratio of net investment income to average net assets (b) 7.26% 7.11 7.06 6.00 6.23
After expense reimbursement (b) 7.20% 6.89 6.85 5.75 5.29
Portfolio turnover rate 40.86% 33.89 74.98 23.08 0.00
(a) Commencement of operations July 12, 1992.
(b) Annualized for periods less than a full year.
</TABLE>
<PAGE> 14
ORGANIZATION OF THE TRUST
Dupree Mutual Funds is a Kentucky Business Trust organized under the laws of the
Commonwealth of Kentucky on July 1, 1987. The Trust offers shares of beneficial
interest of separate series without par value.
Shares of seven series are being offered for sale:
Kentucky Tax-Free Income Series
Kentucky Tax-Free Short-to-Medium Series
North Carolina Tax-Free Income Series
North Carolina Tax-Free Short-to-Medium Series
Tennessee Tax-Free Income Series
Tennessee Tax-Free Short-to-Medium Series
Intermediate Government Bond Series
Each share has one vote. Fractional shares have proportionate voting rights and
participate pro-rata in dividends and distributions. Our shares have cumulative
voting rights for the election of Trustees. On matters affecting an individual
series, a separate vote of the series is required. Shareholders of a series are
not entitled to vote on any matter not affecting that series but requiring a
separate vote of the other series.
We are registered as a diversified, open-end investment company of the
management type under the Investment Company Act of 1940; however, each series
of the Trust may or may not be diversified. Our shares, which are offered
continuously, are registered for sale under the Securities Act of 1933. The
Kentucky, Tennessee, North Carolina Series and the Intermediate Government Bond
Series are qualified for sale in Kentucky, Florida, Indiana, and North Carolina
under the securities law of those states. The two Kentucky Series and the
Intermediate Government Bond Series are qualified for sale in Texas. The two
Tennessee Series and the Intermediate Government Bond Series are qualified for
sale in Tennessee. We offer and redeem our shares at current net asset value.
Investment Objectives
Our investment objective is to seek the highest level of income without undue
risk to principal. Of course, no mutual fund offered by us or anyone else can
guarantee that the investment objective will be met.
Single State Municipal Bond Series
All of our single state series, whatever their maturity range, have an
investment objective of realizing the highest level of tax-exempt income
available without undue risk to principal by investing in state specific
municipal securities. The interest earned on these securities, in the opinion of
bond counsel for the issuer, is exempt from federal and state taxation in the
state of issuance. In conformity with Guidelines of the Securities and Exchange
Commission, each single state series has a fundamental policy that during
periods of normal market conditions either (1) the series' assets will be
invested so that at least 80% of the income will be tax-exempt or (2) the series
will have at least 80% of its net assets invested in tax-exempt securities. In
addition, under normal market conditions, at least 65% of the value of each
series assets will be invested in municipal securities of the state identified
in the series name as described herein.
Yield on municipal securities is dependent on a variety of factors, including
the maturity and quality of the particular obligation, the size of the total
offering, conditions in the municipal securities markets and general monetary
and economic conditions. Generally, issues of shorter maturity and/or higher
quality pay lower yields than issues of longer maturity and/or lower quality.
The market values of municipal securities vary depending upon available yields
both in the municipal securities markets and in the short-term money markets.
Therefore,
<PAGE> 15
the net asset values of our shares will change as interest rates fluctuate,
generally declining as interest rates rise and rising as interest rates fall.
The types of municipal securities and the general characteristics of each type
are described in the "Statement of Additional Information".
The inherent risk associated with investment in municipal securities is that the
issuer might default. Payment on nearly all Kentucky municipal securities
depends upon revenue generated by the property financed by the securities; the
securities are not general obligations of the issuer. Payment on nearly all
North Carolina and Tennessee municipal securities are general obligations of the
issuer. In addition, the net asset value of our shares may be impacted by the
general economic situation in the country and/or within the states of Kentucky,
North Carolina and Tennessee. The limitation of our investments of each series
to a single state may involve greater risk than if we invested in municipal
securities throughout the country, due to the possibility of an economic or
political development which could uniquely affect the ability of issuers to meet
the debt obligations of the securities. The economies of Kentucky, North
Carolina and Tennessee are supported by agricultural products, coal,
manufacturing and service professions. A decline in the tobacco, equine or coal
market could affect these states in a manner different from the effect on most
other states. Potential federal regulation of the tobacco industry including
action by Congress on a settlement agreement with the tobacco industry to
resolve multiple pending lawsuits may impact the tobacco industry in each of
these states, though the degree of the impact cannot be predicted with any
certainty.
The Kentucky non-agricultural economy is diversified as follows: 24% services,
24% wholesale and retail trade, 19% manufacturing, 18% government and 15% other.
Agriculture in Kentucky is well diversified among tobacco, corn, hogs, cattle,
other grains, equine, and truck crops. No single segment of the economy consists
of as much as one fourth of the overall State Domestic Product.
The North Carolina economy derives most of its income from three main sectors:
industry, agriculture and tourism, in that order. Each of these sectors are well
diversified. Industry has a good balance between production of goods versus
services, with a slight edge to the services side. Agriculture is diversified
among tobacco, poultry, fruits, vegetables and various kinds of livestock.
Tourism is concentrated in the far west and the coastal region. The U.S.
military bases in North Carolina constitute a significant part of the economy as
well.
The Tennessee non-agricultural economy is diversified among the following
sectors: 23% manufacturing; 23% wholesale and retail trade; 22% services; 16%
government and 14% other. Agriculture in Tennessee is widely diversified among
livestock, poultry, fruit and vegetables production, as well as nursery
operations. Agriculture constitutes about one third of the overall economy.
The economies of Kentucky, North Carolina and Tennessee are of such
diversification that an economic decline in a single segment of a state's
economy would not necessarily lead to the non-payment of debt service on
municipal bonds. A national economic decline could impact the ability of
municipalities to pay debt service, if the decline impacted various industries
within each state.
Kentucky Tax-Free Income Series
This is a diversified fund of long-term maturity bonds, usually averaging 10
years or more, where a fairly level stream of income is important, though net
asset value per share can fluctuate considerably. The portfolio had a weighted
average effective maturity of 6.83 years as of June 30, 1997.
Kentucky Tax-Free Short-to-Medium Series
This is a non-diversified fund with a dollar weighted average maturity of two to
five years. The yield of this series will typically be lower than the Income
Series, but with less principal fluctuation. The portfolio had a weighted
average effective maturity of 3.68 years as of June 30, 1997. As a
non-diversified series, the Short-to-Medium Series may invest up to 50% of the
series' total assets in as few as two investments, with each of those
investments comprising up to 25% of the series' total assets. In this case, a
default would produce a more dramatic result as compared to a fully diversified
fund.
<PAGE> 16
North Carolina Tax-Free Income Series
This is a non-diversified fund with a dollar weighted average maturity usually
averaging 10 years or more, where a fairly level stream of income is important,
though net asset value per share can fluctuate considerably. The portfolio had a
weighted average effective maturity of 8.87 years as of June 30, 1997. As a
non-diversified series, the Income Series may invest up to 50% of the series'
total assets in as few as two investments, with each of those investments
comprising up to 25% of the series' total assets. In this case, a default would
produce a more dramatic result as compared to a fully diversified fund.
North Carolina Tax-Free Short-to-Medium Series
This is a non-diversified fund with a dollar weighted average maturity of two to
five years. The yield of this series will typically be lower than the Income
Series, but with less principal fluctuation. The portfolio had a weighted
average effective maturity of 2.91 years as of June 30, 1997. As a
non-diversified series, the Short-to-Medium Series may invest up to 50% of the
series' total assets in as few as two investments, with each of those
investments comprising up to 25% of the series' total assets. In this case, a
default would produce a more dramatic result as compared to a fully diversified
fund.
Tennessee Tax-Free Income Series
This is a diversified fund of long-term maturity bonds, usually averaging 10
years or more, where a fairly level stream of income is important, though net
asset value per share can fluctuate considerably. The portfolio had a weighted
average effective maturity of 8.46 years as of June 30, 1997.
Tennessee Tax-Free Short-to-Medium Series
This is a non-diversified fund with a dollar weighted average maturity of two to
five years. The yield of this series will typically be lower than the Income
Series, but with less principal fluctuation. This portfolio had a weighted
average effective maturity of 2.98 years as of June 30, 1997. As a
non-diversified series, the Short-to-Medium Series may invest up to 50% of the
series' total assets in as few as two investments, with each of those
investments comprising up to 25% of the series' total assets. In this case, a
default would produce a more dramatic result as compared to a fully diversified
fund.
Intermediate Government Bond Series
Seeks the highest level of current income without undue risk to principal by
investing in the following securities: issues of the U.S. Government or its
agencies or instrumentalities, repurchase agreements fully collateralized by
issues of the U.S. Government or its agencies or instrumentalities and bank
accounts fully insured by the FDIC or collateralized. The types of securities
are described in the "Statement of Additional Information". The dollar weighted
maturity of the portfolio will usually be 3 to 10 years to produce minimal
fluctuation in principal. The portfolio had a weighted average effective
maturity of 4.13 years as of June 30, 1997.
INVESTMENT POLICIES AND RESTRICTIONS
Single State Municipal Bond Series
Our six single state municipal bond series have fundamental policies of
investing at least 80% of the value of the assets in securities meeting the
following quality standards:
A) Bonds rated at the time of purchase within the four highest grades assigned
by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A, Baa) or Standard &
Poor's Corporation ("S&P") (AAA, AA, A, BBB). According to Moody's, bonds rated
Baa are medium-grade and possess some speculative characteristics. A BBB rating
by S&P indicates a satisfactory degree of safety and capacity for repayment, but
more vulnerability to adverse economic conditions or changing circumstances.
These bonds have speculative characteristics, and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds.
<PAGE> 17
B) Notes rated at the time of purchase within the three highest grades assigned
by Moody's (MIG 1, MIG 2, MIG 3); and bonds and notes not rated by Moody's or
S&P within the grades specified above, but secured by the full faith and credit
of the United States government (e.g., refunded or defeased bonds secured by
United States Treasury Bills or Notes).
C) No more than 20% of the value of our total assets in any of the municipal
bond series will be invested in securities which are not rated. The Trust will
not purchase securities which in the opinion of the Investment Adviser would not
have been rated in one of the grades specified above. In addition, our
Investment Adviser will make its own evaluation of each security it selects for
each portfolio and will continue to evaluate each portfolio security so long as
we hold it.
As an additional matter of fundamental policy, except as indicated below, the
only securities we will purchase for the municipal bond series are those
producing income exempt from both Federal and State income taxes in the states
where shares of the series are offered, though ad valorem taxes may be due in
some states.
The investment policies may not be changed without approval of the holders of a
majority of the outstanding shares representing each series. The only exception
to the policies previously described is that we may temporarily invest up to 50%
of the value of our total assets in certain taxable obligations when, in the
judgment of our Investment Adviser, abnormal market conditions make it
advantageous to assume a defensive posture in taxable obligations. We also
reserve the right to hold such cash reserves as the Investment Adviser deems
necessary for temporary defensive purposes.
The taxable obligations and cash equivalents in which we may invest on a
temporary basis include obligations of the U.S. Government and its agencies and
instrumentalities; certificates of deposit, banker's acceptances and other
short-term debt obligations of United States and Canadian banks with total
assets of at least $1,000,000,000; commercial paper rated A-2 or better by S&P
or Prime-2 or better by Moody's; and repurchase agreements relating to an
underlying security in which we are authorized to invest.
Intermediate Government Bond Series
The Intermediate Government Bond Series has an investment objective of realizing
the highest rate of current income without undue risk to principal by investing
at least 65% of the value of our total assets in a professionally managed
non-diversified portfolio of bonds: 1) issued by the U.S. Government, such as
U.S. Treasury Bonds; or 2) issued by agencies or instrumentalities of the U.S.
Government, such as, but not limited to, obligations of the Federal Farm Credit
Banks, the Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Bank. The remaining assets are
invested in bank accounts fully insured by the FDIC or collateralized by bonds
described above in 1) and 2); repurchase agreements fully collateralized by
bonds described in 1) and 2); or U.S. Treasury or Agency Notes and Bills. The
foregoing types of securities are described in the "Statement of Additional
Information." The dollar weighted average maturity of the portfolio will be 3-10
years to produce minimal fluctuation in principal. There can be no assurance
that the objectives of the series will be realized.
Investors should recognize that, in periods of declining interest rates, the
series' yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the yield of the series will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the series from the continuous sale of its shares will likely be
invested in portfolio instruments producing lower yields than the balance of the
series' portfolio, thereby reducing the current yield of the series. In periods
of rising interest rates, the opposite can be true.
Borrowing of Money
Each series permits borrowing money from banks as a temporary measure in order
to pay redeeming shareholders or to satisfy purchase commitments, but such
borrowings may not be in excess of 5% of the value of the assets of the affected
series.
<PAGE> 18
Asset Composition
<TABLE>
The weighted average ratings of the securities held by the Trust on June 30, 1997, the ending date of the fiscal year, were:
<CAPTION>
Aaa/AAA Aa/AA A/A Baa/BBB NR(total)
<S> <C> <C> <C> <C> <C>
Municipal Bonds
Kentucky Tax-Free
Income Series 37.72% 14.06% 39.73% 3.99% 4.50%
Kentucky Tax-Free
Short-to-Medium Series 46.73 25.38 19.51 6.55 1.83
North Carolina Tax-Free
Income Series 39.58 40.75 16.70 2.97 .0
North Carolina Tax-Free
Short-to-Medium Series 59.53 27.78 11.31 1.38 .0
Tennessee Tax-Free
Income Series 43.90 27.57 25.86 2.30 .37
Tennessee Tax-Free
Short-to-Medium Series 54.93 33.90 11.17 .0 .0
Government Bonds
Intermediate Government
Bond Series 100.00
The Board of Trustees of the Trust, acting upon information furnished by the
Investment Adviser, has determined that the unrated bonds held by each series
were comparable to rated bonds in the following categories:
<CAPTION>
Comparable To: Aaa/AAA Aa/AA A/A Baa/BBB
<S> <C>
Kentucky Tax-Free
Income Series 4.50%
Kentucky Tax-Free
Short-to-Medium Series 1.83
Tennessee Tax-Free
Income Series .37
</TABLE>
MANAGEMENT OF THE TRUST
Trustees
The Trustees of the Trust consist of six individuals, four of whom are not
"interested persons" of the Trust as defined in the Investment Company Act of
1940. The Trustees of the Trust are responsible for the overall supervision of
the operations of the Trust and perform the various duties imposed upon the
directors or trustees of investment companies by the Investment Company Act of
1940. The Trustees of the Trust are:
Thomas P. Dupree, Sr., Chairman of the Board of Dupree & Company, Inc. *
Fred L. Dupree, Jr., Vice President, Secretary, Treasurer and Director of Dupree
& Company, Inc.
Lucy A. Breathitt, Alexander Farms, farming; Kentucky Horse Park Foundation
Board; Kentucky Horse Park Museum Board, Kentucky State Nature Preserves
Commission.
William A. Combs, Jr., Secretary, Treasurer, Director, Freedom Dodge, Lexington,
KY and Dana Motor Company, Cincinnati, Ohio, auto dealerships; Partner,
Ellerslie Realty, Inc., Forkland Development Co., and Lexland, Lexington, KY;
Director, First Security Bank (in organization as of 11-1-97).
<PAGE> 19
Robert L. Maddox, Member, Wyatt, Tarrant & Combs, Attorneys, Louisville, KY.
William S. Patterson, President, CEO, Cumberland Surety Insurance Co.,
Lexington, KY.
*Thomas P. Dupree, Sr. and Fred L. Dupree, Jr. are "interested persons" of the
Trust's Investment Adviser and of the Trust within the meaning of Section
2(a)(19) of the Investment Company Act of 1940 by virtue of their officership,
directorship and/or employment with Dupree & Company, Inc. Dupree & Company,
Inc. also serves as the Trust's Transfer Agent. The other Trustees are the
non-interested Trustees of the Trust.
Except as otherwise noted, each individual has held the office indicated, or
other offices in the same company, for the last five years.
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Accrued Annual From Trust and
Name of Person, Compensation As Part of Benefits Upon Trust Complex
Position From Trust Trust Expenses Retirement Paid to Trustees
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas P. Dupree, Sr. -0- None - No Pension None -0-
President, Chairman, or Retirement Plan
Trustee
Fred L. Dupree, Jr. -0- None - No Pension None -0-
Vice President, Secretary, or Retirement Plan
Treasurer, Trustee
Lucy A. Breathitt $12,000 None-No Pension None $12,000
Trustee or Retirement Plan
William A. Combs, Jr. $12,000 None - No Pension None $12,000
Trustee or Retirement Plan
Robert L. Maddox $12,000 None - No Pension None $12,000
Trustee or Retirement Plan
William S. Patterson $12,000 None - No Pension None $12,000
Trustee or Retirement Plan
</TABLE>
Investment Adviser and Advisory Agreements
Our investment activities are managed by Dupree & Company, Inc., P.O. Box 1149
Lexington, Kentucky 40589-1149. Dupree & Company was formed in 1962 to continue
a business founded in 1941. Dupree & Company, Inc. also serves as Transfer
Agent.
Dupree & Company, Inc., may at its sole cost and expense, enter into
sub-shareholder servicing agreements with commercial banks, investment advisers,
or other entities to provide assistance in maintaining books, accounts and
records of shareholders.
Dupree & Company, Inc. serves as the Investment Adviser for each of our seven
series pursuant to separate Investment Advisory Agreements with each series,
each dated as of November 1, 1997. Each agreement will continue in effect until
October 31, 1999 and may be continued thereafter for annual periods if renewed.
Subject to the direction of the Trustees, Dupree & Company, Inc. is responsible
for the actual management of the Trust's portfolios. The compensation paid to
the Investment Adviser as presented on page 3 is inclusive of
<PAGE> 20
certain administrative services and provision of office space, facilities,
equipment and personnel for management of the Trust. The compensation paid to
the Investment Adviser pursuant to the Investment Advisory Agreements is a
percentage of the daily net assets of each series as follows:
<TABLE>
<CAPTION>
Range of Total Assets 100,000,001-
(in dollars) $0-100,000,000 $150,000,000 $150,000,001+
<S> <C> <C> <C>
Kentucky Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Kentucky Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
North Carolina Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
North Carolina Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
Tennessee Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Tennessee Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
Intermediate Government Bond Series .20 of 1% .20 of 1% .20 of 1%
</TABLE>
Dupree & Company, Inc. has reserved the right to voluntarily subsidize any
series of the Trust at its sole option.
Prior to November 1, 1997 Dupree Investment Advisers, Inc., a wholly owned
subsidiary of Dupree & Company, Inc., had served as the Investment Adviser to
each of the seven series pursuant to separate Investment Advisory Agreements.
Due to corporate and tax considerations the Dupree firms restructured their
business without any change in personnel or services. The Investment Advisory
Agreements approved by the shareholders of each series at their 1997 Annual
meeting are identical to the prior agreements except that the parent firm,
Dupree & Company, Inc. is now the Investment Adviser.
Indiana and Texas limit annual expenses (exclusive of interest, taxes, brokerage
commissions and extraordinary expenses) as follows: 1.5% of the first
$30,000,000 in net assets and 1% of any additional net assets for Indiana; and
2% of the first $10,000,000 of average net assets, 1.5% of the next $20,000,000
of average net assets and 1% of the remaining average net assets for Texas.
Fund Portfolio Manager
The person primarily responsible for the day-to-day management of all series of
the Trust is William T. Griggs II, President of the Investment Adviser. Mr.
Griggs has been Portfolio Manager since 1989.
Determining Net Asset Value
The price used when you buy or sell shares in a series is the next net asset
value computed after we receive your order in proper form. The net asset value
per share of each series is determined separately at the close of trading on the
New York Stock Exchange each day the Exchange is open for trading by dividing
the total value of the assets of a series, minus liabilities, by the total
number of shares outstanding. The value of your investment in any of our series
is not reduced by a sales charge or commission.
The securities in which we invest are traded primarily in the over-the-counter
market. We value securities for which representative price quotations are
current and readily available at the mean between the quoted bid and asked
prices. If price quotations are not readily available, or if we believe that
available quotations are not current or representative, we value securities at
prices we believe will best reflect the fair value. In such cases, and in the
case of other assets, fair value is determined in good faith in accordance with
procedures approved in advance by our Board of Trustees, consistently applied by
or under the supervision of our officers, and monitored by the Board on an
ongoing basis.
BUYING SHARES
Our goal is to make doing business with us as easy as possible. You can buy
shares at the next net asset value computed after we receive your investment in
proper form as described below. There is no sales charge or load.
<PAGE> 21
Terms of Offering
If you send us a check which does not clear, we may cancel your order and hold
you responsible for any loss which we have incurred. We may recover our loss by
redeeming shares held in your account, and we may prohibit or restrict you from
placing future orders.
We retain the right to reject any order, and to raise or lower the minimum
investment size for any persons or class of persons. An order to purchase shares
is not binding on us until confirmed in writing by the Transfer Agent.
Initial Investment
Your initial and subsequent investments need only be $100.00 for any of our
series.
By Wire
If this is an initial investment you must first call us to tell us the
following:
(-) How the account is to be registered
(-) Name of series in which you wish to invest
(-) Your address
(-) Your tax identification number
(-) Amount being wired
(-) Name of wiring bank
Our wire instructions are directed to Star Bank, Cincinnati, Ohio as follows:
Star Bank ABA # 0420-0001-3
Kentucky Tax-Free Income Series #483-622-098
Kentucky Tax-Free Short-to-Medium Series #483-622-106
North Carolina Tax-Free Income Series #483-622-338
North Carolina Tax-Free Short-to-Medium Series #483-622-346
Tennessee Tax-Free Income Series #483-622-122
Tennessee Tax-Free Short-to-Medium Series #483-622-130
Intermediate Government Bond Series #483-622-148
If you are adding to an existing account please call us with your name and
account number.
By Mail
Make your check payable to the series you want to invest in and send your check
to:
Dupree Mutual Funds
P.O. Box 1149
Lexington, KY 40589-1149
Along with one of the following:
*A completed new account form (if new account)
*The detachable stub which you will find at the bottom of your most
recent account statement
*A letter specifying the account number and series
Automatic Withdrawal from Your Checking Account
Once your account is open, you may make investments automatically by authorizing
Dupree Mutual Funds to draw on your bank account. Please call us at the phone
number on the back cover for more information.
Individual Retirement Accounts
Shareholders of the Intermediate Government Bond Series may establish Individual
Retirement Accounts. Please contact us at the number on the back cover for more
information.
<PAGE> 22
SELLING SHARES
You may sell all or part of the shares in your account at any time without any
penalties or sales commissions. To do so, simply use one of the methods
described below. We will not require a signature guarantee (but reserve the
right to do so); however, on your account application, you will be asked to
indemnify and hold harmless the Trust, the Transfer Agent and their officers,
agents and employees, from losses, claims, expenses and liabilities based on
actions taken as the result of your instructions. The Trust will utilize
reasonable procedures, such as recording a telephone redemption request or
making inquiries of information which should only be known to the shareholder
and the Trust, to confirm that instructions communicated by telephone or in
writing are genuine. If reasonable procedures are followed by the Trust, it will
not be liable for losses due to unauthorized or fraudulent telephone
instructions. The Securities and Exchange Commission is currently considering
the propriety of the requirement of indemnification and hold harmless
provisions.
By Telephone
In Lexington (606) 254-7741
Toll Free National Number (800) 866-0614
In North Carolina (800) 284-2562
All accounts will automatically receive telephone redemption privileges unless
indicated otherwise on the initial application form. We will mail or wire the
money only to the address or bank account previously filed with us. Changes to
any redemption instructions must be made in writing and signed by all owners.
The telephone cannot be used to redeem shares for which you hold certificates of
beneficial interest or which were purchased by mail within the past 30 days.
By Mail
You must send us a written request for redemption, signed by each registered
holder exactly as the shares are registered along with (if applicable):
* Any certificates of beneficial interest
* Documents required by Corporations, Executors, Administrators, Trustees
and Guardians.
By Check
Shareholders of each of the Short-to-Medium Series, and the Intermediate
Government Bond Series may redeem shares by check. In order to arrange for
redemption by check, a check writing privilege form must be completed or call us
at the phone number on the back cover. Checks may not be used to close an
account. Checks may not be presented for payment over-the-counter at the
clearing bank.
Daily
Check limits Minimum Maximum CHECKING WRITING CHARGES
KY Short-to-Medium Series $500.00 $25,000 Share Redemption: NONE
NC Short-to-Medium Series $500.00 $25,000 Checks: NONE
TN Short-to-Medium Series $500.00 $25,000 Insufficient Funds: $17.00
Government Bond Series $500.00 none Stop Payment: $9.00
Payment of Redemption Proceeds
The Transfer Agent will normally mail a check or wire redemption proceeds the
business day following the receipt of necessary documents in required form. In
order to receive proceeds by wire the redeeming amount must be at least $500.00.
If the Custodian imposes a wire charge upon the Transfer Agent, the Transfer
Agent may deduct the wire charge from the proceeds. If charged, the current
amount of the charge would be $10.00. Your own bank may impose a wire charge on
your account to which the funds are wired.
<PAGE> 23
We reserve the right on all redemptions, including redemptions by writing a
check in any of the Short-to-Medium Series or Intermediate Government Bond
Series, to delay payment seven days if to do otherwise would negatively affect
existing shareholders.
Shares redeemed to close an account will earn dividends through the date of
redemption. In addition to the redemption proceeds, redeeming shareholders will
receive dividends declared but unpaid. If you redeem only a portion of your
shares, you will receive all dividends declared and unpaid on all your shares on
the next dividend payment date.
Redemption Price
The redemption price of shares redeemed will be their net asset value per share
as calculated in the first determination of net asset value after the Trust has
received all necessary documents in the form it requires.
Suspension of Redemption
We may suspend the right of redemption or postpone payment for more than seven
days for any period during which the New York Stock Exchange is closed, or the
Securities and Exchange Commission determines that trading on the Exchange is
restricted, or when there is an emergency as determined by the Commission as a
result of which it is not reasonably practicable for us to dispose of our
securities, or for such other period as the Commission may by order permit for
the protection of our shareholders.
Redemption by Trust
If your account balance falls below $100 as a result of shareholder redemption
and not simply market valuation change, we may redeem your shares and close out
your account. We will give you notice no earlier than the 15th of the month
following the month in which your account falls below $100, and you will have 30
days from the date of the notice to bring the account up to $100 before we take
any action.
Transfer and Exchange of Shares
You may transfer your shares to another owner. You may exchange shares between
series offered in your state of residence without sales charge at the next
determination of net asset value; however, the Trust reserves the right to
reject any exchange in excess of $50,000 and to modify or terminate the exchange
privilege at any time only upon sixty (60) days written notice. An exchange is
treated for federal tax purposes as a redemption and purchase of shares and may
result in the realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged. No representation is made as to the
deductibility of any such loss. The Transfer Agent will provide you with
information about the documents required.
Withdrawal Plan
You may withdraw fixed or variable amounts from your account at regular
intervals. Once begun, a withdrawal plan may be discontinued at any time without
penalty.
Inactive Accounts
If your Account is inactive (i.e., you do not make any deposits or withdrawals)
and you have not otherwise communicated with us about your Account for the
period provided by law, we will be required to transfer the balance of your
Account as "abandoned property" to the appropriate state authority.
DIVIDENDS
Generally, we declare dividends separately for each series each business day.
The Kentucky, North Carolina and Tennessee Income Series pay such dividends as
of the last business day of each quarter. The Kentucky, North Carolina and
Tennessee Short-to-Medium Series and the Intermediate Government Bond Series pay
such dividends as of the last business day of each month. If no other business
day(s) intervenes between a weekend or holiday on which the New York Stock
Exchange is closed, then dividends will be paid on the second to last business
day of the quarter (Income Series) or month (Short-to-Medium Series and
Intermediate Government Bond Series).
<PAGE> 24
The Trustees have the authority to change dividend payment dates. Net investment
income consists of all interest income accrued on portfolio securities less all
expenses. Capital gains, if any, will normally be distributed between October 31
and January 31 in order to comply with federal income tax regulations. See
Statement of Additional Information. Income dividends and capital gains
distributions will be paid in additional shares by credit to the shareholder's
account or in cash at the shareholder's election. Any such election remains in
effect until the Transfer Agent receives written notice terminating the election
at least three days before the payment date of a dividend or distribution. The
available elections are indicated on the new account application form.
TAXES
Each series of the Trust has qualified as a "regulated investment company" (RIC)
under the Internal Revenue Code. Accordingly, we must distribute at least 90% of
our net income earned in any year. Ordinarily, the dividends we pay our
shareholders of the Municipal Bond series will be exempt interest dividends
which will be excludable from gross income for federal and state income tax
purposes. Dividends and distributions paid on the Government Bond Series
generally will be subject to federal and state income tax. Distributions of
income from investments in non-municipal securities or net short-term capital
gains or net long-term capital gains exceeding our capital loss carry forwards
(if any) will be taxable as more fully described in the "Statement of Additional
Information." Ad valorem tax may be imposed in some states.
You should consult your tax adviser about the effects of investments in the
Trust and recognize that the tax laws of the several states afford different tax
treatment to their residents.
PERFORMANCE CALCULATIONS
All yield figures are based on historical earnings and are not intended to
indicate future performance.
Average annual total returns are calculated for specified periods by finding
average annual compounded rates of return that will equate the initial
investment to the redeemable amount of the investment at the end of each period,
assuming the reinvestment of all dividends and other distributions and taking
into account all recurring and nonrecurring expenses. Total return may be
expressed either as a percentage or as a dollar amount.
Yield quotations are based on a 30 day period in accordance with S.E.C.
computation formulas as more fully described in the Statement of Additional
Information.
Taxable equivalent yield is the yield that an investor would have to earn from
fully taxable investments, before the investor had paid federal and any
applicable state income and ad valorem taxes, in order to equal a tax-free
yield.
Fund Performance
The Annual Report of Dupree Mutual Funds contains a discussion and graphs
reflecting the performance of its series during the most recently completed
fiscal year. A copy of the Annual Report may be obtained by writing or calling
us at the numbers listed on the back cover. Performance may also by judged by
comparing the series' performance to other mutual funds with comparable
investment objectives through various mutual fund or market indices or rankings
such as those provided by Barrons, Forbes, Fortune, Money Magazine and
Morningstar. Periodically, information from these publications may be included
in advertisements, sales literature and reports to shareholders.
<PAGE> 25
HOW TO REACH US
DUPREE MUTUAL FUNDS
P.O. Box 1149
Lexington, KY 40589-1149
PHONE
(606) 254-7741
(800) 866-0614
INVESTMENT ADVISER
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Dupree & Company, Inc.
P.O. Box 1149
Lexington, Kentucky 40589-1149
CUSTODIAN
Star Bank
425 Walnut Street, ML 6118
P.O. Box 1118
Cincinnati, Ohio 45201-118
INDEPENDENT AUDITORS
Ernst & Young, LLP
1300 Chiquita Center
Cincinnati, OH 45202
LEGAL COUNSEL
Darsie & Elste
P.O. Box 22219
Lexington, KY 40522
This prospectus omits certain information contained in the registration
statement filed with the Securities and Exchange Commission. Items of
information which are thus omitted may be obtained from the Securities and
Exchange Commission upon payment of the fee prescribed by the Rules and
Regulations of the Commission.
DUPREE MUTUAL FUNDS
A No-Load Fund
Prospectus, November 1, 1997
<PAGE> 26
DUPREE MUTUAL FUNDS
P.O. Box 1149, Lexington, Kentucky 40589-1149
In Lexington Call: 254-7741
Call Toll-Free: 1-800-866-0614
This Statement of Additional Information is not a Prospectus and should be read
in conjunction with the Trust's Prospectus dated November 1, 1997. A Prospectus
may be obtained, without charge, by calling or writing the Trust at the above
telephone number or address.
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1997
<PAGE> 27
DUPREE MUTUAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1997
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................................ 1
INVESTMENT OBJECTIVES AND POLICIES......................................... 1
Portfolio Turnover..................................................... 6
Investment Restrictions................................................ 8
NON-FUNDAMENTAL RESTRICTIONS............................................... 11
INVESTMENT ADVISER AND OTHER SERVICES...................................... 12
(See "Management of the Trust" in Prospectus)
OFFICERS AND TRUSTEES...................................................... 14
(See "Management of the Trust" in Prospectus)
PORTFOLIO TRANSACTIONS..................................................... 16
SHARES OF BENEFICIAL INTEREST.............................................. 17
(See "Organization of the Trust" in Prospectus)
HOW TO PURCHASE SHARES..................................................... 17
(See "Buying Shares" in Prospectus)
HOW TO REDEEM SHARES....................................................... 18
(See "Selling Shares" in Prospectus)
HOW WE COMPUTE OUR YIELDS.................................................. 18
TAX INFORMATION............................................................ 21
(See "Dividends" and "Taxes" in Prospectus)
FINANCIAL STATEMENTS....................................................... 26
NOTES TO FINANCIAL STATEMENTS.............................................. 63
REPORT OF INDEPENDENT AUDITORS............................................. 71
This Statement of Additional Information is not a Prospectus and should be read
in conjunction with the Trust's Prospectus dated November 1, 1997. A Prospectus
may be obtained, without charge, by calling or writing the Trust listed on the
back cover.
<PAGE> 28
GENERAL INFORMATION AND HISTORY
Dupree Mutual Funds is a no-load mutual fund that offers shares in separate
investment series to the public. We have been in continuous operation since
1979, first as the Kentucky Tax-Free Income Fund, Inc. and in our current form
since 1987. We were organized as a Kentucky Business Trust on July 1, 1987 as
the successor to the fund organized in 1979. We currently offer no-load mutual
fund shares in seven series that invest in professionally-managed bond
portfolios. Our Investment Adviser for each series of shares is Dupree &
Company, Inc. Dupree & Company is a Lexington, Kentucky firm with more than 50
years experience in managing, underwriting and trading Kentucky municipal
securities.
INVESTMENT OBJECTIVES AND POLICIES
As stated in our Prospectus, our investment objective for each of our seven
series is to realize the highest level of income available, as determined by a
shareholder's state of residence, without undue risk to principal. Six of the
seven series we offer invest in professionally-managed bond portfolios
consisting of municipal securities issued in a single state. These series (with
only minor exceptions) invest in municipal securities from Kentucky, North
Carolina or Tennessee in order to provide interest income exempt from federal
income tax, and in the states where our shares are offered, from state income
tax as well. Investors should consult our Prospectus for a description of the
investment objectives of each series and the manner in which each series seeks
to achieve its objectives.
We have established a number of investment policies and restrictions to help
ensure that the investments of each series are consistent with its investment
goals. Certain of these policies are deemed "fundamental", meaning that they are
subject to change only upon approval by the holders of a majority of shares of
the affected series. "Non-fundamental policies" may be changed without a vote of
the shareholders. The fundamental policies of each of the series are set forth
below and in the "Investment Restrictions" section which follows. As used in the
Prospectus and this Statement of Additional Information, with respect to any
matter requiring shareholder approval, whether it be shareholder approval within
an affected series or the shareholders of the Trust, the phrase "majority of our
shares" means the vote at a meeting of (i) 67% or more of the shares present or
represented, if the holders of more than 50% of the outstanding shares of the
affected series are present in person or represented by proxy, or (ii) more than
50% of the outstanding shares of the affected series, whichever is less.
KENTUCKY TAX-FREE INCOME SERIES
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
NORTH CAROLINA TAX-FREE INCOME SERIES
NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
TENNESSEE TAX-FREE INCOME SERIES
TENNESSEE TAX-FREE SHORT-TO MEDIUM SERIES
As stated in our Prospectus, the investment objective our six municipal bond
series is to realize the highest level of tax-exempt income, available as
determined by a shareholder's state of residence, without undue risk to
principal. In general, interest income derived from municipal securities is
exempt from federal income tax and, for residents of the states in which we
offer shares, from state income tax as well. Accordingly, as a matter of
fundamental policy, these series invest in tax-exempt issues from a single
state, one of either Kentucky, North Carolina or Tennessee, in order to maximize
the tax exemption available to shareholders in the states where are our shares
are offered. The only exception to this policy is that, when abnormal market
conditions warrant doing so, we may from time to time invest in taxable
securities on a temporary basis. Investors should consult our Prospectus and the
"Tax Information" section which follows for a more complete discussion of the
tax consequences of these investment policies. The Kentucky Tax-Free Income
Series and the Tennessee Tax-Free Income Series maintain diversified portfolios,
while the Kentucky Tax-Free Short-to-Medium Series,
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<PAGE> 29
the North Carolina Tax-Free Income Series, the North Carolina Tax-Free
Short-to-Medium Series, and the Tennessee Tax-Free Short-to-Medium Series
maintain non-diversified portfolios.
At least 80% of the Kentucky, North Carolina or Tennessee municipal securities
we purchase must be municipal bonds within the four highest grades assigned by
Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"); or municipal notes rated at the time of purchase within the three
highest grades assigned by Moody's; or Kentucky, North Carolina or Tennessee
municipal bonds and notes not rated by Moody's or S&P within the grades
specified above, but secured by the full faith and credit of the United States
government. A description of the general characteristics of the municipal
securities qualifying for the Moody's and S&P ratings specified above and in the
Prospectus follows.
No more than 20% of the value of our total assets in each of the Kentucky
Series, the North Carolina Series or the Tennessee Series will be invested in
securities which are not rated, but which, in the opinion of our Investment
Adviser, would have been rated at the grades indicated above if the issuers had
sought a rating at the time of issuance. Issuers do not always secure ratings
for reasons of cost, or when ratings are not needed to effectuate the sale. No
special or particular risk is associated solely with unrated securities.
The ratings described below reflect the opinions of Moody's and S&P as to the
quality of the municipal securities they undertake to rate. As such, the ratings
represent broad guidelines rather than absolute standards of quality. You should
also bear in mind that Moody's and S&P usually rate an issue of municipal
securities at the time it is first offered to the public, and that, once issued,
a rating is seldom updated unless and until the municipal issuer makes a further
offering of its securities. Our Investment Adviser will make its own evaluation
of each security it selects for our portfolios and will continue to evaluate
each portfolio security so long as we hold it.
RATINGS OF MUNICIPAL BONDS
MOODY'S INVESTORS SERVICE, INC. Aaa: the "best quality." Aa: "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat larger than Aaa rated municipal bonds. A: "upper medium grade
obligations." Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment some time in the future. Baa: "Medium grade," neither highly
protected, nor poorly secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time.
STANDARD & POOR'S CORPORATION. AAA: "obligations of the highest quality," AA:
issues with investment characteristics "only slightly less marked than those of
prime quality issues." A: "the third strongest capacity for payment of debt
service." Principal and interest payments on bonds in this category are regarded
as safe. It differs from the two higher ratings because, with respect to general
obligation bonds, there is some weakness which, under certain adverse
circumstances, might impair the ability of the issuer to meet debt obligations
at some future date. With respect to revenue bonds, debt service coverage is
good, but not exceptional, and stability of the pledged revenues could show some
variations because of increased competition or economic influences in revenues.
BBB: the lowest "investment grade" security rating. The difference between A and
BBB ratings is that the latter shows more than one fundamental weakness, or one
very substantial fundamental weakness. With respect to revenue bonds, debt
coverage is only fair. Stability of the pledged revenues could show substantial
variations, with the revenue flow possibly being subject to erosion over time.
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<PAGE> 30
RATINGS OF MUNICIPAL NOTES
MOODY'S INVESTORS SERVICE, INC. MIG 1: the best quality. MIG 2: high quality,
with margins of protection ample although not so large as in the preceding
group. MIG 3: favorable quality, with all security elements accounted for, but
lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
KENTUCKY MUNICIPAL SECURITIES
Kentucky municipal securities are obligations issued by the state of Kentucky,
its political subdivisions, and the districts, authorities, agencies and
instrumentalities of the state and its political subdivisions, the interest on
which is exempt from federal and Kentucky income taxes.
Kentucky municipal bonds are issued for various public purposes, including the
construction of airports, highways, housing, hospitals, pollution abatement
facilities, schools, streets, water and sewer works, gas and electric utilities
and university buildings. Municipal issuers in Kentucky can issue bonds for the
purposes of refunding outstanding obligations, obtaining funds to finance other
public institutions and meeting general operating expenses. Industrial building
revenue bonds, which are considered municipal bonds if the interest paid thereon
is exempt from federal and Kentucky income taxes, are issued by or on behalf of
public authorities to finance construction of privately operated facilities,
such as manufacturing plants, housing, sports arenas and pollution control
installations. Our investments in Kentucky industrial building revenue bonds are
subject to the restrictions set forth in Paragraph 10 of the "Investment
Restrictions."
There are five general types of Kentucky municipal bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, honor, credit and/or
taxing power for the payment of principal and interest. Apart from those issued
by the state of Kentucky, general obligation bonds are relatively rare since
they must be authorized by a two-thirds vote of the electorate of the municipal
issuer. Revenue bonds are payable from and secured by a particular revenue
stream, such as lease rentals, utility usage and connection charges, student
registration or housing fees, bridge or highway tolls, parking fees, sports
event gate receipts, etc. Although industrial building revenue bonds are issued
by municipal authorities, they are secured by revenues derived from a lease
rental contract with a non-governmental user. Some revenue bonds, including
industrial building revenue bonds, are secured by a mortgage on the rental
property. Improvement assessment bonds are obligations secured by a special
assessment (e.g. a sewer charge) that the governmental issuer imposes on each
owner of property benefited by the improvement (e.g. a sanitary sewer project).
The assessments are similar to taxes and have a priority which is similar to a
tax lien. Refunded or defeased bonds are secured by an escrow fund, which
usually is invested in United States government securities and occasionally in
bank certificates of deposit or similar instruments. Housing bonds, including
Kentucky Housing Corporation bonds, are usually secured by mortgages that the
issuer acquires and pledges for the payment of the bonds. Local housing
authorities sometimes issue bonds that are secured by rentals from the operation
of a housing project. Housing bonds may also have additional security in the
form of federal guarantees of the mortgages or rentals constituting the primary
security.
Because of constitutional limitations, the state of Kentucky cannot enter into a
financial obligation of more than two years' duration, and no other municipal
issuer within the state can enter into a financial obligation of more than one
year's duration. As a consequence, the payment and security arrangements
applicable to Kentucky revenue bonds differ significantly from those generally
applicable to municipal revenue bonds in other states. Many city and county
construction projects are financed through bonds which are nominally issued in
the name of a public corporation which holds title to the project and leases the
project back to the city or county on a year-to-year renewable basis. In this
situation, the rent that the nominal issuer receives from the actual user of the
property financed by the bonds is the only source of any security for the
payment of the bonds, so that a failure by the user to renew the lease in any
year will put the bonds into default.
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<PAGE> 31
At times, we may purchase Kentucky municipal securities when a new issue is
being offered in an underwriting, at which time the securities are offered on a
"when-issued" basis, meaning that the delivery date is unknown. This means we
would commit to purchase the securities at an agreed price to be paid at the
time of delivery, usually in 30 to 45 days. During the period prior to delivery,
we will not have paid for the securities and will not receive interest on them.
There is a slight risk that such securities will not be delivered. It is also
possible that by the delivery date, due to changing market conditions, the
market value of the securities will be higher or lower than the price we have
committed to pay. We do not intend to make when-issued purchase commitments for
speculative purposes, but only to accomplish our investment objective.
Therefore, when we commit to purchase securities on a when-issued basis, we will
identify designated, readily marketable assets at least equal to the amount of
the purchase to pay for the commitment. During any such period in which assets
are identified to meet a "when-issued" purchase commitment, we will ordinarily
sell other assets not so identified if sales are necessary to meet shareholder
redemption requests. In the unlikely event that it becomes necessary for us to
sell when-issued securities before delivery, any resulting gain or loss would
not be tax-exempt.
Unlike other types of investments, municipal securities traditionally have not
been subject to registration with, or other regulation by, the Securities and
Exchange Commission. However, there have been proposals which could lead to
future regulation of these securities by the Commission.
NORTH CAROLINA MUNICIPAL SECURITIES
North Carolina municipal securities are obligations issued by the state of North
Carolina, its political subdivisions, and the districts, authorities, agencies
and instrumentalities of the state and its political subdivisions, the interest
on which is exempt from federal and North Carolina income taxes.
North Carolina municipal bonds are issued for various public purposes, including
the construction of airports, highways, housing, hospitals, pollution abatement
facilities, schools, streets, water and sewer works, gas and electric utilities
and university buildings. Municipal issuers in North Carolina can issue bonds
for the purposes of refunding outstanding obligations, obtaining funds to
finance other public institutions and meeting general operating expenses.
Industrial building revenue bonds, which are considered municipal bonds if the
interest paid thereon is exempt from federal income and North Carolina income
taxes, are issued by or on behalf of public authorities to finance construction
of privately operated facilities, such as manufacturing plants, housing, sports
arenas and pollution control installations. Our investments in North Carolina
building revenue bonds are subject to the restrictions set forth in Paragraph 10
of the "Investment Restrictions."
There are five general types of North Carolina municipal bonds. General
obligation bonds are secured by the issuer's pledge of its faith and credit
(taxing power) for the payment of principal and interest. Revenue bonds are
payable from and secured by a particular revenue stream, such as lease rentals,
utility usage and connection charges, student registration or housing fees,
parking fees, sports event gate receipts, etc. Although industrial development
revenue bonds are issued by municipal authorities, they are secured by revenues
derived from a lease rental contract or loan agreement with a non-governmental
user. Some revenue bonds, including industrial development revenue bonds, are
secured by a mortgage on the property financed. Refunded or defeased bonds are
secured by an escrow fund, which usually is invested in United States government
securities and occasionally in bank certificates of deposit or similar
instruments. Housing bonds, including North Carolina Housing Finance Agency
bonds, are usually secured by mortgages that the issuer acquires
and pledges for the payment of the bonds. Local housing authorities sometimes
issue bonds that are secured by rentals from the operation of a housing project.
Housing bonds may also have additional security in the form of federal
guarantees of the mortgages or rentals constituting the primary security.
Certificates Of Participation ("COP's") are payable from a stream of revenues
generated by an installment financing contract or lease. This contract or lease
is between the North Carolina local government and the issuer, which is usually
a nonprofit corporation that is a financing instrumentality of the local
government. COP's are only secured by a
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<PAGE> 32
lien or mortgage on the property being acquired or leased. The local
government's taxing power is not pledged to the repayment of the COP's and no
deficiency judgment may be rendered against a local government for repayment of
the COP's. Payments on COP's by the local government are subject to the annual
appropriation process of the local government. Some COP's may also be secured
with financial guarantee insurance, a letter of credit or other credit
enhancement.
At times, we may purchase North Carolina municipal securities when a new issue
is being offered in an underwriting, at which time the securities are offered on
a "when-issued" basis, meaning that the delivery date is unknown. This means we
would commit to purchase the securities at an agreed price to be paid at the
time of delivery, usually in 30 to 45 days. During the period prior to delivery,
we will not have paid for the securities and will not receive interest on them.
There is a slight risk that such securities will not be delivered. It is also
possible that by the delivery date, due to changing market conditions, the
market value of the securities will be higher or lower than the price we have
committed to pay. We do not intend to make when-issued purchase commitments for
speculative purposes, but only to accomplish our investment objective.
Therefore, when we commit to purchase securities on a when-issued basis, we will
identify designated, readily marketable assets at least equal to the amount of
the purchase to pay for the commitment. During any such period in which assets
are identified to meet a "when-issued" purchase commitment, we will ordinarily
sell other assets not so identified if sales are necessary to meet shareholder
redemption requests. In the unlikely event that it becomes necessary for us to
sell when-issued securities before delivery, any resulting gain or loss would
not be tax-exempt.
Unlike other types of investments, municipal securities traditionally have not
been subject to registration with, or other regulation by, the Securities and
Exchange Commission. However, there have been proposals which could lead to
future regulation of these securities by the Commission.
TENNESSEE MUNICIPAL SECURITIES
Tennessee municipal securities are obligations issued by the state of Tennessee,
its political subdivisions, and the districts, authorities, agencies and
instrumentalities of the state and its political subdivisions, the interest on
which is exempt from federal and Tennessee Hall income taxes.
Tennessee municipal bonds are issued for various public purposes, including the
construction of airports, highways, housing, hospitals, pollution abatement
facilities, schools, streets, water and sewer works, gas and electric utilities
and university buildings. Municipal issuers in Tennessee can issue bonds for the
purposes of refunding outstanding obligations, obtaining funds to finance other
public institutions and meeting general operating expenses. Industrial building
revenue bonds, which are considered municipal bonds if the interest paid thereon
is exempt from federal income and Tennessee Hall income taxes, are issued by or
on behalf of public authorities to finance construction of privately operated
facilities, such as manufacturing plants, housing, sports arenas and pollution
control installations. Our investments in Tennessee industrial building revenue
bonds are subject to the restrictions set forth in Paragraph 10 of the
"Investment Restrictions."
There are six general types of Tennessee municipal bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, honor, credit and/or
taxing power for the payment of principal and interest. Revenue bonds are
payable from and secured by a particular revenue stream, such as lease rentals,
utility usage and connection charges, student registration or housing fees,
bridge tolls, parking fees, sports event gate receipts, etc. Although industrial
building revenue bonds are issued by municipal authorities, they are secured by
revenues derived from a lease rental contract with a non-governmental user. Some
revenue bonds, including industrial building revenue bonds, are secured by a
mortgage on the rental property. Refunded or defeased bonds are secured by an
escrow fund, which usually is invested in United States government securities
and occasionally in bank certificates of deposit or similar instruments. Housing
bonds, including Tennessee Housing Development Agency bonds, are usually secured
by mortgages that the issuer acquires
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<PAGE> 33
and pledges for the payment of the bonds. Local housing authorities sometimes
issue bonds that are secured by rentals from the operation of a housing project.
Housing bonds may also have additional security in the form of federal
guarantees of the mortgages or rentals constituting the primary security.
"Double Barrel Bonds" are primarily water and sewer issues for which the
revenues are the primary source of debt service, but with taxes as the unlimited
secondary source. Improvement Assessment bonds are obligations secured by a
special assessment (e.g. a sewer charge) that the government issuer imposes on
each owner of property benefited by the improvement (e.g. a sanitary sewer
project). The assessments are similar to taxes and have a priority which is
similar to a tax lien.
At times, we may purchase Tennessee municipal securities when a new issue is
being offered in an underwriting, at which time the securities are offered on a
"when-issued" basis, meaning that the delivery date is unknown. This means we
would commit to purchase the securities at an agreed price to be paid at the
time of delivery, usually in 30 to 45 days. During the period prior to delivery,
we will not have paid for the securities and will not receive interest on them.
There is a slight risk that such securities will not be delivered. It is also
possible that by the delivery date, due to changing market conditions, the
market value of the securities will be higher or lower than the price we have
committed to pay. We do not intend to make when-issued purchase commitments for
speculative purposes, but only to accomplish our investment objective.
Therefore, when we commit to purchase securities on a when-issued basis, we will
identify designated, readily marketable assets at least equal to the amount of
the purchase to pay for the commitment. During any such period in which assets
are identified to meet a "when-issued" purchase commitment, we will ordinarily
sell other assets not so identified if sales are necessary to meet shareholder
redemption requests. In the unlikely event that it becomes necessary for us to
sell when-issued securities before delivery, any resulting gain or loss would
not be tax-exempt.
Unlike other types of investments, municipal securities traditionally have not
been subject to registration with, or other regulation by, the Securities and
Exchange Commission. However, there have been proposals which could lead to
future regulation of these securities by the Commission.
INTERMEDIATE GOVERNMENT BOND SERIES
As stated in our Prospectus, our investment objective for this series is to
realize the highest level of income available without undue risk to principal by
investing in a portfolio consisting of: 1) bonds issued by the U.S. Government
such as U.S. Treasury Notes and Bills; 2) bonds issued by agencies or
instrumentalities of the U.S. Government such as obligations of the Federal Farm
Credit Banks, the Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Bank; 3) bank accounts fully
insured by the FDIC or collateralized by federal government or federal agency
bonds; and 4) repurchase agreements fully collateralized by issues of the U.S.
Government or its agencies. The Intermediate Government Bond Series will
maintain a non-diversified portfolio as described in our Prospectus and in the
"Investment Restrictions" section below.
PORTFOLIO TURNOVER
Portfolio turnover is defined to be the lesser of purchases or sales divided by
the average monthly value of the portfolio. The portfolio turnover rate is
expressed as a percentage ratio calculated by taking the lesser of sales or
purchases of securities as the numerator and dividing by the average monthly
value of the entire portfolio, excluding short term investments from both the
numerator and denominator. Portfolio turnover for each of the series offered
will vary depending on a number of factors, including net capital flows into or
out of each series, our investment strategy, and market conditions.
Portfolio turnover rate may influence a series' yield under certain conditions.
In periods of declining interest rates, the series' yield will tend to be
somewhat higher than prevailing market rates, and in periods of rising
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<PAGE> 34
interest rates, the yield of the series will tend to be somewhat lower. Also,
when interest rates are falling, the inflow of net new money to the series from
the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the series' portfolio,
thereby reducing the current yield of the series. In periods of rising interest
rates, the opposite can be true.
KENTUCKY TAX-FREE INCOME SERIES
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
NORTH CAROLINA TAX-FREE INCOME SERIES
NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
TENNESSEE TAX-FREE INCOME SERIES
TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
We do not intend to purchase Kentucky, North Carolina or Tennessee municipal
securities for short-term profits. Securities will be purchased and sold in
response to our management's evaluation of the issuer's ability to meet its debt
obligations in the future. However, a security purchased at any earlier date may
be sold in anticipation of a market decline (a rise in interest rates), and a
security purchased in anticipation of a market rise (a decline in interest
rates) may be sold at any later date. In addition, a security may be sold and
another purchased when, in the opinion of our management, a favorable yield
spread exists between those particular issuers or in different market sectors.
Finally, in order to obtain an immediate yield on the cash proceeds from the
sale of our shares pending the selection and availability of a more permanent
investment, we may temporarily acquire Kentucky, North Carolina or Tennessee
municipal securities under informal repurchase arrangements with a bank.
Typically, under these arrangements, we would resell such securities to the
bank, and the bank would repurchase them from us, within a short period of time,
usually not more than seven days.
Based on current trends, we expect portfolio turnover in the coming year to be
similar to that of the past year for all series. At this time, we do not
anticipate any change in the investment strategy that would significantly impact
portfolio turnover rate and therefore we expect that the turnover rate for the
coming year will be influenced mainly by the net growth of each series and by
market conditions.
For the fiscal year ended June 30, 1997 the portfolio turnover rate for the
Kentucky Tax-Free Income Series was approximately 6.64%, as compared with a rate
of approximately 4.29% for the fiscal year ended June 30, 1996. Fiscal 1996-97
was a year of relatively stable turnover. Since we expect current trends to
continue, fiscal 1997-98 should be a relatively stable year as well.
For the fiscal year ended June 30, 1997, the portfolio turnover rate for the
Kentucky Tax-Free Short-to-Medium Series was approximately 20.03%, as compared
with a rate of approximately 57.80% for the fiscal year ended June 30, 1996.
Since we expect current trends to continue, fiscal 1997-98 should have a
portfolio turnover rate similar to fiscal year ended June 30, 1997.
For the fiscal year ended June 30, 1997, the portfolio turnover rate for the
Tennessee Tax-Free Income Series was approximately 5.14% as compared with a rate
of approximately 9.13% for the fiscal year ended June 30, 1996. Fiscal 1996-97
was a year of growth. If current trends continue in fiscal 1997-98 the portfolio
turnover should remain about the same.
For the fiscal year ended June 30, 1997, the portfolio turnover rate for the
Tennessee Tax-Free Short-to-Medium Series was approximately 24.49% as compared
with a rate of approximately 23.17% for fiscal year ended June 30, 1996. If
current trends continue in fiscal 1997-98 the portfolio turnover rate for the
Tennessee Tax-Free Short-to-Medium Series is expected to remain about the same.
For the fiscal year ended June 30, 1997, the portfolio turnover rate for the
North Carolina Tax-Free Income Series was approximately 24.13% as compared with
a rate of approximately 22.83% for the fiscal year ended
- 7 -
<PAGE> 35
June 30, 1996. Fiscal 1996-97 was a year of growth. If current trends continue
in fiscal 1997-98 the portfolio turnover should remain about the same.
For the fiscal year ended June 30, 1997, the portfolio turnover rate for the
North Carolina Tax-Free Short-to-Medium Series was approximately 17.20% as
compared with a rate of approximately 17.18% for fiscal year ended June 30,
1996. If current trends continue in fiscal 1997-98 the portfolio turnover rate
for the Tennessee Tax-Free Short-to-Medium Series is expected to remain about
the same.
INTERMEDIATE GOVERNMENT BOND SERIES
For the fiscal year ended June 30, 1997 the portfolio turnover rate was
approximately 40.86% as compared with a rate of approximately 33.89% for the
fiscal year ended June 30, 1996. If current trends continue in fiscal 1997-98
the portfolio turnover rate should remain about the same.
INVESTMENT RESTRICTIONS
We have adopted certain investment restrictions which may not be changed without
the approval of the holders of a majority of the shares representing the
affected series. Under these restrictions, we may not take any of the following
actions with respect to each series:
KENTUCKY AND TENNESSEE TAX-FREE INCOME SERIES
1. With respect to 75% of the value of our total assets as of the close of
each fiscal quarter, purchase the securities of any single issuer
(except the United States government, its agencies and
instrumentalities), if, as a result, more than 5% of the value of our
total assets would be invested in securities of such issuer (including
repurchase agreements with any one bank). For this purpose, the states
of Kentucky and Tennessee, each political subdivision of each state,
and each district, authority, agency or instrumentality of each state
or any of either states' political subdivisions will be deemed to be a
separate issuer.
2. Borrow money, except from banks as a temporary measure for purposes of
meeting redemption requests and/or bond purchase commitments and then
only in an amount not exceeding 5% of the value of our total assets.
3. Pledge or hypothecate any of our assets, except as security for a
permissible temporary bank borrowing (see Restriction 2), and then only
in an amount not exceeding 15% of the value of our total assets.
4. Make loans, except through the purchase of portions of issues or
publicly distributed debt securities and entry into repurchase
agreements. We will not enter into a repurchase agreement maturing in
more than seven business days, if, as a result more than 10% of the
value of our net assets would be so invested.
5. Purchase securities subject to legal or contractual restrictions on
resale (except those imposed by repurchase agreements).
6. Underwrite the securities of other issuers, except to the extent that
our purchase of Kentucky and Tennessee municipal securities directly
from the issuer (either alone or as one of a group of bidders) may be
deemed to be an underwriting of such securities.
- 8 -
<PAGE> 36
7. Purchase or sell real estate or real estate mortgage loans, but this
limitation will not prevent us from purchasing Kentucky and Tennessee
municipal securities or other securities secured by real estate or
interest in real estate.
8. Purchase or sell commodities or commodity contracts.
9. Purchase equity securities or securities convertible into equity
securities.
10. Purchase any security, if, as a result, more than 25% of the value of
our total assets would be invested in the securities of issuers having
their principal business activities in the same industry. This
limitation would preclude us from investing more than 25% of the value
of our total assets in industrial building revenue bonds issued to
finance facilities for non-governmental issuers in any one industry.
However, the limitation does not apply to any other tax exempt
municipal securities, to securities issued or guaranteed by the United
States government or any of its agencies or instrumentalities.
11. Invest in companies for the purpose of exercising management or
control.
12. Invest in securities of other investment companies, except where such
investment results from a merger or consolidation with, or an
acquisition of assets of, another investment company.
13. Make short sales of securities.
14. Purchase securities on margin, except that we may obtain such short
term credit as may be necessary for the clearance of securities
purchases.
15. Write or invest in put or call options, or any combination thereof.
16. Issue senior securities.
KENTUCKY, NORTH CAROLINA AND TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES, AND
NORTH CAROLINA TAX-FREE INCOME SERIES
1. With respect to 50% of the value of our total assets as of the close of
each fiscal quarter, purchase the securities of any single issuer
(except the United States government, its agencies and
instrumentalities), if, as a result, more than 5% of the value of our
total assets would be invested in securities of such issuer (including
repurchase agreements with any one bank). For this purpose, the states
of Kentucky, North Carolina and Tennessee, each political subdivision
of the state, and each district, authority, agency or instrumentality
of the state or any of its political subdivisions will be deemed to be
a separate issuer.
2. Borrow money, except from banks as a temporary measure for purposes of
meeting redemption requests and/or bond purchase commitments and then
only in an amount not exceeding 5% of the value of our total assets.
3. Pledge or hypothecate any of our assets, except as security for a
permissible temporary bank borrowing (see Restriction 2), and then only
in an amount not exceeding 15% of the value of our total assets.
- 9 -
<PAGE> 37
4. Make loans, except through the purchase of portions of issues or
publicly distributed debt securities and entry into repurchase
agreements. We will not enter into a repurchase agreement maturing in
more than seven days, if, as a result, more than 10% of the value of
our total assets would be so invested.
5. Purchase securities subject to legal or contractual restrictions on
resale (except those imposed by repurchase agreements).
6. Underwrite the securities of other issuers, except to the extent that
our purchase of Kentucky, North Carolina and Tennessee municipal
securities directly from the issuer (either alone or as one of a group
of bidders) may be deemed to be an underwriting of such securities.
7. Purchase or sell real estate or real estate mortgage loans, but this
limitation will not prevent us from purchasing Kentucky, North Carolina
and Tennessee municipal securities or other securities secured by real
estate or interest in real estate.
8. Purchase or sell commodities or commodity contracts.
9. Purchase equity securities or securities convertible into equity
securities.
10. Purchase any security, if, as a result as of the close of each fiscal
quarter more than 25% of the value of our total assets would be
invested in the securities of issuers having their principal business
activities in the same industry. This limitation would preclude us from
investing more than 25% of the value of our total assets in industrial
building revenue bonds issued to finance facilities for
non-governmental issuers in any one industry. However, the limitation
does not apply to any other municipal securities, to securities issued
or guaranteed by the United States government or any of its agencies or
instrumentalities.
11. Invest in companies for the purpose of exercising management or
control.
12. Invest in securities of other investment companies, except where such
investment results from a merger or consolidation with, or an
acquisition of assets of, another investment company.
13. Make short sales of securities.
14. Purchase securities on margin, except that we may obtain such short
term credit as may be necessary for the clearance of securities
purchases.
15. Write or invest in put or call options, or any combination thereof.
16. Issue senior securities.
INTERMEDIATE GOVERNMENT BOND SERIES
1. With respect to 50% of the value of our total assets as of the close of
each fiscal quarter, purchase the securities of any single issuer
(except the United States government, its agencies and
instrumentalities), if, as a result, more than 5% of the value of our
total assets would be invested in securities of such issuer (including
repurchase agreements with any one bank or brokerage firm).
- 10 -
<PAGE> 38
2. Borrow money, except from banks as a temporary measure for purposes of
meeting redemption requests and/or bond purchase commitments and then
only in an amount not exceeding 5% of the value of our total assets.
3. Pledge or hypothecate any of our assets, except as security for a
permissible temporary bank borrowing (see Restriction 2), and then only
in an amount not exceeding 15% of the value of our total assets.
4. Make loans, except through the purchase of portions of issues or
publicly distributed debt securities and entry into repurchase
agreements. We will not enter into a repurchase agreement maturing in
more than seven days, if, as a result, more than 10% of the value of
our total assets would be so invested.
5. Purchase securities subject to legal or contractual restrictions on
resale (except those imposed by repurchase agreements).
6. Underwrite the securities of other issuers, except to the extent that
our purchase of United States Government securities directly from the
issuer (either alone or as one of a group of bidders) may be deemed to
be an underwriting of such securities.
7. Purchase or sell real estate or real estate mortgage loans, but this
limitation will not prevent us from purchasing securities or other
securities secured by real estate or interest in real estate.
8. Purchase or sell commodities or commodity contracts.
9. Purchase equity securities or securities convertible into equity
securities.
10. Purchase any security, if, as a result as of the close of each fiscal
quarter more than 25% of the value of our total assets would be
invested in the securities of issuers having their principal business
activities in the same industry. The limitation does not apply to
securities issued or guaranteed by the United States government or any
of its agencies or instrumentalities.
11. Invest in companies for the purpose of exercising management or
control.
12. Invest in securities of other investment companies, except where such
investment results from a merger or consolidation with, or an
acquisition of assets of, another investment company.
13. Make short sales of securities.
14. Purchase securities on margin, except that we may obtain such short
term credit as may be necessary for the clearance of securities
purchases.
15. Write or invest in put or call options, or any combination thereof.
16. Issue senior securities.
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<PAGE> 39
NON-FUNDAMENTAL RESTRICTIONS
None of the single state series will invest in certificates of deposit or
banker's acceptances.
In accord with the requirements of the Texas securities laws, the Trust will not
invest in real estate limited partnerships, or in oil, gas and other mineral
leases, or invest more than 15% of average net assets of any series in
investments which are not readily marketable as described in Texas securities
regulations.
These restrictions are "non-fundamental" investment policies of the affected
series. As such, they may be changed by the Board of Trustees and do not require
a vote of shareholders of the affected series.
INVESTMENT ADVISER AND OTHER SERVICES
As stated in the Prospectus, our investment activities are managed by Dupree &
Company, Inc.. Thomas P. Dupree, Sr., is Chairman of the Board. He and his wife,
Clara, are the sole owners of the stock of Dupree & Company, Inc. Thomas P.
Dupree, Sr. also serves as our chief executive officer and as a member of our
Board of Directors. Fred L. Dupree, Jr., is Vice President, Secretary, Treasurer
and a director of both Dupree firms, and also holds the same offices with us.
Michelle M. Dragoo and William T. Griggs II are both Vice President with us, and
Alison L. Arnold is Assistant Vice Presidents with us.
INVESTMENT ADVISORY AGREEMENTS
Dupree & Company, Inc. serves as the Investment Adviser for each of our seven
series pursuant to separate Investment Advisory Agreements with each series.
Each agreement is dated as of November 1, 1997 and will continue in effect until
October 31, 1999 and may be continued from year to year after their defined
ending dates if such continuation is specifically approved at least annually by
our Board of Trustees at a meeting called for that purpose, or by a separate
vote of the holders of a majority of each series' shares, and, in either case,
also by vote of a majority of our Trustees who are not "interested persons" of
Dupree & Company, Inc. for us within the meaning of the Investment Company Act
of 1940. The Agreements are subject to termination by either party without
penalty on 60 days written notice to the other and terminate automatically in
the event of assignment. Dupree & Company, Inc. had served as the Investment
Adviser to Kentucky Tax-Free Income Fund, Inc. from our inception through
October 31, 1986, when Dupree Investment Advisers, Inc. began serving as the
Investment Adviser. Thereafter Dupree Investment Advisers, Inc. became the
Investment Adviser. In 1997 the two Dupree firms reorganized and the parent
firm, Dupree & Company, Inc. once again became the Investment Adviser without
any change in personnel or services.
Pursuant to the Agreements, Dupree & Company, Inc. provides us with investment
supervisory services, office space and facilities, and corporate administration.
Specifically, the Dupree firm has undertaken to obtain and evaluate relevant
information regarding the economy, industries, businesses, municipal issuers,
securities markets and securities; to formulate a continuing program for the
management of our assets in a manner consistent with our investment objectives;
and to implement this program by selecting the securities to be purchased or
sold by us and placing orders for such purchases and sales. In addition, the
Dupree firm provides for our office needs, maintains our books and records,
assumes and pays all sales and promotional expenses incurred in the distribution
of our shares out of its own resources without reimbursement from the Trust,
staffs us with persons competent to perform all of our executive and
administrative functions, supervises and coordinates the activities of our
institutional and other agents (e.g., custodian, transfer agent, independent
accountants, outside legal counsel), and permits its officers and employees to
serve us as trustees and officers, all without additional cost to us. Dupree &
Company, Inc. may contract with commercial banks or other entities to assist in
the provision of shareholder services.
Under the Agreements for each of the series, neither Dupree & Company, Inc. nor
any of its directors, officers
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<PAGE> 40
or employees performing executive or administrative functions for us will be
liable to us for any error of judgment, mistake of law or other act or omission
in connection with a matter to which the Agreements relate, unless such error,
mistake, act or omission involves willful misfeasance, bad faith, gross
negligence or reckless disregard of duty, or otherwise constitutes a breach of
fiduciary duty involving personal misconduct.
Under the terms of the Agreements for the Kentucky, North Carolina and Tennessee
Series, we have agreed to pay to Dupree & Company, Inc., as compensation for all
services rendered, facilities furnished and expenses paid or assumed by it under
the Agreements, a fee at the annual rate of .50 of 1% of the first $100,000,000
average daily net assets of each series determined separately, .45 of 1% of the
average daily net assets between $100,000,001 and $150,000,000 of each series
determined separately, and .40 of 1% of the average daily net assets in excess
of $150,000,001 of each series determined separately. For the Government Bond
Series, we have agreed to pay to Dupree & Company, Inc., as compensation for all
services rendered, facilities furnished and expenses paid or assumed by it under
the Agreement, a fee at the annual rate of .2 of 1%. The fees are payable to
Dupree & Company, Inc. in monthly installments. Dupree & Company, Inc. has
reserved the right to voluntarily subsidize any series of the Trust at its sole
option. Prior to November 1, 1986, our agreement with Dupree & Company, our
Investment Adviser at that time, required the firm to reimburse the Kentucky
Tax-Free Income Fund, Inc. amounts sufficient to keep operating expenses
(excluding interest, taxes and extraordinary expenses) from exceeding the annual
rate of .75 of 1% of average daily net asset value. During the past three fiscal
years the following fees have been paid the Investment Adviser and the following
reimbursements have been received from the Investment Adviser which at the time
was Dupree Investment Advisers, Inc.:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
6-30-97 6-30-96 6-30-95
<S> <C> <C> <C>
Kentucky Tax-Free Income Series
fees $1,375,201 $1,279,636 $1,164,516
reimbursements -0- -0- -0-
Kentucky Tax-Free Short-to-Medium Series
fees 300,340 292,588 309,977
reimbursements -0- -0- -0-
North Carolina Tax-Free Income Series
fees 10,797 1,534 -0-
reimbursements 12,274 11,229 -0-
North Carolina Tax-Free Short-to-Medium Series
fees 6,989 2,312 -0-
reimbursements 8,243 12,026 -0-
Tennessee Tax-Free Income Series
fees 51,432 33,578 11,633
reimbursements 23,339 24,095 19,037
Tennessee Tax-Free Short-to-Medium Series
fees 13,694 10,277 2,067
reimbursements 10,311 14,297 11,008
Intermediate Government Bond Series
fees 16,159 16,061 15,235
reimbursements 5,347 17,702 15,743
</TABLE>
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<PAGE> 41
Indiana and Texas limit annual expenses (exclusive of interest, taxes, brokerage
commissions and extraordinary expenses) as follows: 1.5% of the first
$30,000,000 in net assets and 1% of any additional net assets for Indiana; and
2% of the first $10,000,000 of average net assets, 1.5% of the next $20,000,000
of average net assets and 1% of the remaining average net assets for Texas.
OTHER SERVICES
Star Bank, 425 Walnut Street, ML 6118, PO Box 1118, Cincinnati, Ohio 45201-1118
serves as Custodian for the Trust. Star Bank is responsible for the safekeeping
of the assets of each series of the Trust. Star Bank presents for payment the
coupons of the municipal bonds held by it or its sub-custodians and deposits
payment to the Trust accounts.
Bank of the Bluegrass, 101 East High Street, Lexington, Kentucky 40507 assists
the Transfer Agent in the clearing of redemption checks of shareholders of the
Kentucky Tax-Free Short-to-Medium Series, North Carolina Tax-Free
Short-to-Medium Series, Tennessee Tax-Free Short-to-Medium Series and the
Intermediate Government Bond Series.
Ernst & Young LLP, 1300 Chiquita Center 250 East 5th Street, Cincinnati, Ohio
45202 serves as the independent auditors of the Trust, providing expertise in
accounting and taxation, including tax return preparation.
Dupree & Company, Inc., serves as the Transfer Agent and Dividend Paying Agent
of the Trust, collecting monies from new shareholders and paying dividends and
redemption proceeds to shareholders, in addition to maintaining books and
accounts of shareholder transactions. Each Series of the Trust has an agreement
with Dupree & Company Inc., as Transfer Agent, by the terms of which a fee is
paid computed on the average daily net asset value at the annual rate of .15% on
the first $20,000,000 and .12% on all amounts in excess of $20,000,000.
OFFICERS AND TRUSTEES
The following table sets forth information as to our officers and trustees:
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Office(s) With Us During the Past Five Years
---------------- ----------------- --------------------------
<S> <C> <C>
THOMAS P. DUPREE, SR.* President and Trustee Chairman of the Board of Dupree & Company,
125 South Mill Street Inc., President of Dupree Investment Advisers,
Vine Center, Suite 100 Inc. Director, Studio Plus Hotels, Inc.
Lexington, KY 40507
FRED L. DUPREE, JR.* Vice President, Secretary, Vice President, Secretary, Treasurer and
125 South Mill Street Treasurer and Trustee Director of Dupree & Company, Inc. and Dupree
Vine Center, Suite 100 Investment Advisers, Inc.
Lexington, KY 40507
LUCY A. BREATHITT Trustee Alexander Farms, farming; Kentucky Horse Park
1703 Fairway Drive Foundation Board; Kentucky Horse Park Museum
Lexington, KY 40502 Board, Kentucky State Nature Preserves
Commission
WILLIAM A. COMBS, JR. Trustee Secretary, Treasurer, Director, Dana Motor
111 Woodland Avenue, #510 Company, Cincinnati, OH; Secretary, Treasurer,
Lexington, KY 40502 Director, Freedom Dodge, Lexington, KY;
Secretary, Treasurer, Director, Ellerslie
Realty, Inc., Lexington, KY; Partner, Forkland
Development Company, Lexington, KY; Partner,
Lexland, Lexington, KY; Director, First Security
Bank (in organization as of 11-1-97)
</TABLE>
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<PAGE> 42
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Office(s) With Us During the Past Five Years
---------------- ----------------- --------------------------
<S> <C> <C>
ROBERT L. MADDOX Trustee Partner, Wyatt, Tarrant & Combs, Louisville, KY
2800 Citizens Plaza Attorneys; Director, Nugent Sand Company,
Louisville, KY 40202 Louisville, KY; Director, Orr Safety
Corporation, Louisville, KY,; Director,
Whip-Mix Corporation, Louisville, KY.
WILLIAM S. PATTERSON Trustee President, CEO, Cumberland Surety Co.,
367 West Short Street Lexington, KY, President, Patterson & Co.,
Lexington, KY 40507 Frankfort, KY, (real estate development,
thoroughbred horse breeding, farming)
WILLIAM T. GRIGGS, II Vice President President of Dupree & Company, Inc.
125 South Mill Street Assistant Secretary
Vine Center, Suite 100
Lexington, KY 40507
MICHELLE M. DRAGOO Vice President Vice President of Dupree & Company, Inc.
125 South Mill Street
Vine Center, Suite 100
Lexington, KY 40507
ALISON L. ARNOLD Assistant Vice President Assistant Vice President of Dupree & Company,
125 South Mill Street Inc.
Vine Center, Suite 100
Lexington, KY 40507
<FN>
* Thomas P. Dupree, Sr. and Fred L. Dupree, Jr. are "interested persons" of our Investment Adviser and of us within
the meaning of the Investment Company Act of 1940.
<CAPTION>
As of October 10, 1997 shares of the Trust were owned by our officers and trustees as shown below.
Thomas P. Fred L. Dupree, Jr. Non-Interested
Dupree, Sr. Trustees and other
officers as a group
<S> <C> <C> <C>
KENTUCKY INCOME SERIES
Number of Shares Outstanding
Percentage of Shares Outstanding
KENTUCKY SHORT-TO-MEDIUM SERIES
Number of Shares Outstanding
Percentage of Shares Outstanding
INTERMEDIATE GOVERNMENT BOND SERIES
Number of Shares Outstanding
Percentage of Shares Outstanding
</TABLE>
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<PAGE> 43
Thomas P. Dupree, Sr. and Fred L. Dupree, Jr. are brothers. Neither receives any
remuneration from us.
Each non-interested Trustee received compensation in the amount of $12,000 for
their services to us for the fiscal year ended June 30, 1997. For the current
fiscal year the four non-interested Trustees (who all serve on the audit
committee) will be entitled to fees of $12,000 each plus $1,000 for each Audit
Committee meeting attended. Two Audit Committee meetings are anticipated to be
held during fiscal year ending June 30, 1998. Executive officers of the Trust
receive no remuneration from us, but are instead paid by Dupree & Company, Inc.
PORTFOLIO TRANSACTIONS
Ordinarily, portfolio securities for each series are purchased from underwriters
at prices that include underwriting fees or from primary market makers acting as
principals and selling to us at net prices. In either case, we would not pay any
brokerage commission. Transactions placed with dealers serving as primary market
makers are executed at prices within the spread between the bid and asked prices
for the securities.
Decisions with respect to the purchase and sale of our portfolio securities,
including the allocation of principal business and portfolio brokerage, are made
by our Investment Adviser, Dupree & Company, Inc. Our Investment Adviser has
discretionary authority to implement these decisions by placing orders for the
purchase or sale of securities for our account with underwriters, dealers or
brokers selected by it for that purpose. However, Dupree & Company, Inc. will
not deal with us as principal, or as our agent, in purchasing and selling
securities for our accounts. Purchases and sales of securities for the Trust's
portfolios, as well as allocation of brokerage, are reviewed quarterly by the
Trust's Board of Trustees. Dupree & Company, Inc. on behalf of the Trust has
from time to time executed trades through Paine Webber, Inc., in which Thomas P.
Dupree, Jr. acted as the broker. Each of these trades is either an exclusive
offering or the high bid on bonds for sale. Each is reviewed by the board on an
individual basis.
Dupree & Company, Inc. has advised us that, in placing orders for the purchase
and sale of our portfolios transactions, it will seek execution at the most
favorable prices through responsible brokers, in agency transactions, at
competitive commission rates. Our investment adviser has also advised us that,
in selecting brokers to execute our portfolio transactions, it will give
consideration to such factors as the price of the security, the rate of
commission, if any, the size and difficulty of the order, the reliability,
integrity, financial conditions and general execution and operating capabilities
of competing brokers, and the brokerage and research services which they provide
to our investment adviser.
Dupree & Company, Inc. has further advised us that it does not presently intend
to award brokerage on our portfolios to brokers who charge higher commissions
because of research services they provide. However, under our Investment
Advisory Agreements with it, we have authorized the investment adviser to adopt
a brokerage allocation policy embodying the concepts of Section 28(e) of the
Securities Exchange Act of 1934. Under such a policy, a broker furnishing
research services could be paid a higher commission than the commission that
would be paid to another broker which either does not furnish research services
or furnishes research services deemed to be of lesser value, if such higher
commission is deemed to be reasonable in relation to the value of the brokerage
and research services provided by the broker charging it, either in terms of
that particular transaction or in terms of the overall responsibilities of the
investment advisor with respect to the accounts as to which it exercises
investment discretion. Research services furnished by a broker can include
evaluation of the market prices of securities in the Trust's portfolios,
evaluation of potential additions to the Trust's portfolios and credit analysis
of particular issuers of securities.
Whether and to what extent net prices or commissions charged by brokers selected
by Dupree & Company, Inc. reflect an element of value for research services
cannot presently be determined. To the extent that
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<PAGE> 44
research services of value are provided by brokers with or through which the
investment adviser places our portfolio transactions, the investment adviser may
be relieved of expenses it might otherwise bear. Research services furnished by
brokers could be useful and of value to the investment adviser in serving its
other clients as well as us; but, on the other hand, research services obtained
by the investment adviser as a result of placing portfolio brokerage of its
other clients could be useful and of value to it in serving us.
Since our shares are not sold through intermediary brokers, it is not the
practice of Dupree & Company, Inc. to allocate principal business or portfolio
brokerage on the basis of such sales. However, brokers effecting purchases of
our shares for their customers may participate in principal transactions of
brokerage allocated as described in the preceding paragraphs. The Dupree firm
has advised us that, when it purchases Kentucky municipal securities for our
portfolios in underwriting, it will seek to negotiate a purchase price
reflecting a reduction from the initial public offering price by an amount equal
to some or all of the applicable selling group concessions.
No brokerage commissions have been paid by the Trust during the three most
recent fiscal years.
SHARES OF BENEFICIAL INTEREST
Dupree Mutual Funds is a Kentucky Business Trust organized under the laws of the
Commonwealth of Kentucky on July 1, 1987. The Business Trust is the successor of
Kentucky Tax-Free Income Fund, Inc. The Trust offers shares of beneficial
interest of separate series without par value. The Trust is authorized to create
an unlimited number of new series, but at this time the Trust is offering shares
in seven series as described in the Prospectus: Kentucky Tax-Free Income Series,
Kentucky Tax-Free Short-to-Medium Series, North Carolina Tax-Free Income Series,
North Carolina Tax-Free Short-to-Medium Series, Tennessee Tax-Free Income
Series, Tennessee Tax-Free Short-to-Medium Series, and Intermediate Government
Bond Series.
Each share has one vote. Fractional shares have proportionate voting rights and
participate pro rata in dividends and distributions. Our shareholders have
cumulative voting rights for the election of Trustees. This means that, in each
election of Trustees, each shareholder has the right to cast a number of votes
equal to the number of Trustees to be elected and to cast all of such votes for
one candidate or distribute such votes among two or more candidates, as the
shareholder sees fit. When issued, our shares are fully paid and non-assessable.
As of October 10, 1997, no person was known to beneficially own 5% or more of
our outstanding shares of Kentucky Tax-Free Income Series.
WHO OWNS WHAT ABOVE 5% GOES HERE.
HOW TO PURCHASE SHARES
Shares of our Trust which are offered for sale are offered directly by the
Trust. Since we do not charge any sales commissions, every dollar you invest in
us is applied to the purchase of our shares.
The price of your shares will be their net asset value per share, as calculated
in the first determination of net asset value after your order has become
effective. Your order will be priced and executed at the net asset value next
determined after the order is received. There is no sales charge or load.
The Prospectus describes the procedures to be utilized by an investor desiring
to purchase our shares.
DETERMINATION OF NET ASSET VALUE
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<PAGE> 45
We compute the net asset value of the shares of each series separately at the
close of trading on the New York Stock Exchange each day the Exchange is open
for trading, by dividing the value of the assets of each series, minus its
liabilities, by the total number of shares of each series which are outstanding.
The New York Stock Exchange is closed on the following Holidays: New Year's Day
(January 1), Washington's Birthday (third Monday in February), Good Friday
(varies annually), Memorial Day (last Monday in May), Independence Day (July 4),
Labor Day (first Monday in September), Thanksgiving Day (fourth Thursday in
November), and Christmas Day (December 25).
The securities in which we invest are traded primarily in the over-the-counter
market. We value securities for which representative price quotations are
current and readily available at the mean between the quoted bid and asked
prices. If price quotations are not readily available, or if we believe that
available quotations are not current or representative, we value securities at
prices we believe will best reflect their fair value. In such cases, and in the
case of other assets, fair value is determined in good faith in accordance with
procedures approved in advance by our Board of Trustees, consistently applied by
or under the supervision of our officers, and monitored by the Board on an
ongoing basis.
Under procedures currently in effect, all series securities for which
representative price quotations are not readily available are valued on the
basis of appraisals obtained from at least three dealers. The dealers furnishing
such appraisals may, but need not, be market makers with respect to the
particular issues to which their appraisals relate. Where appraisals are not
available for particular Kentucky, North Carolina or Tennessee municipal
securities in our portfolios, we value such securities on the basis of price
quotations or appraisals for comparable municipal securities. In evaluating
appraisals, as well as available price quotations, our officers will take into
account pricing data derived from a matrix system developed and used for many
years by Dupree & Company, Inc. This matrix system utilizes electronic data
processing techniques to rank and price municipal securities of the same
maturity on the basis of their respective yields.
HOW TO REDEEM SHARES
The Prospectus describes the procedures to be utilized by a shareholder desiring
to redeem our shares.
REDEMPTION BY TRUST
If transactions in your account at any time reduce its value to less than $100,
we may notify you that, unless you bring the account up to at least $100, we
will redeem all of your shares and close out your account by paying you the
redemption price and dividends declared but unpaid at the date of redemption. We
will give you this notice no earlier than the 15th of the month following the
month in which your account falls below $100, and you will have 30 days to bring
the account up to $100 before we take any action. The Trust reserves the right
to raise or lower minimum account size.
HOW WE COMPUTE OUR YIELDS
The yield for each series is determined separately. We compute the yields, the
average annual total return, and tax equivalent yields on our shares in each
portfolio separately in accord with SEC guidelines.
The average annual total return for the 1, 5 and 10 year periods ended on June
30, 1997 is computed by finding the average annual compounded rates of return
over the 1, 5 and 10 year periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula: P(1+T)n =
ERV, where: P equals a hypothetical initial payment of $1,000, T equals average
annual total return, n equals number of years, and ERV equals ending redeemable
value of a hypothetical $1,000 Set forth below is average annual total return
information for the Income Series and the Short-to-Medium Series and the
Intermediate Government Bond Series for the periods indicated.
- 18 -
<PAGE> 46
<TABLE>
<CAPTION>
Expressed as a Percentage
Based on a Hypothetical
$1,000 investment
---------------------------------------
Kentucky Kentucky North North Tennessee Tennessee Intermediate
Tax-Free Tax-Free Carolina Carolina Tax-Free Tax-Free Government
Income Short-to Tax-Free Tax-Free Income Short-to Bond
Series Medium Income Short-to Series Medium Series
Series Series Medium Series
Series
---------------------------------------------------------------------------------------------------------
Period Average Annual Total Return
<S> <C> <C> <C> <C> <C> <C> <C>
One year ended 7.14% 4.59% 10.18% 5.49% 8.96% 4.83% 7.95%
June 30, 1997
Five years ended 6.78% 4.41% 7.47% 2 4.84% 3 7.00% 4 5.45% 5 6.68% 6
June 30, 1997
Ten years ended 7.80% 5.40% 1
June 30, 1997
<CAPTION>
Redeemable Value
Based on a Hypothetical $1,000
Investment at the end of the period
-------------------------------------------
Kentucky Kentucky North North Tennessee Tennessee Intermediate
Tax-Free Tax-Free Carolina Carolina Tax-Free Tax-Free Government
Income Short-to Tax-Free Tax-Free Income Short-to Bond
Series Medium Income Short-to Series Medium Series
Series Series Medium Series
Series
---------------------------------------------------------------------------------------------------------
Period
<S> <C> <C> <C> <C> <C> <C> <C>
One year ended $1,071 $1,046 $1,102 $1,055 $1,090 $1,048 $1,079
June 30, 1997
Five years ended $1,388 $1,241 $1,124 2 $1,079 3 $1,269 4 $1,152 5 $1,382 6
June 30, 1997
Ten years ended $2,119 $1,669 1
June 30, 1996
<FN>
1 since inception 9/15/87
2 since inception 11/16/95
3 since inception 11/16/95
4 since inception 12/20/93
5 since inception 11/01/94
6 since inception 7/14/92
Payments are assumed to have been made at the beginning of the one, five or ten
year periods (or fractional portion thereof).
</TABLE>
- 19 -
<PAGE> 47
The series' average annual total return may be expressed either as a percentage
or as a dollar amount in order to illustrate such total return on a hypothetical
investment in the series at the beginning of each specified period.
SEC Yield quotations will be computed based on a 30-day period by dividing (a)
the interest income based on the market yield, prescribed by the SEC, of each
security during the period (including appropriate adjustments for accretion of
original issue discounts and amortization of market premiums) reduced by period
expenses divided by b) the average daily number of shares outstanding during the
period that were entitled to receive dividends multiplied by the maximum
offering price per share on the last day of the period. Tax equivalent yield
quotations will be computed by dividing (a) the part of the Series' yield that
is tax-exempt by (b) one minus a stated tax rate and adding the result to that
part, if any, of the series' yield that is not tax-exempt. The yield for the
30-day period ending June 30, 1997 for the Kentucky Tax-Free Income Series was
4.03% and for the Kentucky Short-to-Medium Series was 2.59%. The tax-equivalent
yield for Kentucky residents for the same period (based on a tax rate of 28%)
for the Kentucky Income Series was 5.60% and for the Kentucky Short-to-Medium
Series was 3.59%. The yield for the 30-day period ending June 30, 1997 for the
North Carolina Income Series was 4.86% and for the North Carolina
Short-to-Medium Series was 3.03%. The tax-equivalent yield for North Carolina
residents for the same period (based on a tax rate of 28%) was 6.75% and for the
North Carolina Short-to-Medium Series was 4.21%. The yield for the 30-day period
ending June 30, 1997 for the Tennessee Tax-Free Income Series was 4.60% and for
the Tennessee Tax-Free Short-to-Medium Series was 2.71%. The tax-equivalent
yield for Tennessee residents for the same period (based on a tax rate of 28%)
for the Tennessee Income Series was 6.39% and for the Tennessee Tax-Free
Short-to-Medium Series was 3.76%. The yield for the 30-day period ending June
30, 1997 for the Intermediate Government Bond Series was 5.38%.
Other yield quotations will be computed based on a 30-day period by dividing (a)
the income based on the yield of each security during the period by b) the
average daily number of shares outstanding during the period that were entitled
to receive dividends multiplied by the maximum offering price per share on the
last day of the period. Tax equivalent yield quotations will be computed by
dividing (a) the part of the Series' yield that is tax-exempt by (b) one minus a
stated tax rate which combines federal and state income tax rates and adding the
result to that part, if any, of the series' yield that is not tax-exempt. The
yield for the 30-day period ending June 30, 1997 for the Kentucky Tax-Free
Income Series was 5.28% and for the Kentucky Short-to-Medium Series was 4.15%.
The tax-equivalent yield for Kentucky residents for the same period (based on a
tax rate of 28%) for the Kentucky Income Series was 8.05% and for the Kentucky
Short-to-Medium Series was 6.38%. The yield for the 30-day period ending June
30, 1997 for the North Carolina Income Series was 5.15% and for the North
Carolina Short-to-Medium Series was 3.89%. The tax-equivalent yield for North
Carolina residents for the same period (based on a tax rate of 28%) was 7.69%
and for the North Carolina Short-to-Medium Series was 5.81%. The yield for the
30-day period ending June 30, 1997 for the Tennessee Tax-Free Income Series was
5.17% and for the Tennessee Tax-Free Short-to-Medium Series was 4.03%. The
tax-equivalent yield for Tennessee residents for the same period (based on a tax
rate of 28%) for the Tennessee Income Series was 7.64% and for the Tennessee
Tax-Free Short-to-Medium Series was 5.95%.
For the Kentucky, North Carolina and Tennessee Income Series, Kentucky, North
Carolina and Tennessee Short-to-Medium Series and Intermediate Government Bond
Series, if yield is computed for a period of less than one year it is annualized
on a 360 day basis. The yields we quote in response to telephone inquiries
represent such an annualization of our yields for the preceding 30 calendar
days.
Our yields for any given period in the past should not be considered a
representation as to our yields for any future period. Since the dividends we
declare are based on income earned on portfolio securities net of expenses, any
changes in our income or expenses will directly affect our yields. The income we
earn on our portfolio securities can be expected to fluctuate as we make changes
in or additions to our portfolios. Our yields will be affected if we experience
a net inflow of new money which is invested at interest rates different
- 20 -
<PAGE> 48
from those being earned on our then-current portfolio securities. A change in
our net asset values due to fluctuations in values of our portfolio securities
will, of course, also affect our yields.
Yield information may be useful in reviewing our performance and comparing an
investment in our shares with other investment alternatives. In addition, when
comparing the yields of mutual funds, you should consider the investment
objectives, policies and programs of each fund, including the types of
investments permitted and the quality and maturity of the portfolio securities,
as well as the method used by each fund to compute yield, which may differ from
fund to fund. Finally, in evaluating our yields, you should be aware that prior
to November 1, 1986 our Investment Adviser had been bearing a portion of our
operating expenses for our Kentucky Income Series. Our Investment Adviser has
been bearing a portion of our operating expenses for our Kentucky
Short-to-Medium Series prior to July 1, 1993 and has been bearing a portion of
our operating expenses for the Government Bond Series prior to January 1, 1997,
for the Tennessee Tax-Free Income Series since its inception December 21, 1993,
for the Tennessee Tax-Free Short-to-Medium Series since its inception, November
1, 1994, for the North Carolina Income Series and for the North Carolina
Short-to-Medium Series since their inception November 16, 1995.
In order to keep shareholders and prospective investors informed about our
historic and current yields, the make-up of our portfolios, and other meaningful
investment information, we (i) send reports to our shareholders on a semi-annual
and annual basis, (ii) provide such information in our sales literature, and
(iii) maintain a toll-free telephone through which such information may be
obtained.
Total return, yield and tax equivalent yield figures are based on the series'
historical performance and are not intended to indicate future performance. The
series' total return, yield and tax equivalent yield will vary depending on
market conditions; this is reflective of the securities comprising the series'
portfolio, the series' operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Trust may fluctuate and an investors' shares, when redeemed,
may be worth more or less than their original cost.
TAX INFORMATION
FEDERAL TAX INFORMATION
We have qualified as a "regulated investment company" under the Internal Revenue
Code and intend to continue to do so. By qualifying as a regulated investment
company we are relieved of federal and Kentucky income taxes on all net income
and all net realized capital gains, if any, that we distribute to shareholders.
In order to qualify for this treatment, we must (i) derive at least 90% of our
gross income from dividends, interest and gains from the sale or other
disposition of securities, (ii) derive less than 30% of our gross income from
the sale or other disposition of securities held less than three months, (iii)
meet certain diversification tests as to our investments in securities, and (iv)
distribute to shareholders at least 90% of our net tax exempt and net taxable
income earned in any year.
Distribution of net short-term capital gains we may realize from the sale of
municipal or other securities will be taxable to the shareholders as ordinary
income. Distribution of net long-term capital gains, if any, will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholder
has held the shares in respect of which the distributions are paid. The tax
effect of dividends (whether taxable or exempt) on our shareholders is the same
whether such dividends are in the form of cash or additional shares.
The net asset value at which our shares are purchased may include undistributed
income or capital gains or unrealized appreciation in the value of securities
held in our investment portfolio. To the extent that such income or gains, or
any capital gains realized from such appreciation, are subsequently distributed
to the holder of such shares, the distributed amounts, although a return of his
investment, may be taxable to him as
- 21 -
<PAGE> 49
set forth above.
The Internal Revenue Code prohibits investors from deducting for federal income
tax purposes interest paid on loans made or continued for the purpose of
purchasing or carrying shares of a mutual fund, such as the Kentucky, North
Carolina or Tennessee Income or Short-to-Medium Series, that distributes exempt
interest dividends. Under rules of the Internal Revenue Service, there are
circumstances in which purchases of our shares may be considered to have been
made with borrowed funds, even though the borrowed funds are not directly
traceable to the share purchases. However, these rules generally permit the
deduction of interest paid on mortgage borrowings to purchase or improve a
personal residence and on business borrowings directly related to business needs
or purposes.
If in any fiscal year we have taxable income, we will use the actual earned
method of allocating taxable and nontaxable income. We will also allocate
expenses between taxable and non-taxable income. In any such year, the
percentage of quarterly dividends that are exempt will vary from quarter to
quarter.
The following summary discusses some of the more important tax issues affecting
the Trust and its shareholders.
EXCISE TAX
The Internal Revenue Code contains a provision which discourages a regulated
investment company from deferring its shareholders' taxes by delaying
distributions of dividend income to shareholders. Under the provision, a 4%
non-deductible federal excise tax is levied on undistributed fund income unless
the fund distributes at least a) 98% of calendar year ordinary income during the
calendar year; b) 98% of capital gain net income earned in the year ending
October 31 by December 31; and c) 100% of any undistributed capital gain net
income from the prior October 31 measurement period and 100% of any
undistributed ordinary income from the prior December 31 measurement period.
CAPITAL GAINS
Long term capital gain distributions to a corporation will be taxed at the
regular corporate tax rate. Net long term capital gain distributions to
individuals will be taxed at the applicable individual tax rate.
EXEMPT INTEREST DIVIDENDS
Under the present tax law, if the stock of a regulated investment company
acquired after March 28, 1985 is held for six months or less, any loss on the
sale or exchange of that stock would be disallowed to the extent the taxpayer
received exempt interest dividends with respect to that stock. Further, the six
month requirement would be shortened under Treasury Department regulations to a
period not less than the greater of 31 days or the period between regular
dividend distributions, if the regulated investment company regularly
distributes at least 90% of its net tax-exempt interest.
TAX EXEMPT BONDS
Under laws in effect as of the date of this Prospectus, interest on obligations
of states, territories, possessions of the U.S., the District of Columbia and
political subsidiaries of these governmental entities is generally exempt from
state taxation in the state of issuance. Interest on non-governmental purpose
bonds, such as industrial development bonds, issued by qualified government
units may be taxable unless the bonds are issued to finance certain specified
exempt activities, are used for development of industrial park sites, or are
exempt
- 22 -
<PAGE> 50
small issues. Furthermore, bonds issued for activities for non-governmental
persons are referred to collectively as "non-essential" bonds. Interest on
non-essential bonds may be taxable unless a specific exception is provided. For
example, interest on exempt facility bonds, small issue bonds, mortgage subsidy
bonds and qualified student loan bonds, is non-taxable. Stricter volume
limitations will apply to certain issuers and aggregate volume limitations would
apply to all non-essential bonds issued in each state. Tax exempt interest on
non-essential function bonds will be treated as an alternative minimum tax
preference item for corporate and individual taxpayers. The Trust does not
intend to purchase "non-essential purpose" bonds for the Income Series or the
Short-to-Medium Series.
INCOME SERIES AND SHORT-TO-MEDIUM SERIES
As a regulated investment company, we are qualified to pay "exempt interest
dividends", provided that at least 50% of our total assets are invested in
municipal securities at the close of each quarter of our taxable year.
Ordinarily, the dividends we pay from net income earned on our investments in
Kentucky, North Carolina or Tennessee municipal securities will be exempt
interest dividends. Shareholders receiving exempt interest dividends may exclude
them from gross income for federal income tax purposes. However, dividends to
our shareholders from net income we may earn from investments in non-municipal
securities will be fully taxable as interest income.
INTERMEDIATE GOVERNMENT BOND SERIES
Ordinarily, the dividends we pay from net income earned on our investments will
not be exempt interest dividends. Accordingly, shareholders will include these
dividends in gross income for Federal income tax purposes.
The above analysis is not all-inclusive and is subject to federal regulations.
KENTUCKY TAX INFORMATION
Insofar as the dividends we pay from the Kentucky Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Kentucky income tax purposes.
For Kentucky residents who own shares of the Government Bond Series, a portion
of dividends and distributions paid by the Trust may be exempt from Kentucky
income taxes. All other dividends and distributions, as well as any earnings we
receive from taxable investments and any capital gains we realize from any
investments, will have the same general consequences to shareholders for
Kentucky income tax purposes as they have for federal income tax purposes. This
means that dividends paid by the Income Series and the Short-to-Medium Series
will ordinarily be excludable from gross income for Kentucky income tax
purposes.
Shareholders of the Income Series, and the Short-to-Medium Series are not
subject to Kentucky ad valorem taxes on their shares. For individual Kentucky
residents who own shares of the Intermediate Government Bond Series, a portion
of the shares of that series are subject to Kentucky ad valorem tax. The
Kentucky municipal securities in our portfolios are also exempt from Kentucky ad
valorem taxes and from the Kentucky Corporation License Tax.
INDIANA TAX INFORMATION
Insofar as the dividends it pays qualify as "exempt interest dividends" for
federal income tax purposes, they will also be excludable from the shareholder's
gross income for Indiana income tax purposes. For Indiana residents who own
shares of the Government Bond Series, a portion of the dividends paid by the
Trust are exempt from Indiana income tax. All other dividends and distributions,
as well as any earnings we receive from taxable
- 23 -
<PAGE> 51
investments and any capital gains we realize from any investments, will have the
same general consequences to shareholders for Indiana income tax purposes as
they have for federal income tax purposes. This means that dividends paid by the
Income Series and the Short-to-Medium Series will ordinarily be excludable from
gross income for Indiana individual income tax purposes.
The state of Indiana does not impose intangible tax on resident individuals.
Accordingly, individual Indiana resident shareholders of the Income Series, the
Short-to-Medium Series and the Government Bond Series are not subject to Indiana
ad valorem taxes on their shares.
No representation is made as to the tax implications of an Indiana corporation
or other entity.
TEXAS TAX INFORMATION
The state of Texas does not impose an individual income tax or personal
intangible property tax upon resident individuals. Accordingly, Texas resident
shareholders of the Income Series, the Short-to-Medium Series or the Government
Bond Series are not subject to individual income tax or personal intangible
property tax on the dividends and distributions they receive from us.
No representation is made as to the tax implications of a Texas corporation or
other entity.
FLORIDA TAX INFORMATION
The state of Florida does not impose an individual income tax upon resident
individuals. Accordingly, individual Florida resident shareholders of the Income
Series, Short-to-Medium Series or Government Bond Series are not subject to
individual income tax.
Individual Florida resident shareholders of the Income Series or the
Short-to-Medium Series will be subject to an annual intangible property tax of
1.0 mill (.10%) per dollar of intangible property value. An additional 1.0 mill
(.10%) tax is levied against intangible property valued greater than $100,000
($200,000 for taxpayers filing jointly). Each Florida resident is entitled to
apply a $20 tax exemption ($40 for taxpayers filing jointly) against property
subject to the first mill of tax. An additional tax exemption of $100 ($200 for
taxpayers filing jointly) is available for property subject to the additional
1.0 mill tax. For individual Florida residents who own shares of the Government
Bond Series, a portion of the shares of that Series are exempt from Florida ad
valorem tax.
No representation is made as to the tax implications of a Florida corporation or
other entity.
TENNESSEE TAX INFORMATION
Insofar as the dividends we pay from the Tennessee Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Tennessee Hall income tax
purposes. All other dividends and distributions, as well as any earnings we
receive from taxable investments and any capital gains we realize from any
investments, will have the same general consequences to shareholders for
Tennessee Hall income tax purposes as they have for federal income tax purposes.
This means that dividends paid by the Tennessee Series will ordinarily be
excludable from gross income for Tennessee Hall individual income tax purposes.
Individual shareholders of the Tennessee Series are not subject to Tennessee ad
valorem taxes on their shares or on the dividends and distributions they receive
from us.
For Tennessee residents who own shares of the Intermediate Government Bond
Series, a portion of the dividends paid by the Trust is exempt from Tennessee
Hall income tax.
- 24 -
<PAGE> 52
No representation is made as to the tax implications of a Tennessee corporation
or other entity.
NORTH CAROLINA TAX INFORMATION
Insofar as the dividends we pay from the North Carolina Series qualify as
"exempt interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for North Carolina income tax
purposes. For North Carolina residents who own shares of the Government Bond
Series, a portion of dividends and distributions paid by the Trust are exempt
from North Carolina income taxes. All other dividends and distributions, as well
as any earnings we receive from taxable investments and any capital gains we
realize from any investments, will have the same general consequences to
shareholders for North Carolina income tax purposes as they have for federal
income tax purposes. This means that dividends paid by the Income Series and the
Short-to-Medium Series will ordinarily be excludable from gross income for North
Carolina income tax purposes.
Shareholders of the Income Series and the Short-to-Medium Series are not subject
to North Carolina ad valorem taxes on their shares. For individual North
Carolina residents who own shares of the Intermediate Government Bond Series, a
portion of the shares of that series are subject to North Carolina ad valorem
tax.
No representation is made as to the tax implications of a North Carolina
corporation or other entity.
- 25 -
<PAGE> 53
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
36.64% OF NET ASSET VALUE
Boyle County KY Hospital Revenue-Ephraim McDowell Regional 5.800 4/1/14 Aaa/AA* $ 1,000,000 $ 1,035,970
Danville KY Multi-City Lease Revenue Sewer System Revenue 6.875 12/1/10 Aaa/AA* 400,000 448,212
Danville KY Multi-City Lease Revenue-Shelbyville 6.550 7/1/06 Aaa/AA* 495,000 546,752
Danville KY Multi-City Lease Revenue-Shelbyville 6.700 7/1/11 Aaa/AA* 2,500,000 2,763,775
Daviess County KY Hospital Revenue 6.250 8/1/12 Aaa/AA* 3,000,000 3,188,010
Floyd County KY Hospital Revenue-Low Highland Hospital 7.500 8/1/10 AAA* 1,565,000 1,725,178
Greater KY Housing-Tug Fork Apartments 5.600 1/1/07 Aaa/AA* 395,000 407,541
Greater KY Housing-Tug Fork Apartments 6.350 1/1/22 Aaa/AA* 2,105,000 2,228,816
Greater KY Housing Assistance Corporation 6.050 7/1/22 Aaa/AA* 1,435,000 1,454,129
Greater KY Housing Assistance Corporation 6.100 1/1/24 Aaa/AA* 4,000,000 4,067,120
Hopkins County KY Hospital Revenue-Trover Clinic Foundation 6.625 11/15/11 Aaa/AA* 2,000,000 2,188,160
Jefferson County KY Health Facilities-Jewish Hospital 6.500 5/1/15 Aaa/AA* 6,380,000 6,903,734
Jefferson County KY Capital Projects Corporation Revenue 5.375 6/1/18 Aaa/AA* 1,500,000 1,465,860
Jeffferson County KY Hospital Revenue 6.436 10/23/14 Aaa/AA* 4,000,000 4,300,720
Kentucky Counties 1987 Single Family Mortgage Revenue 8.625 9/1/15 AAA* 55,000 56,576
Kentucky Development Finance Authority-Baptist Hospital 7.625 9/1/11 AAA* 6,930,000 7,374,005
Kentucky Development Finance Authority-St. Lukes Hospital 7.000 10/1/11 AAA* 500,000 589,620
Kentucky Development Finance Authority Pooled Loan Program 7.375 12/1/09 Aaa/AA* 2,765,000 2,866,088
Kentucky Development Finance Authority Pooled Loan Program 7.450 12/1/15 Aaa/AA* 2,000,000 2,107,820
Kentucky Development Finance Authority-Ashland Hospital 6.125 2/1/12 Aaa/AA* 4,000,000 4,226,720
Kentucky Development Finance Authority-St Elizabeth Hospital 5.900 12/1/15 Aa/AAA* 2,500,000 2,589,325
Kentucky Development Finance Authority St.Claire Medical 5.875 9/1/13 Aaa 2,000,000 2,080,340
Kentucky Development Finance Authority-St Claire Medical 5.625 9/1/21 AAA* 2,500,000 2,504,200
Kentucky Development Finance Authority-Methodist Hospital 5.625 2/1/17 AAA* 1,000,000 1,004,590
Kentucky Housing Corporation 7.125 1/1/10 Aaa/AA* 3,935,000 4,370,801
Kentucky Housing Corporation 7.250 1/1/17 Aaa/AA* 1,945,000 2,114,565
Kentucky Housing Corporation 6.600 7/1/11 Aaa/AA* 390,000 428,692
Kentucky Housing Corporation 6.600 7/1/11 Aaa/AA* 4,500,000 4,946,445
Kentucky Housing Corporation 6.625 7/1/14 Aaa/AA* 1,000,000 1,092,340
Kentucky Housing Corporation 6.600 1/1/11 Aaa/AA* 1,640,000 1,811,577
Kentucky Housing Corporation 5.800 1/1/19 Aaa/AA* 6,755,000 6,880,305
Kentucky Housing Corporation 6.500 7/1/17 Aaa/AA* 7,180,000 7,804,660
Kentucky Housing Corporation 6.400 1/1/17 Aaa/AA* 14,380,000 15,468,422
Kentucky Housing Corporation 5.950 7/1/17 Aaa/AA* 500,000 529,760
Kentucky Housing Corporation 5.700 7/1/17 Aaa/AA* 500,000 502,350
Kentucky State Turnpike Authority Resource Recovery Revenue 6.000 7/1/09 Aaa/AA* 740,000 745,550
Lexington Fayette Urban County Government KY Sewer System 6.350 7/1/07 Aaa/AA* 400,000 436,960
Lexington Fayette Urban County Government KY Sewer System 6.375 7/1/10 Aa/AAA* 2,900,000 3,146,732
Lexington Fayette Urban County Government KY Sewer System 6.375 7/1/12 Aa/AAA* 2,500,000 2,693,000
Louisville & Jefferson County KY Metropolitian Sewer 5.200 5/15/26 Aaa/AA* 3,000,000 2,862,000
Northern Kentucky University Certificates of Participation 7.250 1/1/12 Aaa/AA* 1,500,000 1,654,875
Owensboro KY Water Revenue 6.250 9/15/09 Aaa/AA* 800,000 857,008
Radcliff KY Mortgage Revenue-Lincoln Trail Care 5.650 1/20/19 AAA* 1,555,000 1,537,755
University of Kentucky Consolidated Educational Buildings 5.750 5/1/15 Aa/AAA* 1,850,000 1,918,766
-------------
$119,925,824
PUBLIC CORPORATION REVENUE BONDS
18.40% OF NET ASSET VALUE
Boone County KY Certificate of Participation 7.000 11/15/14 A 5,500,000 $ 6,149,330
Boone County KY Public Property 6.250 12/15/12 A1 960,000 1,028,486
Campbell County KY Public Property 6.250 12/1/15 A 810,000 880,737
</TABLE>
The accompanying notes are an integral part of the financial statements.
-26-
<PAGE> 54
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Danville KY Multi-City Lease Revenue Paducah Public Property 7.200 6/1/11 A $ 500,000 $ 549,930
Danville KY Multi-City Lease Revenue-Mt. Sterling 7.375 6/1/07 NR 240,000 266,798
Danville KY Multi-City Lease Revenue-Mt. Sterling 7.500 6/1/11 NR 205,000 228,405
Danville KY Multi-City Lease Revenue-Owensboro Museum 7.050 8/1/11 A 440,000 491,379
Danville KY Multi-City Lease Revenue-Mt. Sterling 7.500 9/1/11 NR 400,000 447,588
Danville KY Multi-City Lease Revenue-Housing Authority 6.500 2/1/12 A1 1,170,000 1,272,083
Danville KY Multi-City Lease Revenue-Cambellsville 7.000 4/1/02 NR 375,000 385,725
Calloway County Public Property Corporation-Courthouse 5.625 3/1/18 A 1,000,000 1,015,030
Graves County KY Building Commission Revenue-Court Facalities 7.250 1/1/06 NR 70,000 75,226
Jefferson County KY Economic Development Lease Revenue 7.625 7/1/08 A1 100,000 103,238
Jefferson County KY Economic Development Lease Revenue 7.750 7/1/16 A1 500,000 515,255
Jeffersontown KY Certificate of Participation 6.500 9/1/09 A 1,400,000 1,557,318
Jeffersontown KY Certificate of Participation 5.750 11/1/15 A 1,095,000 1,116,834
Kenton County KY Public Property Corporation Revenue 5.700 12/1/15 A 1,305,000 1,324,379
Kenton County KY Public Property Corporation Revenue 5.700 12/1/16 A 1,380,000 1,399,403
Kentucky League of Cities-Middlesboro Series 6.200 8/1/17 A-* 555,000 582,395
Lexington-Fayette Urban County Government KY Public Parking 6.875 2/1/08 A1 300,000 322,773
Louisville KY Parking Authority 6.875 12/1/11 A/A* 490,000 537,187
Louisville KY Parking Authority 6.875 12/1/20 A/A* 1,000,000 1,158,550
Louisville KY Public Property Corporation First Mortgage 6.700 12/1/14 A/A-* 1,945,000 2,116,374
Martin County KY Public Property Corporation Revenue 7.250 9/1/10 NR 150,000 166,344
Martin County KY Public Property Corporation Revenue 7.250 9/1/11 NR 160,000 177,434
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.100 3/1/08 Aa 1,500,000 1,610,835
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.150 3/1/13 Aa 12,000,000 12,735,720
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.200 3/1/18 Aa 5,500,000 5,811,685
Oldham County KY Public Facilities Construction Corporation 5.250 6/1/17 A-* 1,060,000 1,015,745
Pendleton County KY Multi-County Lease Revenue 6.500 3/1/19 A* 11,000,000 11,665,610
Richmond KY Public Recreation Corporation Revenue 7.250 10/1/11 NR 290,000 316,863
Richmond KY Public Recreation Corporation Revenue 6.750 8/1/13 NR 575,000 629,533
Shelbyville KY Public Property Recreational Corporation 6.900 10/1/12 NR 400,000 436,584
Somerset KY Municipal Projects Corporation Revenue 7.500 5/1/99 NR 130,000 132,146
Somerset KY Municipal Projects Corporation Revenue 7.500 5/1/00 NR 140,000 142,307
Union County KY Public Property Corporation 6.125 9/1/15 NR 765,000 799,815
Woodford County KY Public Property Corporation Revenue 5.600 11/1/17 A 1,065,000 1,073,360
--------------
$ 60,238,404
SCHOOL BUILDING REVENUE BONDS
13.13% OF NET ASSET VALUE
Adair County KY School District Finance Corporation 6.375 3/1/12 A 315,000 $ 345,574
Barren County KY School District Finance Corporation 7.000 6/1/11 A* 215,000 237,964
Bath County KY School District Finance Corporation 7.200 10/1/09 A/A* 295,000 334,492
Bell County KY School District Finance Corporation 6.850 9/1/09 A* 450,000 498,141
Bell County KY School District Finance Corporation 6.875 9/1/10 A* 675,000 748,116
Boone County KY School District Finance Corporation 6.750 9/1/10 A/A* 1,500,000 1,651,545
Boone County KY School District Finance Corporation 7.000 9/1/12 A/A* 2,400,000 2,663,976
Boone County KY School District Finance Corporation 6.000 2/1/18 A 1,000,000 1,043,390
Boone County KY School District Finance Corporation 5.700 5/1/18 A 2,500,000 2,527,650
Bracken County KY School District Finance Corporation 7.600 12/1/06 A* 45,000 48,935
Bracken County KY School District Finance Corporation 7.700 12/1/07 A* 40,000 43,377
Bracken County School District Finance Corporation 7.700 12/1/08 A* 40,000 43,318
Breathitt County KY School District Finance Corporation 6.500 3/1/11 NR 420,000 461,101
Breathitt County KY School District Finance Corporation 6.500 3/1/12 NR 450,000 491,841
Bullitt County KY School District Finance Corporation 6.000 8/1/14 A 1,100,000 1,165,483
Caldwell County KY School District Finance Corporation 7.000 6/1/10 A* 335,000 373,857
</TABLE>
The accompanying notes are an integral part of the financial statements.
-27-
<PAGE> 55
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Caldwell County KY School District Finance Corporation 7.000 6/1/11 A* $ 360,000 $ 401,756
Carroll County KY School District Finance Corporation 7.000 7/1/10 A* 270,000 301,779
Clark County KY School District Finance Corporation 6.000 5/1/12 A 320,000 339,258
Elliott County KY School District Finance Corporation 7.250 11/1/07 A/A* 115,000 128,148
Elliott County KY School District Finance Corporation 7.250 11/1/08 A/A* 100,000 111,433
Estill County KY School District Finance Corporation 5.875 8/1/16 A 1,780,000 1,867,184
Floyd County KY School District Finance Corporation 6.000 6/1/14 A 1,000,000 1,053,380
Greenup County KY School District Finance Corporation 6.100 9/1/14 A/A* 1,105,000 1,172,239
Hardin County KY School District Finance Corporation 6.000 7/1/16 A 1,025,000 1,091,277
Harlan County KY School District Finance Corporation 7.500 6/1/08 A 240,000 268,975
Harlan County KY School District Finance Corporation 7.500 12/1/08 A 250,000 280,183
Harlan County KY School District Finance Corporation 7.500 6/1/09 A 260,000 292,009
Harlan KY Independent School District Finance Corporation 6.000 5/1/15 A 275,000 291,569
Hopkins County KY School District Finance Corporation 6.200 6/1/15 A 2,500,000 2,666,600
Jessamine County KY School District Finance Corporation 6.125 6/1/15 A 1,000,000 1,064,740
Johnson County KY School District Finance Corporation 6.750 3/1/10 A* 300,000 326,178
Johnson County KY School District Finance Corporation 6.750 3/1/11 A* 325,000 352,784
Kenton County KY School District Finance Corporation 6.800 12/1/09 A+* 100,000 111,103
Larue County KY School District Finance Corporation 6.500 10/1/10 A 290,000 318,548
Laurel County KY School District Finance Corporation 5.600 3/1/17 A1 1,000,000 1,017,960
Lee County KY School District Finance Corporation 7.100 6/1/10 NR 200,000 223,678
Leslie County KY School District Finance Corporation 6.600 5/1/11 A* 820,000 892,463
Letcher County KY School District Finance Corporation 6.700 10/1/14 A 1,490,000 1,663,183
Livingston County KY School District Finance Corporation 6.750 3/1/06 A* 200,000 215,418
Ludlow KY Independent School District Finance Corporation 6.875 12/1/11 NR 125,000 143,571
Marion County KY School District Finance Corporation 7.100 6/1/09 NR 100,000 110,807
Marion County KY School District Finance Corporation 7.100 6/1/10 NR 110,000 121,888
Marion County KY School District Finance Corporation 7.100 6/1/11 NR 115,000 127,428
Martin County KY School District Finance Corporation 7.200 9/1/09 A* 380,000 419,174
Martin County KY School District Finance Corporation 5.500 6/1/15 A 1,650,000 1,669,124
McCreary County KY School District Finance Corporation 6.600 10/1/10 A* 400,000 438,796
McLean County KY School District Finance Corporation 6.000 6/1/14 NR 1,405,000 1,480,842
Monroe County KY School District Finance Corporation 7.000 2/1/11 A* 300,000 335,433
Perry County KY School District Finance Corporation 6.250 7/1/10 A* 1,155,000 1,239,292
Perry County KY School District Finance Corporation 6.250 7/1/12 A* 1,305,000 1,388,859
Pike County KY School District Finance Corporation 7.250 6/1/10 A/A* 130,000 144,464
Pike County KY School District Finance Corporation 6.875 12/1/08 A/A* 140,000 155,070
Pike County KY School District Finance Corporation 6.200 8/1/10 A 305,000 327,604
Pike County KY School District Finance Corporation 6.200 8/1/11 A 325,000 347,451
Powell County KY School District Finance Corporation 5.900 8/1/16 A* 1,185,000 1,240,245
Scott County KY School District Finance Corporation 5.900 6/1/16 A/A* 3,450,000 3,630,156
Simpson County KY School District Finance Corporation 6.700 1/1/11 A/A* 175,000 190,164
Wolfe County KY School District Finance Corporation 7.000 3/1/11 A* 290,000 318,965
--------------
$ 42,959,938
HOSPITAL AND HEALTHCARE REVENUE BONDS
10.76% OF NET ASSET VALUE
Christian County KY Hospital Revenue-Jennie Stuart Medical 5.800 7/1/11 A-* 270,000 $ 279,323
Christian County KY Hospital Revenue-Jennie Stuart Medical 6.000 7/1/17 A-* 4,000,000 4,074,160
Christian County KY Hospital Revenue-Jennie Stuart Medical 6.000 7/1/13 A-* 2,870,000 2,989,679
Jefferson County KY Health Facilities Jewish Hospital 5.700 1/1/11 A1/AA-* 1,200,000 1,250,400
Jefferson County KY Medical Center Services 7.300 5/1/09 A 400,000 417,464
Kentucky Development Finance Authority-St. Lukes Hospital 7.500 10/1/12 A3/A* 2,000,000 2,165,400
Kentucky Development Finance Authority-Sisters of Charity 7.375 11/1/16 A1/A+* 2,500,000 2,701,950
</TABLE>
The accompanying notes are an integral part of the financial statements.
-28-
<PAGE> 56
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kentucky Development Finance Authority-Sisters of Charity 6.250 11/1/19 A1/A+* $ 500,000 $ 510,815
Kentucky Development Finance Authority-Sisters of Charity 6.500 11/1/07 A1/A+* 2,000,000 2,161,620
Kentucky Development Finance Authority-Sisters of Charity 6.750 11/1/12 A1/A+* 16,160,000 17,602,118
Kentucky Development Finance Association-Green River 6.000 11/1/10 Aa3 1,000,000 1,073,991
--------------
$ 35,226,920
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
9.70% OF NET ASSET VALUE
Ashland KY Pollution Control Revenue-Ashland Oil Project 6.650 8/1/09 Baa1 8,835,000 $ 9,475,007
Campbellsville KY Industrial Revenue-Campbellsville College 6.950 3/1/15 NR 1,150,000 1,226,084
Carroll County KY Collateralized Pollution Control Revenue 6.250 2/1/18 Aa2/AA* 1,000,000 1,046,530
Elsmere KY Industrial Development Revenue-Courtaulds plc 6.750 4/1/10 NR 2,000,000 2,137,620
Jefferson County KY Pollution Control-Louisville Gas 7.450 6/15/15 Aa2/AA* 1,750,000 1,929,323
Jefferson County KY Pollution Control Revenue-E I DuPont 6.300 7/1/12 Aa3/AA* 3,500,000 3,800,055
Jefferson County KY Pollution Control-Louisville Gas 5.625 8/15/19 Aa2/AA* 5,150,000 5,164,626
Kentucky League of Cities-Ashland Series 6.250 8/1/17 A- 1,550,000 1,648,813
Meade County KY Pollution Control Revenue-Olin Corporation 6.000 7/1/07 NR 830,000 844,027
Mercer County KY Collateralized Pollution Control Revenue 6.250 2/1/18 Aa2/AA* 2,500,000 2,638,975
Middlesboro KY Industrial Building Revenue-Fern Lake Project 6.200 12/1/02 NR 730,000 778,158
Muhlenberg County KY Collateralized Pollution Control Revenue 6.250 2/1/18 Aa2/AA* 1,000,000 1,057,870
--------------
$ 31,747,088
STATE AND LOCAL REVENUE BONDS
4.31% OF NET ASSET VALUE
Kentucky Higher Education Student Loan 9.250 6/1/01 Aa/Aa-* 180,000 $ 209,905
Kentucky Infrastructure Authority 6.000 6/1/11 A/A* 1,000,000 1,034,780
Kentucky Infrastructure Authority 6.000 8/1/11 A* 400,000 414,296
Kentucky Infrastructure Authority 6.300 6/1/12 A/A* 1,500,000 1,600,785
Kentucky Infrastructure Authority 5.750 8/1/13 A* 900,000 926,901
Kentucky Infrastructure Authority 5.750 8/1/18 A* 1,500,000 1,529,025
Kentucky Infrastructure Authority 6.375 8/1/14 A* 700,000 760,032
Kentucky Infrastructure Authority 7.750 8/1/02 A* 40,000 43,666
Kentucky Infrastructure Authority 7.625 8/1/04 A* 20,000 21,783
Kentucky Interlocal Transportation Equipment Lease Revenue 6.000 12/1/20 A 400,000 413,980
Kentucky State Property & Buildings Commission Project #59 5.700 11/1/14 A/A* 1,000,000 1,022,650
Kentucky State Property & Buildings Commission Project #40 6.875 11/1/07 A/A+* 3,250,000 3,596,158
Kentucky State Property & Building Commission Project #54 6.000 9/1/12 A/A+* 1,450,000 1,505,375
Kentucky State Property & Buildings Commission Project #56 6.000 9/1/14 A/A* 1,000,000 1,040,650
--------------
$ 14,119,986
MUNICIPAL UTILITY REVENUE BONDS
2.82% OF NET ASSET VALUE
Campbell County KY Water District Revenue 6.600 12/1/11 A* 1,000,000 $1,096,450
Campbell County KY Water District Revenue 6.125 12/1/14 A* 1,525,000 1,608,418
Cynthiana KY Waterworks & Sewer Revenue 6.400 1/1/07 BBB-* 575,000 624,393
Danville KY Multi-City Lease Revenue-Ashland Utilities 6.750 4/1/12 BBB+* 915,000 1,001,303
Danville KY Multi-City Lease Revenue-Hopkinsville 6.875 6/1/12 Baa1 2,170,000 2,536,448
Franklin KY Water & Sewer Revenue Refunding 6.200 12/1/11 Baa 1,045,000 1,094,888
Grayson KY Utility Revenue 7.375 2/1/10 NR 320,000 344,093
Hardin County KY Water District Number 1 Water Revenue 7.400 9/1/06 A 85,000 96,257
Hardin County KY Water District Number 1 Water Revenue 7.400 9/1/07 A 90,000 102,066
Hardin County KY Water District Number 1 Water Revenue 7.400 9/1/08 A 100,000 113,567
Hardin County KY Water District Number 1 Water Revenue 7.400 9/1/09 A 105,000 116,230
Pendleton County KY Multi-County Lease Revenue 7.450 3/1/04 A* 245,000 271,330
Wurtland KY Sewer System Revenue 7.700 10/1/04 A+* 200,000 226,232
----------
$9,231,675
</TABLE>
The accompanying notes are an integral part of the financial statements.
-29-
<PAGE> 57
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATE AND LOCAL MORTGAGE REVENUE BONDS
2.29% OF NET ASSET VALUE
Erlanger KY Public Property Revenue-Fire Protection 7.400 11/1/08 BBB+* $ 75,000 $ 82,908
Erlanger KY Public Property Revenue-Fire Protection 7.400 11/1/09 BBB+* 100,000 110,544
Floyd County KY Public Property Revenue-Justice Center 6.125 9/1/18 A 1,240,000 1,310,891
Jefferson Oldham & Bullitt Counties KY Home Mortgage 10.750 11/1/14 A1 10,000 10,550
Kentucky Housing Corporation 7.625 1/1/09 Aaa/AA* 250,000 266,925
Kentucky Housing Corporation 7.400 1/1/10 Aaa/AA* 2,290,000 2,512,611
Kentucky Housing Corporation 7.550 1/1/16 Aaa/AA* 2,910,000 3,205,016
----------------
$ 7,499,445
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
.97% OF NET ASSET VALUE
Campbellsville KY Industrial Revenue-Campbellsville College 6.000 3/1/17 NR 1,920,000 $ 1,929,581
University of Louisville Health & Education 6.000 11/1/13 A2 1,180,000 1,239,271
----------------
$ 3,168,852
PREREFUNDED AND ESCROWED TO MATURITY BONDS
.10% OF NET ASSET VALUE
Florence KY Public Property Corporation Revenue 7.000 3/1/13 A 300,000 $ 332,076
KENTUCKY TURNPIKE AUTHORITY REVENUE BONDS
.07% OF NET ASSET VALUE
Kentucky State Turnpike Authority Toll Road Revenue 8.500 7/1/04 A/A* 205,000 $ 213,200
------------
Total Investments (cost $305,709,483)(a) - 99.19% of Net Asset Value $324,663,408
============
* Standard and Poor's Corporation
NR Not Rated
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 19,029,683
Unrealized depreciation (75,758)
-------------
Net unrealized appreciation $ 18,953,925
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-30-
<PAGE> 58
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $305,709,483) $324,663,408
Cash 3,701,263
Interest receivable 6,149,130
Receivable for investments sold 1,245,300
------------
Total assets 335,759,101
LIABILITIES:
Payable for:
Investments purchased $ 4,088,425
Distributions 4,106,352
Fund shares redeemed 58,402
Management fee 117,763
Transfer agent 32,740
Other fees 51,587
------------
Total liabilities 8,455,269
------------
NET ASSETS:
Net assets consist of:
Capital $312,416,108
Net accumulated realized losses on investment transactions (4,066,201)
Net unrealized appreciation in value of investments 18,953,925
------------
Net assets at value $327,303,832
============
NET ASSET VALUE, offering price and redemption price per share
($327,303,832 / 43,788,593 shares outstanding)
$ 7.47
============
- ---------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
Net investment income:
Interest income $ 18,646,729
------------
Expenses:
Investment advisory fees 1,375,201
Transfer agent 381,132
Professional fees 82,259
Trustee fees 39,822
Other expenses 105,095
------------
Total expenses 1,983,509
------------
Net investment income 16,663,220
------------
Realized and unrealized gain on investments
Net realized gain 25,632
Net increase in unrealized appreciation 4,996,899
------------
Net realized and unrealized gain on investments 5,022,531
------------
Net increase in net assets resulting from operations $ 21,685,751
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-31-
<PAGE> 59
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<S> <C> <C>
1997 1996
----------------------------
Increase in net assets:
Operations:
Net investment income $ 16,663,220 $ 15,580,425
Net realized gain on investments 25,632 232,921
Net increase in unrealized appreciation 4,996,899 1,471,206
----------------------------
Net increase in net assets resulting from operations 21,685,751 17,284,552
Distributions to shareholders ($.397 and $.402, respectively) (16,663,220) (15,580,425)
Net fund share transactions 27,252,574 24,035,266
----------------------------
Total increase 32,275,105 25,739,393
Net assets:
Beginning of year 295,028,727 269,289,334
----------------------------
End of year $327,303,832 $295,028,727
============================
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
For the years ended June 30,
------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 7.35 7.29 7.21 7.60 7.16
------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.40 0.40 0.40 0.41 0.43
Net gains or losses on securities
(both realized and unrealized) 0.12 0.06 0.13 (0.34) 0.44
------------------------------------------------
Total from investment operations 0.52 0.46 0.53 0.07 0.87
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- (0.05) (0.05) --
Distributions (from net investment income) (0.40) (0.40) (0.40) (0.41) (0.43)
------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.47 7.35 7.29 7.21 7.60
================================================
Total return 7.14% 6.38 6.90 0.75 12.45
Net assets, end of year (in thousands): $327,304 295,029 269,355 257,132 237,781
Ratio of expenses to average net assets 0.63% 0.62 0.63 0.69 0.67
Ratio of net investment income to
average net assets 5.32% 5.39 5.60 5.82 5.79
Portfolio turnover 6.64% 4.29 18.05 30.53 31.79
For the years ended June 30,
-----------------------------------------------
1992 1991 1990 1989 1988
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 6.87 6.77 6.76 6.52 6.59
-----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.44 0.45 0.46 0.47 0.48
Net gains or losses on securities
(both realized and unrealized) 0.29 0.10 0.01 0.24 (0.07)
-----------------------------------------------
Total from investment operations 0.73 0.55 0.47 0.71 0.41
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- -- -- --
Distributions (from net investment income) (0.44) (0.45) (0.46) (0.47) (0.48)
-----------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.16 6.87 6.77 6.76 6.52
===============================================
Total return 10.95 8.43 7.19 11.32 6.54
Net assets, end of year (in thousands): $169,269 113,659 87,594 73,062 60,447
Ratio of expenses to average net assets 0.71 0.75 0.76 0.78 0.81
Ratio of net investment income to
average net assets 6.28 6.63 6.82 7.44 7.40
Portfolio turnover 11.93 18.08 35.82 43.70 87.37
</TABLE>
The accompanying notes are an integral part of the financial statements.
-32-
<PAGE> 60
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATE AND LOCAL MORTGAGE REVENUE BONDS
14.50% of Net Asset Value
KY Housing Corporation Housing Revenue 5.300 1/1/04 Aaa/AAA* $ 2,250,000 $ 2,310,930
KY Housing Corporation Housing Revenue 4.850 7/1/04 Aaa/AAA* 1,700,000 1,722,134
KY Housing Corporation Housing Revenue 5.150 7/1/07 Aaa/AAA* 2,500,000 2,551,724
Louisville KY Multi-Family Housing Revenue-Station House Square 5.125 7/15/19 A1 1,220,000 1,220,000
----------------
$ 7,804,788
PREREFUNDED BONDS
14.49% of Net Asset Value
Covington KY Municipal Properties Corporation 1ST Mortgage 8.250 8/1/10 NR 500,000 $ 538,670
Danville KY Multi-City Lease Revenue Hopkinsville 5.800 6/1/98 Baa1 130,000 132,951
Danville KY Multi-City Lease Revenue Hopkinsville 6.100 6/1/00 Baa1 140,000 147,703
Danville KY Multi-City Lease Revenue Hopkinsville 6.200 6/1/01 Baa1 165,000 176,497
KY Property & Building Commission Revenue Project #40 8.200 11/1/99 Aaa/A+* 400,000 414,728
KY Property & Building Commission Revenue Project #39 8.000 12/1/04 AAA* 1,000,000 1,039,740
Owensboro KY Electric Light & Power Revenue 10.500 1/1/04 AAA* 4,415,000 5,348,772
----------------
$ 7,799,061
STATE AND LOCAL REVENUE BONDS
15.20% of Net Asset Value
Kentucky Interlocal Transportation Equipment Lease 5.900 3/1/99 A/A* 950,000 $ 982,699
Kentucky Interlocal Transportation Equipment Lease 6.000 3/1/00 A/A* 500,000 523,630
Kentucky Interlocal Transportation Equipment Lease 4.500 12/1/00 AA-* 2,000,000 1,995,540
Kentucky Interlocal Transportation Equipment Lease 4.750 12/1/00 Aa/AA* 1,000,000 1,004,340
Mt Sterling KY Lease Revenue-KY League of Cities 5.625 3/1/03 Aa 3,500,000 3,673,424
----------------
$ 8,179,633
INSURED MUNICIPAL REVENUE BONDS
12.07% of Net Asset Value
Covington KY Municipal Properties Corporation 1ST Mortgage 5.200 8/1/07 Aaa/AAA* 855,000 $ 879,983
Danville KY Multi-City Lease Revenue Shelbyville 5.750 7/1/98 Aaa/AAA* 300,000 307,158
Davies County KY Hospital-Mercy Health System 4.400 9/1/97 Aaa/AAA* 130,000 130,202
Greater KY Housing Assistance Corporation Mortgage Revenue 6.250 1/1/05 Aaa/AAA* 1,205,000 1,283,289
KY Development Finance Authority Hospital-St Elizabeth 6.100 11/1/97 Aaa/AAA* 500,000 503,940
KY Turnpike Authority Economic Development Road Revenue 5.500 7/1/07 Aaa/AAA* 3,000,000 3,160,379
Somerset KY Water Project Revenue 6.100 12/1/97 Aaa/AAA* 230,000 232,845
----------------
$ 6,497,796
STATE GENERAL OBLIGATION & AGENCY REVENUE BONDS
8.41% of Net Asset Value
KY Higher Education Student Loan 6.050 12/1/98 Aa/AA-* 150,000 $ 154,740
KY Higher Education Student Loan 4.550 6/1/99 Aa/AA-* 1,000,000 1,009,660
KY Higher Education Student Loan 6.400 6/1/00 Aa/AA-* 2,335,000 2,448,480
KY Infrastructure Authority Revolving Fund Program 5.900 6/1/99 A/A* 215,000 222,989
KY Property & Building Commission Revenue Project #53 5.800 10/1/98 A/A+* 500,000 513,200
KY Property & Building Commission Revenue Project #53 5.900 10/1/99 A/A* 170,000 176,955
----------------
$ 4,526,024
ESCROWED TO MATURITY BONDS
8.26% of Net Asset Value
KY Development Finance Authority Hospital-St Clair 6.000 9/1/97 NR 310,000 $ 311,330
KY Development Finance Authority Hospital-St Clair 6.150 9/1/98 NR 325,000 335,407
KY Property & Building Commission Revenue Project #34 7.000 12/1/98 Aaa/A+* 500,000 524,290
Ky Property & Building Commission Revenue Project #51 6.000 8/1/97 Aaa/A+* 585,000 586,404
KY Property & Building Commission Revenue Project #52 5.700 8/1/97 Aaa/A+* 100,000 100,206
KY Turnpike Authority Economic Development Road Revenue 7.000 5/15/99 Aaa/AAA* 1,750,000 1,852,270
KY Turnpike Authority Economic Development Road Revenue 4.600 7/1/98 Aaa/AAA* 730,000 738,848
----------------
$ 4,448,755
</TABLE>
The accompanying notes are an integral part of the financial statements.
-33-
<PAGE> 61
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
5.43% of Net Asset Value
University of Kentucky Revenue-Community College Building 6.600 5/1/98 A/AA-* $ 285,000 $ 292,960
University of Kentucky Revenue-Community College Building 6.250 5/1/98 A/AA-* 225,000 230,774
University of Louisville KY Consolidated Education Building 5.200 5/1/04 A1/AA-* 1,000,000 1,031,820
University of Louisville KY Consolidated Education Building 4.700 5/1/00 A1/AA-* 1,350,000 1,369,224
----------------
$ 2,924,778
KENTUCKY TUNPIKE AUTHORITY REVENUE BONDS
5.10% of Net Asset Value
KY Turnpike Authority Toll Road Revenue 8.125 7/1/98 A/A* 670,000 $ 701,825
KY Turnpike Authority Economic Development Road Revenue 5.100 1/1/99 A/A+* 2,000,000 2,041,440
----------------
$ 2,743,265
SCHOOL BUILDING REVENUE BONDS
4.33% of Net Asset Value
Floyd County KY School District Finance Corporation Revenue 6.000 4/1/98 A/A* 130,000 $ 132,756
Hardin County KY Building Commission Revenue 5.750 7/1/01 NR 1,000,000 1,010,890
Jefferson County KY School District Finance Corporation 6.000 5/1/98 A1/A+* 900,000 919,674
Muhlenberg Co KY School District Finance Corporation 4.700 8/1/97 A 135,000 135,184
Muhlenberg Co KY School District Finance Corporation 4.900 8/1/98 A 130,000 131,933
----------------
$ 2,330,437
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
3.60% of Net Asset Value
Ashland KY Pollution Control Revenue-Ashland Oil 7.375 7/1/09 BAA1 1,000,000 $ 1,087,560
Meade County KY Pollution Control Revenue-Olin Corporation 6.000 7/1/07 NR 835,000 849,112
----------------
$ 1,936,672
STATE AND LOCAL REVENUE BONDS
2.82% of Net Asset Value
Corbin KY City Hall Public Corporation 1ST Mortgage Revenue 7.100 10/1/97 NR 25,000 $ 25,209
Danville KY Multi-City Lease Revenue Mount Sterling 6.800 9/1/99 NR 75,000 80,090
Danville KY Multi-City Lease-Jefferson Housing Authority 5.750 2/1/00 A1 150,000 155,598
Danville KY Mutli-City Lease Revenue Owensboro 4.650 7/1/00 A 340,000 343,223
Jeffersontown KY Certificate of Participation 4.450 11/1/00 A 555,000 556,671
Louisville KY Public Properties Corporation Revenue 5.500 4/1/99 A/A-* 350,000 359,734
----------------
$ 1,520,525
HOSPITAL AND HEALTH CARE REVENUE BONDS
1.94% of Net Asset Value
KY Development Finance Authority-Sisters of Charity 6.000 11/1/00 A1/A+* 1,000,000 $ 1,045,910
MUNICIPAL UTILITY REVENUE BONDS
.59% of Net Asset Value
Ashland KY Utility Revenue 7.000 4/1/99 BBB+* 50,000 $ 51,094
Cynthiana KY Waterworks & Sewer Revenue Refunding 5.250 1/1/98 BBB-* 265,000 267,144
----------------
$ 318,238
----------------
Total Investments (cost $51,005,946)(a) - 96.74% of Net Asset Value $ 52,075,882
================
* Standard and Poor's Corporation
NR Not Rated
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 1,497,793
Unrealized depreciation (427,857)
----------------
Net unrealized appreciation $ 1,069,936
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-34-
<PAGE> 62
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<S> <C> <C>
ASSETS:
Investment in securities, at value (Cost: $51,005,946) $ 52,075,882
Cash 887,574
Interest receivable 1,111,076
Receivable for investments sold 2,055,105
------------
Total assets 56,129,637
LIABILITIES:
Payable for:
Investments purchased $ 2,000,000
Distributions 189,409
Fund shares redeemed 80,537
Management fee 22,312
Transfer agent 5,848
Other fees 2,102
------------
Total liabilities 2,300,208
------------
NET ASSETS:
Net assets consist of:
Capital $ 53,371,996
Net accumulated realized losses on investment transactions (612,503)
Net unrealized appreciation in value of investments 1,069,936
------------
Net assets at value $ 53,829,429
============
NET ASSET VALUE, offering price and redemption price per share
($53,829,429 / 10,308,362 shares outstanding) $ 5.22
============
- ---------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
Net investment income:
Interest income $ 2,906,321
------------
Expenses:
Investment advisory fees 300,340
Transfer agent 78,068
Professional fees 15,682
Trustee fees 7,806
Other expenses 29,649
------------
Total expenses 431,545
------------
Net investment income 2,474,776
------------
Realized and unrealized gain on investments
Net realized loss (188,198)
Net increase in unrealized appreciation 459,373
------------
Net realized and unrealized gain on investments 271,175
------------
Net increase in net assets resulting from operations $ 2,745,951
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-35-
<PAGE> 63
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 2,474,776 $ 2,365,955
Net realized loss on investments (188,198) (10,145)
Net increase in unrealized appreciation 459,373 264,646
----------------------------
Net increase in net assets resulting from operations 2,745,951 2,620,456
Distributions to shareholders ($.215 and $.210, respectively) (2,474,776) (2,365,955)
Net fund share transactions (13,015,798) 9,262,628
----------------------------
Total increase(decrease) (12,744,623) 9,517,129
Net assets:
Beginning of year 66,574,052 57,056,923
----------------------------
End of year $ 53,829,429 $ 66,574,052
============================
</TABLE>
================================================================================
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
For the years ended June 30,
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(a)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 5.20 5.18 5.17 5.29 5.17 5.05 4.99 4.97 5.00 5.00
----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.22 0.21 0.21 0.21 0.23 0.26 0.28 0.29 0.29 0.20
Net gains or losses on securities
(both realized and unrealized) 0.02 0.02 0.02 (0.12) 0.12 0.12 0.06 0.02 (0.03) --
----------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.24 0.23 0.23 0.09 0.35 0.38 0.34 0.31 0.26 0.20
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- (0.01) -- -- -- -- -- -- --
Distributions (from net investment income) (0.22) (0.21) (0.21) (0.21) (0.23) (0.26) (0.28) (0.29) (0.29) (0.20)
----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 5.22 5.20 5.18 5.17 5.29 5.17 5.05 4.99 4.97 5.00
========================================================================================
Total return (b) 4.59% 4.51 4.27 1.71 6.91 7.67 7.03 6.36 5.42 5.53
Net assets, end of period (in thousands) $53,829 66,574 57,064 69,550 55,525 34,178 13,972 6,678 7,309 3,125
Ratio of expenses to average net assets (b) 0.72% 0.75 0.72 0.72 0.76 0.76 0.76 0.76 0.75 0.75
Before expense reimbursement (b) 0.72% 0.75 0.72 0.72 0.77 0.83 0.85 0.89 0.92 0.75
Ratio of net investment income to
average net assets (b) 4.11% 4.04 4.00 3.92 4.37 4.96 5.58 5.79 5.88 5.48
After expense reimbursement (b) 4.11% 4.04 4.00 3.92 4.36 4.89 5.49 5.63 5.71 5.48
Portfolio turnover 20.03% 57.80 4.07 17.62 22.89 29.35 26.41 57.61 41.31 103.35
<FN>
(a) Commenced operations September 15, 1987.
(b) Annualized for periods less than a full year.
</TABLE>
The accompanying notes are an integral part of the financial statements.
-36-
<PAGE> 64
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
37.67% OF NET ASSET VALUE
Catawba County NC Hospital Revenue-Catawba Memorial 6.000 10/1/17 Aaa/AAA* $ 100,000 $ 103,308
Charlotte NC Convention Facilities Project Series C 5.000 12/1/21 Aaa/AAA* 20,000 18,613
Craven County NC 5.500 6/1/14 Aaa/AAA* 40,000 41,155
Craven NC Regional Medical Health Care Facility Revenue 5.625 10/1/17 Aaa/AAA* 10,000 10,322
Cumberland County NC Hospital Facilities Revenue 6.000 10/1/21 Aaa/AAA* 90,000 91,984
Elizabeth City NC Housing Developement Mortgage Revenue 6.125 4/1/23 Aa 140,000 145,025
Greenville NC Housing Developement Revenue Series A 5.800 7/1/24 Aaa/AAA* 40,000 41,180
New Hanover County NC Hospital Revenue 5.750 10/1/26 Aaa/AAA* 100,000 101,898
NC Eastern Municipal Power Agency Power System Revenue 5.750 1/1/19 Aaa/AAA* 100,000 100,984
NC Eastern Municipal Power Agency Power System Revenue 5.700 1/1/15 Aaa/AAA* 95,000 96,441
NC Central University Revenue Housing System 5.800 11/1/18 Aaa/AAA* 50,000 51,718
NC Central University Revenue Housing System 5.800 11/1/20 Aaa/AAA* 60,000 61,958
NC Medical Care Community Hospital Revenue-Memorial Mission 6.000 10/1/22 Aaa/AAA* 15,000 15,406
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.750 1/1/20 Aaa/AAA* 50,000 50,657
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.750 1/1/15 Aaa/AAA* 35,000 35,978
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.000 1/1/15 Aaa/AAA* 5,000 4,727
NC Housing Finance Agency Refunding Multi-Family Series A 5.800 7/1/13 Aaa/AAA* 10,000 10,221
NC Housing Finance Agency Refunding Multi-Family Series A 5.900 7/1/20 Aaa/AAA* 40,000 40,330
NC Medical Care Community Hospital Revenue-St Joseph 5.100 10/1/14 Aaa/AAA* 5,000 4,779
NC Medical Care Community Hospital Revenue-Wilson Memorial 5.625 11/1/18 Aaa/AAA* 80,000 80,899
Onslow County NC Improvement 5.700 3/1/12 Aaa/AAA* 10,000 10,395
Pitt County NC Public Facilities Certificates of Participation 5.850 4/1/17 Aaa/AAA* 100,000 102,641
University of NC at Wilmington Dorm & Dining System Revene 5.400 1/1/18 Aaa/AAA* 120,000 120,203
Winston Salem NC State University Revenue Student Services 5.400 6/1/12 Aaa/AAA* 10,000 10,030
----------------
$ 1,350,852
HOSPITAL AND HEALTHCARE REVENUE BONDS
28.61% OF NET ASSET VALUE
NC Medical Care Community Hospital Revenue-Rex Hospital 6.125 6/1/10 A1/A+* 50,000 $ 51,336
Charlotte-Mecklenburg NC Hospital Health Care Systems 6.375 1/1/09 Aa/AA* 5,000 5,384
Charlotte-Mecklenburg NC Hospital Health Care Systems 6.250 1/1/20 Aa/AA* 55,000 57,351
Charlotte-Mecklenburg NC Hospital Health Care Systems 5.875 1/15/26 Aa3/AA* 50,000 50,883
NC Medical Care Community Hospital Revenue-Rex Hospital 6.250 6/1/17 A1/A+* 115,000 120,095
NC Medical Care Community Hospital Revenue-Presbyterian 5.500 10/1/14 Aa/AA* 35,000 35,273
NC Medical Care Community Hospital Revenue-Baptist Hospital 6.375 6/1/14 Aa3/AA* 45,000 47,742
NC Medical Care Community Hospital Revenue-Baptist Hospital 6.000 6/1/22 Aa/AA* 75,000 77,609
NC Medical Care Community Hospital Revenue-Presbyterian 6.125 10/1/14 Aa3/AA* 135,000 140,959
Pitt County NC Memorial Hospital Revenue 5.500 12/1/15 Aa/AA-* 325,000 326,261
Pitt County NC Memorial Hospital Revenue 5.375 12/1/10 Aa/AA-* 10,000 10,171
University of North Carolina Chapel Hill Hospital 6.000 2/15/24 Aa/AA* 100,000 102,961
----------------
$ 1,026,025
STATE AND LOCAL MORTGAGE REVENUE BONDS
13.17% OF NET ASSET VALUE
NC Housing Finance Agency Single Family Revenue 6.300 9/1/15 Aaa/AA* 145,000 $ 154,651
NC Housing Finance Agency Refunding Single Family 5.950 9/1/17 Aa/AA* 20,000 20,696
NC Housing Finance Agency Single Family Revenue 6.200 3/1/16 Aa2/AA* 100,000 104,434
NC Housing Finance Agency Single Family Revenue 5.875 9/1/17 Aa2/AA* 90,000 91,453
Vance County NC Housing Mortgage Revenue Henderson Project 6.150 3/1/22 Aa2 100,000 101,215
----------------
$ 472,449
</TABLE>
The accompanying notes are an integral part of the financial statements.
-37-
<PAGE> 65
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PUBLIC CORPORTION REVENUE BONDS
9.59% OF NET ASSET VALUE
Charlotte NC Certificate of Participation Law Project B 5.375 6/1/13 Aa1/AA* $ 100,000 $ 100,154
Durham County NC Jail Facilities & Computer Equipment 6.625 5/1/14 Aa1/AA* 20,000 21,249
Greensboro NC Coliseum Complex Improvement Project Series A 5.700 12/1/10 A1/AA* 55,000 57,295
Monroe NC Combined Enterprises Revenue 6.000 3/1/19 A/A* 100,000 103,961
Shelby County NC Combined Enterprise System Revenue 5.625 5/1/14 A/A-* 20,000 20,399
Shelby County NC Combined Enterprise System Revenue 5.625 5/1/14 A/A-* 40,000 40,799
-------------
$ 343,857
MUNICIPAL UTILITY REVENUE BONDS
6.09% OF NET ASSET VALUE
Charlotte NC Water & Sewer 5.400 4/1/15 Aaa/AAA* 20,000 $ 20,552
Morrisville NC Water & Sewer 5.600 6/1/15 A/A+* 35,000 36,635
NC Eastern Municipal Power Agency Power System Revenue 5.875 1/1/13 Baa/BBB* 50,000 49,824
NC Municipal Power Agency No. 1 Catawba Electric Revenue 6.000 1/1/20 A3/A-* 100,000 101,250
NC Municipal Power Agency No. 1 Catawba Electric Revenue 6.250 1/1/17 A3/A-* 10,000 10,289
-------------
$ 218,550
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
2.94% OF NET ASSET VALUE
Greenville NC Enterprise System Revenue 6.000 9/1/10 A1/A+* 100,000 $ 105,320
PREREFUNDED AND ESCROWED TO MATURITY BONDS
.45% OF NET ASSET VALUE
NC Eastern Municipal Power Agency Power System Revenue 6.000 1/1/26 AAA* 15,000 $ 16,172
COUNTY GENERAL OBLIGATION BONDS
.15% OF NET ASSET VALUE
Forsyth County NC Public Improvement 5.600 8/1/09 Aa1/AAA* 5,000 $ 5,209
LOCAL GENERAL OBLGATION BONDS
.14% OF NET ASSET VALUE
High Point NC Sewer Improvements General Obligation 5.600 3/1/13 Aa/AA* 5,000 5,115
-------------
Total Investments (cost $3,469,364)(a) - 98.81% of Net Asset Value $ 3,543,549
=============
* Standard and Poor's Corporation
NR Not Rated
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net
unrealized appreciation of securities as follows:
Unrealized appreciation $ 74,943
Unrealized depreciation (758)
-------------
Net unrealized appreciation $ 74,185
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-38-
<PAGE> 66
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost $3,469,364) $ 3,543,549
Cash 45,100
Interest receivable 52,168
Receivable from Advisor 11,172
------------
Total assets 3,651,989
LIABILITIES:
Payable for:
Distributions $ 39,022
Fund shares redeemed 20,022
Transfer agent 3,699
Other fees 2,946
------------
Total liabilities 65,689
------------
NET ASSETS:
Net assets consist of:
Capital $ 3,515,702
Net accumulated realized losses on investment transactions (3,587)
Net unrealized appreciation in value of investments 74,185
------------
Net assets at value $ 3,586,300
============
NET ASSET VALUE,offering price and redemption price per share
($3,586,300 / 347,272 shares outstanding) $ 10.33
============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<S> <C>
Net investment income:
Interest income $ 119,452
------------
Expenses:
Investment advisory fees 10,797
Transfer agent 3,239
Professional fees 572
Trustee fees 255
Other expenses 2,704
------------
Total expenses 17,567
Expenses reimbursed by Investment Advisor (12,274)
------------
Net investment income 114,159
------------
Realized and unrealized gain on investments
Net realized loss (2,782)
Net increase in unrealized appreciation 83,328
------------
Net realized and unrealized gain on investments 80,546
------------
Net increase in net assets resulting from operations $ 194,705
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-39-
<PAGE> 67
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996(a)
----------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 114,159 $ 16,081
Net realized loss on investments (2,782) (805)
Net increase in unrealized appreciation 83,328 (9,143)
----------------------------------
Net increase in net assets resulting from operations 194,705 6,133
Distributions to shareholders ($.538 and $.321, respectively) (114,159) (16,081)
Net fund share transactions 2,442,372 1,073,330
----------------------------------
Total increase 2,522,918 1,063,382
Net assets:
Beginning of period 1,063,382 --
----------------------------------
End of period $ 3,586,300 $ 1,063,382
==================================
(a) Commencement of operations November 16, 1995
</TABLE>
================================================================================
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------
1997 1996(a)
----------------------
<S> <C> <C>
Net Asset Value, beginning of year $ 9.88 10.00
----------------------
Income From Investment Operations:
Net investment income 0.54 0.32
Net gains or losses on securities
(both realized and unrealized) 0.45 (0.12)
----------------------
Total from investment operations 0.99 0.20
Less Distributions:
Distributions (from net investment income) (0.54) (0.32)
----------------------
Net Asset Value, end of year $ 10.33 9.88
======================
Total return: 10.18% 3.23
Net assets, end of period (in thousands) $ 3,586 1,063
Ratio of expenses to average net assets (b) 0.25% 0.18
Before expense reimbursement (b) 0.81% 2.47
Ratio of net investment income to average net assets (b) 4.72% 3.27
After expense reimbursement (b) 5.29% 0.98
Portfolio turnover 24.13% 22.83
(a) Commencement of operations November 16, 1995
(b) Annualized for periods less than a year
</TABLE>
The accompanying notes are an integral part of the financial statements.
-40-
<PAGE> 68
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PREREFUNDED AND ESCROWED TO MATURITY BONDS
30.17% OF NET ASSET VALUE
Buncombe County NC General Obligation 7.000 3/1/10 AAA* $ 30,000 $ 32,192
Charlotte NC General Obligation 6.750 6/1/07 Aaa/AAA* 10,000 10,738
Charlotte NC General Obligation 6.900 10/1/06 Aaa/AAA* 25,000 27,515
Charlotte NC Certificate of Participation Convention Center 6.750 12/1/21 Aaa/AAA* 200,000 223,351
Franklin County NC Certificates of Participation Jail & School 6.000 6/1/02 Aaa/AAA* 15,000 16,030
North Carolina Medical Care Community Health Care Facility 7.250 2/15/19 Aaa/AAA* 30,000 32,051
North Carolina Eastern Municipal Power System Revenue 7.500 1/1/21 Aaa/BBB* 25,000 26,892
North Carolina State University-Raleigh Parking Systems 6.600 6/1/01 A1 10,000 10,715
Pitt County NC Revenue-Pitt County Memorial Hospital 6.900 12/1/21 Aaa/AA-* 5,000 5,599
Rutherford County NC General Obligation 6.500 6/1/05 Aaa/AAA* 50,000 54,964
--------------
$ 440,047
INSURED MUNICIPAL REVENUE BONDS
19.59% OF NET ASSET VALUE
Burke County NC General Obligation 6.250 3/1/00 Aaa/AAA* 50,000 $ 52,856
Cleveland County NC General Obligation 7.100 6/1/98 Aaa/AAA* 10,000 10,346
Columbus County NC Refunding General Obligation 4.500 2/1/99 Aaa/AAA* 10,000 10,142
Gaston County NC General Obligation 5.600 3/1/99 Aaa/AAA* 45,000 46,458
New Hanover County NC Water & Sewer District Refunding 4.600 8/1/98 Aaa/AAA* 20,000 20,311
Polk County NC General Obligation 6.700 5/1/11 Aaa/AAA* 40,000 44,143
Randolf County NC Certificate of Participation 4.400 6/1/01 Aaa/AAA* 35,000 35,136
Richmond County NC Certificate of Participation 4.800 6/1/99 Aaa/AAA* 20,000 20,370
Sanford NC Refunding-Water & Sewer General Obligation 4.500 3/1/00 Aaa/A+* 15,000 15,214
University North Carolina Charlotte Student Activity Center 5.000 6/1/99 Aaa/AAA* 20,000 20,477
Winston-Salem State Unviersity Student Services Fee 5.200 6/1/99 Aaa/AAA* 10,000 10,268
--------------
$ 285,721
LOCAL GENERAL OBLIGATION BONDS
14.40% OF NET ASSET VALUE
Charlotte NC Water & Sewer General Obligation 5.250 4/1/99 Aaa/AAA* 10,000 $ 10,281
Charlotte NC Certificate of Participation Equipment Acquisition 4.350 9/1/00 AA* 70,000 70,242
Concord NC General Obligation 6.750 3/1/99 Aa/A+* 20,000 20,981
Forsyth County NC Refunding General Obligation 4.600 3/1/01 Aa1/AAA* 15,000 15,252
Greensboro NC Refunding General Obligation 4.600 3/1/00 Aa1/AAA* 25,000 25,451
Rocky Mount NC General Obligation 6.100 5/1/01 A/A+* 25,000 26,501
Salisbury NC Water & Sewer General Obligation 5.250 5/1/99 A/A+* 20,000 20,534
Surf City NC Refunding General Obligation 5.400 3/1/01 BBB-* 20,000 20,690
--------------
$ 209,932
HOSPITAL AND HEALTHCARE REVENUE BONDS
9.48% OF NET ASSET VALUE
NC Medical Care Community Hospital-Presbytarian Health 4.600 10/1/99 Aa3/AA* 10,000 $ 10,074
NC Medical Care Community Hospital-Presbytarian Health 5.000 10/1/02 Aa3/AA* 40,000 40,980
NC Medical Care Community Hospital-Presbytarian Health 5.350 10/1/01 Aa/AA* 25,000 25,949
NC Medical Care Community Hospital-Baptist Hospital 5.400 6/1/01 Aa/AA-* 10,000 10,436
NC Medical Care Community Hospital-Rex Hospital 4.900 6/1/99 A1/A+* 50,000 50,867
--------------
$ 138,306
COUNTY GENERAL OBLIGATION BONDS
7.54% OF NET ASSET VALUE
Buncombe County NC General Obligation 4.750 4/1/99 Aa/AA-* 5,000 $ 5,094
Durham County NC Refunding General Obligation 5.200 3/1/00 Aaa/AAA* 20,000 20,667
Forsyth County NC General Obligation 6.700 3/1/04 Aa1/AAA* 30,000 32,616
Guildford County NC General Obligation 5.250 4/1/99 Aa1/AA+* 10,000 10,294
Mecklenburg County NC Refunding General Obligation 5.200 3/1/99 Aaa/AAA* 20,000 20,569
Union County NC School General Obligation 5.800 3/1/99 A1/A+* 20,000 20,689
--------------
$ 109,929
</TABLE>
The accompanying notes are an integral part of the financial statements.
-41-
<PAGE> 69
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
7.32% OF NET ASSET VALUE
University of North Carolina Parking Systems 6.600 6/1/01 A1/AA* $ 100,000 $ 106,703
MUNICIPAL UTILITY REVENUE BONDS
5.69% OF NET ASSET VALUE
Buncombe County NC Water & Sewer Revenue 6.100 7/1/01 A/A+* 25,000 $ 26,573
New Hanover NC Water & Sewer District General Obligation 6.900 5/1/98 A1/A* 50,000 51,499
Orange County NC Water & Sewer Authority Revenue Refunding 4.250 7/1/01 Aa/AA* 5,000 4,964
---------------
$ 83,036
RENTAL AND MUNICIPAL LEASE REVENUE BONDS
3.85% OF NET ASSET VALUE
Charlotte NC Certificate of Participation Governmental Equipment 5.050 9/1/99 AA* 55,000 $ 56,186
ESCROWED TO MATURITY BONDS
2.96% OF NET ASSET VALUE
Durham NC General Obligation 7.000 5/1/00 Aaa/AAA* 40,000 $ 43,195
STATE AND LOCAL MORTGAGE REVENUE BONDS
2.08% OF NET ASSET VALUE
North Carolina Housing Finance Agency Single Family 4.750 3/1/02 Aa/AA* 30,000 $ 30,248
---------------
Total Investments (cost $1,488,370)(a) - 103.08% of Net Asset Value $ 1,503,303
================
* Standard and Poor's Corporation
NR Not Rated
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 20,650
Unrealized depreciation (5,717)
----------------
Net unrealized appreciation $ 14,933
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-42-
<PAGE> 70
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
ASSETS:
<S> <C> <C>
Investments in securities,at value (Cost: $1,488,370) $ 1,503,303
Interest receivable 18,191
Receivable from Advisor 10,968
------------
Total assets 1,532,463
LIABILITIES:
Cash overdraft $ 63,901
Payable for:
Distributions 4,990
Transfer agent 2,790
Other fees 2,392
------------
Total liabilities 74,073
------------
NET ASSETS;
Net assets consist of:
Capital $ 1,445,915
Net accumulated realized losses on investment transactions (2,458)
Net unrealized appreciation in value of investments 14,933
------------
Net assets at value $ 1,458,390
============
NET ASSET VALUE, offering price and redemption price per share
($1,458,390 / 144,146 shares outstanding) $ 10.12
============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
<S> <C>
Net investment income:
Interest income $ 59,889
------------
Expenses:
Investment advisory fees 6,989
Transfer agent 2,097
Professional fees 588
Trustee fees 176
Other expenses 1,601
------------
Total expenses 11,451
Expenses Reimbursed by Investment Advisor (8,243)
------------
Net investment income 56,681
------------
Realized and unrealized gain (loss) on investments
Net realized loss (1,015)
Net increase in unrealized appreciation 16,178
------------
Net realized and unrealized gain on investments 15,163
------------
Net increase in net assets resulting from operations $ 71,844
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-43-
<PAGE> 71
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED JUNE 30, 1997 AND 1996
1997 1996(a)
------------------------------------
Increase in net assets:
Operations:
<S> <C> <C>
Net investment income $ 56,681 $ 18,306
Net realized loss on investments (1,015) (1,443)
Net increase(decrease) in unrealized appreciation 16,178 (1,245)
------------------------------------
Net increase in net assets resulting from operations 71,844 15,618
Distributions to shareholders ($.409 and $.245, respectively) (56,681) (18,306)
Net fund share transactions 284,529 1,161,386
------------------------------------
Total increase 299,692 1,158,698
Net assets:
Beginning of period 1,158,698 --
------------------------------------
End of period $ 1,458,390 $ 1,158,698
====================================
<FN>
(a) Commencement of operations November 16, 1995.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
For the years ended June 30,
----------------------------
1997 1996(a)
----------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 9.99 $ 10.00
----------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.41 0.24
Net gains or losses on securities
(both realized and unrealized) 0.13 (0.01)
----------------------------
Total from investment operations 0.54 0.23
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.41) (0.24)
----------------------------
NET ASSET VALUE, END OF YEAR $ 10.12 $ 9.99
============================
Total return 5.49% 3.79
Net assets, end of period (in thousands) $ 1,458 1,159
Ratio of expenses to average net assets (b) 0.23% 0.16
Before expense reimbursement (b) 0.82% 1.78
Ratio of net investment income to average net assets (b) 3.46% 2.47
After expense reimbursement (b) 4.06% 0.85
Portfolio turnover 17.20% 17.18
(a) Commencement of operations November 16, 1995
(b) Annualized for periods less than a year
</TABLE>
The accompanying notes are an integral part of the financial statements.
-44-
<PAGE> 72
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
36.06% OF NET ASSET VALUE
Chattanooga-Hamilton County TN Hospital Revenue-Erlanger 5.625 10/1/18 Aaa/AAA* $ 30,000 $ 30,422
Clarksville TN Water Sewer & Gas Refunding & Improvement 6.250 2/1/18 Aaa/AAA* 200,000 211,232
Clarksville TN Water Sewer & Gas Revenue 5.650 2/1/17 Aaa 200,000 202,192
Franklin TN Industrial Development Board-Landings Apartment 5.550 10/1/08 Aaa/AAA* 50,000 51,344
Franklin TN Industrial Development Board-Landings Apartment 5.900 10/1/16 Aaa/AAA* 550,000 569,623
Gatlinburg TN Public Building Authority-Convention Center 6.900 12/1/12 Aaa/AAA* 90,000 98,636
Greater Tennessee Housing Assistance Refunding 7.250 7/1/24 Aaa/AAA* 5,000 5,683
Jackson TN Hospital Revenue Refunding & Improvement 5.625 4/1/15 Aaa/AAA* 310,000 315,202
Knox-Chapman TN Utility District Water & Sewer 6.000 1/1/14 Aaa/AAA* 40,000 42,544
Knox County TN Health Educational & Housing Facilities 5.875 9/1/15 Aaa/AAA* 15,000 15,592
Knox County TN Health Educational & Housing Facilities 6.000 9/1/19 Aaa/AAA* 100,000 103,778
Knox County TN Health Educational & Housing Facilities 5.650 1/1/08 Aaa/AAA* 20,000 20,849
Knox County TN Health Educational & Housing Facilities 6.250 1/1/13 Aaa/AAA* 10,000 10,874
Knox County TN Utility District Water & Sewer 5.625 12/1/19 Aaa 400,000 409,140
Knoxville TN Development Corporation Multi-Family 6.100 7/20/20 AAA* 500,000 509,844
Lauderdale County TN General Obligation 6.000 4/1/13 Aaa/AAA* 20,000 21,134
Lawrence County TN Public Improvements General Obligation 6.300 3/1/08 Aaa/AAA* 50,000 54,473
Memphis Shelby County TN Airport Revenue Refunding 5.650 9/1/15 Aaa/AAA* 55,000 56,113
Metropolitan Nashville & Davidson County TN-Stadium Project 5.750 7/1/14 Aaa/AAA* 100,000 103,631
Metropolitan Nashville & Davidson County TN-Stadium Project 5.875 7/1/21 Aaa/AAA* 350,000 361,893
Metropolitan Nashville TN Airport Series C 6.625 7/1/07 Aaa/AAA* 30,000 32,732
Metropolitan Nashville TN Airport Series C 6.600 7/1/15 Aaa/AAA* 120,000 129,995
Milan TN Special School District 6.750 4/1/13 Aaa/AAA* 60,000 67,657
North Anderson TN Utility District Waterworks Revenue 5.600 1/1/15 Aaa/AAA* 100,000 102,591
Shelby County TN Health Educational Housing-Heritage Place 6.900 7/1/14 Aaa/AAA* 150,000 166,682
Sullivan County TN Health Educational Housing-Holston Valley 5.750 2/15/13 Aaa/AAA* 130,000 135,204
Tennessee Housing Development Agency 5.900 7/1/17 Aaa/AAA* 35,000 35,874
Tennessee Housing Development Agency 5.900 7/1/18 Aaa/AAA* 100,000 103,214
Tennessee Housing Development Agency 5.850 7/1/13 Aaa/AAA* 100,000 103,747
Tennessee Housing Development Agency 6.200 7/1/18 Aaa/AAA* 755,000 784,060
Tipton County TN General Obligation 6.650 4/1/14 Aaa/AAA* 30,000 33,407
West Knox TN Utility District Series B 6.500 12/1/13 Aaa/AAA* 40,000 42,612
-----------
$ 4,931,974
STATE AND LOCAL MORTGAGE REVENUE BONDS
22.36% OF NET ASSET VALUE
Knoxville TN Community Development Corporation-Clinton Towers 6.650 10/15/10 A* 35,000 $ 37,281
Memphis TN Health Education & Housing Board-Hunters Trace 6.250 6/1/13 AA/AAA* 55,000 56,933
Memphis TN Health Education & Housing Board-Riverdale Plaza 6.350 7/20/28 AAA* 300,000 316,158
Memphis TN Health Education & Housing Board-River Trace II 6.250 10/1/13 Aaa 50,000 53,246
Metropolitan Nashville & Davidson County TN-Dandridge Tower 6.375 1/1/11 A* 200,000 216,810
Metropolitan Nashville & Davidson County TN-Hermitage Apts 5.900 2/1/19 A* 395,000 398,677
Murfreesboro TN Housing Authority-Westbrooks Towers Project 5.875 1/15/10 A* 300,000 307,047
Shelby County TN Health Educational Housing-Windsor Apts 6.750 10/1/17 AA* 355,000 390,215
Shelby County TN Health Educational Housing-Harbour Apts 6.000 4/15/18 A* 125,000 126,785
Shelby County TN Health Educational Housing-Harbour Apts 6.000 4/15/24 A* 50,000 50,742
Shelby County TN Health Educational Housing-Harbour Apts 5.750 4/15/11 A* 100,000 100,823
Shelby County TN Helath Educational Housing-Corners Apts 6.000 1/1/17 A 250,000 251,443
Tennessee Housing Development Agency 5.850 1/1/11 Aa/AA* 200,000 206,720
Tennessee Housing Development Agency 6.700 7/1/12 Aa/AA* 85,000 93,288
Tennessee Housing Development Agency 5.700 1/1/08 A1/A+* 100,000 102,910
Tennessee Housing Development Agency 5.850 7/1/13 A1/A+* 125,000 126,913
Tennessee Housing Development Agency 5.900 7/1/18 A1/A+* 220,000 222,794
-----------
$ 3,058,785
</TABLE>
The accompanying notes are an integral part of the financial statements.
-45-
<PAGE> 73
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COUNTY GENERAL OBLIGATION BONDS
12.70% OF NET ASSET VALUE
Marshall County TN General Obligation 5.600 6/1/14 A* $ 5,000 $ 5,070
Marshall County TN General Obligation 5.700 6/1/09 A 25,000 25,921
Metropolitan Nashville & Davidson County TN Limited Obligation 7.000 9/1/11 A1*/A* 180,000 197,239
Shelby County TN School 5.875 3/1/12 Aa/AA+* 150,000 156,267
Shelby County TN School 6.000 3/1/13 Aa/AA+* 35,000 36,731
Shelby County TN School 5.800 4/1/19 Aa/AA+* 100,000 102,646
Shelby County TN General Obligation Refunding Revenue 5.625 4/1/14 Aa/AA+* 80,000 82,110
Shelby County TN Public Improvement 5.875 3/1/07 Aa/AA+* 50,000 52,744
Shelby County TN School 5.900 3/1/12 Aa/AA+* 10,000 10,483
Shelby County TN School 5.900 3/1/16 Aa/AA+* 50,000 51,572
Shelby County TN School 5.950 3/1/17 Aa/AA+* 100,000 102,889
Shelby County TN School 5.950 3/1/19 Aa/AA+* 40,000 41,272
Shelby County TN Public Improvement 6.000 3/1/13 Aa/AA+* 30,000 31,670
Williamson County TN Rural School 5.800 3/1/12 Aa 100,000 104,324
Williamson County TN General Obligation 5.600 9/1/10 Aa 45,000 46,896
Wilson County TN General Obligation Unlimited 5.750 6/1/17 Aaa/AAA 250,000 255,128
Wilson County TN Certificates of Participation 6.125 6/30/10 A 410,000 433,959
------------
$ 1,736,921
MUNICIPAL UTILITY REVENUE BONDS
10.54% OF NET ASSET VALUE
Atoka TN Water & Sewer Revenue 7.000 2/1/11 NR 50,000 $ 50,592
Knoxville TN Gas Revenue Refunding & Improvement 5.900 3/1/12 A1/AA* 25,000 25,972
Memphis TN Sanitary Sewer System Revenue 5.750 10/1/14 A1/AA* 100,000 103,686
Memphis TN Water Revenue 6.000 1/1/12 A1/AA* 140,000 147,216
Metropolitan Nashville & Davidson County TN Electric 6.000 5/15/12 A1/AA* 30,000 31,529
Metropolitan Nashville & Davidson County TN Revenue Series 6.000 5/15/17 A1/AA* 345,000 357,934
Metropolitan Nashville & Davidson County TN Electric 5.625 5/15/14 A1/AA* 500,000 505,844
Metropolitan Nashville & Davidson County TN Water & Sewer 7.000 1/1/14 A1/A* 10,000 10,101
Metropolitan Nashville & Davidson County TN Water & Sewer 5.500 1/1/16 A1/A* 185,000 182,466
Mount Juliet TN Public Building Revenue Utility District 7.550 2/1/14 A3 25,000 26,759
------------
$ 1,442,099
LOCAL GENERAL OBLIGATION BONDS
4.75% OF NET ASSET VALUE
Chattanooga TN General Obligation 6.000 8/1/11 A1/AA-* 110,000 $ 116,745
Collierville TN Improvement General Obligation 5.900 5/1/12 A1 30,000 31,710
Memphis TN General Improvement General Obligation 5.500 10/1/10 Aa/AA* 20,000 20,477
Metropolitan Nashville & Davidson County TN General Obligation 6.125 5/15/13 Aa/AA* 70,000 74,071
Metropolitan Nashville & Davidson County TN General Obligation 6.125 5/15/19 Aa/AA* 290,000 304,293
Metropolitan Nashville & Davidson County TN General Obligation 5.875 5/15/26 Aa/AA* 100,000 102,619
------------
$ 649,915
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
4.57% OF NET ASSET VALUE
Chattanooga TN Industrial Development Board-F. L. Haney Co 7.200 8/15/10 AAA* 20,000 $ 24,067
Chattanooga TN Industrial Development Board-F. L. Haney Co 7.200 8/15/09 AAA* 25,000 30,004
Chattanooga TN Industrial Development Board-F. L. Haney Co 7.200 2/15/09 AAA* 25,000 30,005
Chattanooga TN Industrial Development Board-F. L. Haney Co 7.200 2/15/10 AAA* 100,000 119,883
Cookeville TN Industrial Development Board-General Hospital 5.625 10/1/16 A 200,000 200,557
Franklin TN Industrial Development Board-Sussex Downs LTD 6.250 6/1/07 AAA* 30,000 32,976
Maury County TN Industrial Revenue-Saturn Corporation 6.500 9/1/24 A* 100,000 107,761
Tennessee Local Development Authority Community Provider 7.000 10/1/11 A-/A* 5,000 5,365
Tennessee Local Development Authority Community Provider 6.250 10/1/09 A-/A* 30,000 31,857
Tennessee Local Development Authority Community Provider 6.450 10/1/14 A-/A* 40,000 42,395
------------
$ 624,870
</TABLE>
The accompanying notes are an integral part of the financial statements.
-46-
<PAGE> 74
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RENTAL AND MUNICIPAL LEASE REVENUE BONDS
2.21% OF NET ASSET VALUE
Memphis Shelby County TN Airport Special Facilities Revenue 7.875 9/1/09 Baa/BBB* $ 120,000 $ 135,708
Memphis Shelby County TN Airport Revenue Refunding FedX 6.750 9/1/12 Baa/BBB* 155,000 166,158
------------
$ 301,866
HOSPITAL AND HEALTHCARE REVENUE BONDS
1.93% OF NET ASSET VALUE
Anderson County TN Health & Educational Facilities Revenue 5.650 7/1/07 A1 155,000 $ 161,309
Signal Mountain TN Health Educational Housing-Alexian Villa 7.500 1/1/19 A2 15,000 16,233
Sumner County TN Health Educational Housing-Sumner Regional 7.500 11/1/14 A-* 75,000 87,182
------------
$ 264,724
STATE GENERAL OBLIGATION AND AGENCY REVENUE BONDS
1.79% OF NET ASSET VALUE
Tennessee Local Development Authority Student Loan Program 5.750 3/1/11 A/AA-* 200,000 $ 207,122
TN State School Board Authority Higher Educational Facilities 6.250 5/1/17 A1/AA* 35,000 37,192
------------
$ 244,314
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
1.70% OF NET ASSET VALUE
Metropolitan Nashville & Davidson County TN Vanderbilt 6.500 5/1/16 Aa3/AA* 80,000 $ 85,837
Metropolitan Nashville & Davidson County TN-Vanderbilt 6.000 10/1/16 Aa3/AA* 130,000 135,964
Metropolitan Nashville & Davidson County TN-Belmont University 6.300 12/1/14 Baa3 10,000 10,469
------------
$ 232,270
PREREFUNDED AND ESCROWED TO MATURITY BONDS
.58% OF NET ASSET VALUE
Jackson TN Water & Sewer Revenue 7.200 7/1/12 Aaa/AAA* 10,000 $ 11,654
Metropolitan Nashville & Davidson County TN Water & Sewer 6.500 12/1/14 Aaa/AAA* 60,000 68,267
------------
$ 79,921
------------
Total Investments (cost $13,075,981)(a) - 99.19% of Net Asset Value $ 13,567,659
============
* Standard and Poor's Corporation
NR Not Rated
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 500,839
Unrealized depreciation (9,161)
------------
Net unrealized appreciation $ 491,678
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-47-
<PAGE> 75
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $13,075,981) $ 13,567,659
Cash 27,253
Interest receivable 270,027
------------
Total assets 13,864,939
LIABILITIES:
Payable for:
Distributions $ 151,580
Fund shares redeemed 15,000
Management fee 1,853
Transfer agent 1,632
Other fees 16,636
------------
Total liabilities 186,701
------------
NET ASSETS;
Net assets consist of:
Capital $ 13,194,558
Net accumulated realized losses on investment transactions (7,998)
Net unrealized appreciation in value of investments 491,678
------------
Net assets at value $ 13,678,238
============
NET ASSET VALUE, offering price and redemption price per share
($13,678,238 / 1,299,205 shares outstanding) $ 10.53
============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<S> <C>
Net investment income:
Interest income $ 586,358
------------
Expenses:
Investment advisory fees 51,432
Transfer agent 15,430
Professional fees 2,377
Trustee fees 1,269
Other expenses 8,989
------------
Total expenses 79,497
Expenses reimbursed by Investment Advisor (23,339)
------------
Net investment income 530,200
------------
Realized and unrealized gain on investments
Net realized gain 5,962
Net increase in unrealized appreciation 306,580
------------
Net realized and unrealized gain on investments 312,542
------------
Net increase in net assets resulting from operations $ 842,742
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-48-
<PAGE> 76
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
-----------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 530,200 $ 355,163
Net realized gain on investments 5,962 4,523
Net increase in unrealized appreciation 306,580 38,819
-----------------------------
Net increase in net assets resulting from operations 842,742 398,505
Distributions to shareholders ($.538 and $.542, respectively) (530,200) (355,163)
Net fund share transactions 5,309,898 2,977,854
-----------------------------
Total increase 5,622,440 3,021,196
Net assets:
Beginning of year 8,055,798 5,034,602
-----------------------------
End of year $ 13,678,238 $ 8,055,798
=============================
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
For the year ended June 30,
-----------------------------------------
1997 1996 1995 1994(a)
-----------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.17 10.05 9.51 10.00
-----------------------------------------
Income From Investment Operations:
Net investment income 0.54 0.54 0.54 0.28
Net gains or losses on securities
(both realized and unrealized) 0.36 0.12 0.54 (0.49)
-----------------------------------------
Total from investment operations 0.90 0.66 1.08 (0.21)
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.54) (0.54) (0.54) (0.28)
-----------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.53 10.17 10.05 9.51
=========================================
Total return (b) 8.96% 6.65 11.65 (4.17)
Net assets, end of year (in thousands) $13,678 8,056 5,010 794
Ratio of expenses to average net assets (b) 0.55% 0.54 0.34 0.12
Before expense reimbursement (b) 0.77% 0.90 1.16 4.01
Ratio of net investment income to average net assets (b) 4.92% 5.27 5.59 2.83
after expense reimbursement (b) 5.15% 4.91 4.77 (1.06)
Portfolio turnover 5.14% 9.13 6.84 15.88
<FN>
(a) Commencement of operations December 20, 1993
(b) Annualized for periods less than a year
</TABLE>
The accompanying notes are an integral part of the financial statements.
-49-
<PAGE> 77
DUPREE MUTUAL FUNDS- TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PREREFUNDED AND ESCROWED TO MATURITY BONDS
26.10% OF NET ASSET VALUE
Bristol TN Health & Education Facility-Memorial Hospital 7.000 9/1/21 Aaa/AAA* $ 100,000 $ 110,562
Clarksville TN Water Sewer & Gas Revenue 7.400 2/1/05 Aaa/AAA* 10,000 10,430
Jackson TN Water & Sewer Revenue Refunded 10.375 7/1/12 Aaa/AAA* 10,000 11,434
Johnson City TN Health & Education Revenue 6.750 7/1/06 Aaa/AAA* 20,000 22,067
Knox County TN Public Improvement General Obligation 6.500 4/1/11 Aa 10,000 10,350
Knox County TN Health & Education-Fort Sanders Alliance 7.000 1/1/08 Aaa/AAA* 10,000 10,889
Knox County TN Health & Education-Fort Sanders Alliance 7.000 1/1/15 Aaa/AAA* 155,000 168,930
Knoxville TN Gas Revenue 6.700 3/1/05 NR 50,000 52,167
Memphis TN General Obligation 5.200 1/1/00 Aaa 10,000 10,244
Memphis TN General Obligation 6.800 7/1/11 Aaa/AAA* 40,000 42,152
Memphis TN Electic Systems Revenue 6.750 1/1/03 NR 100,000 107,167
Metropolitan Government Nashville & Davidson County TN 6.600 4/1/98 Aaa/AAA* 15,000 15,361
Metropolitan Government Nashville & Davidson County TN 10.625 12/1/07 Aaa/AAA* 20,000 20,589
Metropolitan Nashville TN Airport Improvement Revenue 7.750 7/1/06 Aaa/AAA* 100,000 114,328
Oak Ridge TN Public Improvement General Obligation 6.600 4/1/09 Aa 10,000 10,443
Scott & Morgan Counties TN Citizens Gas Utility District 7.500 1/1/09 Aaa/AAA* 10,000 10,754
Shelby County TN Lebonhuer Children's Medical Center 7.600 8/15/19 Aaa/AAA* 50,000 53,328
------------
$ 781,195
INSURED MUNICIPAL REVENUE BONDS
21.88% OF NET ASSET VALUE
Bristol Tn Health & Education Facility-Memphis Hospital 6.300 9/1/00 Aaa/AAA* 50,000 $ 52,960
Chattanooga-Hamilton TN Hospital Authority-Erlanger Medical 5.100 10/1/01 Aaa/AAA* 10,000 10,276
Chattanooga-Hamilton TN Hospital Authority-Erlanger Medical 5.125 10/1/02 Aaa/AAA* 50,000 51,491
Chattanooga TN Water & Sewer Facility General Obligation 5.000 6/1/98 Aaa/AAA* 50,000 50,831
Hamilton County TN Industrial Development Lease Revenue 4.875 9/1/97 Aaa/AAA* 10,000 10,025
Hamilton County TN Industrial Development Lease Revenue 5.500 9/1/02 Aaa/AAA* 100,000 104,606
Johnson City TN Health & Education Refunding & Improvement 6.200 7/1/99 Aaa/AAA* 35,000 36,537
LaFollette TN Electric System Revenue 5.500 3/1/01 Aaa 165,000 169,781
Metropolitan Nashville Airport Revenue 6.200 7/1/02 Aaa/AAA* 25,000 26,874
Milan TN Hospital Revenue 7.050 3/1/99 Aaa/AAA* 80,000 84,454
Powell Clinch TN Utility District Natural Gas System Revenue 6.450 1/1/99 Aaa/AAA* 35,000 36,140
Sevier County TN Utility District Gas Revenue 6.300 5/1/99 Aaa/AAA* 20,000 20,852
------------
$ 654,827
COUNTY GENERAL OBLIGATION BONDS
12.44% OF NET ASSET VALUE
Hamilton County TN General Obligation 4.600 10/1/98 Aa 10,000 $ 10,171
Knox County TN Refunding General Obligation 5.000 3/1/99 Aa/AA* 20,000 20,238
Madison County TN School General Obligation 6.000 4/1/01 A1 10,000 10,593
Metropolitan Government Nashville & Davidson County TN 6.500 9/1/00 A1/A* 50,000 53,208
Rutherford County TN General Obligation 4.750 4/1/01 Aa/AA* 100,000 101,156
Rutherford County Tn Capital Outlay Notes General Obligation 4.700 4/1/02 Aa/AA-* 45,000 45,340
Shelby County TN Refunding General Obligation 5.300 3/1/98 Aa/AA+* 100,000 101,308
Summer County TN General Obligation 7.000 2/1/98 Aa 20,000 20,428
Williamson County TN Capital Outlay Notes General Obligation 4.400 8/1/97 Aa 10,000 10,012
------------
$ 372,454
LOCAL GENERAL OBLIGATION BONDS
11.78% OF NET ASSET VALUE
Chattanooga TN General Obligation 7.750 8/1/99 A1/AA-* 100,000 $ 107,802
Chattanooga TN Refunding General Obligation 5.000 11/1/00 A1/AA-* 30,000 30,776
Chattanooga TN Public Improvement General Obligation 4.900 2/1/99 A1/AA-* 40,000 40,799
Kingsport TN Water Refunding General Obligation 5.300 8/1/00 A1/A+* 25,000 25,795
Knoxville TN Refunding & Improvement General Obligation 4.850 5/1/99 A1/AA-* 50,000 50,894
Metropolitan Government Nashville & Davidson County TN 4.500 5/15/99 Aa/AA* 70,000 70,888
Mufreesboro TN General Obligation 5.700 9/1/99 A1 10,000 10,394
Oak Ridge TN School General Obligation 4.600 7/1/98 Aa/A+* 15,000 15,195
------------
$ 352,543
</TABLE>
The accompanying notes are an integral part of the financial statements.
-50-
<PAGE> 78
DUPREE MUTUAL FUNDS- TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PUBLIC CORPORATION REVENUE BONDS
8.65% OF NET ASSET VALUE
Clarksville TN Public Building Authority-Pooled Loan 4.750 12/1/00 AA* $ 255,000 $ 259,009
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
7.48% OF NET ASSET VALUE
Bristol TN Industrial Development Board Revenue 4.700 3/1/00 AA* 75,000 $ 75,838
Bristol TN Industrial Development Board Revenue 4.800 3/1/01 AA* 70,000 70,769
Chattanooga TN Industrial Development-F.L.Haney Corporation 6.700 8/15/00 AAA* 25,000 26,834
Franklin TN Industrial Development Multi-Family Housing 4.650 10/1/00 Aaa/AAA* 50,000 50,327
------------
$ 223,768
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
5.12% OF NET ASSET VALUE
Metro Government Nashville/Davidson County TN Multi-Family 4.800 1/1/01 AAA* 50,000 $ 50,562
Tennessee Housing Development Agency Mortgage Finance 5.300 1/1/03 A1/A+* 100,000 102,489
------------
$ 153,051
HOSPITAL AND HEALTHCARE REVENUE BONDS
2.02% OF NET ASSET VALUE
Jackson TN Hospital Refunding & Improvement Revenue 4.800 4/1/02 A1/A+* 60,000 $ 60,529
STATE GENERAL OBLIGATION AND AGENCY REVENUE BONDS
3.44% OF NET ASSET VALUE
Tennessee State General Obligation 5.000 3/1/03 Aaa/AA+* 100,000 $ 102,874
MUNICIPAL UTILITY REVENUE BONDS
1.20% OF NET ASSET VALUE
Memphis TN Sanitation Sewer System Revenue 4.600 10/1/97 Aa/AA* 10,000 $ 10,038
Memphis TN Sanitation Sewer System Revenue 5.500 10/1/99 Aa/AA* 25,000 25,809
------------
$ 35,847
------------
Total Investments (cost $2,958,481)(a) - 100.11% of Net Asset Value $ 2,996,097
============
* Standard and Poor's Corporation
NR Not Rated
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 58,221
Unrealized depreciation (20,605)
------------
Net unrealized appreciation $ 37,616
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-51-
<PAGE> 79
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
ASSETS:
<S> <C> <C>
Investments in securities, at value (Cost: $2,958,481) $ 2,996,097
Cash 41,133
Interest receivable 57,269
Receivable from investments sold 81,000
Receivable from Advisor 9,575
------------
Total assets 3,185,074
LIABILITIES:
Payable for:
Investments purchased $ 171,264
Distributions 10,169
Transfer agent 7,812
Other fees 2,998
------------
Total liabilities 192,243
------------
NET ASSETS;
Net assets consist of:
Capital $ 2,957,682
Net accumulated realized losses on investment transactions (2,467)
Net unrealized appreciation in value of investments 37,616
------------
Net assets at value $ 2,992,831
============
NET ASSET VALUE, offering price and redemption price per share
($2,992,831 / 289,924 shares outstanding) $ 10.32
============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<S> <C>
Net investment income:
Interest income $ 123,663
------------
Expenses:
Investment advisory fees 13,694
Transfer agent 4,109
Professional fees 815
Trustee fees 347
Other expenses 4,202
------------
Total expenses 23,167
Expenses reimbursed by Investment Advisor (10,311)
------------
Net investment income 110,807
------------
Realized and unrealized gain on investments
Net realized loss (1,660)
Net increase in unrealized appreciation 19,480
------------
Net realized and unrealized gain on investments 17,820
------------
Net increase in net assets resulting from operations $ 128,627
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-52-
<PAGE> 80
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX FREE SHORT-TO-MEDIUM SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1997 AND 1996
1997 1996
---------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 110,807 $ 83,231
Net realized loss on investments (1,660) (807)
Net increase in unrealized appreciation 19,480 4,263
---------------------------
Net increase in net assets resulting from operations 128,627 86,687
Dividends to shareholders ($.417 and $.417, respectively) (110,807) (83,231)
Net fund share transactions 519,836 917,075
---------------------------
Total increase 537,656 920,531
Net assets:
Beginning of year 2,455,175 1,534,644
---------------------------
End of year $ 2,992,831 $ 2,455,175
===========================
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
For the years ended June 30,
---------------------------------------
1997 1996 1995(a)
---------------------------------------
<S> <C> <C> <C>
Net Asset Value, beginning of year $10.25 10.20 10.00
---------------------------------------
Income From Investment Operations:
Net investment income 0.42 0.42 0.28
Net gains or losses on securities
(both realized and unrealized) 0.07 0.05 0.20
---------------------------------------
Total from investment operations 0.49 0.47 0.48
Less Distributions:
Distributions (from net investment income) (0.42) (0.42) (0.28)
---------------------------------------
Net Asset Value, end of year $10.32 10.25 10.20
=======================================
Total return (b) 4.83% 4.62 7.41
Net assets, end of period (in thousands) $2,993 2,455 1,535
Ratio of expenses to average net assets (b) 0.47% 0.50 0.28
Before expense reimbursement (b) 0.85% 1.19 2.05
Ratio of net investment income to average net assets (b) 3.67% 4.05 2.80
After expense reimbursement (b) 4.04% 3.36 1.03
Portfolio turnover 24.49% 23.17 0.71
(a) Commencement of operations November 1, 1994
(b) Annualized for periods less than a year
</TABLE>
The accompanying notes are an integral part of the financial statements.
-53-
<PAGE> 81
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
GOVERNMENT SECURITIES AND AGENCIES - 100%
JUNE 30, 1997
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE PAR VALUE MARKET VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
67.32% OF NET ASSET VALUE
Medium Term Note 7.700 8/10/04 $ 250,000 $ 253,629
Medium Term Note 7.780 9/29/06 300,000 302,830
Medium Term Note 7.720 6/14/06 2,000,000 2,013,583
Medium Term Note 7.590 10/4/06 2,000,000 2,005,447
Medium Term Note 7.280 5/23/07 1,000,000 1,004,155
------------
$ 5,579,644
FEDERAL HOME LOAN BANK
28.21% OF NET ASSET VALUE
Medium Term Note 8.170 12/16/04 2,000,000 $ 2,179,869
Medium Term Note 7.560 9/1/04 150,000 157,928
------------
$ 2,337,797
FEDERAL HOME LOAN MORTGAGE CORPORATION
2.98% OF NET ASSET VALUE
Medium Term Note 7.225 11/8/06 250,000 $ 247,406
------------
Total Investments (cost $7,936,140)(a) - 98.51% of Net Asset Value $ 8,164,847
============
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 236,002
Unrealized depreciation (7,295)
============
Net unrealized appreciation $ 228,707
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-54-
<PAGE> 82
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $7,936,140) $ 8,164,847
Cash 109,426
Interest receivable 77,559
------------
Total assets 8,351,832
LIABILITIES:
Payable for:
Distributions $ 48,200
Management fee 1,362
Transfer agent 987
Other fees 12,967
------------
Total liabilities 63,516
------------
NET ASSETS:
Net assets consist of:
Capital 8,846,574
Net accumulated realized losses on investment transactions (786,965)
Net unrealized appreciation in value of investments 228,707
------------
Net assets at value $ 8,288,316
============
NET ASSET VALUE, offering price and redemption price per share $ 9.89
============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<S> <C>
Net investment income:
Interest income $ 627,066
------------
Expenses:
Investment advisory fees 16,159
Transfer agent 12,102
Professional fees 1,534
Trustee fees 1,030
Other expenses 14,628
------------
Total expenses 45,453
Expenses reimbursed by Investment Advisor (5,347)
------------
Net investment income 586,960
------------
Realized and unrealized gain on investments
Net realized gain 41,000
Net increase in unrealized appreciation (6,266)
------------
Net realized and unrealized gain on investments 34,734
------------
Net increase in net assets resulting from operations $ 621,694
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-55-
<PAGE> 83
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 586,960 $ 571,272
Net realized gain (loss) on investments 41,000 (87,381)
Net increase (decrease) in unrealized appreciation (6,266) (162,769)
----------------------------
Net increase in net assets resulting from operations 621,694 321,122
Distributions to shareholders ($.718 and $.718, respectively) (586,960) (571,272)
Net fund share transactions 488,797 302,252
----------------------------
Total increase 523,531 52,102
Net assets:
Beginning of year 7,764,785 7,712,683
----------------------------
End of year $ 8,288,316 $ 7,764,785
============================
</TABLE>
- --------------------------------------------------------------------------------
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------------------------
1997 1996 1995 1994 1993(a)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $9.85 10.15 9.65 10.60 10.00
------------------------------------------------------------
Income From Investment Operations:
Net investment income 0.72 0.72 0.69 0.63 0.59
Net gains or losses on securities
(both realized and unrealized) 0.04 (0.30) 0.50 (0.95) 0.60
------------------------------------------------------------
Total from investment operations 0.76 0.42 1.19 (0.32) 1.19
Less Distributions:
Distributions (from net investment income) (0.72) (0.72) (0.69) (0.63) (0.59)
------------------------------------------------------------
Net asset value, end of year $9.89 9.85 10.15 9.65 10.60
============================================================
Total return (b) 7.95% 4.15 12.78 (3.32) 12.64
Net assets, end of period (in thousands) $8,288 7,765 7,713 8,372 5,897
Ratio of expenses to average net assets (b) 0.50% 0.40 0.40 0.40 0.40
Before expense reimbursement (b) 0.56% 0.62 0.61 0.65 1.34
Ratio of net investment income to average net assets (b) 7.26% 7.11 7.06 6.00 6.23
After expense reimbursement (b) 7.20% 6.89 6.85 5.75 5.29
Portfolio turnover 40.86% 33.89 74.98 23.08 0.00
<FN>
(a) Commencement of operations July 12, 1992.
(b) Annualized for periods less than a full year.
</TABLE>
The accompanying notes are an integral part of the financial statements.
-56-
<PAGE> 84
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Dupree Mutual Funds is registered under the Investment Company Act of
1940, as amended, as a no-load, open-end investment company. The
Declaration of Trust of Dupree Mutual Funds (the "Trust") permits the
Trustees to create an unlimited number of series of investment portfolios
(each a "Fund" and collectively the "Funds") and with respect to each
series to issue an unlimited number of full or fractional shares of a
single class. The Trust currently offers seven series:
the Kentucky Tax-Free Income Series, a diversified portfolio,
the Kentucky Tax-Free Short-to-Medium Series, a non-diversified
portfolio,
the North Carolina Tax-Free Income Series, a non-diversified
portfolio,
the North Carolina Tax-Free Short-to-Medium Series, a
non-diversified portfolio,
the Tennessee Tax-Free Income Series, a diversified portfolio,
the Tennessee Tax-Free Short-to-Medium Series, a non-diversified
portfolio, and
the Intermediate Government Bond Series, a non-diversified
portfolio.
The investment strategy of the six state tax-free funds is to maintain
100% of their investments in Kentucky, North Carolina or Tennessee
municipal securities. Regarding the Kentucky Series, unlike many states,
payment on nearly all Kentucky municipal securities depends upon revenue
generated by the property financed by the securities, and the securities
are not general obligations of the issuer.
The Intermediate Government Bond Series' investment strategy is to invest
only in obligations of the U.S. Treasury and Agencies of the U.S.
Government. The Intermediate Government Bond Series will buy bonds and
notes that will maintain an average maturity of no more than ten years.
The following is a summary of significant accounting policies
consistently followed by the Funds in the preparation of their financial
statements. The policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION
Securities are valued by using market quotation or obtained from
yield data relating to instruments or securities with similar
characteristics as determined in good faith under the direction of
the Funds' Board of Trustees.
B. SECURITY TRANSACTIONS
Security transactions are accounted for on a trade date basis.
Gains and losses on securities sold are determined on an
identified cost basis.
C. SECURITY INCOME
Interest income, which includes the amortization of premiums and
the accretion of original issue discounts for financial and tax
reporting purposes, is recorded on the accrual basis.
-57-
<PAGE> 85
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
D. FEDERAL INCOME TAXES
Each of the Funds is a separate entity for federal income tax
purposes. It is each Fund's policy to qualify as a regulated
investment company by complying with the requirements of the
Internal Revenue Code (the "code") applicable to regulated
investment companies, including the distribution of all taxable
income to their shareholders. The Funds have met the requirements
of the code applicable to regulated investment companies for the
year ended June 30, 1997. Therefore, no federal income tax
provision is required.
E. DISTRIBUTIONS
All of the net investment income of the Funds is declared as a
dividend to shareholders of record as of the close of business
each day. Distributions to be paid are payable in cash or in
additional shares at the net asset value on the payable date.
Distributions are payable:
Monthly for: the Kentucky Tax-Free Short-to-Medium Series, and
the North Carolina Tax-Free Short-to-Medium
Series, and
the Tennessee Tax-Free Short-to-Medium Series, and
the Intermediate Government Bond Series, and
Quarterly for: the Kentucky Tax-Free Income Series, and
the North Carolina Tax-Free Income Series, and
the Tennessee Tax-Free Income Series
Timing differences relating to shareholder distributions are
reflected in the components of net assets and permanent book and
tax basis differences relating to shareholder distributions have
been reclassified to capital.
F. ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
and disclosures. Actual amounts could differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Trustees of the Trust consist of six individuals, four of whom are
not "interested persons" of the Trust as defined in the Investment
Company Act of 1940. Two of the Trust's trustees are "interested persons"
of the Trust's Investment Adviser and of the Trust within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940 by virtue of their
officership, directorship and/or employment with Dupree Investment
Advisers, Inc. Dupree Investment Advisers, Inc. is a Kentucky Corporation
formed in 1986 as a wholly owned subsidiary of Dupree & Company, Inc.
Dupree Investment Advisers also serves as the Trust's Transfer Agent.
The funds have a contractual agreement with Star Bank, N.A. whereby the
bank will provide certain custodial services for $1.00 per year.
Subject to the direction of the Trustees, Dupree Investment Advisers is
responsible for the management of the Funds' portfolios. The compensation
paid to Dupree Investment Advisers pursuant to the Investment Advisory
Agreements is a percentage of the daily net assets of each series
(determined separately) as follows:
58
<PAGE> 86
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES, CONTINUED:
<TABLE>
<CAPTION>
RANGE OF NET ASSETS $100,000,001-
$0-$100,000,000 $150,000,000 $150,000,001+
<S> <C> <C> <C>
Intermediate Government Bond Series .20 of 1% .20 of 1% .20 of 1%
Kentucky Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Kentucky Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
North Carolina Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
North Carolina Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
Tennessee Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Tennessee Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
</TABLE>
However, the Dupree firm may voluntarily waive or refund investment
advisory fees payable to it under the Investment Advisory Agreement with
each Fund, and assume and pay other operating expenses.
For the period ended June 30, 1997 investment advisory fees for: the
North Carolina Tax-Free Income Series totaled $10,797; however, Dupree
voluntarily refunded fees and reimbursed expenses totaling $12,274 in
accordance with the investment advisory agreement,
the North Carolina Tax-Free Short-to-Medium Series totaled $6,989;
however, Dupree voluntarily refunded fees and reimbursed expenses
totaling $8,243 in accordance with the investment advisory agreement,
the Tennessee Tax-Free Income Series totaled $51,432; however, Dupree
voluntarily refunded fees and reimbursed expenses totaling $23,339 in
accordance with the investment advisory agreement,
the Tennessee Tax-Free Short-to-Medium Series totaled $13,694; however,
Dupree voluntarily refunded fees and reimbursed expenses totaling $10,311
in accordance with the investment advisory agreement, and
the Intermediate Government Bond Series totaled $16,159; however, Dupree
voluntarily refunded fees and reimbursed expenses totaling $5,347 in
accordance with the investment advisory agreement.
In addition, each Fund has entered into a shareholder service agreement
with Dupree. The agreement provides for a fee computed on the average
daily net asset value at the annual rate of .15% on the first $20,000,000
and .12% of all amounts in excess of $20,000,000.
3. PURCHASES AND SALES OF SECURITIES
The Funds may purchase securities with delivery or payments to occur at a
later date. At the time the Funds enter into a commitment to purchase a
security, the transaction is recorded and the value of the security is
reflected in the net asset value. The value of the security may vary with
market fluctuations. No interest accrues to the Fund until payment takes
place. At the time the Fund enters into this type of transaction it is
required to segregate cash or other liquid assets equal to the value of
the securities purchased. At June 30, 1997 the Kentucky Tax-Free Income
Series had $4,088,425 in purchase commitments outstanding (1.2% of net
assets).
59
<PAGE> 87
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
3. PURCHASES AND SALES OF SECURITIES, CONTINUED:
During the period, the cost of purchases and the proceeds from sales of
securities for each Series were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------- -------------
<S> <C> <C>
Kentucky Tax-Free Income Series $ 46,786,687 $ 20,575,254
Kentucky Tax-Free Short-to-Medium Series 11,714,065 23,272,999
North Carolina Tax-Free Income Series 2,948,219 518,023
North Carolina Tax-Free Short-to-Medium Series 588,942 234,018
Tennessee Tax-Free Income Series 5,756,981 522,869
Tennessee Tax-Free Short-to-Medium Series 1,252,881 654,069
Intermediate Government Bond Series 3,567,134 3,239,125
</TABLE>
4. CAPITAL SHARES
At June 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
KENTUCKY TAX FREE INCOME SERIES Year Ended June 30, 1997 Year ended June 30, 1996
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,911,832 $ 51,529,504 5,856,571 $ 43,572,295
- -------------------------------------------------------------------------------------------------
Shares issued for reinvestment from
net investment income 1,239,589 9,213,871 1,246,021 9,268,993
- -------------------------------------------------------------------------------------------------
Shares redeemed (4,493,844) (33,490,801) (3,886,531) (28,806,022)
- -------------------------------------------------------------------------------------------------
Net increase 3,657,577 $ 27,252,574 3,216,061 $ 24,035,266
- -------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
KENTUCKY TAX FREE
SHORT-TO-MEDIUM SERIES Year Ended June 30, 1997 Year ended June 30, 1996
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,967,033 $ 15,516,882 5,881,927 $ 30,612,214
- -------------------------------------------------------------------------------------------------
Shares issued for reinvestment from
net investment income 349,476 1,826,424 337,791 1,760,118
- -------------------------------------------------------------------------------------------------
Shares redeemed (5,804,189) (30,359,104) (4,436,223) (23,109,704)
- -------------------------------------------------------------------------------------------------
Net increase(decrease) (2,487,680) $(13,015,798) 1,783,495 $ 9,262,628
- -------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
NORTH CAROLINA TAX FREE Period ended
INCOME SERIES Year Ended June 30, 1997 June 30, 1996(a)
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 357,843 $ 3,659,166 109,157 $ 1,088,388
- -------------------------------------------------------------------------------------------------
Shares issued for reinvestment from
net investment income 6,414 65,020 574 5,725
- -------------------------------------------------------------------------------------------------
Shares redeemed (124,629) (1,281,814) (2087) (20,783)
- -------------------------------------------------------------------------------------------------
Net increase 239,628 $ 2,442,372 107,644 $ 1,073,330
- -------------------------------------------------------------------------------------------------
<FN>
(a) Commencement of operations November 16, 1995.
</TABLE>
60
<PAGE> 88
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
4. CAPITAL SHARES, CONTINUED:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NORTH CAROLINA TAX FREE Period ended
SHORT-TO-MEDIUM SERIES Year Ended June 30, 1997 June 30, 1996(a)
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 110,651 $ 1,116,918 124,536 $ 1,246,858
- -------------------------------------------------------------------------------------------------
Shares issued for reinvestment from
net investment income 4,785 48,224 1,237 12,390
- -------------------------------------------------------------------------------------------------
Shares redeemed (87,250) (880,613) (9,813) (97,862)
- -------------------------------------------------------------------------------------------------
Net increase 28,186 $ 284,529 115,960 $ 1,161,386
- -------------------------------------------------------------------------------------------------
<FN>
(a) Commencement of operations November 16, 1995.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
TENNESSEE TAX FREE INCOME SERIES Year Ended June 30, 1997 Year ended June 30, 1996
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 572,212 $ 5,987,451 344,112 $ 3,525,089
- -------------------------------------------------------------------------------------------------
Shares issued for reinvestment from
net investment income 24,083 250,183 15,128 155,145
- -------------------------------------------------------------------------------------------------
Shares redeemed (88,998) (927,736) (68,077) (702,380)
- -------------------------------------------------------------------------------------------------
Net increase 507,297 $ 5,309,898 291,163 $ 2,977,854
- -------------------------------------------------------------------------------------------------
<CAPTION>
TENNESSEE TAX FREE
SHORT-TO-MEDIUM SERIES Year Ended June 30, 1997 Year ended June 30, 1996
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 175,341 $ 1,807,115 170,177 $ 1,751,918
- -------------------------------------------------------------------------------------------------
Shares issued for reinvestment from
net investment income 9,873 101,711 7,321 75,312
- -------------------------------------------------------------------------------------------------
Shares redeemed (134,750) (1,388,990) (88,420) (910,155)
- -------------------------------------------------------------------------------------------------
Net increase 50,464 $ 519,836 89,078 $ 917,075
- -------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND
SERIES Year Ended June 30, 1997 Year ended June 30, 1996
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 218,223 $ 2,158,124 202,624 $ 2,056,439
- -------------------------------------------------------------------------------------------------
Shares issued for reinvestment from
net investment income 39,541 390,306 37,438 378,456
- -------------------------------------------------------------------------------------------------
Shares redeemed (208,029) (2,059,633) (211,652) (2,132,643)
- -------------------------------------------------------------------------------------------------
Net increase 49,735 $ 488,797 28,410 $ 302,252
- -------------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE> 89
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
5. FEDERAL INCOME TAXES
At June 30, 1997, the Kentucky Tax-Free Income Series, the Kentucky Tax-Free
Short-to-Medium Series, the North Carolina Tax-Free Income Series, the North
Carolina Tax-Free Short-to-Medium Series, the Tennessee Tax-Free Income
Series, the Tennessee Tax-Free Short-to-Medium Series and the Intermediate
Government Bond Series have capital loss carryforwards which are available
to offset future capital gains, if any. The capital loss carryforwards
expire as follows:
<TABLE>
<CAPTION>
KY NC TN
KY Tax-Free NC Tax-Free TN Tax-Free Intermediate
Tax-Free Short-to Tax-Free Short-to Tax-Free Short-to Government
Income Medium Income Medium Income Medium Bond
Series Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C> <C>
2003 $4,066,201 $414,160 $ -- $ -- $7,998 $ -- $699,583
2004 -- 10,145 805 1,443 -- 807 87,381
2005 -- 188,198 2,782 1,015 -- 1,660 --
------------------------------------------------------------------------------------------------
Net accumulated
realized losses $4,066,201 $612,503 $3,587 $2,458 $7,998 $2,467 $786,964
================================================================================================
</TABLE>
6. LINE OF CREDIT AGREEMENT
Under the terms of an agreement with Star Bank, N.A., principal amounts
up to 5% of a Funds net assets are available on an uncommitted line of
credit. The principal amounts borrowed are due on demand. Interest will
be payable based on one percent above the prime rate of the bank (8.50%
at June 30, 1997). Securities with a minimum value of three times the
loan proceeds will be assigned as collateral until the balance of the
note and unpaid interest is paid in full and terminated. Debt covenants,
among others, require the Funds to:
- Provide the lender with the Funds' annual report
- Comply with all agreements with the lender and with
applicable laws and regulations
- Maintain appropriate insurance coverage
The North Carolina Tax-Free Income Series and the North Carolina Tax-Free
Short-to-Medium Series had no borrowings during the period ended June 30,
1997. No borrowings were outstanding as of June 30, 1997 for the Funds.
During the period ended June 30, 1997, the weighted average interest rate
for each Series, were as follows:
Weighted average interest rate
Kentucky Tax-Free Income Series 9.25%
Kentucky Tax-Free Short-to Medium Series 9.46%
Tennessee Tax-Free Income Series 9.25%
Tennessee Tax-Free Short-to-medium Series 9.27%
Intermediate Government Bond Series 9.40%
62
<PAGE> 90
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
SHAREHOLDER MEETING
A meeting of Shareholders was held on October 30, 1996. The purpose of the
meeting was (I) to elect Messrs. Thomas P. Dupree Sr., Frederic L. Dupree, Jr.,
William Combs, Robert Maddox, and William Patterson (all of whom were
incumbents) and Ms. Lucy A. Breathitt (who was newly elected) as Trustees; (ii)
to approve an investment advisory agreement between the North Carolina Tax-Free
Income Series and Dupree Investment Advisers, Inc. (iii) to approve an
investment advisory agreement between the North Carolina Tax-Free
Short-to-Medium Series and Dupree Investment Advisers, Inc. and (iv) to ratify
the selection of Ernst & Young LLP as the Trust's independent auditors for the
fiscal year ending June 30, 1997.
The results of all matters voted on by shareholders at the Shareholder Meeting
held October 30, 1996 were as follows:
A. ELECTION OF TRUSTEES:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN TOTAL
<S> <C> <C> <C> <C>
Thomas P. Dupree, Sr. 34,721,939.293 --- --- 34,721,939.293
Frederic L. Dupree, Jr. 34,714,429.903 --- --- 34,714,429.903
Lucy A. Breathitt 32,436,028.214 --- --- 32,436,028.214
William Combs 33,763,793.079 --- --- 33,763,793.079
Robert Maddox 34,009,849.647 --- --- 34,009,849.647
William Patterson 32,528,917.196 --- --- 32,528,917.193
</TABLE>
Cumulative voting rights were exercised in the election of Trustees. The total
proxy votes are distributed among those individuals selected.
B. RATIFICATION OF ERNST & YOUNG LLP FOR THE FISCAL YEAR 1997:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN TOTAL
<S> <C> <C> <C> <C>
Ernst & Young LLP 32,658,0377.636 411,695.029 626,093.552 33,695,826.217
</TABLE>
C. APPROVAL OF AN INVESTMENT ADVISORY AGREEMENT BETWEEN THE TRUST AND DUPREE
INVESTMENT ADVISERS, INC.
<TABLE>
<CAPTION>
SERIES FOR AGAINST ABSTAIN TOTAL
<S> <C> <C> <C> <C>
North Carolina Tax-Free
Income Series 83,139.171 539.287 18,317.473 101,995.931
North Carolina Tax-Free
Short-to-Medium Series 93,052.613 --- --- 93,052.613
</TABLE>
<PAGE> 91
[ERNST AND YOUNG LETTERHEAD]
Report of Independent Auditors
The Board of Trustees and Shareholders
Dupree Mutual Funds
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments of Dupree Mutual Funds (Comprised of the
Kentucky Tax-Free Income Series, the Kentucky Tax-Free Short-to-Medium Series,
the North Carolina Tax-Free Income Series, the North Carolina Tax-Free
Short-to-Medium Series, the Tennessee Tax-Free Income Series, the Tennessee
Tax-Free Short-to-Medium Series, and the Intermediate Government Bond Series) as
of June 30, 1997, and the related statements of operations, the statements of
changes in net assets, and the financial highlights presented herein for the
year ended June 30, 1997. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The statements of changes in net assets presented herein for the
years or periods ended June 30, 1996 for the Dupree Mutual Funds and financial
highlights presented herein for each of the respective years or periods ended
June 30, 1996 were audited by other auditors whose report dated July 26, 1996
expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Dupree Mutual Funds as of June 30,
1997, the results of their operations, the changes in their net assets and
financial highlights for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
July 29, 1997
Ernst & Young LLP Is A Member of Ernst & Young International, Ltd.
<PAGE> 92
DUPREE MUTUAL FUNDS
POST-EFFECTIVE ADMENTMENT NO. 37
<TABLE>
<CAPTION>
PART C of Form N-1A OTHER INFORMATION--------------------Page-------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Item 24. Financial Statements and Exhibits KY KY NC NC TN TN GBS
--------------------------------- INCOME S/M INCOME S/M INCOME S/M
(a) Financial Statements
--------------------
Included in the Registration Statement, Part B,
Statement of Additional Information:
Portfolio of Investments of
June 30, 1997 26 33 37 41 45 50 54
Statement of Assets and Liabilities
at June 30, 1997 31 35 39 43 48 52 55
Statement of Operation for the Year
at June 30, 1997 31 35 39 43 48 52 55
Statement of Changes in Net Assets
for the Years Ended
June 30, 1996 and 1997 32 34 40 44 49 53 56
Notes to Financial Statements ---------------------------57--------------------------
Report of Independent Auditors ---------------------------64--------------------------
</TABLE>
(b) Exhibits
(5)(Y ) Investment Advisory Agreement of Kentucky Tax-Free Income
Series
(5)(Z) Investment Advisory Agreement of Kentucky Tax-Free
Short-to-Medium Series
(5)(AA) Investment Advisory Agreement of North Carolina Tax-Free
Income Series
(5)(AB) Investment Advisory Agreement of North Carolina Tax-Free
Short-to-Medium Series
(5)(AC) Investment Advisory Agreement of Tennessee Tax-Free Income
Series
(5)(AD) Investment Advisory Agreement of Tennessee Tax-Free
Short-to-Medium Series
(5)(AE) Investment Advisory Agreement of Intermediate Government Bond
Series
(9)(E) Transfer Agent and Dividend Disbursing Agent Agreement of
Dupree Mutual Funds
<PAGE> 93
(11) Consent of Independent Accountants
(16 ) Schedule for computation of each performance quotation shown at
"How to Compute Our Yields" in Statement of Additional Information
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Inapplicable
Item 26. Number of Holders of Securities
-------------------------------
On September 12 , 1997 there were record holders of Registrant's Shares
of Beneficial Interest as follows:
Title of Series Number of Record Holders
--------------- ------------------------
Kentucky Tax-Free Income Series 5717
Kentucky Tax-Free Short-to-Medium Series 1394
North Carolina Tax-Free Income Series 254
North Carolina Tax-Free Short-to-Medium Series 93
Tennessee Tax-Free Income Series 467
Tennessee Tax-Free Short-to-Medium Series 120
Intermediate Government Bond Series 756
Item 27. Indemnification
---------------
Inapplicable
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
The Registrant's Investment Adviser, Dupree & Company, Inc., is a
Kentucky Corporation located at 125 South Mill Street, Suite 100,
Lexington, Kentucky 40507, and it serves as the Transfer Agent for the
Registrant. Thomas P. Dupree, is the Chairman of the Board of Dupree &
Company, Inc., and the Registrant. Fred L. Dupree, Jr., is Vice
President, Secretary and Treasurer of Dupree & Company, Inc., and the
Registrant.
Item 29. Principal Underwriters
----------------------
Inapplicable
Item 30. Location of Accounts and Records
--------------------------------
Registrant's Transfer Agent and Dividend Disbursing Agent is Dupree &
Company, Inc., 125 South Mill Street, Vine Center, Lexington, Kentucky
40507
Item 31. Management Services
-------------------
Inapplicable at this time.
Item 32. Undertakings
------------
None
<PAGE> 94
DUPREE MUTUAL FUNDS
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO 37
TO
FORM N-1A REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
AND
INVESTMENT COMPANY ACT OF 1940
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of Fayette and State of Kentucky on the
_____ day of September, 1997.
DUPREE MUTUAL FUNDS
By /s/ Thomas P. Dupree, Sr.
---------------------------------
Thomas P. Dupree, Sr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 37 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Thomas P. Dupree, Sr President (Principal Executive Officer) Oct 3, 1997
- ------------------------ and Trustee ----------
Thomas P. Dupree, Sr
/s/ Fred L. Dupree, Jr. Vice President, Secretary, and Treasurer Oct 3, 1997
- ------------------------ (Principal Financial and Accounting Officer) -----------
Fred L. Dupree, Jr. and Trustee
/s/ William A. Combs, Jr. Trustee Oct 3, 1997
- ------------------------ -----------
William A. Combs, Jr.
Trustee
- ------------------------ -----------
Robert L. Maddox
/s/ William S. Patterson Trustee Oct 3, 1997
- ------------------------ -----------
William S. Patterson
</TABLE>
<PAGE> 1
EXHIBIT 5.1
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Kentucky Tax-Free Income Series, (hereinafter called "Income Series"), and
DUPREE & COMPANY, INC., a corporation organized and existing under the laws of
the State of Kentucky (hereinafter called the "Adviser").
WITNESSETH:
WHEREAS, the Income Series is engaged in business as part of an
open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Income Series desires to retain the Adviser to render
investment supervisory services and provide office space and facilities and
corporate administration to the Income Series in the manner and on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Income Series and shall provide the Income Series
with office space and facilities and corporate administration, subject to and
upon the terms and conditions set forth in this Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Income Series in a manner consistent with its
investment objectives; shall determine the securities to be purchased and sold
by the Income Series, and the portion of its assets to be held in cash or cash
equivalents, in order to carry out such program; and generally shall take such
other steps, including the placing of orders for the purchase or sales of
securities on behalf of the Income Series, as the Adviser may deem necessary or
appropriate for the implementation of such program. The Adviser shall also
furnish to or place at the disposal of the Income Series such of the
information, reports evaluations, analyses and opinions formulated or obtained
by the Adviser in the discharge of its duties hereunder as the Income Series
may, at the time or from time to time, reasonably request or as the Adviser may
deem helpful to the Income Series.
3. (a)The Adviser shall:
(i) Pay or provide for and furnish to the Income Series such
office space, equipment facilities, personnel and services (exclusive of and in
addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Income Series) as the Income Series may
reasonably require in the conduct of its business;
(ii)Maintain and preserve on behalf of the Income Series, for such
periods and in such forms as are prescribed by rules and regulations of the
Securities and Exchange Commission (the "Commission"), all of the accounts,
books and other documents the Income Series is required to maintain and preserve
pursuant to Section 31(a) of the Investment company Act of 1940 and the rules
and regulations of the Commission thereunder which are not maintained and
preserved on
<PAGE> 2
behalf of the Income Series by any custodian, transfer agent or other
institutional agent retained by the Income Series;
(iii) Furnish the services and pay or provide for the compensation
and expenses of individuals competent (A) to perform for the Income Series all
executive and administrative functions that are not assigned to any custodian,
transfer agent or other institutional agent retained by the Income Series, and
(B) to supervise and coordinate the activities of such institutional agents and
the other agents (e.g., independent accountants and legal counsel) retained by
the Income Series; and
(iv) Permit officers or employees of the Adviser who are duly
elected or appointed as officers, trustees, members of any committee of trustees
or members of any advisory board or committee of the Income Series to serve as
such without remuneration from or other cost to the Income Series.
(b) The adviser shall pay all sales and promotional expenses
incurred in the distribution of shares of the Income Series. The expenses to be
assumed and paid by the Adviser include the costs of:
(i) Media and direct mail advertising;
(ii) Printing copies of the prospectus of Dupree Mutual Funds
and shareholder reports which are used in its sales or promotional efforts; it
being understood that the Income Series will bear printing costs relating to
copies of its prospectus and reports which are distributed to its shareholders;
(iii) Printing share purchase order forms to accompany the
prospectus of Dupree Mutual Funds
and
(iv) Corresponding and dealing with prospective investors, up
to and including receipt of their orders for the purchase of Income Series
shares.
(c) The Income Series shall bear all expenses of its operation not
specifically assumed by the Adviser as hereinabove set forth or as provided
elsewhere in this Agreement. The Adviser, in its sole discretion, may at any
time or from time to time pay or assume any expense that the Income Series would
or might otherwise be required to bear. However, the Adviser's payment or
assumption of any such expenses on one or more occasion shall neither relieve
the Adviser of any obligation to the Income Series pursuant to paragraph 6(b)
hereof nor obligate the Adviser to pay or assume the same or any similar expense
of the Income Series on any subsequent occasion.
4. The Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Adviser or the Income Series with such statistical and other
factual information, such advice regarding economic factors and trends, such
advice as to occasional transactions in specific securities or such other
information, advice or assistance as the Adviser may deem necessary, appropriate
or convenient for the discharge of its obligations hereunder or for the
discharge of Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser. The Adviser and any individual
performing executive or administrative functions for the Income Series whose
services were made available to it by the Adviser are specifically authorized to
allocate brokerage and principal business to firms that provide such services or
facilities and to cause the Income Series to pay a member of a securities
exchange, or any other securities broker or dealer, an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of an exchange or another broker or dealer would have charged for
effecting that transaction, if the
<PAGE> 3
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Income Series pursuant to paragraph 3(a)(i) hereof
are the property of the Income Series and shall be surrendered by the Adviser
promptly on request by the Income Series. The Income Series shall furnish or
otherwise make available to the Adviser such financial reports, proxy statements
and other information relating to the business and affairs of the Income Series
as the Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Income Series shall
pay the Adviser a fee at the annual rate of one-half of one percent (1/2 of 1%)
of the first $100,000,000 average daily net asset value, .45 of 1% of the
average daily net assets between $100,000,001 and $150,000,000, and .4 of 1% of
the average daily net assets in excess of $150,000,001 of the Income Series, as
determined in accordance with the Declaration of Trust of Dupree Mutual Funds.
The amounts due the Adviser in payment of such fees shall be accrued daily by
the Income Series on the basis of the net asset value of the Income Series
applicable to the close of each business day, and in the case of any day which
is not a business day, the net asset value of the Income Series applicable to
the close of the last preceding business day; and the total amount thus accrued
with respect to each calendar month or portion thereof during which this
Agreement remains in effect shall become due and payable to the Adviser in the
first business day of the next succeeding calendar month. The term "business
day" means a day for all or part of which the New York Stock Exchange is open
for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the Income
Series; but this prohibition shall not prevent the purchase by or for the
Adviser or any of its officers or directors of shares of the Income Series at
the price at which such shares are available to the public at the moment of
purchase.
8. Nothing herein contained shall be deemed to require the Income
Series to take any action to the Declaration of Trust of Dupree Mutual Funds or
the Trust By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the Board
of Trustees of Dupree Mutual Funds of its responsibility for and control of the
conduct of the Income Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Income Series at the 1997 Annual Meeting,
and, unless sooner terminated as provided in paragraph 10 hereof, this Agreement
shall remain in effect through the close of business on October 31, 1999, and
thereafter subject to the termination provisions and other terms and conditions
hereof; if: (a) such continuation shall be specifically approved at least
annually by the Board of Trustees, or by vote of a majority of the outstanding
voting securities of the Income Series, and concurrently with such approval by
the Board of Trustees or prior to such approval by the holders of the
outstanding voting securities of the Income Series, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the trustees of the Dupree Mutual Funds who are not
parties to this Agreement or interested persons of any such party; and (b) the
Adviser shall have not notified the Income Series, in writing, at least sixty
(60) days prior to October 31 of each year after 1998 that it does not desire
such
<PAGE> 4
continuation. The Adviser shall furnish to the Income Series, promptly upon its
request such information in the possession of or readily available to the
Adviser as the Trustees of Dupree Mutual Funds may at any time from time to time
deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Income Series, and this
Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Income Series, such
action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Income Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the Income
Series whose services were made available to the Income Series by the Adviser
shall be liable to the Income Series for any error of judgment or mistake of law
or for any loss suffered by the Income Series by reason of any action taken or
omission to act committed in connection with the matters to which this Agreement
relates, except that nothing herein contained shall be construed (i) to protect
the Adviser or any affiliated person of the Adviser (whether or not such
affiliated person is or was an officer, director or member of any advisory board
of the Income Series and/or Dupree Mutual Funds) against any liability to the
Income Series or its security holders for any breach of fiduciary duty with
respect to the Adviser's receipt of compensation for services to the Income
Series, (ii) to protect the Adviser or any affiliated person of the Adviser who
is or was an officer, trustee or member of any advisory board of the Income
Series and/or Dupree Mutual Funds against any liability to the Income Series or
its security holders for any act or practice ( other than the Adviser's receipt
of compensation for services to the Income Series) constituting a breach of
fiduciary duty involving personal misconduct in respect of the Income Series,
(iii) to protect the Adviser against any liability to the Income Series or its
security holders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations or duties, under
this Agreement, or (iv) to protect any affiliated person of the Adviser who is
or was a Trustee or officer of the Income Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Income Series and/or Dupree Mutual Funds. In the
event that any affiliated person of the Adviser shall become a Trustee, officer
or employee of the Income Series and/or Dupree Mutual Funds, then all actions
taken or omissions to act made by such person in connection with the discharge
of his duties to the Income Series shall be deemed to have been taken or made by
such person solely in his capacity as such Trustee, officer or employee of said
entity, notwithstanding the fact that the services of such person are being or
have been furnished by the Adviser to said entity as provided in this Agreement
or that the compensation and expenses of such person are being or have been paid
by the Adviser or any other affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
and until the Adviser shall otherwise consent, the Adviser shall be the only
investment adviser to the Income Series.
<PAGE> 5
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Kentucky Tax-Free Income Series
By:___________________________________
Vice President
Attest_____________________
DUPREE & COMPANY, INC.
By: ___________________________________
President
Attest_____________________
<PAGE> 1
EXHIBIT 5.2
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Kentucky Tax-Free Short-to-Medium Series, (hereinafter called
"Short-to-Medium Series"), and DUPREE & COMPANY, INC., a corporation organized
and existing under the laws of the State of Kentucky (hereinafter called the
"Adviser").
WITNESSETH:
WHEREAS, the Short-to-Medium Series is engaged in business as part of
an open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Short-to-Medium Series desires to retain the Adviser to
render investment supervisory services and provide office space and facilities
and corporate administration to the Income Series in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Short-to-Medium Series and shall provide the
Short-to-Medium Series with office space and facilities and corporate
administration, subject to and upon the terms and conditions set forth in this
Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Short-to-Medium Series in a manner consistent
with its investment objectives; shall determine the securities to be purchased
and sold by the Short-to-Medium Series, and the portion of its assets to be held
in cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the purchase or
sales of securities on behalf of the Short-to-Medium Series, as the Adviser may
deem necessary or appropriate for the implementation of such program. The
Adviser shall also furnish to or place at the disposal of the Short-to-Medium
Series such of he information, reports evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties hereunder
as the Short-to-Medium Series may, at the time or from time to time, reasonably
request or as the Adviser may deem helpful to the Short-to-Medium Series.
3. (a) The Adviser shall:
(i) Pay or provide for and furnish to the Short-to-Medium Series
such office space, equipment facilities, personnel and services (exclusive of
and in addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Short-to-Medium Series) as the
Short-to-Medium Series may reasonably require in the conduct of its business;
(ii) Maintain and preserve on behalf of the Short-to-Medium
Series, for such periods and in such forms as are prescribed by rules and
regulations of the Securities and Exchange Commission (the "Commission"), all
of the accounts, books and other documents the Short-to-Medium Series is
required to maintain and preserve pursuant to Section 31(a) of the Investment
<PAGE> 2
Company Act of 1940 and the rules and regulations of the Commission thereunder
which are not maintained and preserved on behalf of the Short-to-Medium Series
by any custodian, transfer agent or other institutional agent retained by the
Short-to-Medium Series;
(iii) Furnish the services and pay or provide for the compensation
and expenses of individuals competent (A) to perform for the Short-to-Medium
Series all executive and administrative functions that are not assigned to any
custodian, transfer agent or other institutional agent retained by the
Short-to-Medium Series, and (B) to supervise and coordinate the activities of
such institutional agents and the other agents (e.g., independent accountants
and legal counsel) retained by the Short-to-Medium Series; and
(iv) Permit officers or employees of the Adviser who are duly
elected or appointed as officers, trustees, members of any committee of trustees
or members of any advisory board or committee of the Short-to-Medium Series to
serve as such without remuneration from or other cost to the Short-to-Medium
Series.
(b) The adviser shall pay all sales and promotional expenses
incurred in the distribution of shares of the Short-to-Medium Series. The
expenses to be assumed and paid by the Adviser include the costs of:
(i) Media and direct mail advertising;
(ii) Printing copies of the prospectus of Dupree Mutual Funds
and shareholder reports which are used in its sales or promotional efforts; it
being understood that the Short-to-Medium Series will bear printing costs
relating to copies of its prospectus and reports which are distributed to its
shareholders;
(iii) Printing share purchase order forms to accompany the
prospectus of Dupree Mutual Funds and
(iv) Corresponding and dealing with prospective investors, up
to and including receipt of their orders for the purchase of Short-to-Medium
Series shares.
(c) The Short-to-Medium Series shall bear all expenses of its
operation not specifically assumed by the Adviser as hereinabove set forth or as
provided elsewhere in this Agreement. The Adviser, in its sole discretion, may
at any time or from time to time pay or assume any expense that the
Short-to-Medium Series would or might otherwise be required to bear. However,
the Adviser's payment or assumption of any such expenses on one or more occasion
shall neither relieve the Adviser of any obligation to the Short-to-Medium
Series pursuant to paragraph 6(b) hereof nor obligate the Adviser to pay or
assume the same or any similar expense of the Short-to-Medium Series on any
subsequent occasion.
4. The Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Adviser or the Short-to-Medium Series with such statistical and
other factual information, such advice regarding economic factors and trends,
such advice as to occasional transactions in specific securities or such other
information, advice or assistance as the Adviser may deem necessary, appropriate
or convenient for the discharge of its obligations hereunder or for the
discharge of Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser. The Adviser and any individual
performing executive or administrative functions for the Short-to-Medium Series
whose services were made available to it by the Adviser are specifically
authorized to allocate brokerage and principal business to firms that provide
such services or facilities and to cause the Short-to-Medium Series to pay a
member of a securities exchange, or any other securities broker or dealer, an
amount of commission for effecting a securities transaction in
<PAGE> 3
excess of the amount of commission another member of an exchange or another
broker or dealer would have charged for effecting that transaction, if the
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Short-to-Medium Series pursuant to paragraph
3(a)(i) hereof are the property of the Short-to-Medium Series and shall be
surrendered by the Adviser promptly on request by the Short-to-Medium Series.
The Short-to-Medium Series shall furnish or otherwise make available to the
Adviser such financial reports, proxy statements and other information relating
to the business and affairs of the Short-to-Medium Series as the Adviser may, at
any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Short-to-Medium
Series shall pay the Adviser a fee at the annual rate of one-half of one percent
(1/2 of 1%) of the first $100,000,000 average daily net asset value, .45 of 1%
of the average daily net assets between $100,000,001 and $150,000,000, and .4 of
1% of the average daily net assets in excess of $150,000,000 of the
Short-to-Medium Series, as determined in accordance with the Declaration of
Trust of Dupree Mutual Funds. The amounts due the Adviser in payment of such
fees shall be accrued daily by the Short-to-Medium Series on the basis of the
net asset value of the Short-to-Medium Series applicable to the close of each
business day, and in the case of any day which is not a business day, the net
asset value of the Short-to-Medium Series applicable to the close of the last
preceding business day; and the total amount thus accrued with respect to each
calendar month or portion thereof during which this Agreement remains in effect
shall become due and payable to the Adviser in the first business day of the
next succeeding calendar month. The term "business day" means a day for all or
part of which the New York Stock Exchange is open for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the
Short-to-Medium Series; but this prohibition shall not prevent the purchase by
or for the Adviser or any of its officers or directors of shares of the
Short-to-Medium Series at the price at which such shares are available to the
public at the moment of purchase.
8. Nothing herein contained shall be deemed to require the
Short-to-Medium Series to take any action to the Declaration of Trust of Dupree
Mutual Funds or the Trust By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Trustees of Dupree Mutual Funds of its responsibility for
and control of the conduct of the Short-to-Medium Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Short-to-Medium Series at the 1997 Annual
Meeting, and, unless sooner terminated as provided in paragraph 10 hereof, this
Agreement shall remain in effect through the close of business on October 31,
1999, and thereafter subject to the termination provisions and other terms and
conditions hereof; if: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees, or by vote of a majority of the
outstanding voting securities of the Short-to-Medium Series, and concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Short-to-Medium Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the trustees of the Dupree Mutual
Funds who are not parties to this
<PAGE> 4
Agreement or interested persons of any such party; and (b) the Adviser shall
have not notified the Short-to-Medium Series, in writing, at least sixty (60)
days prior to October 31 of each year after 1998 that it does not desire such
continuation. The Adviser shall furnish to the Short-to-Medium Series, promptly
upon its request such information in the possession of or readily available to
the Adviser as the Trustees of Dupree Mutual Funds may at any time from time to
time deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Short-to-Medium Series, and
this Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Short-to-Medium Series,
such action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Short-to-Medium Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the
Short-to-Medium Series whose services were made available to the Short-to-Medium
Series by the Adviser shall be liable to the Short-to-Medium Series for any
error of judgment or mistake of law or for any loss suffered by the
Short-to-Medium Series by reason of any action taken or omission to act
committed in connection with the matters to which this Agreement relates, except
that nothing herein contained shall be construed (i) to protect the Adviser or
any affiliated person of the Adviser (whether or not such affiliated person is
or was an officer, director or member of any advisory board of the
Short-to-Medium Series and/or Dupree Mutual Funds) against any liability to the
Short-to-Medium Series or its security holders for any breach of fiduciary duty
with respect to the Adviser's receipt of compensation for services to the
Short-to-Medium Series, (ii) to protect the Adviser or any affiliated person of
the Adviser who is or was an officer, trustee or member of any advisory board of
the Short-to-Medium Series and/or Dupree Mutual Funds against any liability to
the Short-to-Medium Series or its security holders for any act or practice (
other than the Adviser's receipt of compensation for services to the
Short-to-Medium Series) constituting a breach of fiduciary duty involving
personal misconduct in respect of the Short-to-Medium Series, (iii) to protect
the Adviser against any liability to the Short-to-Medium Series or its security
holders to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations or duties, under this
Agreement, or (iv) to protect any affiliated person of the Adviser who is or was
a Trustee or officer of the Short-to-Medium Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Short-to-Medium Series and/or Dupree Mutual
Funds. In the event that any affiliated person of the Adviser shall become a
Trustee, officer or employee of the Short-to-Medium Series and/or Dupree Mutual
Funds, then all actions taken or omissions to act made by such person in
connection with the discharge of his duties to the Short-to-Medium Series shall
be deemed to have been taken or made by such person solely in his capacity as
such Trustee, officer or employee of said entity, notwithstanding the fact that
the services of such person are being or have been furnished by the Adviser to
said entity as provided in this Agreement or that the compensation and expenses
of such person are being or have been paid by the Adviser or any other
affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other
<PAGE> 5
persons, firms or corporations or to engage in other business activities; but so
long as this Agreement or any extension, renewal or amendment hereof shall
remain in effect and until the Adviser shall otherwise consent, the Adviser
shall be the only investment adviser to the Short-to-Medium Series.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Kentucky Tax-Free Short-to-Medium Series
By:___________________________________
Vice President
Attest______________________
DUPREE & COMPANY, INC.
By: ___________________________________
President
Attest______________________
<PAGE> 1
Exhibit 5.3
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its North Carolina Tax-Free Income Series, (hereinafter called "Income Series"),
and DUPREE & COMPANY, INC., a corporation organized and existing under the laws
of the State of Kentucky (hereinafter called the "Adviser").
WITNESSETH:
WHEREAS, the Income Series is engaged in business as part of an
open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Income Series desires to retain the Adviser to render
investment supervisory services and provide office space and facilities and
corporate administration to the Income Series in the manner and on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Income Series and shall provide the Income Series
with office space and facilities and corporate administration, subject to and
upon the terms and conditions set forth in this Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Income Series in a manner consistent with its
investment objectives; shall determine the securities to be purchased and sold
by the Income Series, and the portion of its assets to be held in cash or cash
equivalents, in order to carry out such program; and generally shall take such
other steps, including the placing of orders for the purchase or sales of
securities on behalf of the Income Series, as the Adviser may deem necessary or
appropriate for the implementation of such program. The Adviser shall also
furnish to or place at the disposal of the Income Series such of the
information, reports evaluations, analyses and opinions formulated or obtained
by the Adviser in the discharge of its duties hereunder as the Income Series
may, at the time or from time to time, reasonably request or as the Adviser may
deem helpful to the Income Series.
3. (a)The Adviser shall:
(i) Pay or provide for and furnish to the Income Series such
office space, equipment facilities, personnel and services (exclusive of and in
addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Income Series) as the Income Series may
reasonably require in the conduct of its business;
(ii)Maintain and preserve on behalf of the Income Series, for such
periods and in such forms as are prescribed by rules and regulations of the
Securities and Exchange Commission (the "Commission"), all of the accounts,
books and other documents the Income Series is required to maintain and preserve
pursuant to Section 31(a) of the Investment company Act of 1940 and the rules
and regulations of the Commission thereunder which are not maintained and
preserved on
<PAGE> 2
behalf of the Income Series by any custodian, transfer agent or other
institutional agent retained by the Income Series;
(iii) Furnish the services and pay or provide for the compensation
and expenses of individuals competent (A) to perform for the Income Series all
executive and administrative functions that are not assigned to any custodian,
transfer agent or other institutional agent retained by the Income Series, and
(B) to supervise and coordinate the activities of such institutional agents and
the other agents (e.g., independent accountants and legal counsel) retained by
the Income Series; and
(iv)Permit officers or employees of the Adviser who are duly
elected or appointed as officers, trustees, members of any committee of trustees
or members of any advisory board or committee of the Income Series to serve as
such without remuneration from or other cost to the Income Series.
(b) The adviser shall pay all sales and promotional expenses
incurred in the distribution of shares of the Income Series. The expenses to be
assumed and paid by the Adviser include the costs of:
(i) Media and direct mail advertising;
(ii) Printing copies of the prospectus of Dupree Mutual Funds
and shareholder reports which are used in its sales or promotional efforts; it
being understood that the Income Series will bear printing costs relating to
copies of its prospectus and reports which are distributed to its shareholders;
(iii) Printing share purchase order forms to accompany the
prospectus of Dupree Mutual Funds and
(iv) Corresponding and dealing with prospective investors, up
to and including receipt of their orders for the purchase of Income Series
shares.
(c) The Income Series shall bear all expenses of its operation not
specifically assumed by the Adviser as hereinabove set forth or as provided
elsewhere in this Agreement. The Adviser, in its sole discretion, may at any
time or from time to time pay or assume any expense that the Income Series would
or might otherwise be required to bear. However, the Adviser's payment or
assumption of any such expenses on one or more occasion shall neither relieve
the Adviser of any obligation to the Income Series pursuant to paragraph 6(b)
hereof nor obligate the Adviser to pay or assume the same or any similar expense
of the Income Series on any subsequent occasion.
4. The Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Adviser or the Income Series with such statistical and other
factual information, such advice regarding economic factors and trends, such
advice as to occasional transactions in specific securities or such other
information, advice or assistance as the Adviser may deem necessary, appropriate
or convenient for the discharge of its obligations hereunder or for the
discharge of Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser. The Adviser and any individual
performing executive or administrative functions for the Income Series whose
services were made available to it by the Adviser are specifically authorized to
allocate brokerage and principal business to firms that provide such services or
facilities and to cause the Income Series to pay a member of a securities
exchange, or any other securities broker or dealer, an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of an exchange or another broker or dealer would have charged for
effecting that transaction, if the
<PAGE> 3
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Income Series pursuant to paragraph 3(a)(i) hereof
are the property of the Income Series and shall be surrendered by the Adviser
promptly on request by the Income Series. The Income Series shall furnish or
otherwise make available to the Adviser such financial reports, proxy statements
and other information relating to the business and affairs of the Income Series
as the Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Income Series shall
pay the Adviser a fee at the annual rate of one-half of one percent (1/2 of 1%)
of the first $100,000,000 average daily net asset value, .45 of 1% of the
average daily net assets between $100,000,001 and $150,000,000, and .4 of 1% of
the average daily net assets in excess of $150,000,001 of the Income Series, as
determined in accordance with the Declaration of Trust of Dupree Mutual Funds.
The amounts due the Adviser in payment of such fees shall be accrued daily by
the Income Series on the basis of the net asset value of the Income Series
applicable to the close of each business day, and in the case of any day which
is not a business day, the net asset value of the Income Series applicable to
the close of the last preceding business day; and the total amount thus accrued
with respect to each calendar month or portion thereof during which this
Agreement remains in effect shall become due and payable to the Adviser in the
first business day of the next succeeding calendar month. The term "business
day" means a day for all or part of which the New York Stock Exchange is open
for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the Income
Series; but this prohibition shall not prevent the purchase by or for the
Adviser or any of its officers or directors of shares of the Income Series at
the price at which such shares are available to the public at the moment of
purchase.
8. Nothing herein contained shall be deemed to require the Income
Series to take any action to the Declaration of Trust of Dupree Mutual Funds or
the Trust By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the Board
of Trustees of Dupree Mutual Funds of its responsibility for and control of the
conduct of the Income Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Income Series at the 1997 Annual Meeting,
and, unless sooner terminated as provided in paragraph 10 hereof, this Agreement
shall remain in effect through the close of business on October 31, 1999, and
thereafter subject to the termination provisions and other terms and conditions
hereof; if: (a) such continuation shall be specifically approved at least
annually by the Board of Trustees, or by vote of a majority of the outstanding
voting securities of the Income Series, and concurrently with such approval by
the Board of Trustees or prior to such approval by the holders of the
outstanding voting securities of the Income Series, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the trustees of the Dupree Mutual Funds who are not
parties to this Agreement or interested persons of any such party; and (b) the
Adviser shall have not notified the Income Series, in writing, at least sixty
(60) days prior to October 31 of each year after 1998 that it does not desire
such
<PAGE> 4
continuation. The Adviser shall furnish to the Income Series, promptly upon
its request such information in the possession of or readily available to the
Adviser as the Trustees of Dupree Mutual Funds may at any time from time to time
deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Income Series, and this
Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Income Series, such
action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Income Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the Income
Series whose services were made available to the Income Series by the Adviser
shall be liable to the Income Series for any error of judgment or mistake of law
or for any loss suffered by the Income Series by reason of any action taken or
omission to act committed in connection with the matters to which this Agreement
relates, except that nothing herein contained shall be construed (i) to protect
the Adviser or any affiliated person of the Adviser (whether or not such
affiliated person is or was an officer, director or member of any advisory board
of the Income Series and/or Dupree Mutual Funds) against any liability to the
Income Series or its security holders for any breach of fiduciary duty with
respect to the Adviser's receipt of compensation for services to the Income
Series, (ii) to protect the Adviser or any affiliated person of the Adviser who
is or was an officer, trustee or member of any advisory board of the Income
Series and/or Dupree Mutual Funds against any liability to the Income Series or
its security holders for any act or practice ( other than the Adviser's receipt
of compensation for services to the Income Series) constituting a breach of
fiduciary duty involving personal misconduct in respect of the Income Series,
(iii) to protect the Adviser against any liability to the Income Series or its
security holders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations or duties, under
this Agreement, or (iv) to protect any affiliated person of the Adviser who is
or was a Trustee or officer of the Income Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Income Series and/or Dupree Mutual Funds. In the
event that any affiliated person of the Adviser shall become a Trustee, officer
or employee of the Income Series and/or Dupree Mutual Funds, then all actions
taken or omissions to act made by such person in connection with the discharge
of his duties to the Income Series shall be deemed to have been taken or made by
such person solely in his capacity as such Trustee, officer or employee of said
entity, notwithstanding the fact that the services of such person are being or
have been furnished by the Adviser to said entity as provided in this Agreement
or that the compensation and expenses of such person are being or have been paid
by the Adviser or any other affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
and until the Adviser shall otherwise consent, the Adviser shall be the only
investment adviser to the Income Series.
<PAGE> 5
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
North Carolina Tax-Free Income Series
By:
-----------------------------------
Vice President
Attest
----------------------------
DUPREE & COMPANY, INC.
By:
-----------------------------------
President
Attest
----------------------------
<PAGE> 1
Exhibit 5.4
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its North Carolina Tax-Free Short-to-Medium Series, (hereinafter called
"Short-to-Medium Series"), and DUPREE & COMPANY, INC., a corporation organized
and existing under the laws of the State of Kentucky (hereinafter called the
"Adviser").
WITNESSETH:
WHEREAS, the Short-to-Medium Series is engaged in business as part of
an open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Short-to-Medium Series desires to retain the Adviser to
render investment supervisory services and provide office space and facilities
and corporate administration to the Income Series in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Short-to-Medium Series and shall provide the
Short-to-Medium Series with office space and facilities and corporate
administration, subject to and upon the terms and conditions set forth in this
Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Short-to-Medium Series in a manner consistent
with its investment objectives; shall determine the securities to be purchased
and sold by the Short-to-Medium Series, and the portion of its assets to be held
in cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the purchase or
sales of securities on behalf of the Short-to-Medium Series, as the Adviser may
deem necessary or appropriate for the implementation of such program. The
Adviser shall also furnish to or place at the disposal of the Short-to-Medium
Series such of he information, reports evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties hereunder
as the Short-to-Medium Series may, at the time or from time to time, reasonably
request or as the Adviser may deem helpful to the Short-to-Medium Series.
3. (a)The Adviser shall:
(i) Pay or provide for and furnish to the Short-to-Medium Series
such office space, equipment facilities, personnel and services (exclusive of
and in addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Short-to-Medium Series) as the
Short-to-Medium Series may reasonably require in the conduct of its business;
(ii)Maintain and preserve on behalf of the Short-to-Medium Series,
for such periods and in such forms as are prescribed by rules and regulations of
the Securities and Exchange Commission (the "Commission"), all of the accounts,
books and other documents the Short-to-Medium Series is required to maintain and
preserve pursuant to Section 31(a) of the Investment
<PAGE> 2
Company Act of 1940 and the rules and regulations of the Commission thereunder
which are not maintained and preserved on behalf of the Short-to-Medium Series
by any custodian, transfer agent or other institutional agent retained by the
Short-to-Medium Series;
(iii) Furnish the services and pay or provide for the compensation
and expenses of individuals competent (A) to perform for the Short-to-Medium
Series all executive and administrative functions that are not assigned to any
custodian, transfer agent or other institutional agent retained by the
Short-to-Medium Series, and (B) to supervise and coordinate the activities of
such institutional agents and the other agents (e.g., independent accountants
and legal counsel) retained by the Short-to-Medium Series; and
(iv)Permit officers or employees of the Adviser who are duly
elected or appointed as officers, trustees, members of any committee of trustees
or members of any advisory board or committee of the Short-to-Medium Series to
serve as such without remuneration from or other cost to the Short-to-Medium
Series.
(b) The adviser shall pay all sales and promotional expenses
incurred in the distribution of shares of the Short-to-Medium Series. The
expenses to be assumed and paid by the Adviser include the costs of:
(i) Media and direct mail advertising;
(ii) Printing copies of the prospectus of Dupree Mutual Funds
and shareholder reports which are used in its sales or promotional efforts; it
being understood that the Short-to-Medium Series will bear printing costs
relating to copies of its prospectus and reports which are distributed to its
shareholders;
(iii) Printing share purchase order forms to accompany the
prospectus of Dupree Mutual Funds and
(iv) Corresponding and dealing with prospective investors, up
to and including receipt of their orders for the purchase of Short-to-Medium
Series shares.
(c) The Short-to-Medium Series shall bear all expenses of its
operation not specifically assumed by the Adviser as hereinabove set forth or as
provided elsewhere in this Agreement. The Adviser, in its sole discretion, may
at any time or from time to time pay or assume any expense that the
Short-to-Medium Series would or might otherwise be required to bear. However,
the Adviser's payment or assumption of any such expenses on one or more occasion
shall neither relieve the Adviser of any obligation to the Short-to-Medium
Series pursuant to paragraph 6(b) hereof nor obligate the Adviser to pay or
assume the same or any similar expense of the Short-to-Medium Series on any
subsequent occasion.
4. The Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Adviser or the Short-to-Medium Series with such statistical and
other factual information, such advice regarding economic factors and trends,
such advice as to occasional transactions in specific securities or such other
information, advice or assistance as the Adviser may deem necessary, appropriate
or convenient for the discharge of its obligations hereunder or for the
discharge of Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser. The Adviser and any individual
performing executive or administrative functions for the Short-to-Medium Series
whose services were made available to it by the Adviser are specifically
authorized to allocate brokerage and principal business to firms that provide
such services or facilities and to cause the Short-to-Medium Series to pay a
member of a securities exchange, or any other securities broker or dealer, an
amount of commission for effecting a securities transaction in
<PAGE> 3
excess of the amount of commission another member of an exchange or another
broker or dealer would have charged for effecting that transaction, if the
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Short-to-Medium Series pursuant to paragraph
3(a)(i) hereof are the property of the Short-to-Medium Series and shall be
surrendered by the Adviser promptly on request by the Short-to-Medium Series.
The Short-to-Medium Series shall furnish or otherwise make available to the
Adviser such financial reports, proxy statements and other information relating
to the business and affairs of the Short-to-Medium Series as the Adviser may, at
any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Short-to-Medium
Series shall pay the Adviser a fee at the annual rate of one-half of one percent
(1/2 of 1%) of the first $100,000,000 average daily net asset value, .45 of 1%
of the average daily net assets between $100,000,001 and $150,000,000, and .4 of
1% of the average daily net assets in excess of $150,000,000 of the
Short-to-Medium Series, as determined in accordance with the Declaration of
Trust of Dupree Mutual Funds. The amounts due the Adviser in payment of such
fees shall be accrued daily by the Short-to-Medium Series on the basis of the
net asset value of the Short-to-Medium Series applicable to the close of each
business day, and in the case of any day which is not a business day, the net
asset value of the Short-to-Medium Series applicable to the close of the last
preceding business day; and the total amount thus accrued with respect to each
calendar month or portion thereof during which this Agreement remains in effect
shall become due and payable to the Adviser in the first business day of the
next succeeding calendar month. The term "business day" means a day for all or
part of which the New York Stock Exchange is open for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the
Short-to-Medium Series; but this prohibition shall not prevent the purchase by
or for the Adviser or any of its officers or directors of shares of the
Short-to-Medium Series at the price at which such shares are available to the
public at the moment of purchase.
8. Nothing herein contained shall be deemed to require the
Short-to-Medium Series to take any action to the Declaration of Trust of Dupree
Mutual Funds or the Trust By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Trustees of Dupree Mutual Funds of its responsibility for
and control of the conduct of the Short-to-Medium Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Short-to-Medium Series at the 1997 Annual
Meeting, and, unless sooner terminated as provided in paragraph 10 hereof, this
Agreement shall remain in effect through the close of business on October 31,
1999, and thereafter subject to the termination provisions and other terms and
conditions hereof; if: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees, or by vote of a majority of the
outstanding voting securities of the Short-to-Medium Series, and concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Short-to-Medium Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the trustees of the Dupree Mutual
Funds who are not parties to this
<PAGE> 4
Agreement or interested persons of any such party; and (b) the Adviser shall
have not notified the Short-to-Medium Series, in writing, at least sixty (60)
days prior to October 31 of each year after 1998 that it does not desire such
continuation. The Adviser shall furnish to the Short-to-Medium Series, promptly
upon its request such information in the possession of or readily available to
the Adviser as the Trustees of Dupree Mutual Funds may at any time from time to
time deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Short-to-Medium Series, and
this Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Short-to-Medium Series,
such action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Short-to-Medium Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the
Short-to-Medium Series whose services were made available to the Short-to-Medium
Series by the Adviser shall be liable to the Short-to-Medium Series for any
error of judgment or mistake of law or for any loss suffered by the
Short-to-Medium Series by reason of any action taken or omission to act
committed in connection with the matters to which this Agreement relates, except
that nothing herein contained shall be construed (i) to protect the Adviser or
any affiliated person of the Adviser (whether or not such affiliated person is
or was an officer, director or member of any advisory board of the
Short-to-Medium Series and/or Dupree Mutual Funds) against any liability to the
Short-to-Medium Series or its security holders for any breach of fiduciary duty
with respect to the Adviser's receipt of compensation for services to the
Short-to-Medium Series, (ii) to protect the Adviser or any affiliated person of
the Adviser who is or was an officer, trustee or member of any advisory board of
the Short-to-Medium Series and/or Dupree Mutual Funds against any liability to
the Short-to-Medium Series or its security holders for any act or practice (
other than the Adviser's receipt of compensation for services to the
Short-to-Medium Series) constituting a breach of fiduciary duty involving
personal misconduct in respect of the Short-to-Medium Series, (iii) to protect
the Adviser against any liability to the Short-to-Medium Series or its security
holders to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations or duties, under this
Agreement, or (iv) to protect any affiliated person of the Adviser who is or was
a Trustee or officer of the Short-to-Medium Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Short-to-Medium Series and/or Dupree Mutual
Funds. In the event that any affiliated person of the Adviser shall become a
Trustee, officer or employee of the Short-to-Medium Series and/or Dupree Mutual
Funds, then all actions taken or omissions to act made by such person in
connection with the discharge of his duties to the Short-to-Medium Series shall
be deemed to have been taken or made by such person solely in his capacity as
such Trustee, officer or employee of said entity, notwithstanding the fact that
the services of such person are being or have been furnished by the Adviser to
said entity as provided in this Agreement or that the compensation and expenses
of such person are being or have been paid by the Adviser or any other
affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other
<PAGE> 5
persons, firms or corporations or to engage in other business activities; but so
long as this Agreement or any extension, renewal or amendment hereof shall
remain in effect and until the Adviser shall otherwise consent, the Adviser
shall be the only investment adviser to the Short-to-Medium Series.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
North Carolina Tax-Free Short-to-Medium Series
By:
------------------------------------------
Vice President
Attest
------------------------
DUPREE & COMPANY, INC.
By:
------------------------------------------
President
Attest
------------------------
<PAGE> 1
Exhibit 5.5
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Tennessee Tax-Free Income Series, (hereinafter called "Income Series"), and
DUPREE & COMPANY, INC., a corporation organized and existing under the laws of
the State of Kentucky (hereinafter called the "Adviser").
WITNESSETH:
WHEREAS, the Income Series is engaged in business as part of an
open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Income Series desires to retain the Adviser to render
investment supervisory services and provide office space and facilities and
corporate administration to the Income Series in the manner and on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Income Series and shall provide the Income Series
with office space and facilities and corporate administration, subject to and
upon the terms and conditions set forth in this Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Income Series in a manner consistent with its
investment objectives; shall determine the securities to be purchased and sold
by the Income Series, and the portion of its assets to be held in cash or cash
equivalents, in order to carry out such program; and generally shall take such
other steps, including the placing of orders for the purchase or sales of
securities on behalf of the Income Series, as the Adviser may deem necessary or
appropriate for the implementation of such program. The Adviser shall also
furnish to or place at the disposal of the Income Series such of the
information, reports evaluations, analyses and opinions formulated or obtained
by the Adviser in the discharge of its duties hereunder as the Income Series
may, at the time or from time to time, reasonably request or as the Adviser may
deem helpful to the Income Series.
3. (a)The Adviser shall:
(i) Pay or provide for and furnish to the Income Series such
office space, equipment facilities, personnel and services (exclusive of and in
addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Income Series) as the Income Series may
reasonably require in the conduct of its business;
(ii)Maintain and preserve on behalf of the Income Series, for such
periods and in such forms as are prescribed by rules and regulations of the
Securities and Exchange Commission (the "Commission"), all of the accounts,
books and other documents the Income Series is required to maintain and preserve
pursuant to Section 31(a) of the Investment company Act of 1940 and the rules
and regulations of the Commission thereunder which are not maintained and
preserved on
<PAGE> 2
behalf of the Income Series by any custodian, transfer agent or other
institutional agent retained by the Income Series;
(iii) Furnish the services and pay or provide for the compensation
and expenses of individuals competent (A) to perform for the Income Series all
executive and administrative functions that are not assigned to any custodian,
transfer agent or other institutional agent retained by the Income Series, and
(B) to supervise and coordinate the activities of such institutional agents and
the other agents (e.g., independent accountants and legal counsel) retained by
the Income Series; and
(iv)Permit officers or employees of the Adviser who are duly
elected or appointed as officers, trustees, members of any committee of trustees
or members of any advisory board or committee of the Income Series to serve as
such without remuneration from or other cost to the Income Series.
(b) The adviser shall pay all sales and promotional expenses
incurred in the distribution of shares of the Income Series. The expenses to be
assumed and paid by the Adviser include the costs of:
(i) Media and direct mail advertising;
(ii) Printing copies of the prospectus of Dupree Mutual Funds
and shareholder reports which are used in its sales or promotional efforts; it
being understood that the Income Series will bear printing costs relating to
copies of its prospectus and reports which are distributed to its shareholders;
(iii) Printing share purchase order forms to accompany the
prospectus of Dupree Mutual Funds and
(iv) Corresponding and dealing with prospective investors, up
to and including receipt of their orders for the purchase of Income Series
shares.
(c) The Income Series shall bear all expenses of its operation not
specifically assumed by the Adviser as hereinabove set forth or as provided
elsewhere in this Agreement. The Adviser, in its sole discretion, may at any
time or from time to time pay or assume any expense that the Income Series would
or might otherwise be required to bear. However, the Adviser's payment or
assumption of any such expenses on one or more occasion shall neither relieve
the Adviser of any obligation to the Income Series pursuant to paragraph 6(b)
hereof nor obligate the Adviser to pay or assume the same or any similar expense
of the Income Series on any subsequent occasion.
4. The Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Adviser or the Income Series with such statistical and other
factual information, such advice regarding economic factors and trends, such
advice as to occasional transactions in specific securities or such other
information, advice or assistance as the Adviser may deem necessary, appropriate
or convenient for the discharge of its obligations hereunder or for the
discharge of Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser. The Adviser and any individual
performing executive or administrative functions for the Income Series whose
services were made available to it by the Adviser are specifically authorized to
allocate brokerage and principal business to firms that provide such services or
facilities and to cause the Income Series to pay a member of a securities
exchange, or any other securities broker or dealer, an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of an exchange or another broker or dealer would have charged for
effecting that transaction, if the
<PAGE> 3
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Income Series pursuant to paragraph 3(a)(i) hereof
are the property of the Income Series and shall be surrendered by the Adviser
promptly on request by the Income Series. The Income Series shall furnish or
otherwise make available to the Adviser such financial reports, proxy statements
and other information relating to the business and affairs of the Income Series
as the Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Income Series shall
pay the Adviser a fee at the annual rate of one-half of one percent (1/2 of 1%)
of the first $100,000,000 average daily net asset value, .45 of 1% of the
average daily net assets between $100,000,001 and $150,000,000, and .4 of 1% of
the average daily net assets in excess of $150,000,001 of the Income Series, as
determined in accordance with the Declaration of Trust of Dupree Mutual Funds.
The amounts due the Adviser in payment of such fees shall be accrued daily by
the Income Series on the basis of the net asset value of the Income Series
applicable to the close of each business day, and in the case of any day which
is not a business day, the net asset value of the Income Series applicable to
the close of the last preceding business day; and the total amount thus accrued
with respect to each calendar month or portion thereof during which this
Agreement remains in effect shall become due and payable to the Adviser in the
first business day of the next succeeding calendar month. The term "business
day" means a day for all or part of which the New York Stock Exchange is open
for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the Income
Series; but this prohibition shall not prevent the purchase by or for the
Adviser or any of its officers or directors of shares of the Income Series at
the price at which such shares are available to the public at the moment of
purchase.
8. Nothing herein contained shall be deemed to require the Income
Series to take any action to the Declaration of Trust of Dupree Mutual Funds or
the Trust By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the Board
of Trustees of Dupree Mutual Funds of its responsibility for and control of the
conduct of the Income Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Income Series at the 1997 Annual Meeting,
and, unless sooner terminated as provided in paragraph 10 hereof, this Agreement
shall remain in effect through the close of business on October 31, 1999, and
thereafter subject to the termination provisions and other terms and conditions
hereof; if: (a) such continuation shall be specifically approved at least
annually by the Board of Trustees, or by vote of a majority of the outstanding
voting securities of the Income Series, and concurrently with such approval by
the Board of Trustees or prior to such approval by the holders of the
outstanding voting securities of the Income Series, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the trustees of the Dupree Mutual Funds who are not
parties to this Agreement or interested persons of any such party; and (b) the
Adviser shall have not notified the Income Series, in writing, at least sixty
(60) days prior to October 31 of each year after 1998 that it does not desire
such
<PAGE> 4
continuation. The Adviser shall furnish to the Income Series, promptly upon
its request such information in the possession of or readily available to the
Adviser as the Trustees of Dupree Mutual Funds may at any time from time to time
deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Income Series, and this
Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Income Series, such
action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Income Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the Income
Series whose services were made available to the Income Series by the Adviser
shall be liable to the Income Series for any error of judgment or mistake of law
or for any loss suffered by the Income Series by reason of any action taken or
omission to act committed in connection with the matters to which this Agreement
relates, except that nothing herein contained shall be construed (i) to protect
the Adviser or any affiliated person of the Adviser (whether or not such
affiliated person is or was an officer, director or member of any advisory board
of the Income Series and/or Dupree Mutual Funds) against any liability to the
Income Series or its security holders for any breach of fiduciary duty with
respect to the Adviser's receipt of compensation for services to the Income
Series, (ii) to protect the Adviser or any affiliated person of the Adviser who
is or was an officer, trustee or member of any advisory board of the Income
Series and/or Dupree Mutual Funds against any liability to the Income Series or
its security holders for any act or practice ( other than the Adviser's receipt
of compensation for services to the Income Series) constituting a breach of
fiduciary duty involving personal misconduct in respect of the Income Series,
(iii) to protect the Adviser against any liability to the Income Series or its
security holders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations or duties, under
this Agreement, or (iv) to protect any affiliated person of the Adviser who is
or was a Trustee or officer of the Income Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Income Series and/or Dupree Mutual Funds. In the
event that any affiliated person of the Adviser shall become a Trustee, officer
or employee of the Income Series and/or Dupree Mutual Funds, then all actions
taken or omissions to act made by such person in connection with the discharge
of his duties to the Income Series shall be deemed to have been taken or made by
such person solely in his capacity as such Trustee, officer or employee of said
entity, notwithstanding the fact that the services of such person are being or
have been furnished by the Adviser to said entity as provided in this Agreement
or that the compensation and expenses of such person are being or have been paid
by the Adviser or any other affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
and until the Adviser shall otherwise consent, the Adviser shall be the only
investment adviser to the Income Series.
<PAGE> 5
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Tennessee Tax-Free Income Series
By:
---------------------------------------
Vice President
Attest
---------------------------
DUPREE & COMPANY, INC.
By:
---------------------------------------
President
Attest
---------------------------
<PAGE> 1
Exhibit 5.6
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Tennessee Tax-Free Short-to-Medium Series, (hereinafter called
"Short-to-Medium Series"), and DUPREE & COMPANY, INC., a corporation organized
and existing under the laws of the State of Kentucky (hereinafter called the
"Adviser").
WITNESSETH:
WHEREAS, the Short-to-Medium Series is engaged in business as part of
an open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Short-to-Medium Series desires to retain the Adviser to
render investment supervisory services and provide office space and facilities
and corporate administration to the Income Series in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Short-to-Medium Series and shall provide the
Short-to-Medium Series with office space and facilities and corporate
administration, subject to and upon the terms and conditions set forth in this
Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Short-to-Medium Series in a manner consistent
with its investment objectives; shall determine the securities to be purchased
and sold by the Short-to-Medium Series, and the portion of its assets to be held
in cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the purchase or
sales of securities on behalf of the Short-to-Medium Series, as the Adviser may
deem necessary or appropriate for the implementation of such program. The
Adviser shall also furnish to or place at the disposal of the Short-to-Medium
Series such of he information, reports evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties hereunder
as the Short-to-Medium Series may, at the time or from time to time, reasonably
request or as the Adviser may deem helpful to the Short-to-Medium Series.
3. (a)The Adviser shall:
(i) Pay or provide for and furnish to the Short-to-Medium Series
such office space, equipment facilities, personnel and services (exclusive of
and in addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Short-to-Medium Series) as the
Short-to-Medium Series may reasonably require in the conduct of its business;
(ii)Maintain and preserve on behalf of the Short-to-Medium Series,
for such periods and in such forms as are prescribed by rules and regulations of
the Securities and Exchange Commission (the "Commission"), all of the accounts,
books and other documents the Short-to-Medium Series is required to maintain and
preserve pursuant to Section 31(a) of the Investment
<PAGE> 2
Company Act of 1940 and the rules and regulations of the Commission thereunder
which are not maintained and preserved on behalf of the Short-to-Medium Series
by any custodian, transfer agent or other institutional agent retained by the
Short-to-Medium Series;
(iii) Furnish the services and pay or provide for the compensation
and expenses of individuals competent (A) to perform for the Short-to-Medium
Series all executive and administrative functions that are not assigned to any
custodian, transfer agent or other institutional agent retained by the
Short-to-Medium Series, and (B) to supervise and coordinate the activities of
such institutional agents and the other agents (e.g., independent accountants
and legal counsel) retained by the Short-to-Medium Series; and
(iv)Permit officers or employees of the Adviser who are duly
elected or appointed as officers, trustees, members of any committee of trustees
or members of any advisory board or committee of the Short-to-Medium Series to
serve as such without remuneration from or other cost to the Short-to-Medium
Series.
(b) The adviser shall pay all sales and promotional expenses
incurred in the distribution of shares of the Short-to-Medium Series. The
expenses to be assumed and paid by the Adviser include the costs of:
(i) Media and direct mail advertising;
(ii) Printing copies of the prospectus of Dupree Mutual Funds
and shareholder reports which are used in its sales or promotional efforts; it
being understood that the Short-to-Medium Series will bear printing costs
relating to copies of its prospectus and reports which are distributed to its
shareholders;
(iii) Printing share purchase order forms to accompany the
prospectus of Dupree Mutual Funds and
(iv) Corresponding and dealing with prospective investors, up
to and including receipt of their orders for the purchase of Short-to-Medium
Series shares.
(c) The Short-to-Medium Series shall bear all expenses of its
operation not specifically assumed by the Adviser as hereinabove set forth or as
provided elsewhere in this Agreement. The Adviser, in its sole discretion, may
at any time or from time to time pay or assume any expense that the
Short-to-Medium Series would or might otherwise be required to bear. However,
the Adviser's payment or assumption of any such expenses on one or more occasion
shall neither relieve the Adviser of any obligation to the Short-to-Medium
Series pursuant to paragraph 6(b) hereof nor obligate the Adviser to pay or
assume the same or any similar expense of the Short-to-Medium Series on any
subsequent occasion.
4. The Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Adviser or the Short-to-Medium Series with such statistical and
other factual information, such advice regarding economic factors and trends,
such advice as to occasional transactions in specific securities or such other
information, advice or assistance as the Adviser may deem necessary, appropriate
or convenient for the discharge of its obligations hereunder or for the
discharge of Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser. The Adviser and any individual
performing executive or administrative functions for the Short-to-Medium Series
whose services were made available to it by the Adviser are specifically
authorized to allocate brokerage and principal business to firms that provide
such services or facilities and to cause the Short-to-Medium Series to pay a
member of a securities exchange, or any other securities broker or dealer, an
amount of commission for effecting a securities transaction in
<PAGE> 3
excess of the amount of commission another member of an exchange or another
broker or dealer would have charged for effecting that transaction, if the
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Short-to-Medium Series pursuant to paragraph
3(a)(i) hereof are the property of the Short-to-Medium Series and shall be
surrendered by the Adviser promptly on request by the Short-to-Medium Series.
The Short-to-Medium Series shall furnish or otherwise make available to the
Adviser such financial reports, proxy statements and other information relating
to the business and affairs of the Short-to-Medium Series as the Adviser may, at
any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Short-to-Medium
Series shall pay the Adviser a fee at the annual rate of one-half of one percent
(1/2 of 1%) of the first $100,000,000 average daily net asset value, .45 of 1%
of the average daily net assets between $100,000,001 and $150,000,000, and .4 of
1% of the average daily net assets in excess of $150,000,000 of the
Short-to-Medium Series, as determined in accordance with the Declaration of
Trust of Dupree Mutual Funds. The amounts due the Adviser in payment of such
fees shall be accrued daily by the Short-to-Medium Series on the basis of the
net asset value of the Short-to-Medium Series applicable to the close of each
business day, and in the case of any day which is not a business day, the net
asset value of the Short-to-Medium Series applicable to the close of the last
preceding business day; and the total amount thus accrued with respect to each
calendar month or portion thereof during which this Agreement remains in effect
shall become due and payable to the Adviser in the first business day of the
next succeeding calendar month. The term "business day" means a day for all or
part of which the New York Stock Exchange is open for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the
Short-to-Medium Series; but this prohibition shall not prevent the purchase by
or for the Adviser or any of its officers or directors of shares of the
Short-to-Medium Series at the price at which such shares are available to the
public at the moment of purchase.
8. Nothing herein contained shall be deemed to require the
Short-to-Medium Series to take any action to the Declaration of Trust of Dupree
Mutual Funds or the Trust By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Trustees of Dupree Mutual Funds of its responsibility for
and control of the conduct of the Short-to-Medium Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Short-to-Medium Series at the 1997 Annual
Meeting, and, unless sooner terminated as provided in paragraph 10 hereof, this
Agreement shall remain in effect through the close of business on October 31,
1999, and thereafter subject to the termination provisions and other terms and
conditions hereof; if: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees, or by vote of a majority of the
outstanding voting securities of the Short-to-Medium Series, and concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Short-to-Medium Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the trustees of the Dupree Mutual
Funds who are not parties to this
<PAGE> 4
Agreement or interested persons of any such party; and (b) the Adviser shall
have not notified the Short-to-Medium Series, in writing, at least sixty (60)
days prior to October 31 of each year after 1998 that it does not desire such
continuation. The Adviser shall furnish to the Short-to-Medium Series, promptly
upon its request such information in the possession of or readily available to
the Adviser as the Trustees of Dupree Mutual Funds may at any time from time to
time deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Short-to-Medium Series, and
this Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Short-to-Medium Series,
such action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Short-to-Medium Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the
Short-to-Medium Series whose services were made available to the Short-to-Medium
Series by the Adviser shall be liable to the Short-to-Medium Series for any
error of judgment or mistake of law or for any loss suffered by the
Short-to-Medium Series by reason of any action taken or omission to act
committed in connection with the matters to which this Agreement relates, except
that nothing herein contained shall be construed (i) to protect the Adviser or
any affiliated person of the Adviser (whether or not such affiliated person is
or was an officer, director or member of any advisory board of the
Short-to-Medium Series and/or Dupree Mutual Funds) against any liability to the
Short-to-Medium Series or its security holders for any breach of fiduciary duty
with respect to the Adviser's receipt of compensation for services to the
Short-to-Medium Series, (ii) to protect the Adviser or any affiliated person of
the Adviser who is or was an officer, trustee or member of any advisory board of
the Short-to-Medium Series and/or Dupree Mutual Funds against any liability to
the Short-to-Medium Series or its security holders for any act or practice (
other than the Adviser's receipt of compensation for services to the
Short-to-Medium Series) constituting a breach of fiduciary duty involving
personal misconduct in respect of the Short-to-Medium Series, (iii) to protect
the Adviser against any liability to the Short-to-Medium Series or its security
holders to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations or duties, under this
Agreement, or (iv) to protect any affiliated person of the Adviser who is or was
a Trustee or officer of the Short-to-Medium Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Short-to-Medium Series and/or Dupree Mutual
Funds. In the event that any affiliated person of the Adviser shall become a
Trustee, officer or employee of the Short-to-Medium Series and/or Dupree Mutual
Funds, then all actions taken or omissions to act made by such person in
connection with the discharge of his duties to the Short-to-Medium Series shall
be deemed to have been taken or made by such person solely in his capacity as
such Trustee, officer or employee of said entity, notwithstanding the fact that
the services of such person are being or have been furnished by the Adviser to
said entity as provided in this Agreement or that the compensation and expenses
of such person are being or have been paid by the Adviser or any other
affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other
<PAGE> 5
persons, firms or corporations or to engage in other business activities; but so
long as this Agreement or any extension, renewal or amendment hereof shall
remain in effect and until the Adviser shall otherwise consent, the Adviser
shall be the only investment adviser to the Short-to-Medium Series.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Tennessee Tax-Free Short-to-Medium Series
By:
---------------------------------------
Vice President
Attest
--------------------------
DUPREE & COMPANY, INC.
By:
---------------------------------------
President
Attest
--------------------------
<PAGE> 1
Exhibit 5.7
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Intermediate Government Bond Series, (hereinafter called "Government Bond
Series"), and DUPREE & COMPANY, INC., a corporation organized and existing under
the laws of the State of Kentucky (hereinafter called the "Adviser").
WITNESSETH:
WHEREAS, the Government Bond Series is engaged in business as part of
an open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Government Bond Series desires to retain the Adviser to
render investment supervisory services and provide office space and facilities
and corporate administration to the Government Bond Series in the manner and on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Government Bond Series and shall provide the
Government Bond Series with office space and facilities and corporate
administration, subject to and upon the terms and conditions set forth in this
Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Government Bond Series in a manner consistent
with its investment objectives; shall determine the securities to be purchased
and sold by the Government Bond Series, and the portion of its assets to be held
in cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the purchase or
sales of securities on behalf of the Government Bond Series, as the Adviser may
deem necessary or appropriate for the implementation of such program. The
Adviser shall also furnish to or place at the disposal of the Government Bond
Series such of the information, reports evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties hereunder
as the Government Bond Series may, at the time or from time to time, reasonably
request or as the Adviser may deem helpful to the Government Bond Series.
3. (a)The Adviser shall:
(i) Pay or provide for and furnish to the Government Bond Series
such office space, equipment facilities, personnel and services (exclusive of
and in addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Government Bond Series) as the Government
Bond Series may reasonably require in the conduct of its business;
(ii)Maintain and preserve on behalf of the Government Bond Series,
for such periods and in such forms as are prescribed by rules and regulations of
the Securities and Exchange Commission (the "Commission"), all of the accounts,
books and other documents the Government
<PAGE> 2
Bond Series is required to maintain and preserve pursuant to Section 31(a) of
the Investment company Act of 1940 and the rules and regulations of the
Commission thereunder which are not maintained and preserved on behalf of the
Government Bond Series by any custodian, transfer agent or other institutional
agent retained by the Government Bond Series;
(iii) Furnish the services and pay or provide for the compensation
and expenses of individuals competent (A) to perform for the Government Bond
Series all executive and administrative functions that are not assigned to any
custodian, transfer agent or other institutional agent retained by the
Government Bond Series, and (B) to supervise and coordinate the activities of
such institutional agents and the other agents (e.g., independent accountants
and legal counsel) retained by the Government Bond Series; and
(iv)Permit officers or employees of the Adviser who are duly
elected or appointed as officers, trustees, members of any committee of trustees
or members of any advisory board or committee of the Government Bond Series to
serve as such without remuneration from or other cost to the Government Bond
Series.
(b) The adviser shall pay all sales and promotional expenses
incurred in the distribution of shares of the Government Bond Series. The
expenses to be assumed and paid by the Adviser include the costs of:
(i) Media and direct mail advertising;
(ii) Printing copies of the prospectus of Dupree Mutual Funds
and shareholder reports which are used in its sales or promotional efforts; it
being understood that the Government Bond Series will bear printing costs
relating to copies of its prospectus and reports which are distributed to its
shareholders;
(iii) Printing share purchase order forms to accompany the
prospectus of Dupree Mutual Funds and
(iv) Corresponding and dealing with prospective investors, up
to and including receipt of their orders for the purchase of Government Bond
Series shares.
(c) The Government Bond Series shall bear all expenses of its
operation not specifically assumed by the Adviser as hereinabove set forth or as
provided elsewhere in this Agreement. The Adviser, in its sole discretion, may
at any time or from time to time pay or assume any expense that the Government
Bond Series would or might otherwise be required to bear. However, the Adviser's
payment or assumption of any such expenses on one or more occasion shall neither
relieve the Adviser of any obligation to the Government Bond Series pursuant to
paragraph 6(b) hereof nor obligate the Adviser to pay or assume the same or any
similar expense of the Government Bond Series on any subsequent occasion.
4. The Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Adviser or the Government Bond Series with such statistical and
other factual information, such advice regarding economic factors and trends,
such advice as to occasional transactions in specific securities or such other
information, advice or assistance as the Adviser may deem necessary, appropriate
or convenient for the discharge of its obligations hereunder or for the
discharge of Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser. The Adviser and any individual
performing executive or administrative functions for the Government Bond Series
whose services were made available to it by the Adviser are specifically
authorized to allocate brokerage and principal business to firms that provide
such services or facilities and to cause the Government Bond Series to pay a
member of a securities exchange, or any other
<PAGE> 3
securities broker or dealer, an amount of commission for effecting a securities
transaction in excess of the amount of commission another member of an exchange
or another broker or dealer would have charged for effecting that transaction,
if the Adviser or the individual allocating such brokerage determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services (as such services are defined in Section
28(e) of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Government Bond Series pursuant to paragraph
3(a)(i) hereof are the property of the Government Bond Series and shall be
surrendered by the Adviser promptly on request by the Government Bond Series.
The Government Bond Series shall furnish or otherwise make available to the
Adviser such financial reports, proxy statements and other information relating
to the business and affairs of the Government Bond Series as the Adviser may, at
any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Government Bond
Series shall pay the Adviser a fee at the annual rate of one-half of one percent
(1/2 of 1%) of the first $100,000,000 average daily net asset value, .45 of 1%
of the average daily net assets between $100,000,001 and $150,000,000, and .4 of
1% of the average daily net assets in excess of $150,000,001 of the Government
Bond Series, as determined in accordance with the Declaration of Trust of Dupree
Mutual Funds. The amounts due the Adviser in payment of such fees shall be
accrued daily by the Government Bond Series on the basis of the net asset value
of the Government Bond Series applicable to the close of each business day, and
in the case of any day which is not a business day, the net asset value of the
Government Bond Series applicable to the close of the last preceding business
day; and the total amount thus accrued with respect to each calendar month or
portion thereof during which this Agreement remains in effect shall become due
and payable to the Adviser in the first business day of the next succeeding
calendar month. The term "business day" means a day for all or part of which the
New York Stock Exchange is open for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the Government
Bond Series; but this prohibition shall not prevent the purchase by or for the
Adviser or any of its officers or directors of shares of the Government Bond
Series at the price at which such shares are available to the public at the
moment of purchase.
8. Nothing herein contained shall be deemed to require the Government
Bond Series to take any action to the Declaration of Trust of Dupree Mutual
Funds or the Trust By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Trustees of Dupree Mutual Funds of its responsibility for
and control of the conduct of the Government Bond Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Government Bond Series at the 1997 Annual
Meeting, and, unless sooner terminated as provided in paragraph 10 hereof, this
Agreement shall remain in effect through the close of business on October 31,
1999, and thereafter subject to the termination provisions and other terms and
conditions hereof; if: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees, or by vote of a majority of the
outstanding voting securities of the Government Bond Series, and concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Government Bond Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of
<PAGE> 4
voting on such approval, of a majority of the trustees of the Dupree Mutual
Funds who are not parties to this Agreement or interested persons of any such
party; and (b) the Adviser shall have not notified the Government Bond Series,
in writing, at least sixty (60) days prior to October 31 of each year after 1998
that it does not desire such continuation. The Adviser shall furnish to the
Government Bond Series, promptly upon its request such information in the
possession of or readily available to the Adviser as the Trustees of Dupree
Mutual Funds may at any time from time to time deem reasonably necessary to
evaluate the terms of this Agreement or any extension, renewal or amendment
hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Government Bond Series, and
this Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Government Bond Series,
such action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Government Bond Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the Government
Bond Series whose services were made available to the Government Bond Series by
the Adviser shall be liable to the Government Bond Series for any error of
judgment or mistake of law or for any loss suffered by the Government Bond
Series by reason of any action taken or omission to act committed in connection
with the matters to which this Agreement relates, except that nothing herein
contained shall be construed (i) to protect the Adviser or any affiliated person
of the Adviser (whether or not such affiliated person is or was an officer,
director or member of any advisory board of the Government Bond Series and/or
Dupree Mutual Funds) against any liability to the Government Bond Series or its
security holders for any breach of fiduciary duty with respect to the Adviser's
receipt of compensation for services to the Government Bond Series, (ii) to
protect the Adviser or any affiliated person of the Adviser who is or was an
officer, trustee or member of any advisory board of the Government Bond Series
and/or Dupree Mutual Funds against any liability to the Government Bond Series
or its security holders for any act or practice ( other than the Adviser's
receipt of compensation for services to the Government Bond Series) constituting
a breach of fiduciary duty involving personal misconduct in respect of the
Government Bond Series, (iii) to protect the Adviser against any liability to
the Government Bond Series or its security holders to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations or duties, under this Agreement, or (iv) to protect any
affiliated person of the Adviser who is or was a Trustee or officer of the
Government Bond Series or its security holders for which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office with the Government Bond Series and/or Dupree Mutual Funds. In the event
that any affiliated person of the Adviser shall become a Trustee, officer or
employee of the Government Bond Series and/or Dupree Mutual Funds, then all
actions taken or omissions to act made by such person in connection with the
discharge of his duties to the Government Bond Series shall be deemed to have
been taken or made by such person solely in his capacity as such Trustee,
officer or employee of said entity, notwithstanding the fact that the services
of such person are being or have been furnished by the Adviser to said entity as
provided in this Agreement or that the compensation and expenses of such person
are being or have been paid by the Adviser or any other affiliated person of the
Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to
<PAGE> 5
other investment companies, to act as investment adviser or investment counselor
to other persons, firms or corporations or to engage in other business
activities; but so long as this Agreement or any extension, renewal or amendment
hereof shall remain in effect and until the Adviser shall otherwise consent, the
Adviser shall be the only investment adviser to the Government Bond Series.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Intermediate Government Bond Series
By:
------------------------------------
Vice President
Attest
----------------------------
DUPREE & COMPANY, INC.
By:
------------------------------------
President
Attest
----------------------------
<PAGE> 1
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT SERVICE AGREEMENT
--------------------------------------------------------------
THIS AGREEMENT made on November 1, 1997 by and between DUPREE MUTUAL
FUNDS, a Kentucky Business Trust acting for and on behalf of each series of the
Trust (hereinafter known as the "Trust") and DUPREE & COMPANY, INC., Lexington,
Kentucky a corporation organized under the laws of the State of Kentucky
(hereinafter called "Dupree").
WHEREAS, the Trust desires to appoint Dupree as Transfer Agent and
Dividend Disbursing Agent, and Dupree desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. TERMS OF APPOINTMENT
--------------------
1.01 Subject to the conditions set forth in this Agreement, The Trust
hereby employs and appoints Dupree as Transfer Agent and Dividend Disbursing
Agent effective November 1, 1997.
1.02 Dupree hereby accepts such employment and appointment and agrees
that on and after the effective date of its appointment it will act as The
Trust's Transfer Agent and Dividend Disbursing Agent. Dupree agrees that it will
also act as agent in connection with any periodic investment plan, periodic
withdrawal program or other accumulation, open-account or similar plans for the
Trust's shareholders.
1.03 Dupree agrees to provide the necessary facilities, equipment and
personnel to perform its duties and obligations hereunder in accordance with
industry practice.
1.04 Dupree agrees that it will perform all the usual and ordinary
services as Transfer Agent and Dividend Disbursing Agent and as agent for the
various shareholder accounts including but not limited to: registering, issuing,
transferring and canceling stock certificates, maintaining all shareholder
accounts, preparing annual shareholder meeting lists, withholding taxes as
required by law, disbursing income dividends and capital gains distributions,
preparing and filing U.S. Treasury Department Form 1099 for all shareholders,
preparing and mailing confirmation forms to shareholders for all purchases and
liquidations of the Trust shares, causing
<PAGE> 2
liquidation of shares and causing disbursements to be made to withdrawal plan
holders, and (if and to the extent not performed by the Trust) mailing proxies,
receiving and tabulating proxies and mailing shareholder reports and
prospectuses.
SECTION 2. RECEIPT OF FUNDS; SHARE PURCHASE ORDERS
---------------------------------------
2.01 Upon receipt at the office designated by Agent of any check or
other order for the payment of money drawn or endorsed to it as transfer agent
for the Trust or as plan agent for any shareholder of the Trust, Agent shall
stamp the check or other order with the date of receipt, shall forthwith process
the same for collection, and, no later than the opening of business on the
second business day following receipt of such check or such other order, shall
credit federal funds to the Trust in the face amount of the check or other order
and shall deposit the amount due the Trust in the bank account maintained for
the Trust by its custodian bank (the "Custodian"). Upon receipt of funds through
the Federal Reserve Wire System or conversion into federal funds of funds
transmitted by any other bank wire transfer system, Agent shall notify the Trust
of such deposits and shall, on a daily basis, notify the Trust of the total
amount so deposited.
2.02 Upon receipt of a check or other order in payment for shares of
the Trust purchased by an investor, accompanied, in the case of a new account,
by a completed account application, Agent shall process such order in accordance
with the procedures set forth in the Trust's current prospectus and credit the
investor's share account with the number of shares so purchased, and shall
promptly mail the investor a notice of such notice to the Trust. All such
actions are subject to any instructions which the Trust may give Agent with
respect to acceptance of orders for shares so received by Agent.
2.03 Within 30 calendar days after receipt of any check in the amount
of $200,000 or over, Agent will call the paying bank to confirm that the check
has been paid. Trust will be notified immediately if Agent receives information
that payment for any check in the amount of $200,000 or over has been refused.
Further, if Agent is unable to confirm the status of any check in the amount of
$200,000 or over within 30 calendar days of receipt of such check, Trust will be
so notified. Proceeds of a redemption of shares purchased by such check or
certificate
<PAGE> 3
representing shares purchased by such check will not be mailed until payment of
the check has been confirmed.
2.04 The Trust expects that situations may develop whereby it would be
beneficial to determine if a person who has placed an order for shares has
sufficient funds in his checking account to cover the payment for the shares
purchased. Upon receipt of a request from the Trust, Agent will call the bank in
question and request that it confirm that sufficient funds to cover the purchase
are currently credited to the account in question. The results of any such calls
will be reported to the Trust.
2.05 Agent will maintain written documentation of each telephone call
which is made under the procedures outlined above.
2.06 None of the above procedures shall preclude Agent from inquiring
as to the status of any check received by it in payment for Trust shares as
Agent may deem appropriate or necessary to protect both the Trust and the Agent.
SECTION 3. RETURNED CHECKS
---------------
In the event that any check or other order for the payment of money is
returned unpaid for any reason, Agent shall:
3.01 Give prompt notification to the Trust of the non-payment of said
check;
3.02 Take such other steps, including re-depositing said check for
collection or redelivering said check to the investor, as Agent may in its
discretion, deem appropriate, or as the Trust may instruct.
3.03 If the check or other order remains unpaid after such additional
steps have been taken, and in the absence of other instructions from Trust,
Agent shall take such steps as may be necessary to enable Trust to redeem any
shares purchased on the basis of such returned check or order. Upon redemption,
Agent shall credit the proceeds of such redemption plus any dividends declared
with respect to such shares up to the amount paid for the shares to the Trust's
account. Agent shall forward such returned check or order to the person who
originally submitted same. In the event that the amount paid for such shares
exceeds the proceeds of the
<PAGE> 4
redemption of such shares plus the amount of any dividends declared with respect
to such shares, Agent shall receive reimbursement of such excess from Trust.
SECTION 4. REDEMPTIONS
-----------
Agent shall receive and shall stamp with the date of receipt, all
certificates delivered to it for redemption or repurchase as well as all
requests for redemptions or repurchase of shares and shall process said
certificate and redemption and repurchase requests as follows:
4.01 Upon receipt of a request for redemption, Agent will determine if
any of the shares to be redeemed have been purchased within the previous thirty
(30) calendar days. If it is determined that any portion of the shares to be
redeemed have been purchased within the previous thirty (30) calendar days,
Agent will promptly obtain the necessary information relative to the check used
to purchase the shares, and will call the paying bank requesting confirmation
that the check in question has been paid.
4.02 If such certificates, redemption request or repurchase request
comply with the standards for redemption or repurchase as approved by the Trust
and if it is determined that none of the shares to be redeemed have been
purchased within the previous thirty (30) calendar days or if Agent has not
received information that the check in question has been returned to Agent as
unpaid by the close of Agent's business on the date of receipt of the redemption
request, Agent shall notify Trust of the total number of shares presented and
covered by such requests received by Agent on said date. On or prior to the
seventh calendar day succeeding any such receipt of certificates or request for
redemption or repurchase, Agent shall from cash available in the bank account
maintained by the Custodian, pay the applicable redemption or repurchase price,
as the case may be, to the investor as set forth in the Articles of
Incorporation and the then current prospectus of the Trust.
4.03 If by the end of the seventh (7) calendar day after receipt of a
redemption request Agent has been unable to determine the status of any check in
question, Agent will calculate the amount due to the shareholder for shares
which were purchased and credited to the shareholder's account over thirty (30)
days prior to receipt of the redemption request and will send a check
representing the proceeds of the redemption of these shares to the shareholder,
<PAGE> 5
together with a letter of explanation. Funds representing redemption of shares
purchased within the prior thirty (30) days will be held until the paying bank
can confirm payment of the check used for purchase of shares.
4.04 If any certificate or request for redemption or repurchase does
not comply with the standards for redemption approved by the Trust, Agent shall
promptly notify the investor of such fact, together with the reason therefor,
and shall effect such redemption or repurchase at the price applicable to the
date and time of receipt of documents complying with said standards, or in the
case of a repurchase, at such other time as the Trust shall so direct.
SECTION 5. INFORMATION TO BE FURNISHED TO SHAREHOLDERS
-------------------------------------------
5.01 Agent shall answer that correspondence from shareholders relating
to their accounts and such other correspondence as may from time to time be
mutually agreed upon.
5.02 Agent shall mail such proxy cards and other material supplied to
it by Trust in connection with shareholder meetings of Trust and shall receive,
examine and tabulate returned proxies and certify the vote of the Trust.
SECTION 6. FEES AND EXPENSES
-----------------
6.01 For the services to be rendered by Dupree pursuant to paragraph
1.04, the Trust agrees to pay Dupree such fees as set out in the appendix
attached hereto and made a part hereof.
6.02 The Trust agrees to promptly reimburse Dupree for all reasonable
out-of-pocket expenses or advances incurred by Dupree in connection with the
performance of services under the Agreement including, but not limited to,
expenditures for reasonable counsel fees, postage, envelopes, checks, continuous
forms, reports and statements, telephone, telegraph, stationery, supplies, costs
of outside mailing firms, record storage costs and media for storage of records
(e.g., microfilm, computer tapes) so long as supplies purchased are expected to
last for a reasonable period of time. In addition, any other expenses incurred
by Dupree at the request or with the consent of the Trust will be promptly
reimbursed by the Trust.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF DUPREE
----------------------------------------
Dupree represents and warrants to the Trust that:
<PAGE> 6
7.01 It is a Trust duly organized and existing in good standing under
the laws of the State of Kentucky.
7.02 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform the services contemplated in this Agreement;
7.03 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement; and
7.04 It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and obligations under
the Agreement.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE TRUST
-------------------------------------------
The Trust represents and warrants to Dupree that:
8.01 It is a Trust duly organized and existing and in good standing
under the laws of the State of Kentucky;
8.02 It is an open-end diversified management investment company
registered under the Investment Company Act of 1940;
8.03 A registration statement under the Securities Act of 1933 is
currently effective with respect to all shares of the Trust being offered for
sale;
8.04 The Trust is empowered under the applicable laws and regulations
and by it charter and by-laws to enter into and perform this Agreement; and all
requisite corporate proceedings have been taken to authorize it to enter into
and perform this Agreement.
SECTION 9. INDEMNIFICATION
---------------
9.01 Dupree shall not be responsible for and the Trust shall indemnify
and hold Dupree harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of Dupree required to be taken by Dupree
pursuant to this Agreement provided that Dupree has acted in good faith
and with due diligence.
(b) The reliance on, or use by Dupree of, information
furnished or records and documents received by Dupree which have been
prepared and/or maintained by the Trust, or any other person or firm on
behalf of the Trust.
<PAGE> 7
(c) Defaults by dealers with respect to payment for share
orders previously entered.
(d) The reliance on, or carrying out of, any instructions or
requests of the Trust.
(e) The offer of sale of the Trust's shares in violation of
any requirement under the securities laws or regulations of any state
that such shares be registered in such state of in violation of any
stop order or other determination or ruling by any state with respect
to the offer or sale of such shares in such state (unless such
violation results from Dupree's failure to comply with written
instructions of the Trust or of any other officer of the Trust that no
offers or sales be made in or to residents of such state).
9.02 It is understood that if any case the Trust may be asked to
indemnify or save Agent harmless, the Trust shall be fully and promptly advised
of all pertinent facts concerning the situation in question, and it is further
understood that Agent will use all reasonable care to identify and notify the
Trust promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Trust.
The Trust shall have the option to defend Agent against any claim which may be
subject of this indemnification, and in the event that the Trust so elects it
will so notify Agent, and thereupon the Trust shall take over complete defense
of the claim, and Agent shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification. Agent shall in no case
confess any claim or make any comprise in any case in which the Trust will be
asked to indemnify Agent except with the Trust's prior written consent. In the
event of any advance of cash for any purpose made by Agent resulting from orders
or instructions of the Trust, or in the event that Agent shall incur any claims,
liabilities or related expenses in connection with the performance of this
agreement, except such as may arise from its own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the Trust shall be security therefor.
9.03 Dupree shall indemnify and hold the Trust harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of
<PAGE> 8
Dupree's failure to comply with the terms of this Agreement or which arise out
of Dupree's negligence or misconduct.
9.04 At any time Dupree may apply to any officer of the Trust for
instructions, and may consult with legal counsel for the Trust at the expense of
the Trust, with respect to any matter arising in connection with the services to
be performed by Dupree under this Agreement and Dupree shall be indemnified by
the Trust for any action taken or omitted by it in good faith in reliance upon
such instructions or upon the opinion of counsel for the Trust. Dupree shall be
protected and indemnified in acting upon any paper or document believed by it to
be genuine and to have been signed by the proper person or persons and shall not
be held to have notice of any change of authority of any person, until receipt
of written notice thereof from the Trust. Dupree shall also be protected and
indemnified in recognizing stock certificates which Dupree reasonably believes
to bear the proper manual or facsimile signatures of the officer or the Trust,
and the proper counter-signature of any former transfer agent or registrar, or
of a co-transfer agent or co-registrar.
SECTION 10. COVENANTS OF DUPREE AND THE TRUST
---------------------------------
10.01 The Trust shall promptly furnish to Dupree the following:
(a) A certified copy of the resolution of the Board of
Directors of the Trust authorizing the appointment of Dupree and the
execution and delivery of this Agreement.
(b) Certified copy of the Articles of Incorporation and
By-Laws of the Trust and all amendments thereto.
(c) Specimens of all forms of outstanding stock certificates
in the form approved by the Trust's Board of Directors with a
certificate of the Secretary of the Trust as to such approval.
10.02 Dupree hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trust for safekeeping or stock
certificates, check forms, and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of such certificates,
forms and devices.
<PAGE> 9
10.03 To the extent required by SECTION 31 of the Investment Company
Act of 1940 and Rules thereunder, Dupree agrees that all records maintained by
Dupree relating to the services to be performed by Dupree under this Agreement
are the property of the Trust and will be preserved and will be surrendered
promptly to the Trust on request.
10.04 Dupree and the Trust agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or and the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any other
person.
SECTION 11. TERMINATION AND AGREEMENT
-------------------------
11.01 This Agreement may be terminated by either party by ninety (90)
days written notice to the other.
SECTION 12. ASSIGNMENT
----------
12.01 Neither this Agreement nor any rights or obligations hereunder
may be assigned by Dupree without the written consent of the Trust.
12.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective successors and assigns.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their corporate seals by and
through their duly authorized officers, as of the day and the year first above
written.
DUPREE MUTUAL FUNDS
By:
-------------------------------
Title:
----------------------------
ATTEST:
By:
---------------------------------
Title:
------------------------------
DUPREE & COMPANY, INC.
By:
-------------------------------
Title:
----------------------------
ATTEST:
By:
---------------------------------
Title:
------------------------------
<PAGE> 11
AGREEMENT AS TO FEES FOR TRANSFER AGENT/DIVIDEND DISBURSING AGENT
SHAREHOLDER SERVICES OF DUPREE & COMPANY, INC.
Dupree & Company, Inc., in accordance with the Agreement dated November
1, 1997 by and between Dupree & Company, Inc. and Dupree Mutual Funds, shall be
compensated monthly at a rate of 1/12 of .15% on the first $20,000,000 and 1/12
of .12% of all net assets over $20,000,000 per the monthly average net asset
value as is declared and determined by each individual series at the close of
each month.
Additionally, the Trust shall reimburse Dupree & Company, Inc., for
out-of-pocket expenses incurred on behalf of the Trust. Theses expenses include,
but are not necessarily limited to, postage, insurance, telephone charges, and
cost of forms. Dupree & Company, Inc., will bill the Trust monthly for the
service fee and expenses.
<PAGE> 1
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Highlights"
in the Prospectus and under the caption "Other Services" in the Statement of
Additional Information both included in Post-Effective Amendment No. 37 to the
Registration Statement (Form N-1A No. 2-64233) of Dupree Mutual Funds, and to
the use of our opinion included therein.
ERNST & YOUNG LLP
Cincinnati, Ohio
October 3, 1997
<PAGE> 1
Exhibit 16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1997, the yield for the Kentucky Tax Free Income Series was 4.03%
and was calculated as follows:
YIELD=
2[ ((a-b / cd) +1)to the sixth power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$1,253,683.52
b = Expenses accrued for the period: $169,704.91
c = The average daily number of shares outstanding
during the period that were entitled to
receive dividends: 43,584,143.772
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $7.47.
1
<PAGE> 2
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1997, the yield for the Kentucky Tax Free Income Series was 5.28%
and was calculated as follows:
YIELD=
2[ ((a-b / cd) +1)to the sixth power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$1,593,397.91
b = Expenses accrued for the period: $175,396.76
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends: 43,584,143.772
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $7.47.
2
<PAGE> 3
EXHIBIT 16
The average annual total return for the Kentucky Tax Free Income Series for the
one-year period ended June 30, 1997, was 5.31% and was calculated as follows:
P(1 + T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at the
beginning of the one-year period:
$1,071.43
The average annual total return for the Kentucky Tax Free Income Series for the
period July 1, 1992 to June 30, 1997, was 6.78% and for the period July 1, 1987
to June 30, 1997, was 7.80%. The average annual total return for each of these
periods was calculated in a manner similar to that described above.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-year period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($7.35) equals initial number of shares
(136.054 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 136.054 plus
incremental number of shares of 7.377 equals 143.431 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(143.431 shares x $7.47 = $1,071.43)
3
<PAGE> 4
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares for the one-year period ending June 30, 1997
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- ---- -------- ----- ------
<S> <C> <C> <C>
6/30/96 7.35
9/30/96 .1004318 7.47 1.829
12/31/96 .099626 7.49 3.663
3/31/97 .0978445 7.42 5.506
6/30/97 .0987295 7.47 7.377
</TABLE>
4
<PAGE> 5
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
June 30, 1997, the tax equivalent yield for the Kentucky Tax Free Income Series
was 5.60% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.03%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
5
<PAGE> 6
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
June 30, 1997, the tax equivalent yield for the Kentucky Tax Free Income Series
was 7.33% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 5.28%
B = Stated tax rate: 28%
C = That part of the series yield that is
not tax-exempt: 0.
1
<PAGE> 7
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1997, the yield for the Kentucky Tax Free Short-to-Medium Series was
2.59% and was calculated as follows:
YIELD =
2[ ((a-b / cd) +1)to the sixth power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$148,381.47
b = Expenses accrued for the period: $32,061.27
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends: 10,379,290.895
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $5.22
1
<PAGE> 8
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1997, the yield for the Kentucky Tax Free Short-to-Medium Series was
4.14% and was calculated as follows:
YIELD =
2[ ((a-b / cd) +1)to the sixth power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$256,870.53
b = Expenses accrued for the period: $71,674.99
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends: 10,379,290.895
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $5.22
2
<PAGE> 9
EXHIBIT 16
The average annual total return for the Kentucky Tax Free Short-to-Medium Series
for the one-year period ended June 30, 1997, was 4.59% and was calculated as
follows:
P(1 + T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at the
beginning of the one-year period: $1045.85
The average annual total return for the Kentucky Tax Free Short-to-Medium Series
for the period July 1, 1992 to June 30, 1997, was 4.41% and was calculated in a
similar manner.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-year period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($5.20) equals initial number of shares
(192.308 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 192.308 plus
incremental number of shares of 8.047 equals 200.355 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(200.355 shares x $5.22 = $1,045.85)
3
<PAGE> 10
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares of the one-year period ending June 30, 1997 was
as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- ---- -------- ----- ------
<S> <C> <C> <C>
6/30/96 5.20
9/30/96 .0536142 5.23 1.971
12/31/96 .0537261 5.24 3.963
3/31/97 .0533404 5.20 5.977
6/30/97 .0545066 5.22 8.047
</TABLE>
4
<PAGE> 11
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the Kentucky Tax Free
Short-to-Medium Series was 5.75% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.14%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
5
<PAGE> 12
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the Kentucky Tax Free
Short-to-Medium Series was 3.59% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 2.59%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
1
<PAGE> 13
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1997, the yield for the Tennessee Tax Free Income Series was 4.60%
and was calculated as follows:
YIELD =
2[ ((a-b / cd) +1)to the sixth power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$54,935.62
b = Expenses accrued for the period: $4,896.85
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends: 1,252,069.827
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $10.53.
1
<PAGE> 14
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1997, the yield for the Tennessee Tax Free Income Series was 5.17%
and was calculated as follows:
YIELD =
2[ ((a-b / cd) +1)to the sixth power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$61,798.34
b = Expenses accrued for the period: $5,577.16
c = The average daily number of shares outstanding
during the period that were entitled to
receive dividends: 1,252,069.827
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $10.53.
2
<PAGE> 15
EXHIBIT 16
The average annual total return for the Tennessee Tax Free Income Series for the
one year period ended June 30, 1997, was 8.96% and was calculated as follows:
P(1 + T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made
at the beginning of the one-year
period: $1,089.63
The average annualized total return for the Tennessee Tax Free Income Series for
the period July 1, 1996 to June 30, 1997, was 8.96% and was calculated in a
manner similar to that described above.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($10.17) equals initial number of shares
(98.328 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 98.328 plus
incremental number of shares of 5.151 equals 103.479 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(103.479 shares x $10.53 = $1,089.63)
3
<PAGE> 16
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares for the one-year period ending June 30, 1997
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- ---- -------- ----- ------
<S> <C> <C> <C>
06/30/96 10.17
09/30/96 .1353828 10.45 1.274
12/31/96 .1365697 10.50 2.569
03/31/97 .1319203 10.40 3.849
06/30/97 .1340816 10.53 5.150
</TABLE>
4
<PAGE> 17
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the Tennessee Tax Free Income
Series was 7.18% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 5.17%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
5
<PAGE> 18
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the Tennessee Tax Free Income
Series was 6.39% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.60%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
1
<PAGE> 19
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1997, the yield for the Tennessee Tax Free Short-to-Medium Series
was 2.71% and was calculated as follows:
YIELD:
2[ ((a-b / cd) +1)to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$7,948.93
b = Expenses accrued for the period: $1,273.59
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends: 288,325.275
d = The maximum offering price per share on the
last day of the period, June 30, 1997:
$10.32.
1
<PAGE> 20
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1997, the yield for the Tennessee Tax Free Short-to-Medium Series
was 4.01% and was calculated as follows:
YIELD:
2[ ((a-b / cd) +1)to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$13,369.37
b = Expenses accrued for the period: $3,505.49
c = The average daily number of shares outstanding
during the period that were entitled to
receive dividends: 288,325.275
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $10.32.
2
<PAGE> 21
EXHIBIT 16
The average annual total return for the Tennessee Tax Free Short-to-Medium
Series for the one year period ended June 30, 1997, was 4.81% and was calculated
as follows:
P(1 + T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at the
beginning of the one-year period: $1048.14
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($10.25) equals initial number of shares
(97.561 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 97.561 plus
incremental number of shares of 4.003 equals 101.564 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(101.564 shares x $10.32 = $1,048.14)
3
<PAGE> 22
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares for the one year period ending June 30, 1997
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- ---- -------- ----- ------
<S> <C> <C> <C>
06/30/96 10.25
09/30/96 .1027814 10.30 .974
12/31/96 .1080027 10.33 2.004
03/31/97 .1019701 10.28 2.991
06/30/97 .1038661 10.32 4.003
</TABLE>
4
<PAGE> 23
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the Tennessee Tax-Free
Short-to-Medium Series was 3.76% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 2.71%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
5
<PAGE> 24
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the Tennessee Tax-Free
Short-to-Medium Series was 5.57% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.01%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
1
<PAGE> 25
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1997, the yield for the Intermediate Government Bond Series was
5.38% and was calculated as follows:
YIELD =
2[ ((a-b / cd) +1)to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$40,295.61
b = Expenses accrued for the period: $3,572.60
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends: 837,881.801
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $9.89
1
<PAGE> 26
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1997, the yield for the Intermediate Government Bond Series was
6.95% and was calculated as follows:
YIELD =
2[ ((a-b / cd) +1)to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$51,545.18
b = Expenses accrued for the period: $4,230.11
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends: 837,881.801
d = The maximum offering price per share on the
last day of the period, June 30, 1997: $9.89
2
<PAGE> 27
EXHIBIT 16
The average annual total return for the Intermediate Government Bond Series for
the one-year period ended June 30, 1997, was 7.92% and was calculated as
follows:
P(1 + T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at the
beginning of the one-year period:
$1,079.15.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-year period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($9.85) equals initial number of shares
(101.523 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 101.523 plus
incremental number of shares of 7.592 equals 109.115 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(109.115 shares x $9.89 = $1,079.15)
3
<PAGE> 28
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares of the one-year period ending June 30, 1997 was
as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- ---- -------- ----- ------
<S> <C> <C> <C>
6/30/96 9.85
9/30/96 .1844213 9.83 1.905
12/31/96 .1818714 9.92 3.801
3/31/97 .1765326 9.80 5.698
6/30/97 .174738 9.89 7.593
</TABLE>
4
<PAGE> 29
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the Intermediate Government Bond
Series was 5.38% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 0%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 100%.
5
<PAGE> 30
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the Intermediate Government Bond
Series was 6.95% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 0%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 100%.
6
<PAGE> 31
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1997, the yield for the North Carolina Tax Free Income Series was
4.86% and was calculated as follows:
YIELD:
2[ ((a-b / cd) +1)to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$14,749.14
b = Expenses accrued for the period: $909.17
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends: 333,860.228
d = The maximum offering price per share on the
last day of the period, June 30, 1997:
$10.33.
1
<PAGE> 32
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1997, the yield for the North Carolina Tax Free Income Series was
5.14% and was calculated as follows:
YIELD:
2[ ((a-b / cd) +1)to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$15,705.31
b = Expenses accrued for the period: $1075.70
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends: 333,860.228
d = The maximum offering price per share on the
last day of the period, June 30, 1997:
$10.33.
2
<PAGE> 33
EXHIBIT 16
The average annual total return for the North Carolina Income Series for the
one-year period ended June 30, 1997, was 5.14% and was calculated as follows:
P(1 + T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at the
beginning of the one-year period: $1,101.76
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($9.88) equals initial number of shares
(101.215 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 101.215 plus
incremental number of shares of 5.441 equals 106.656 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(106.656 shares x $10.33 = $1,101.76)
3
<PAGE> 34
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares of the one-year period ending June 30, 1997 was
as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- ---- -------- ----- ------
<S> <C> <C> <C>
6/30/96 9.88
9/30/96 .1336497 10.15 1.333
12/31/96 .1391794 10.28 2.721
3/31/97 .1335612 10.01 4.096
6/30/97 .1320199 10.33 5.441
</TABLE>
4
<PAGE> 35
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the North Carolina Tax-Free
Income Series was 6.75% (based on a tax rate of 28%) and was calculated as
follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.60
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
5
<PAGE> 36
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the North Carolina Tax-Free
Income Series was 7.14% (based on a tax rate of 28%) and was calculated as
follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 5.14
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
1
<PAGE> 37
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1997, the yield for the North Carolina Tax Free Short-to-Medium
Series was 3.03% and was calculated as follows:
YIELD:
2[ ((a-b / cd) +1)to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$4,388.18
b = Expenses accrued for the period: $520.26
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends: 152,116.927
d = The maximum offering price per share on the
last day of the period, June 30, 1997:
$10.12.
2
<PAGE> 38
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1997, the yield for the North Carolina Tax Free Short-to-Medium
Series was 3.87% and was calculated as follows:
YIELD:
2[ ((a-b / cd) +1)to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was
$6,884.94
b = Expenses accrued for the period: $1,956.54
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends: 152,116.927
d = The maximum offering price per share on the
last day of the period, June 30, 1997:
$10.12.
3
<PAGE> 39
EXHIBIT 16
The average annual total return for the North Carolina Short-to-Medium Series
for the one-year period ended June 30, 1997, was 5.47% and was calculated as
follows:
P(1 + T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at the
beginning of the one-year period:
$1,054.74
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($9.99) equals initial number of shares
(100.100 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 100.100 plus
incremental number of shares of 4.123 equals 104.223 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(104.223 shares x $10.12 = $1,054.74)
4
<PAGE> 40
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares of the one-year period ending June 30, 1997 was
as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- ---- -------- ----- ------
<S> <C> <C> <C>
6/30/96 9.99
9/30/96 .1009001 10.06 1.003
12/31/96 .1118792 10.11 2.123
3/31/97 .0973181 10.06 3.112
6/30/97 .0991416 10.12 4.123
</TABLE>
5
<PAGE> 41
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the North Carolina Tax-Free
Short-to-Medium Series was 4.21% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 3.03%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
6
<PAGE> 42
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1997, the tax equivalent yield for the North Carolina Tax-Free
Short-to-Medium Series was 5.38% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A / (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 3.87%
B = Stated tax rate: 28%
C = That part of the series yield that is not
tax-exempt: 0.
7
<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of Fayette and State of Kentucky on the
_____ day of September, 1997.
DUPREE MUTUAL FUNDS
By /s/ Thomas P. Dupree, Sr.
---------------------------------
Thomas P. Dupree, Sr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 37 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Thomas P. Dupree, Sr President (Principal Executive Officer) Oct 3, 1997
- ------------------------ and Trustee ----------
Thomas P. Dupree, Sr
/s/ Fred L. Dupree, Jr. Vice President, Secretary, and Treasurer Oct 3, 1997
- ------------------------ (Principal Financial and Accounting Officer) -----------
Fred L. Dupree, Jr. and Trustee
/s/ William A. Combs, Jr. Trustee Oct 3, 1997
- ------------------------ -----------
William A. Combs, Jr.
Trustee
- ------------------------ -----------
Robert L. Maddox
/s/ William S. Patterson Trustee Oct 3, 1997
- ------------------------ -----------
William S. Patterson
</TABLE>
