<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. 40 ( X )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 41 ( 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)
____ on ______________ 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)
__X_ on January 1, 2000 pursuant to paragraph (a) (2)
of rule 485
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<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; Annual Total Returns
3 Fees and Expenses of the Trust
4 Organization of the Trust; Dupree Mutual Funds - Summary
5 Fees and Expenses of the Trust
6 Management of the Trust
7 Determining Net Asset Value, Buying Shares, Selling Shares,
Taxes, Dividends
8 Not Applicable
9 Not Applicable
Part B
Item No. Statement of Additional Information
10 Cover Page; Table of Contents
11 General Information and History
12 Investment Objectives and Policies; Portfolio Turnover
Investment Restrictions
13 Investment Adviser; Officers and Trustees
14 Officers and Trustees, Shares of Beneficial Interest
15 Investment Adviser and Other Services
16 Portfolio Transactions
17 Shares of Beneficial Interest
18 How to Purchase Shares; How to Redeem Shares;
How We Compute Our Yields
19 Tax Information
20 Not Applicable
21 How We Compute Our Yields
22 Not Applicable
<PAGE> 3
Prospectus
January 1, 2000
DUPREE MUTUAL FUNDS
P.O. Box 1149
Lexington, Kentucky 40588-1149
(606) 254-7741
(800) 866-0614
MUNICIPAL BOND FUNDS
Alabama Tax-Free Income Series
Alabama Tax-Free Short-to-Medium Series
Mississippi Tax-Free Income Series
Mississippi Tax-Free Short-to-Medium 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 January
1, 2000 (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 Bar Chart
3 Trust Expenses
6 Organization of the Trust
6 Investment Objectives
7 Investment Policies and Restrictions
8 Management of the Trust
10 Determining Net Asset Value
10 Buying Shares
11 Selling Shares
13 Dividends
14 Taxes
14 Performance Calculations
15 How to Reach Us
<PAGE> 4
DUPREE MUTUAL FUNDS - SUMMARY
SINGLE STATE MUNICIPAL BOND SERIES
Investors in our municipal bond series are investors seeking tax-free income
derived from municipal securities. The Alabama and Mississippi Tax-Free Income
Series seek a steady flow of income but with greater share price fluctuation.
The Alabama and Mississippi Tax-Free Short-to-Medium Series offer less
principal fluctuation, but with less yield. See "Investment Objectives".
FACTORS TO CONSIDER
An investment in our Trust, as with any mutual fund, includes risks that vary
depending upon the series' investment policies, including loss of money.
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.
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<PAGE> 5
The bar charts and tables for the Alabama Tax-Free Income Series, the Alabama
Tax-Free Short-to-Medium Series, the Mississippi Tax-Free Income Series and
the Mississippi Tax-Free Short-to-Medium Series are not included because they
become effective with this Prospectus.
Fees and Expenses of the Trust:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Trust.
<TABLE>
<CAPTION>
Alabama Alabama Mississippi Mississippi
Tax-Free Tax-Free Tax-Free Tax-Free
Income Short-to Income Short-to
Series Medium Series Medium
Series Series
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) NONE NONE NONE NONE
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) NONE NONE NONE NONE
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other distributions)(as a percentage of offering price) NONE NONE NONE NONE
Redemptions Fees
(as a percentage of amount redeemed, if applicable) NONE NONE NONE NONE
Exchange Fee NONE NONE NONE NONE
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
ANNUAL TRUST OPERATION EXPENSES: (expenses that are deducted from Trust assets)
Alabama Alabama Mississippi Mississippi
Tax-Free Tax-Free Tax-Free Tax-Free
Income Short-to Income Short-to
Series Medium Series Medium
Series Series
<S> <C> <C> <C> <C>
Management Fee*
(before fee reimbursements) 0.500% 0.500% 0.500% 0.500%
Other expenses
(before fee reimbursements)
Transfer Agent 0.150 0.150 0.150 0.150
All other expenses 0.510 0.510 0.510 0.510
----------------------------------------------------------------------
Total other expenses 0.660 0.660 0.660 0.660
----------------------------------------------------------------------
Total annual fund operating expenses 1.160% 1.160% 1.160% 1.160%
======================================================================
</TABLE>
EXAMPLE:
This example is intended to help you compare the cost of investing in the
Trust with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Trust for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Trust's operating expenses remain the same. Although your actual cost
maybe higher or lower, based on these assumptions your costs would be:
Alabama Alabama Mississippi Mississippi
Tax-Free Tax-Free Tax-Free Tax-Free
Income Short-to Income Short-to
Series* Medium Series* Medium
Series* Series*
1 year 95 95 95 95
3 years 295 295 295 295
You would pay the same expenses assuming no redemption.
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<PAGE> 7
*"Other expenses" are based on estimated amounts for the current fiscal year.
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. The Investment Adviser may terminate fee
waivers or reimbursements at any time. For the year ended June 30, 1999 the
estimated expenses, after waivers, would have been if the series had been
in existence:
<TABLE>
<CAPTION>
Alabama Alabama Mississippi Mississippi
Tax-Free Tax-Free Tax-Free Tax-Free
Income Short-to Income Short-to
Series Medium Series Medium
Series Series
<S> <C> <C> <C> <C>
Management Fee 0.500% 0.500% 0.500% 0.500%
Other Expenses
Transfer Agent 0.150 0.150 0.150 0.150
All Other Expenses 0.100 0.100 0.100 0.100
----- ----- ----- -----
Total Other Expenses 0.250 0.250 0.250 0.250
----- ----- ----- -----
Total Fund Operating Expenses 0.750% 0.750% 0.750% .0750%
====== ====== ====== ======
</TABLE>
You would have paid the following expenses on a $10,000 investment assuming a
5% annual return and redemption at the end of each period:
<TABLE>
<S> <C> <C> <C> <C> <C>
1 year $79 $79 $79 $79
3 years $246 $246 $246 $246
</TABLE>
5
<PAGE> 8
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 four series are being offered for sale:
Alabama Tax-Free Income Series
Alabama Tax-Free Short-to-Medium Series
Mississippi Tax-Free Income Series
Mississippi Tax-Free Short-to-Medium 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 the series in
which they are invested.
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
Alabama and Mississippi Series are qualified for sale in Kentucky, Florida,
Indiana and North Carolina under the securities law of those states. The two
Alabama Series are qualified for sale in Alabama and the two Mississippi
Series are qualified for sale in Mississippi under the securities law of those
states. 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 title of the fund.
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, the net asset value 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 the
risk of default. 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 Alabama and Mississippi. The limitation of our investments of each
series to a single state may
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<PAGE> 9
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.
Alabama's economy relies in part on the textile, automobile and forest
products industries, all of which may be affected by cyclical changes. While
average per capita income of Alabama residents continues to improve, certain
areas continue to lag in economic development.
Mississippi's economy relies primarily on manufacturing and service
industries, with substantial growth in the gaming and tourism industries. In
recent years, while Mississippi's financial condition continues to improve, it
currently ranks last among the states in per capita income.
The economies of Alabama and Mississippi are sufficiently diverse 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.
Alabama Tax-Free Income Series
This is a non-diversified fund where the nominal maturity will usually average
10 years or more, where a fairly level stream of income is important, though
net asset value per share can fluctuate considerably. 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.
Alabama 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. 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.
Mississippi Tax-Free Income Series
This is a non-diversified fund where the nominal maturity will usually average
10 years or more, where a fairly level stream of income is important, though
net asset value per share can fluctuate considerably. 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.
Mississippi 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. 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.
INVESTMENT POLICIES AND RESTRICTIONS
Single State Municipal Bond Series
Our four 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 a recognized rating agency.
B) Notes rated at the time of purchase within the three highest grades
assigned by a recognized rating agency; and bonds and notes not rated by
a recognized rating agency within the grades specified above,
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<PAGE> 10
but secured by the full faith and credit of the United States government
(e.g., refunded or defeased bonds or notes 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.
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.
MANAGEMENT OF THE TRUST
Trustees
The Trustees of the Trust consist of seven 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 and Director of Dupree & Company, Inc.*
William T. Griggs II, President 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 , Lexington, KY.
Robert L. Maddox, Partner (retired) Wyatt, Tarrant & Combs, Attorneys,
Louisville, KY.
William S. Patterson, President, CEO, Cumberland Surety Insurance Co.,
Lexington, KY.
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<PAGE> 11
*Thomas P. Dupree, Sr., Fred L. Dupree, Jr., and William T. Griggs II 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, Trustee or Retirement Plan
William T. Griggs II -0- None- No Pension None -0-
Vice President, or Retirement Plan
Assistant Secretary, Trustee
(since 1998)
Lucy A. Breathitt $14,000 None-No Pension None $14,000
Trustee (since 1996) or Retirement Plan
William A. Combs, Jr. $14,000 None - No Pension None $14,000
Trustee or Retirement Plan
Robert L. Maddox $14,000 None - No Pension None $14,000
Trustee or Retirement Plan
William S. Patterson $14,000 None - No Pension None $14,000
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 40588-1149. 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 four
series pursuant to separate Investment Advisory Agreements with each series.
The agreements for the Alabama and Mississippi Series are each dated as of
November 1, 1999. Each agreement will continue in effect until October 31,
2001 if approved by the shareholders of each series 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 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:
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<PAGE> 12
<TABLE>
<S> <C> <C> <C>
Range of Total Assets 100,000,001-
(in dollars) $0-100,000,000 $150,000,000 $150,000,001+
All Municipal Bond Funds .50 of 1% .45 of 1% .40 of 1%
</TABLE>
Dupree & Company, Inc. has reserved the right to voluntarily waive management
fees or assume and pay other expenses of any series of the Trust at its sole
option.
In addition, the Trust has entered into a Transfer Agent/Shareholder Service
Agreement with Dupree & Company, Inc. 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 amount in excess of $20,000,000.
Indiana limits 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.
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.
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.
If you purchase shares through an investment representative, that party is
responsible for transmitting orders in accord with contractual arrangements
between the Trust and your representative. There may be different cut-off
times for purchase and sale requests. Consult your investment representative
for specific information.
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<PAGE> 13
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
Alabama Tax-Free Income Series #821-602-844
Alabama Tax-Free Short-to-Medium Series #821-602-851
Mississippi Tax-Free Income Series #821-602-794
Mississippi Tax-Free Short-to-Medium Series #821-602-802
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 40588-1149
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 Purchase Plan
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.
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.
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<PAGE> 14
By Telephone
In Lexington (606) 254-7741
Toll Free National Number (800) 866-0614
All accounts will automatically receive telephone redemption, exchange and
transfer 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 the Short-to-Medium 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.
<TABLE>
<CAPTION>
DAILY
CHECK LIMITS MINIMUM MAXIMUM CHECKING WRITING CHARGES
<S> <C> <C>
AL Short-to-Medium Series $500 $25,000 Share Redemption: NONE
MS Short-to-Medium Series $500 $25,000 Checks: NONE
Insufficient Funds: $19.00
Stop Payment: $15.00
</TABLE>
Third-Party Investments
If you invest through a third party (rather than directly with the Trust), the
third party may charge you fees different from than those described here.
Banks, brokers, 401(k) plans, financial advisers and financial supermarkets
may charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your plan
or financial institution if in doubt. All such transactions through third
parties depend upon your contractual relations with the third party and
whether the Trust has an arrangement with the third party.
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.
We reserve the right on all redemptions, including redemptions by writing a
check in any of the Short-to-Medium 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 proper form.
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<PAGE> 15
Suspension of Redemption
We may suspend the right of redemption or postpone payment for more than seven
days during any of the following:
*The New York Stock Exchange is closed
*The Securities and Exchange Commission determines trading on the Exchange is
restricted
*There is an emergency as determined by the commission where it is not
reasonably practicable for us to dispose of securities.
*Such other period as the Commission may by order permit for the protection of
the 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.
Redemption In Kind
The Trust does not reserve the right to redeem in kind.
Undeliverable Redemption Checks
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be considered void. The check will be
canceled and the money reinvested in the Fund.
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 Alabama and Mississippi Income Series pay such dividends as of the last
business day of each quarter. The Alabama and Mississippi Short-to-Medium
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). 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
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<PAGE> 16
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 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. 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.
Total returns are calculated for specified periods by finding the compounded
rate of return that will equal the total amount redeemed at the specified
redemption date versus the initial amount invested. Average annual total
return calculations consider reinvestment of all dividends and all other
distributions less all expenses.
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 then active 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 be
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.
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<PAGE> 17
HOW TO REACH US
DUPREE MUTUAL FUNDS
P.O. Box 1149
Lexington, KY 40588-1149
PHONE
(606) 254-7741
(800) 866-0614
INVESTMENT ADVISER
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Dupree & Company, Inc.
P.O. Box 1149
Lexington, Kentucky 40588-1149
CUSTODIAN
Firstar
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
Additional information about the Series' investments is available in the
Series' future annual and semi-annual reports to shareholders. In the Series'
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Series' performance
during its last fiscal year.
To request other information, free of charge, including future Statement of
Additional Information, Annual and Semi-Annual reports and to make shareholder
inquiries phone us at 800 866 0614.
Information about the Trust may be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. Information on
the operation of the Public Reference Room may be obtained by calling the
Commission at 1-800-SEC-0330. Reports and other information about the Trust
are available at the Commissions Internet site at http://www.sec.gov and
copies of the information may be obtained upon payment of the duplicating fee,
by writing the Public Reference Section of the Commission, Washington,
D.C. 20549-6009
DUPREE MUTUAL FUNDS
A No-Load Fund
Prospectus, January 1, 2000
811-2918
<PAGE> 18
DUPREE MUTUAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2000
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY....................................... 1
INVESTMENT OBJECTIVES AND POLICIES.................................... 1
Portfolio Turnover................................................ 3
Investment Restrictions........................................... 5
NON-FUNDAMENTAL RESTRICTIONS.......................................... 5
INVESTMENT ADVISER AND OTHER SERVICES................................. 5
(See "Management of the Trust" in Prospectus)
OFFICERS AND TRUSTEES................................................. 6
(See "Management of the Trust" in Prospectus)
PORTFOLIO TRANSACTIONS................................................ 8
SHARES OF BENEFICIAL INTEREST......................................... 9
(See "Organization of the Trust" in Prospectus)
HOW TO PURCHASE SHARES................................................ 9
(See "Buying Shares" in Prospectus)
HOW TO REDEEM SHARES.................................................. 10
(See "Selling Shares" in Prospectus)
HOW WE COMPUTE OUR YIELDS............................................. 10
TAX INFORMATION....................................................... 11
(See "Dividends" and "Taxes" in Prospectus)
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Trust's Prospectus dated January 1, 2000. A
Prospectus may be obtained, without charge, by calling or writing the Trust
listed on the back cover.
<PAGE> 19
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 four 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 four
series is to realize the highest level of income available, as determined by a
shareholder's state of residence, without undue risk to principal. The 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 Alabama and Mississippi 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.
ALABAMA TAX-FREE INCOME SERIES
ALABAMA TAX-FREE SHORT-TO-MEDIUM SERIES
MISSISSIPPI TAX-FREE INCOME SERIES
MISSISSIPPI TAX-FREE SHORT-TO-MEDIUM SERIES
As stated in our Prospectus, the investment objective our four 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, either Alabama or Mississippi 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 Alabama Tax-Free Income Series, Alabama
Tax-Free Short-to-Medium Series, the Mississippi Tax-Free Income Series, the
Mississippi Tax-Free Short-to-Medium Series, maintain non-diversified
portfolios.
At least 80% of the Alabama and Mississippi municipal securities we purchase
must be municipal bonds within the four highest grades assigned by a
recognized rating agency at the time of purchase; or municipal notes rated at
the time of purchase within the three highest grades assigned by a recognized
rating service or Alabama and Mississippi municipal bonds and notes not rated
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 ratings specified above follows.
No more than 20% of the value of our total assets in each of the Alabama
Series or the Mississippi 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
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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 the issuing rating service
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 rating agencies 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 NOTES AND BONDS
Rating agencies denote quality ratings in descending alphabetic order with the
highest quality securities having a rating of three A's. Securities rated with
three A's are considered the best quality; two A's denote high quality with
some elements that would make long-term risks appear somewhat larger; and
securities issued denoted with A are regarded as a safe upper medium grade
obligation. Three B's or a combination of a B and two A's are considered
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 a great
length of time. Some rating agencies may denote ratings on notes in a numeric
order with an one being the best quality, two representing high quality with
margins of protection ample, although not so large as in the preceding group,
and a three representing 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.
MUNICIPAL SECURITIES
Municipal securities are obligations issued by the states, 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 state income taxes.
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 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 state 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 industrial building revenue bonds
are subject to the restrictions set forth in Paragraph 10 of the "Investment
Restrictions."
There are five general types of 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 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 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.
At times, we may purchase 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
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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.
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 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.
ALABAMA TAX-FREE INCOME SERIES
ALABAMA TAX-FREE SHORT-TO-MEDIUM SERIES
MISSISSIPPI TAX-FREE INCOME SERIES
MISSISSIPPI TAX-FREE SHORT-TO-MEDIUM SERIES
We do not intend to purchase Alabama or Mississippi 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 Alabama or Mississippi 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.
As a new series of funds we expect the portfolio turnover to be minimal in the
upcoming year.
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:
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ALABAMA AND MISSISSIPPI INCOME AND SHORT-TO-MEDIUM 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 Alabama and Mississippi, 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.
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 Alabama and Mississippi 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 Alabama and Mississippi
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.
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NON-FUNDAMENTAL RESTRICTIONS
None of the single state series will invest in certificates of deposit or
banker's acceptances.
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 Trustees. Fred L. Dupree, Jr., is director for Dupree & Company, Inc.
and Trustee for us. William T. Griggs II is President of Dupree & Company, Inc.
and Vice President and Trustee with us. Michelle M. Dragoo is Vice President,
Secretary, Treasurer of Dupree & Company, Inc. and also holds the same offices
with us. Alison L. Arnold is Assistant Vice President with us.
INVESTMENT ADVISORY AGREEMENTS
Dupree & Company, Inc. serves as the Investment Adviser for each of our four
series pursuant to separate Investment Advisory Agreements with each series.
The agreements for the Alabama and Mississippi Series are each dated as of
November 1, 1999. Each agreement will continue in effect until October 31,
2001 if approved by the shareholders of each series 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 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 Alabama and Mississippi 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
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<PAGE> 24
determined separately.
OTHER SERVICES
Firstar, 425 Walnut Street, ML 6118, PO Box 1118, Cincinnati, Ohio 45201-1118
serves as Custodian for the Trust. Firstar Bank is responsible for the
safekeeping of the assets of each series of the Trust. Firstar 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
Alabama Tax-Free Short-to-Medium Series and the Mississippi Tax-Free
Short-to-Medium 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,
Lexington, KY 40507 Inc. Director, Studio Plus Hotels, Inc.
Age: 69
FRED L. DUPREE, JR.* Vice President and Trustee Vice President, Secretary, Treasurer and
125 South Mill Street Director of Dupree & Company, Inc. and Dupree
Lexington, KY 40507 Investment Advisers, Inc.
Age: 72
WILLIAM T. GRIGGS, II* Vice President President of Dupree & Company, Inc. and Dupree
125 South Mill Street Assistant Secretary and Trustee Investment Advisers, Inc.
Lexington, KY 40507
Age: 48
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
Age: 62 Commission
</TABLE>
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<PAGE> 25
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Office(s) With Us During the Past Five Years
---------------- ----------------- --------------------------
<S> <C> <C>
WILLIAM A. COMBS, JR. Trustee Secretary, Treasurer, Director, Dana Motor
111 Woodland Ave., #510 Cincinnati, Ohio; Secretary-Treasurer, Director
Lexington, KY 40502 Freedom Dodge, Lexington, KY; Secretary,
Age: 59 Treasurer, Director Ellerslie Realty Inc.,
Lexington, KY; Partner, Forkland Development
Co., Lexington, KY; Partner, Lexland,
Lexington, KY.; Director, First Security Bank ,
Lexington, KY
ROBERT L. MADDOX Trustee Partner (retired) Wyatt, Tarrant & Combs,
2800 Citizens Plaza Louisville, KY Attorneys; Director, Nugent Sand
Louisville, KY 40202 Company, Louisville, KY; Director, Orr Safety
Age: 75 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,
Age: 67 thoroughbred horse breeding, farming)
MICHELLE M. DRAGOO Vice President, Secretary Vice President of Dupree & Company, Inc. and
125 South Mill Street and Treasurer Dupree Investment Advisers, Inc.
Vine Center, Suite 100
Lexington, KY 40507
Age: 38
ALISON L. ARNOLD Assistant Vice President Assistant Vice President of Dupree & Company,
125 South Mill Street Inc. and Dupree Investment Advisers, Inc.
Vine Center, Suite 100
Lexington, KY 40507
Age: 39
* Thomas P. Dupree, Sr., Fred L. Dupree, Jr., and William T. Griggs II are "interested persons" of our
Investment Adviser and of us within the meaning of the Investment Company Act of 1940.
As of September 1, 1999 shares of the Trust were owned by our officers and trustees as shown below.
</TABLE>
<TABLE>
<CAPTION>
Thomas P. Fred L. William T. Non-Interested Trustees
Dupree, Sr. Dupree, Jr. Griggs II and other officers as a group
<S> <C> <C> <C> <C>
KENTUCKY INCOME SERIES
Number of Shares Outstanding 248,826.761 0.000 0.000 425,863.600
Percentage of Shares Outstanding .427% 0.000 .000 .735%
KENTUCKY SHORT-TO-MEDIUM SERIES
Number of Shares Outstanding 152,409.541 0.000 717.705 234,967.900
Percentage of Shares Outstanding 1.385% 0.000 .007% 2.135%
INTERMEDIATE GOVERNMENT BOND SERIES
Number of Shares Outstanding 2,791.719 3,517.181 0.000 15,205.910
Percentage of Shares Outstanding .243% .306% 0.000 1.322%
</TABLE>
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<PAGE> 26
Thomas P. Dupree, Sr., and Fred L. Dupree, Jr. are brothers. None of Thomas P.
Dupree, Sr., Fred L Dupree, Jr ., nor William T. Griggs II receives any
remuneration from us.
Each non-interested Trustee received compensation in the amount of $14,000 for
their services to us for the fiscal year ended June 30, 1999. For the current
fiscal year the four non-interested Trustees (who all serve on the audit
committee) will be entitled to fees of $13,000 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, 2000.
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 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.
It is not the practice of Dupree & Company, Inc. to allocate principal
business or portfolio brokerage on the basis of share 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 Alabama and
Mississippi municipal securities for our portfolios in underwriting, it will
seek to negotiate a purchase price
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<PAGE> 27
reflecting a reduction from the initial public offering price by an amount equal
to some or all of the applicable selling group concessions.
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 four series as described in the Prospectus:
Alabama Tax-Free Income Series, Alabama Tax-Free Short-to-Medium Series,
Mississippi Tax-Free Income Series, Mississippi Tax-Free Short-to-Medium
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.
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.
If you purchase shares through an investment representative, that party is
responsible for transmitting orders in accord with contractual arrangements
between the Trust and your representative. There may be different cut-off
times for purchase and sale requests. Consult your investment representative
for specific information.
If you invest through a third party (rather than directly with the Trust), the
third party may charge you fees different from than those described here.
Banks, brokers, 401(k) plans, financial advisers and financial supermarkets
may charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your plan
or financial institution if in doubt. All such transactions through third
parties depend upon your contractual relations with the third party and
whether the Trust has an arrangement with the third party.
The Prospectus describes the procedures to be utilized by an investor desiring
to purchase our shares.
DETERMINATION OF NET ASSET VALUE
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), Martin Luther King Day (third Monday of January),
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.
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<PAGE> 28
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 Alabama and Mississippi 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 of each year 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. As of June 30, 1999 the
Alabama Tax-Free Income Series, the Alabama Tax-Free Short-to-Medium Series,
the Mississippi Tax-Free Income Series and the Mississippi Tax-Free
Short-to-Medium Series were not effective and therefore not set forth below.
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.
Other yield quotations will be computed based on a 30-day period by dividing
(a) the total daily income minus all expenses 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.
For the Alabama and Mississippi Income Series and Short-to-Medium 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
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<PAGE> 29
new money which is invested at interest rates different 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. The Investment Adviser may waive management fees
and assume or pay other operating expenses. The Investment Adviser may
terminate fee waivers or reimbursements at any time.
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 state 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 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 Alabama and
Mississippi Income and 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.
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<PAGE> 30
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 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
Alabama and Mississippi 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.
ALABAMA TAX INFORMATION
Insofar as the dividends we pay from the Alabama Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Alabama 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
Alabama 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
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<PAGE> 31
Series will ordinarily be excludable from gross income for Alabama income tax
purposes.
No representation is made as to the tax implications of a Alabama corporation
or other entity.
Please consult your tax advisor for more details on how these funds may effect
your state tax liability.
MISSISSIPPI TAX INFORMATION
Insofar as the dividends we pay from the Mississippi Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Mississippi 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
Mississippi 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 Mississippi income
tax purposes.
No representation is made as to the tax implications of a Mississippi
corporation or other entity.
Please consult your tax advisor for more details on how these funds may effect
your state tax liability.
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. 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 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 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.
KENTUCKY TAX INFORMATION
Insofar as the dividends we pay from the Alabama and Mississippi Series'
qualify as "exempt interest dividends" for federal income tax purposes, they
are not excludable from the shareholder's gross income for Kentucky 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
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 included in gross income for Kentucky income tax
purposes.
Please consult your tax advisor for more details on how these funds may effect
your state tax liability.
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<PAGE> 32
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. 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.
No representation is made as to the tax implications of a North Carolina
corporation or other entity.
Please consult your tax advisor for more details on how these funds may effect
your state tax liability.
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<PAGE> 33
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(a)(2) 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 this 14th day of October, 1999
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. 40 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) 10-14-99
- ------------------------ and Trustee --------
s/ Fred L. Dupree, Jr. Vice President and Trustee 10-14-99
- ------------------------ --------
s/ William T. Griggs II Vice President, Assistant Secretary and Trustee 10-14-99
--------
s/ William A. Combs, Jr. Trustee 10-14-99
- ------------------------ --------
________________________ Trustee ________
Robert L. Maddox
s/ William S. Patterson Trustee 10-14-99
- ------------------------ --------
s/ Lucy A. Breathitt Trustee
- ------------------------
</TABLE>
<PAGE> 34
DUPREE MUTUAL FUNDS
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO 40
TO
FORM N-1A REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
AND
INVESTMENT COMPANY ACT OF 1940
<PAGE> 35
DUPREE MUTUAL FUNDS
POST-EFFECTIVE ADMENTMENT NO. 40
PART C of Form N-1A
Item 23.
(A) The Declaration of Trust, including previous amendments is incorporated
by reference from Post Effective Amendment No. 39; an additional
Amendment is included herein.
(B) Bylaws is incorporated by reference from Post Effective Amendment No.
39
(C) The Certificates of Beneficial Interest for the Alabama Tax-Free Income
Series, Alabama Tax-Free Short-to-Medium Series, Mississippi Tax-Free
Income Series, Mississippi Tax-Free Short-to-Medium Series are included
herein
(D) The Investment Advisory Contracts for the Alabama Tax-Free Income
Series, Alabama Tax-Free Short-to- Medium Series, Mississippi Tax-Free
Income Series, Mississippi Tax-Free Short-to-Medium Series are included
herein
(E) NA
(F) NA
(G) Custodian Agreement is incorporated by reference from Post Effective
Amendment No. 39, and amendment to same is included herein.
(H) Transfer Agent is incorporated by reference from Post Effective
Amendment No. 39
(I) Legal Opinion
(J) Consent of Independent Accountants
(K) NA
(L) NA
(M) N/A
(N) N/A
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable
Item 25. INDEMNIFICATION - Section 7.4 of the Declaration of Trust provides that
the Trust shall indemnify each Trustee or officer against liabilities,
including fines, penalties, judgments, expenses or attorneys fees for
actions taken in their capacities unless such actions arose by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of his/her duties
Item 26. 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 President of the Registrant. Fred L. Dupree, Jr., is
Vice President, of Dupree & Company, Inc., and the Registrant. William
T. Griggs, II is President of Dupree & Company, Inc. and Vice President
and Assistant Secretary for the Registrant. Michelle M. Dragoo is Vice
President, Secretary and Treasurer of both Dupree & Company, Inc. and
the Registrant.
Item 27. PRINCIPAL UNDERWRITERS
Inapplicable
Item 28. 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 29. MANAGEMENT SERVICES
Described in parts A and B
Item 30. UNDERTAKINGS NA
<PAGE> 36
AMENDMENT TO DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
THIS AMENDMENT TO THAT CERTAIN DECLARATION OF TRUST j.
Dupree Mutual Funds dated June 25, 1987 is made and entered
into at 125 South Mill Street, Vine Center, Suite 100,
Lexington, Kentucky 40507 as of the 26st day of October ,
19 99 , by the TRUSTEES, hereinafter named for the purpose of
renaming one series of shares of beneficial interest.
WITNESSETH THAT:
Article V, Section 5.2 Establishment and Designation
of Series is amended to read as follows:
Without limiting the authority of the
Trustees' set forth in Section 5.1 to
establish and designate any further Series, the Trustees
hereby establish and designate twelve series of shares: (i)
The "Kentucky Tax-Free Income Series"; (ii) The "Kentucky
Tax-Free Short to Medium Series"; (iii) The "Dupree Cash
Management Series"; (iv) The "Intermediate Government Bond
Series"; and (v) The Tennessee Tax-Free Income Series" (vi)
The "Tennessee Tax-Free Short to Medium Series; (vii) The
"North Carolina Tax-Free Income Series"; (viii) The "North
Carolina Tax-Free Short to Medium Series"; (ix) The "Alabama
Tax-Free Income Series", no shares of which are issued or
outstanding as of the date of execution of this Amendment to
the Declaration of Trust; (x) The "Alabama Tax-Free Short to
Medium Series", no shares of which are issued or outstanding
as of the date of execution of this Amendment to the
Declaration of Trust; (xi) The "Mississippi Tax-Free Income
Series", no shares of which are issued or outstanding as of
the date of execution of this Amendment to the Declaration
of Trust; and (xii) The "Mississippi Tax-Free Short to
Medium Series", no shares of which are issued or outstanding
as of the date of execution of this Amendment to the
Declaration of Trust.
IN WITNESS WHEREOF, the undersigned have hereunto set
their hands and seals for themselves and their assigns, as of
the day and year first above written.
<PAGE> 37
---------------------
THOMAS P. DUPREE, SR.
---------------------
FRED L. DUPREE, JR.
---------------------
WILLIAM A. COMBS, JR.
---------------------
ROBERT L. MADDOX
---------------------
WILLIAM S. PATTERSON
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 26ST day of OCTOBER , 1999,
before me personally appeared Thomas P. Dupree, Sr., Fred L:
Dupree, Jr., William A. Combs, Jr., Robert L. Maddox and
William S. Patterson, to me known to be the persons
described in and who executed the foregoing instrument, and
acknowledged that they executed the same as their free acts and
deeds.
WITNESS my hand and notarial seal this 26st day of
OCTOBER, 1999
My commission expires: _______________________
_______________________
NOTARY PUBLIC, STATE AT LARGE, KY
<PAGE> 38
This instrument prepared by:
GAY M ELSTE
Darsie & Elste
P.O. Box 22219
Lexington, Kentucky 40522
(606) 257-2936
<PAGE> 39
ALABAMA TAX-FREE INCOME SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO. ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615585-2
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the ALABAMA TAX-FREE INCOME SERIES of Dupree Mutual Funds, the
transfer of which by the holder hereof, in person or by duly authorized
attorney, is registerable on the books of the trust upon surrender of this
certificate duly endorsed or accompanied by appropriate evidence of
succession, assignment or authority to transfer and compliance with any other
lawful share transfer rules and regulations prescribed by the Board of
Trustees or by the Transfer Agent. The shares represented by this certificate
are issued and held subject to all the restrictions, conditions and provisions
set forth in the Declaration of Trust and By-Laws of the Trust, to all of
which the holder agrees by the acceptance of this certificate. This
certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the seal of the Trust and the signatures of its duly
authorized officers.
Dated:
Secretary Chairman
COUNTERSIGNED:
DUPREE & COMPANY, INC. TRANSFER AGENT
BY
----------------------------------------
AUTHORIZED SIGNATURE
<PAGE> 40
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT- _____________ Custodian
_______________________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act _________________________
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED
_______________________________________________________________
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________ shares
of the shares of Beneficial Interest of ALABAMA TAX-FREE INCOME SERIES of
Dupree Mutual Funds, represented by the Certificate and do hereby irrevocably
constitute and appoint
____________________________________________________________________________Atto
rney
to cause the transfer of said shares to be registered on the books of said
Trust with full power of substitution in the premises.
Dated:_________________________
(Sign here)
__________________________________________
________________________________________
NOTE: The signature(s) above must
correspond in every particular, without
alteration, with the name(s) as printed
on your Certificates or Open Account
Statement.
NOTE Signature Guaranteed
If your signature is required, your signature must be guaranteed by:
(a) a commercial bank member of the Federal
Deposit Insurance Corporation, or
(b) a trust company, or By:
(c) a member of a national stock exchange.
______________________________________________
(Name of Bank or Firm)
______________________________________________
(Signature of Officer & Title)
<PAGE> 41
ALABAMA TAX-FREE SHORT-TO-MEDIUM SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615586-0
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the ALABAMA TAX-FREE SHORT-TO-MEDIUM SERIES of Dupree Mutual
Funds, the transfer of which by the holder hereof, in person or by duly
authorized attorney, is registerable on the books of the trust upon surrender
of this certificate duly endorsed or accompanied by appropriate evidence of
succession, assignment or authority to transfer and compliance with any other
lawful share transfer rules and regulations prescribed by the Board of
Trustees or by the Transfer Agent. The shares represented by this certificate
are issued and held subject to all the restrictions, conditions and provisions
set forth in the Declaration of Trust and By-Laws of the Trust, to all of
which the holder agrees by the acceptance of this certificate. This
certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the seal of the Trust and the signatures of its duly
authorized officers.
Dated:
Secretary Chairman
COUNTERSIGNED:
DUPREE & COMPANY, INC. TRANSFER AGENT
BY
___________________________________
AUTHORIZED SIGNATURE
<PAGE> 42
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT- _____________ Custodian
_______________________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act _________________________
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED
_______________________________________________________________
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________ shares
of the shares of Beneficial Interest of ALABAMA TAX-FREE INCOME SERIES of
Dupree Mutual Funds, represented by the Certificate and do hereby irrevocably
constitute and appoint
____________________________________________________________________________Atto
rney
to cause the transfer of said shares to be registered on the books of said
Trust with full power of substitution in the premises.
Dated:_________________________
(Sign here)
__________________________________________
________________________________________
NOTE: The signature(s) above must
correspond in every particular, without
alteration, with the name(s) as printed
on your Certificates or Open Account
Statement.
NOTE Signature Guaranteed
If your signature is required, your signature must be guaranteed by:
(a) a commercial bank member of the Federal
Deposit Insurance Corporation, or
(b) a trust company, or By:
(c) a member of a national stock exchange.
______________________________________________
(Name of Bank or Firm)
______________________________________________
(Signature of Officer & Title)
<PAGE> 43
MISSISSIPPI TAX-FREE INCOME SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615578-8
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the MISSISSIPPI TAX-FREE INCOME SERIES of Dupree Mutual Funds,
the transfer of which by the holder hereof, in person or by duly authorized
attorney, is registerable on the books of the trust upon surrender of this
certificate duly endorsed or accompanied by appropriate evidence of
succession, assignment or authority to transfer and compliance with any other
lawful share transfer rules and regulations prescribed by the Board of
Trustees or by the Transfer Agent. The shares represented by this certificate
are issued and held subject to all the restrictions, conditions and provisions
set forth in the Declaration of Trust and By-Laws of the Trust, to all of
which the holder agrees by the acceptance of this certificate. This
certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the seal of the Trust and the signatures of its duly
authorized officers.
Dated:
Secretary Chairman
COUNTERSIGNED:
DUPREE & COMPANY, INC. TRANSFER AGENT
BY
__________________________________________
AUTHORIZED SIGNATURE
<PAGE> 44
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT- _____________ Custodian
_______________________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act _________________________
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED
_______________________________________________________________
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________ shares
of the shares of Beneficial Interest of ALABAMA TAX-FREE INCOME SERIES of
Dupree Mutual Funds, represented by the Certificate and do hereby irrevocably
constitute and appoint
____________________________________________________________________________Atto
rney
to cause the transfer of said shares to be registered on the books of said
Trust with full power of substitution in the premises.
Dated:_________________________
(Sign here)
__________________________________________
________________________________________
NOTE: The signature(s) above must
correspond in every particular, without
alteration, with the name(s) as printed
on your Certificates or Open Account
Statement.
NOTE Signature Guaranteed
If your signature is required, your signature must be guaranteed by:
(a) a commercial bank member of the Federal
Deposit Insurance Corporation, or
(b) a trust company, or By:
(c) a member of a national stock exchange.
______________________________________________
(Name of Bank or Firm)
______________________________________________
(Signature of Officer & Title)
<PAGE> 45
MISSISSIPPI TAX-FREE SHORT-TO-MEDIUM SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615588-6
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the MISSISSIPPI TAX-FREE SHORT-TO-MEDIUM SERIES of Dupree Mutual
Funds, the transfer of which by the holder hereof, in person or by duly
authorized attorney, is registerable on the books of the trust upon surrender
of this certificate duly endorsed or accompanied by appropriate evidence of
succession, assignment or authority to transfer and compliance with any other
lawful share transfer rules and regulations prescribed by the Board of
Trustees or by the Transfer Agent. The shares represented by this certificate
are issued and held subject to all the restrictions, conditions and provisions
set forth in the Declaration of Trust and By-Laws of the Trust, to all of
which the holder agrees by the acceptance of this certificate. This
certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the seal of the Trust and the signatures of its duly
authorized officers.
Dated:
Secretary Chairman
COUNTERSIGNED:
DUPREE & COMPANY, INC. TRANSFER AGENT
BY
___________________________________
AUTHORIZED SIGNATURE
<PAGE> 46
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT- _____________ Custodian
_______________________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act _________________________
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED
_______________________________________________________________
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________ shares
of the shares of Beneficial Interest of ALABAMA TAX-FREE INCOME SERIES of
Dupree Mutual Funds, represented by the Certificate and do hereby irrevocably
constitute and appoint
____________________________________________________________________________Atto
rney
to cause the transfer of said shares to be registered on the books of said
Trust with full power of substitution in the premises.
Dated:_________________________
(Sign here)
__________________________________________
________________________________________
NOTE: The signature(s) above must
correspond in every particular, without
alteration, with the name(s) as printed
on your Certificates or Open Account
Statement.
NOTE Signature Guaranteed
If your signature is required, your signature must be guaranteed by:
(a) a commercial bank member of the Federal
Deposit Insurance Corporation, or
(b) a trust company, or By:
(c) a member of a national stock exchange.
______________________________________________
(Name of Bank or Firm)
______________________________________________
(Signature of Officer & Title)
<PAGE> 47
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1999 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Alabama 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> 48
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> 49
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, 1999 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, 2001, 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 1999 that it does not desire
such
<PAGE> 50
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> 51
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
Alabama Tax-Free Income Series
By:____/s Thomas P. Dupree, Sr.____
President
Attest___/s Michelle Dragoo_________
DUPREE & COMPANY, INC.
By: ____/s William T. Griggs II___
President
Attest___/s Michelle Dragoo_________
<PAGE> 52
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1999 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Alabama 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> 53
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> 54
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, 1999 subject
to approval by the shareholders of the Short-to-Medium Series at the 1999 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,
2001, 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> 55
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 1999 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> 56
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
Alabama Tax-Free Short-to-Medium Series
By: /s/ Thomas P. Dupree, Sr.
----------------------------
President
Attest /s/ Michelle Dragoo
----------------------
DUPREE & COMPANY, INC.
By: /s/ William T. Griggs II
----------------------------
President
Attest /Michelle Dragoo
-----------------
<PAGE> 57
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1999 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf
of its Mississippi 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> 58
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> 59
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, 1999 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, 2001, 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 1999
that it does not desire such
<PAGE> 60
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> 61
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
Mississippi Tax-Free Income Series
By: /s/ Thomas P. Dupree, Sr.
---------------------------
President
Attest /s/ Michelle Dragoo
---------------------
DUPREE & COMPANY, INC.
By: /s/ William T. Griggs II
---------------------------
President
Attest /s/ Michelle Dragoo
---------------------
<PAGE> 62
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1999 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf
of its Mississippi 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> 63
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> 64
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, 1999 subject
to approval by the shareholders of the Short-to-Medium Series at the 1999 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,
2001, 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> 65
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 1999 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> 66
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
Mississippi Tax-Free Short-to-Medium Series
By: /s/ Thomas P. Dupree, Sr.
---------------------------
President
Attest /s/ Michelle Dragoo
---------------------
DUPREE & COMPANY, INC.
By: /s/ William T. Griggs II
---------------------------
President
Attest /Michelle Dragoo
-------------------
<PAGE> 67
APPENDIX D
Schedule of Compensation
Custody Fees will be charged at a rate of $1.OO per year for the Dupree
Mutual Funds, a Kentucky Business Trust, offering one Class of shares of
beneficial interest in eleven Distinct Series.
<PAGE> 68
DARSIE & ELSTE
ATTORNEYS AT LAW
P.O. Box 22219
LEXINGTON, KENTUCKY 40522
GAY M. ELSTE JOHN C. DARSIE, JR.
(1936-1994)
October 14, 1999
Dupree Mutual Funds
P.O. Box 1149
Lexington, KY 40588-1149
Dear Ladies and Gentlemen:
Dupree Mutual Funds (the "Trust") is filing with the Securities and
Exchange Commission Post Effective Amendment No. 40 to the Registration
Statement filed under the Securities Act of 1933 (File No. 2-64233) and
Amendment No. 41 to the Registration Statement filed under the Investment
Company Act of 1940 (File No. 811-2918).
As current counsel to the Trust, this firm has participated in
various proceedings relating to the Trust and its predecessor. The undersigned
has examined documents, including the Trust's Declaration of Trust, amendments
thereto, its Bylaw and minutes.
Based on the foregoing, it is my opinion that:
1. The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Kentucky;
2. The Trust is authorized to issue an unlimited number of shares of
beneficial interest in the four series, known as Alabama Tax-Free Income
Series, Alabama Tax-Free Short-to-Medium Series, Mississippi Tax-Free Income
Series, Mississippi Tax-Free Short-to-Medium Series. In accordance with the
applicable provisions of Kentucky law and the Trust's Declaration of Trust,
shares which are issued and subsequently redeemed by the Trust may be held as
Treasury shares, reissued or canceled as determined by the Trustees of the
Trust; and
3. As of the filing of an amendment to the Declaration of Trust
creating the four series, the shares will be fully paid and non assessable.
I hereby consent to the filing of this opinion with the Securities
and Exchange Commission as a part of Post-Effective Amendment 40, Amendment
41.
Yours very truly,
DARSIE & ELSTE
By________________________
<PAGE> 69
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Independent
Auditors" in the Prospectus and under the caption "Other Services" in the
Statement of Additional Information, both included in Post-Effective Amendment
No. 41 to the Registration Statement (Form N-1A No. 811-2918) of Dupree Mutual
Funds, and to the use of our report dated July 30, 1999, incorporated therein.
ERNST & YOUNG LLP
Cincinnati, Ohio
October 12, 1999
