<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. 39 ( X )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 40 ( X )
(Check appropriate box or boxes)
DUPREE MUTUAL FUNDS
-------------------
(Exact Name of Registrant as Specified in Charter)
125 South Mill Street, Vine Center, Suite 100
---------------------------------------------
Lexington, Kentucky 40507
-------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (606) 254-7741
THOMAS P. DUPREE, SR.
Dupree & Company, Inc.
125 South Mill Street, Vine Center, Suite 100
Lexington, Kentucky 40507
-------------------------
(Name and Address of Agent for Service)
Approximate Date Of Proposed Public Offering: Continuous
--------------------------------------------------------
It is proposed that this filing will become effective
(check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
X on October 1, 1999 pursuant to paragraph (b)
_____
_____ 60 days after filing pursuant to paragraph (a) (1)
_____ on _________pursuant to paragraph (a) (1)
_____ 75 days after filing pursuant to paragraph (a) (2)
_____ on _________pursuant to paragraph (a) (2)
of rule 485
_____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
DUPREE MUTUAL FUNDS
REGISTRATION STATEMENT ON FORM N-1A
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Caption
<S> <C>
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; Performance Calculations
6 Management of the Trust
7 Determining Net Asset Value, Buying Shares, Selling Shares, Taxes,
Dividends
8 Not Applicable
9 Financial Highlights
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 Financial Statements
</TABLE>
<PAGE> 3
Prospectus
October 1, 1999
DUPREE MUTUAL FUNDS
P.O. Box 1149
Lexington, Kentucky 40588-1149
(606) 254-7741
(800) 866-0614
MUNICIPAL BOND FUNDS
Kentucky Tax-Free Income Series
Kentucky Tax-Free Short-to-Medium Series
North Carolina Tax-Free Income Series
North Carolina Tax-Free Short-to-Medium Series
Tennessee Tax-Free Income Series
Tennessee Tax-Free Short-to-Medium Series
GOVERNMENT BOND FUNDS
Intermediate Government Bond Series
This Prospectus is a concise statement of information about Dupree Mutual Funds
(the "Trust") that you should know before investing. This Prospectus should be
kept for future reference.
A statement containing additional information about the Trust, Dated November 1,
1999 (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
10 Trust Expenses
12 Organization of the Trust
12 Investment Objectives
14 Investment Policies and Restrictions
16 Management of the Trust
19 Determining Net Asset Value
19 Buying Shares
20 Selling Shares
22 Dividends
22 Taxes
23 Performance Calculations
24 Financial Highlights
31 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 Kentucky, North Carolina and Tennessee
Tax-Free Income Series seek a steady flow of income but with greater share price
fluctuation. The Kentucky, North Carolina and Tennessee Tax-Free Short-to-Medium
Series offer less principal fluctuation, but with less yield. See "Investment
Objectives".
INTERMEDIATE GOVERNMENT BOND SERIES
Investors in our Intermediate Government Bond Series are seeking income derived
from securities of the U.S. Government and its agencies. The Intermediate
Government Bond Series should provide moderate principal fluctuation. See
"Investment Objectives."
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.
<PAGE> 5
BAR CHART AND PERFORMANCE TABLES
The following bar charts and tables provide an indication of the risks of
investing in the funds by showing changes in the series performance from year
to year over a 10 year period (or since inception) and by showing how the
Series' average annual returns for one, five and then 10 years (or since
inception) compare to those of a broad-based securities market index. How the
Series has performed in the past is not necessarily an indication of how the
Series will perform in the future.
KENTUCKY TAX FREE INCOME SERIES
One Year 1999 year to
Years Total Maximum Minimum Date Total Return
Ending On Return Quarter Quarter Through Sept. 30, 1999
12/31/89 10.79%
12/31/90 7.45%
12/31/91 10.72%
12/31/92 9.03%
12/31/93 12.75%
12/31/94 -2.95%
12/31/95 14.22%
12/31/96 3.69%
12/31/97 8.06%
12/31/98 5.65% 5.45% -5.43% x.xx%
<PAGE> 6
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
One Year 1999 year to
Years Total Maximum Minimum Date Total Return
Ending On Return Quarter Quarter Through Sept. 30, 1999
12/31/89 7.35%
12/31/90 6.82%
12/31/91 7.30%
12/31/92 6.87%
12/31/93 5.69%
12/31/94 1.02%
12/31/95 6.22%
12/31/96 3.96%
12/31/97 5.18%
12/31/98 4.63% 2.69% -2.11% x.xx%
<PAGE> 7
NORTH CAROLINA TAX-FREE INCOME SERIES
One Year 1999 year to
Years Total Maximum Minimum Date Total Return
Ending On Return Quarter Quarter Through Sept. 30, 1999
12/31/96 5.37%
12/31/97 9.83%
12/31/98 7.51% 4.09% -2.65% x.xx%
<PAGE> 8
NORTH CAROLINA TAX-FREE SHORT TO MEDIUM SERIES
One Year 1999 year to
Years Total Maximum Minimum Date Total Return
Ending On Return Quarter Quarter Through Sept. 30, 1999
12/31/96 4.56%
12/31/97 5.03%
12/31/98 4.77% 2.50% -0.05% x.xx%
<PAGE> 9
TENNESSEE TAX-FREE INCOME SERIES
One Year 1999 year to
Years Total Maximum Minimum Date Total Return
Ending On Return Quarter Quarter Through Sept. 30, 1999
12/31/94 -1.22%
12/31/95 18.28%
12/31/96 5.15%
12/31/97 9.00%
12/31/98 7.63% 7.29% -1.51% x.xx%
<PAGE> 10
TENNESSEE TAX-FREE SHORT TO MEDIUM SERIES
One Year 1999 year to
Years Total Maximum Minimum Date Total Return
Ending On Return Quarter Quarter Through Sept. 30, 1999
31-Dec-95 7.12%
31-Dec-96 3.92%
31-Dec-97 5.38%
31-Dec-98 4.33% 2.41% -0.08% x.xx%
<PAGE> 11
INTERMEDIATE GOVERNMENT BOND SERIES
One Year 1999 year to
Years Total Maximum Minimum Date Total Return
Ending On Return Quarter Quarter Through Sept. 30, 1999
31-Dec-93 11.93%
31-Dec-94 -5.94%
31-Dec-95 17.54%
31-Dec-96 3.14%
31-Dec-97 9.39%
31-Dec-98 7.68% 6.23% -6.00% x.xx%
<PAGE> 12
Total Returns
KENTUCKY TAX-FREE INCOME SERIES
VS
LEHMAN 10 AND 20 YEAR MUNICIPAL INDICES
For the Calendar Year Ending On
31-Dec-98
<TABLE>
<CAPTION>
For The For The For The
Last Last Five Last Ten
Year Years Years
---- ----- -----
<S> <C> <C> <C>
Fund 5.63% 5.57% 7.80%
10-Year Index 6.76% 6.35% 8.33%
20-Year Index 6.82% 6.75% 8.92%
</TABLE>
Total Returns
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
VS
LEHMAN THREE YEAR MUNICIPAL INDEX
For the Calendar Year Ending On
31-Dec-98
<TABLE>
<CAPTION>
For The For The For The
Last Last Five Last Nine
Year Years Years
---- ----- -----
<S> <C> <C> <C>
Fund 4.63% 4.19% 5.28%
3-Year Index 5.21% 4.90% 6.08%
</TABLE>
Total Returns
NORTH CAROLINA TAX-FREE INCOME SERIES
VS
LEHMAN 10 AND 20 YEAR MUNICIPAL INDICES
For the Calendar Year Ending On
31-Dec-98
<TABLE>
<CAPTION>
For The
Last Since
Year Nov. 15, 1995
---- -------------
<S> <C> <C>
Fund 7.51% 8.41%
10-Year Index 6.76% 6.85%
20-Year Index 6.82% 7.62%
</TABLE>
Total Returns
NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
VS
LEHMAN THREE YEAR MUNICIPAL INDEX
For the Calendar Year Ending On
31-Dec-98
<TABLE>
<CAPTION>
For The
Last Since
Year Nov. 30, 1995
---- -------------
<S> <C> <C>
Fund 4.77% 5.05%
3-Year Index 5.21% 5.04%
</TABLE>
Total Returns
TENNESSEE TAX-FREE INCOME SERIES
VS
LEHMAN 10 AND 20 YEAR MUNICIPAL INDICES
For the Calendar Year Ending On
31-Dec-98
<TABLE>
<CAPTION>
For The For The
Last Last Five Since
Year Years Dec. 31, 1993
---- ----- -------------
<S> <C> <C> <C>
Fund 7.63% 7.58% 7.58%
10-Year Index 6.76% 6.35% 6.35%
20-Year Index 6.82% 6.75% 6.75%
</TABLE>
Total Returns
TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
VS
LEHMAN THREE YEAR MUNICIPAL INDEX
For the Calendar Year Ending On
31-Dec-98
<TABLE>
<CAPTION>
For The
Last Since
Year Nov. 1, 1994
---- ------------
<S> <C> <C>
Fund 4.33% 5.35%
3-Year Index 5.21% 5.97%
</TABLE>
Total Returns
INTERMEDIATE GOVERNMENT BOND SERIES
VS
LEHMAN INTERMEDIATE TREASURY INDEX
For the Calendar Year Ending On
31-Dec-98
<TABLE>
<CAPTION>
For The For The
Last Last Five Since
Year Years Aug. 1, 1992
---- ----- ------------
<S> <C> <C> <C>
Fund 7.68% 6.08% 7.34%
Intermediate Treasury Index 8.62% 6.46% 6.64%
</TABLE>
<PAGE> 13
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>
Kentucky Kentucky North North Tennessee Tennessee Intermediate
Tax-Free Tax-Free Carolina Carolina Tax-Free Tax-Free Government
Income Short-to Tax-Free Tax-Free Income Short-to Bond
Series Medium Income Short-to Series Medium Series
Series Series Medium Series
SHAREHOLDER FEES (fees paid directly from your Series
investment):
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) NONE NONE NONE NONE NONE NONE NONE
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) NONE NONE NONE 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 NONE NONE NONE
Redemption Fees (as a percentage of
amount redeemed, if applicable) NONE NONE NONE NONE NONE NONE NONE
Exchange Fee NONE NONE NONE NONE NONE NONE NONE
</TABLE>
ANNUAL TRUST OPERATING EXPENSES: (expenses that are deducted from Trust assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee
(before fee reimbursements) 0.430% 0.500% 0.500%* 0.500%* 0.500%* 0.500%* 0.200%
Other expenses
(before fee reimbursements)
Transfer Agent 0.121 0.131 0.150 0.150 0.134 0.150 0.150
All other expenses 0.059 0.084 0.115 0.130 0.054 0.082 0.135
------ ----- ----- ----- ----- ----- -----
Total other expenses 0.180 0.215 0.265 0.280 0.188 0.232 0.285
------ ----- ----- ----- ----- ----- -----
Total annual fund operating expenses 0.610% 0.715% 0.765% 0.780% 0.688% 0.732% 0.485%
====== ====== ====== ====== ====== ====== ======
</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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 year $64 $75 $80* $82* $72* $77* $51
3 years $201 $235 $251* $256* $226* $240* $160
5 years $349 $409 $437* $445* $393* $418* $279
10 years $782 $912 $973* $992* $879* $933* $626
</TABLE>
You would pay the same expenses assuming no redemption.
<PAGE> 14
*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 actual expenses
were:
<TABLE>
<CAPTION>
North North Tennessee Tennessee
Carolina Carolina 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 0.201% 0.160% 0.290% 0.329%
Other Expenses
Transfer Agent 0.150 0.150 0.135 0.150
All Other Expenses 0.096 0.130 0.050 0.082
----- ----- ----- -----
Total Other Expenses 0.246 0.280 0.185 0.232
----- ----- ----- -----
Total Fund Operating Expenses 0.447% 0.440% 0.475% .0561%
====== ====== ====== ======
</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>
1 year $47 $46 $50 $59
3 years $147 $145 $147 $185
5 years $257 $253 $257 $322
10 years $578 $569 $578 $721
</TABLE>
<PAGE> 15
ORGANIZATION OF THE TRUST
Dupree Mutual Funds is a Kentucky Business Trust organized under the laws of the
Commonwealth of Kentucky on July 1, 1987. The Trust offers shares of beneficial
interest of separate series without par value.
Shares of seven series are being offered for sale:
Kentucky Tax-Free Income Series
Kentucky Tax-Free Short-to-Medium Series
North Carolina Tax-Free Income Series
North Carolina Tax-Free Short-to-Medium Series
Tennessee Tax-Free Income Series
Tennessee Tax-Free Short-to-Medium Series
Intermediate Government Bond Series
Each share has one vote. Fractional shares have proportionate voting rights and
participate pro-rata in dividends and distributions. Our shares have cumulative
voting rights for the election of Trustees. On matters affecting an individual
series, a separate vote of the series is required. Shareholders of a series are
not entitled to vote on any matter not affecting 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
Kentucky, Tennessee, North Carolina Series and the Intermediate Government Bond
Series are qualified for sale in Kentucky, Florida, Indiana, and North Carolina
under the securities law of those states. The two Kentucky Series, the two
Tennessee Series and the Intermediate Government Bond Series are qualified for
sale in Texas. The two Tennessee Series and the Intermediate Government Bond
Series are qualified for sale in Tennessee. We offer and redeem our shares at
current net asset value.
Investment Objectives
Our investment objective is to seek the highest level of income without undue
risk to principal. Of course, no mutual fund offered by us or anyone else can
guarantee that the investment objective will be met.
Single State Municipal Bond Series
All of our single state series, whatever their maturity range, have an
investment objective of realizing the highest level of tax-exempt income
available without undue risk to principal by investing in state specific
municipal securities. The interest earned on these securities, in the opinion of
bond counsel for the issuer, is exempt from federal and state taxation in the
state of issuance. In conformity with Guidelines of the Securities and Exchange
Commission, each single state series has a fundamental policy that during
periods of normal market conditions either (1) the series' assets will be
invested so that at least 80% of the income will be tax-exempt or (2) the series
will have at least 80% of its net assets invested in tax-exempt securities. In
addition, under normal market conditions, at least 65% of the value of each
series assets will be invested in municipal securities of the state identified
in the 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
<PAGE> 16
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. Payment on nearly all Kentucky municipal securities depends upon
revenue generated by the property financed by the securities. Payment on nearly
all North Carolina and Tennessee municipal securities are general obligations of
the issuer. In addition, the net asset value of our shares may be impacted by
the general economic situation in the country and/or within the states of
Kentucky, North Carolina and Tennessee. The limitation of our investments of
each series to a single state may involve greater risk than if we invested in
municipal securities throughout the country, due to the possibility of an
economic or political development which could uniquely affect the ability of
issuers to meet the debt obligations of the securities. The economies of
Kentucky, North Carolina and Tennessee are supported by agricultural products,
coal, manufacturing and service professions. A decline in the tobacco, equine or
coal market could affect these states in a manner different from the effect on
most other states. Potential federal regulation of the tobacco industry
including action by Congress on a settlement agreement with the tobacco industry
to resolve multiple pending lawsuits may impact the tobacco industry in each of
these states. Regulation of nicotine or elimination or adjustment of the
financial tobacco price support program may also impact the tobacco industry
though the degree of the impact cannot be predicted with any certainty.
The Kentucky non-agricultural economy is diversified as follows: 26% services,
24% wholesale and retail trade, 20% manufacturing, 16% government and 14% other.
Agriculture in Kentucky is well diversified among tobacco, corn, hogs, cattle,
other grains, equine, and truck crops. No single segment of the economy consists
of as much as one fourth of the overall State Domestic Product.
The North Carolina economy derives most of its income from three main sectors:
industry, agriculture and tourism, in that order. Each of these sectors are well
diversified. Industry has a good balance between production of goods versus
services, with a slight edge to the services side. Agriculture is diversified
among tobacco, poultry, fruits, vegetables and various kinds of livestock.
Tourism is concentrated in the far west and the coastal region. The U.S.
military bases in North Carolina constitute a significant part of the economy as
well.
The Tennessee non-agricultural economy is diversified among the following
sectors: 23% manufacturing; 23% wholesale and retail trade; 22% services; 16%
government and 14% other. Agriculture in Tennessee is widely diversified among
livestock, poultry, fruit and vegetables production, as well as nursery
operations. Agriculture constitutes about one third of the overall economy.
The economies of Kentucky, North Carolina and Tennessee are of such
diversification that an economic decline in a single segment of a state's
economy would not necessarily lead to the non-payment of debt service on
municipal bonds. A national economic decline could impact the ability of
municipalities to pay debt service, if the decline impacted various industries
within each state.
Kentucky Tax-Free Income Series
This is a diversified fund of long-term maturity bonds 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. The portfolio had a weighted average nominal maturity of 17.19
years and a weighted average effective maturity of 10.08 years as of June 30,
1999.
Kentucky Tax-Free Short-to-Medium Series
This is a non-diversified fund with a dollar weighted average maturity of two to
five years. The yield of this series will typically be lower than the Income
Series, but with less principal fluctuation. The portfolio had a weighted
average effective maturity of 4.26 years as of June 30, 1999. As a
non-diversified series, the Short-to-Medium Series may invest up to 50% of the
series' total assets in as few as two investments, with each of those
investments comprising up to 25% of the series' total assets. In this case, a
default would produce a more dramatic result as compared to a fully diversified
fund.
<PAGE> 17
North Carolina 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. The portfolio had a weighted
average nominal effective maturity of 19.19 years and a weighted average
effective maturity of 14.70 years as of June 30, 1999. As a non-diversified
series, the Income Series may invest up to 50% of the series' total assets in as
few as two investments, with each of those investments comprising up to 25% of
the series' total assets. In this case, a default would produce a more dramatic
result as compared to a fully diversified fund.
North Carolina Tax-Free Short-to-Medium Series
This is a non-diversified fund with a dollar weighted average maturity of two to
five years. The yield of this series will typically be lower than the Income
Series, but with less principal fluctuation. The portfolio had a weighted
average effective maturity of 4.46 years as of June 30, 1999. As a
non-diversified series, the Short-to-Medium Series may invest up to 50% of the
series' total assets in as few as two investments, with each of those
investments comprising up to 25% of the series' total assets. In this case, a
default would produce a more dramatic result as compared to a fully diversified
fund.
Tennessee Tax-Free Income Series
This is a diversified fund of long-term maturity bonds, 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. The portfolio had a weighted average nominal effective maturity of
18.79 years and a weighted average effective maturity of 13.40 years as of June
30, 1999.
Tennessee Tax-Free Short-to-Medium Series
This is a non-diversified fund with a dollar weighted average maturity of two to
five years. The yield of this series will typically be lower than the Income
Series, but with less principal fluctuation. This portfolio had a weighted
average effective maturity of 4.59 years as of June 30, 1999. As a
non-diversified series, the Short-to-Medium Series may invest up to 50% of the
series' total assets in as few as two investments, with each of those
investments comprising up to 25% of the series' total assets. In this case, a
default would produce a more dramatic result as compared to a fully diversified
fund.
Intermediate Government Bond Series
Seeks the highest level of current income without undue risk to principal by
investing in the following securities: issues of the U.S. Government or its
agencies or instrumentalities, repurchase agreements fully collateralized by
issues of the U.S. Government or its agencies or instrumentalities and bank
accounts fully insured by the FDIC or collateralized. The types of securities
are described in the "Statement of Additional Information". The dollar weighted
maturity of the portfolio will usually be 3 to 10 years to produce minimal
fluctuation in principal. The portfolio had a weighted average effective
maturity of 7.18 years as of June 30, 1999.
INVESTMENT POLICIES AND RESTRICTIONS
Single State Municipal Bond Series
Our six single state municipal bond series have fundamental policies of
investing at least 80% of the value of the assets in securities meeting the
following quality standards:
A) Bonds rated at the time of purchase within the four highest grades assigned
by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A, Baa) or
Standard & Poor's Corporation ("S&P") (AAA, AA, A, BBB). According to
Moody's, bonds rated Baa are medium-grade and possess some speculative
characteristics. A BBB rating by S&P indicates a satisfactory degree of
safety and capacity for repayment, but more vulnerability to adverse
economic conditions or changing circumstances. These bonds have speculative
characteristics, and changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and
interest payments than is the case with higher grade bonds.
B) Notes rated at the time of purchase within the three highest grades
assigned by Moody's (MIG 1, MIG 2, MIG 3); and bonds and notes not rated by
Moody's or S&P within the grades specified above, but secured by the full
faith and credit of the United States government (e.g., refunded or
defeased bonds secured by United States Treasury Bills or Notes).
C) No more than 20% of the value of our total assets in any of the municipal
bond series will be invested in securities which are not rated. The Trust
will not purchase securities which in the opinion of the Investment
<PAGE> 18
Adviser would not have been rated in one of the grades specified above. In
addition, our Investment Adviser will make its own evaluation of each
security it selects for each portfolio and will continue to evaluate each
portfolio security so long as we hold it.
As an additional matter of fundamental policy, except as indicated below, the
only securities we will purchase for the municipal bond series are those
producing income exempt from both Federal and State income taxes in the states
where shares of the series are offered, though ad valorem taxes may be due in
some states.
The investment policies may not be changed without approval of the holders of a
majority of the outstanding shares representing each series. The only exception
to the policies previously described is that we may temporarily invest up to 50%
of the value of our total assets in certain taxable obligations when, in the
judgment of our Investment Adviser, abnormal market conditions make it
advantageous to assume a defensive posture in taxable obligations. We also
reserve the right to hold such cash reserves as the Investment Adviser deems
necessary for temporary defensive purposes.
The taxable obligations and cash equivalents in which we may invest on a
temporary basis include obligations of the U.S. Government and its agencies and
instrumentalities; certificates of deposit, banker's acceptances and other
short-term debt obligations of United States and Canadian banks with total
assets of at least $1,000,000,000; commercial paper rated A-2 or better by S&P
or Prime-2 or better by Moody's; and repurchase agreements relating to an
underlying security in which we are authorized to invest.
Intermediate Government Bond Series
The Intermediate Government Bond Series has an investment objective of realizing
the highest rate of current income without undue risk to principal by investing
at least 65% of the value of our total assets in a professionally managed
non-diversified portfolio of bonds: 1) issued by the U.S. Government, such as
U.S. Treasury Bonds; or 2) issued by agencies or instrumentalities of the U.S.
Government, such as, but not limited to, obligations of the Federal Farm Credit
Banks, the Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Bank. The remaining assets are
invested in bank accounts fully insured by the FDIC or collateralized by bonds
described above in 1) and 2); repurchase agreements fully collateralized by
bonds described in 1) and 2); or U.S. Treasury or Agency Notes and Bills. The
foregoing types of securities are described in the "Statement of Additional
Information." The dollar weighted average maturity of the portfolio will be 3-10
years to produce minimal fluctuation in principal. There can be no assurance
that the objectives of the series will be realized.
Investors should recognize that, in periods of declining interest rates, the
series' yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the yield of the series will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the series will likely be invested in portfolio instruments producing
lower yields than the balance of the series' portfolio, reducing the current
yield of the series. In periods of rising interest rates, the opposite can be
true.
Borrowing of Money
Each series permits borrowing money from banks as a temporary measure in order
to pay redeeming shareholders or to satisfy purchase commitments, but such
borrowings may not be in excess of 5% of the value of the assets of the affected
series.
<PAGE> 19
Asset Composition
The weighted average ratings of the securities held by the Trust on June 30,
1999, the ending date of the fiscal year, were:
<TABLE>
<CAPTION>
Aaa/AAA Aa/AA A/A Baa/BBB NR (total)
<S> <C> <C> <C> <C> <C>
Municipal Bonds
Kentucky Tax-Free
Income Series 54.80% 13.96% 23.06% 4.54% 3.64%
Kentucky Tax-Free
Short-to-Medium Series 47.91 22.63 21.19 3.00 5.27
North Carolina Tax-Free
Income Series 53.50 37.25 8.69 .56 .0
North Carolina Tax-Free
Short-to-Medium Series 46.75 38.57 14.15 .53 .0
Tennessee Tax-Free
Income Series 43.71 31.99 20.45 3.85 .0
Tennessee Tax-Free
Short-to-Medium Series 54.49 23.05 22.46 .0 .0
Government Bonds
Intermediate Government
Bond Series 100.00
</TABLE>
The Board of Trustees of the Trust, acting upon information furnished by the
Investment Adviser, has determined that the unrated bonds held by each series
were comparable to rated bonds in the following categories:
<TABLE>
<CAPTION>
Comparable To: Aaa/AAA Aa/AA A/A Baa/BBB
<S> <C> <C> <C> <C>
Kentucky Tax-Free
Income Series 3.64%
Kentucky Tax-Free
Short-to-Medium Series 5.27
</TABLE>
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, Secretary, Treasurer 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.
<PAGE> 20
Robert L. Maddox, Partner (retired) Wyatt, Tarrant & Combs, Attorneys,
Louisville, KY.
William S. Patterson, President, CEO, Cumberland Surety Insurance Co.,
Lexington, KY.
*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, Secretary, or Retirement Plan
Treasurer, Trustee
William T. Griggs II -0- None- No Pension None -0-
Vice President, or Retirement Plan
Assistant Secretary
Lucy A. Breathitt $14,000 None-No Pension None $14,000
Trustee 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.
<PAGE> 21
Dupree & Company, Inc. serves as the Investment Adviser for each of our seven
series pursuant to separate Investment Advisory Agreements with each series,
each dated as of November 1, 1997. Each agreement will continue in effect until
October 31, 1999 and may be continued thereafter for annual periods if renewed.
Subject to the direction of the Trustees, Dupree & Company, Inc. is responsible
for the actual management of the Trust's portfolios. The compensation paid to
the Investment Adviser as presented on page 3 is inclusive of certain
administrative services and provision of office space, facilities, equipment and
personnel for management of the Trust. The compensation paid to the Investment
Adviser pursuant to the Investment Advisory Agreements is a percentage of the
daily net assets of each series as follows:
<TABLE>
<CAPTION>
Range of Total Assets 100,000,001-
(in dollars) $0-100,000,000 $150,000,000 $150,000,001+
<S> <C> <C> <C>
Kentucky Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Kentucky Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
North Carolina Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
North Carolina Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
Tennessee Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Tennessee Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
Intermediate Government Bond Series .20 of 1% .20 of 1% .20 of 1%
</TABLE>
Dupree & Company, Inc. has reserved the right to voluntarily 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.
Prior to November 1, 1997 Dupree Investment Advisers, Inc., a wholly owned
subsidiary of Dupree & Company, Inc., had served as the Investment Adviser to
each of the seven series pursuant to separate Investment Advisory Agreements.
Due to corporate and tax considerations the Dupree firms restructured their
business without any change in personnel or services. The Investment Advisory
Agreements approved by the shareholders of each series at their 1997 Annual
meeting are identical to the prior agreements except that the parent firm,
Dupree & Company, Inc. is now the Investment Adviser.
Indiana and Texas limit annual expenses (exclusive of interest, taxes, brokerage
commissions and extraordinary expenses) as follows: 1.5% of the first
$30,000,000 in net assets and 1% of any additional net assets for Indiana; and
2% of the first $10,000,000 of average net assets, 1.5% of the next $20,000,000
of average net assets and 1% of the remaining average net assets for Texas.
Fund Portfolio Manager
The person primarily responsible for the day-to-day management of all series of
the Trust is William T. Griggs II, President of the Investment Adviser. Mr.
Griggs has been Portfolio Manager since 1989.
Year 2000
Like other investment companies, financial and business organizations and
individuals around the world, the Trust could be adversely affected if computer
systems used by the Adviser and other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
The Adviser is taking steps that it believes are reasonably designed to address
the Year 2000 issue with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Trust's other
major service providers. There can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
<PAGE> 22
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.
Initial Investment
Your initial and subsequent investments need only be $100.00 for any of our
series.
By Wire
If this is an initial investment you must first call us to tell us the
following:
* How the account is to be registered
* Name of series in which you wish to invest
* Your address
* Your tax identification number
* Amount being wired
* Name of wiring bank
Our wire instructions are directed to Star Bank, Cincinnati, Ohio as follows:
Star Bank ABA # 0420-0001-3
Kentucky Tax-Free Income Series #483-622-098
Kentucky Tax-Free Short-to-Medium Series #483-622-106
North Carolina Tax-Free Income Series #483-622-338
North Carolina Tax-Free Short-to-Medium Series #483-622-346
<PAGE> 23
Tennessee Tax-Free Income Series #483-622-122
Tennessee Tax-Free Short-to-Medium Series #483-622-130
Intermediate Government Bond Series #483-622-148
If you are adding to an existing account please call us with your name and
account number.
By Mail
Make your check payable to the series you want to invest in and send your check
to:
Dupree Mutual Funds
P.O. Box 1149
Lexington, KY 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.
By Telephone
In Lexington (606) 254-7741
Toll Free National Number (800) 866-0614
In North Carolina (800) 284-2562
All accounts will automatically receive telephone redemption, 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
<PAGE> 24
* Documents required by Corporations, Executors, Administrators, Trustees
and Guardians.
By Check
Shareholders of each of the Short-to-Medium Series, and the Intermediate
Government Bond Series may redeem shares by check. In order to arrange for
redemption by check, a check writing privilege form must be completed or call us
at the phone number on the back cover. Checks may not be used to close an
account. Checks may not be presented for payment over-the-counter at the
clearing bank.
Daily
Check limits Minimum Maximum CHECKING WRITING CHARGES
KY Short-to-Medium Series $500.00 $25,000 Share Redemption: NONE
NC Short-to-Medium Series $500.00 $25,000 Checks: NONE
TN Short-to-Medium Series $500.00 $25,000 Insufficient Funds: $19.00
Government Bond Series $500.00 none Stop Payment: $15.00
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 or Intermediate Government Bond
Series, to delay payment seven days if to do otherwise would negatively affect
existing shareholders.
Shares redeemed to close an account will earn dividends through the date of
redemption. In addition to the redemption proceeds, redeeming shareholders will
receive dividends declared but unpaid. If you redeem only a portion of your
shares, you will receive all dividends declared and unpaid on all your shares on
the next dividend payment date.
Redemption Price
The redemption price of shares redeemed will be their net asset value per share
as calculated in the first determination of net asset value after the Trust has
received all necessary documents in proper form.
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
<PAGE> 25
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 charged 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 Kentucky, North Carolina and Tennessee Income Series pay such dividends as
of the last business day of each quarter. The Kentucky, North Carolina and
Tennessee Short-to-Medium Series and the Intermediate Government Bond Series pay
such dividends as of the last business day of each month. If no other business
day(s) intervenes between a weekend or holiday on which the New York Stock
Exchange is closed, then dividends will be paid on the second to last business
day of the quarter (Income Series) or month (Short-to-Medium Series and
Intermediate Government Bond Series). The Trustees have the authority to change
dividend payment dates.
Net investment income consists of all interest income accrued on portfolio
securities less all expenses. Capital gains, if any, will normally be
distributed between October 31 and January 31 in order to comply with federal
income tax regulations. See Statement of Additional Information. Income
dividends and capital gains distributions will be paid in additional shares by
credit to the shareholder's account or in cash at the shareholder's election.
Any such election remains in effect until the Transfer Agent receives 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
<PAGE> 26
dividends we pay our shareholders of the Municipal Bond series will be exempt
interest dividends which will be excludable from gross income for federal and
state income tax purposes. Dividends and distributions paid on the Government
Bond Series generally will be subject to federal and state income tax.
Distributions of income from investments in non-municipal securities or net
short-term capital gains or net long-term capital gains exceeding our capital
loss carry forwards (if any) will be taxable as more fully described in the
"Statement of Additional Information." Ad valorem tax may be imposed in some
states.
You should consult your tax adviser about the effects of investments in the
Trust and recognize that the tax laws of the several states afford different tax
treatment to their residents.
PERFORMANCE CALCULATIONS
All yield figures are based on historical earnings and are not intended to
indicate future performance.
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 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.
<PAGE> 27
FINANCIAL HIGHLIGHTS
KENTUCKY TAX-FREE INCOME SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report which is
available upon request.
SELECTED DATA FOR A SHARE OUTSTANDING:
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------------------
1999 1998 1997 1996 (a) 1995 (a)
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $7.65 $7.47 $7.35 $7.29 $7.21
---------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.37 0.39 0.40 0.40 0.40
Net gains (losses) on securities
(both realized and unrealized) (0.18) 0.18 0.12 0.06 0.13
---------------------------------------------------
Total from investment operations 0.19 0.57 0.52 0.46 0.53
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- -- -- (0.05)
Distributions (from net investment (0.37) (0.39) (0.40) (0.40) (0.40)
income)
---------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.47 $7.65 $7.47 $7.35 $7.29
===================================================
Total return 2.52% 7.77% 7.14% 6.38% 6.90%
Net assets, end of year (in thousands): $422,996 $373,153 $327,304 $295,029 $269,355
Ratio of expenses to average net assets 0.61% 0.62% 0.63% 0.62% 0.63%
Ratio of net investment income to
average net 4.88% 5.14% 5.32% 5.39% 5.60%
assets
Portfolio 10.69% 11.80% 6.64% 4.29% 18.05%
turnover
(a) Audited by other auditors.
</TABLE>
<PAGE> 28
FINANCIAL HIGHLIGHTS
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report which is
available upon request.
SELECTED DATA FOR A SHARE OUTSTANDING:
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------------
1999 1998 1997 1996(a) 1995(a)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $5.27 $5.22 $5.20 $5.18 $5.17
------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.21 0.21 0.22 0.21 0.21
Net gains ( losses) on securities
(both realized and unrealized) (0.07) 0.05 0.02 0.02 0.02
------------------------------------------------
Total from investment operations 0.14 0.26 0.24 0.23 0.23
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- -- -- (0.01)
Distributions (from net investment (0.21) (0.21) (0.22) (0.21) (0.21)
income)
------------------------------------------------
NET ASSET VALUE, END OF YEAR $5.20 $5.27 $5.22 $5.20 $5.18
================================================
Total 2.58% 5.12% 4.59% 4.51% 4.27%
return
Net assets, end of year (in thousands) $58,630 $54,124 $53,829 $66,574 $57,064
Ratio of expenses to average net assets 0.72% 0.74% 0.72% 0.75% 0.72%
Ratio of net investment income to
average net assets 3.89% 4.05% 4.11% 4.04% 4.00%
Portfolio turnover 27.38% 20.98% 20.03% 57.80% 4.07%
(a) Audited by other
auditors.
</TABLE>
<PAGE> 29
NORTH CAROLINA TAX-FREE INCOME SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report which is
available upon request.
SELECTED DATA FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------------
1999 1998 1997 1996(a)(c)
------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.82 $10.33 $9.88 $10.00
------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.50 0.53 0.54 0.32
Net gains (losses) on securities
(both realized and unrealized) (0.20) 0.49 0.45 (0.12)
------------------------------------------------
Total from investment operations 0.30 1.02 0.99 0.20
LESS DISTRIBUTIONS:
Distributions (from capital gains) (0.01) -- -- --
Distributions (from net investment income) (0.50) (0.53) (0.54) (0.32)
------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.61 $10.82 $10.33 $9.88
================================================
Total 2.71% 9.99% 10.18% 3.23%
return (b)
Net assets, end of year (in thousands) $19,456 $9,911 $3,586 $1,063
Ratio of expenses to average net assets (b) 0.45% 0.33% 0.25% 0.18%
Before expense reimbursement (b) 0.77% 0.76% 0.81% 2.47%
Ratio of net investment income to average net 4.43% 4.47% 4.72% 0.98%
assets (b)
After expense reimbursement (b) 4.74% 4.90% 5.29% 3.27%
Portfolio turnover 11.70% 16.77% 24.13% 22.83%
(a) Commencement of operations November 16,
1995.
(b) Annualized for periods less than a year.
(c) Audited by other
auditors.
</TABLE>
<PAGE> 30
NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report which is
available upon request.
SELECTED DATA FOR A SHARE OUTSTANDING:
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------------
1999 1998 1997 1996(a)(c)
------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.24 $10.12 $9.99 $10.00
------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.39 0.40 0.41 0.24
Net gains (losses) on securities
(both realized and unrealized) (0.15) 0.12 0.13 (0.01)
------------------------------------------------
Total from investment operations 0.24 0.52 0.54 0.23
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.39) (0.40) (0.41) (0.24)
------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.09 $10.24 $10.12 $9.99
================================================
Total 2.35% 5.20% 5.49% 3.79%
return (b)
Net assets, end of year (in thousands) $3,938 $2,194 $1,458 $1,159
Ratio of expenses to average net assets (b) 0.44% 0.41% 0.23% 0.16%
Before expense reimbursement (b) 0.78% 0.86% 0.82% 1.78%
Ratio of net investment income to average net 3.44% 3.44% 3.46% 0.85%
assets (b)
After expense reimbursement (b) 3.78% 3.89% 4.06% 2.47%
Portfolio turnover 25.54% 14.89% 17.20% 17.18%
(a) Commencement of operations November 16, 1995.
(b) Annualized for periods less than a year.
(c) Audited by other
auditors.
</TABLE>
<PAGE> 31
TENNESSEE TAX-FREE INCOME SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report which is
available upon request.
SELECTED DATA FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
For the year ended June 30,
----------------------------------------------------------------
1999 1998 1997 1996 (a) 1995 (a)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.97 $10.53 $10.17 $10.05 $9.51
----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.54 0.54 0.54 0.54 0.54
Net gains (losses) on securities
(both realized and unrealized) (0.19) 0.45 0.36 0.12 0.54
----------------------------------------------------------------
Total from investment operations 0.35 0.99 0.90 0.66 1.08
LESS DISTRIBUTIONS:
Distributions (from capital gains) (0.01) (0.01) -- -- --
Distributions (from net investment income) (0.54) (0.54) (0.54) (0.54) (0.54)
----------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.77 $10.97 $10.53 $10.17 $10.05
================================================================
Total return 3.03% 9.57% 8.96% 6.65% 11.65%
Net assets, end of year (in thousands) $46,086 $29,172 $13,678 $8,056 $5,010
Ratio of expenses to average net assets 0.48% 0.44% 0.55% 0.54% 0.34%
Before expense reimbursement 0.69% 0.74% 0.77% 0.90% 1.16%
Ratio of net investment income to average net 4.50% 4.64% 4.92% 4.91% 4.77%
assets
After expense reimbursement 4.71% 4.94% 5.15% 5.27% 5.59%
Portfolio turnover 14.76% 12.62% 5.14% 9.13% 6.84%
(a) Audited by other
auditors.
</TABLE>
<PAGE> 32
TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report which is
available upon request.
SELECTED DATA FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
For the years ended June 30,
-------------------------------------------------------------
1999 1998 1997 1996(c) 1995(a)(c)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $10.44 $10.32 $10.25 $10.20 $10.00
-------------------------------------------------------------
Income From Investment Operations:
Net investment income 0.39 0.41 0.42 0.42 0.28
Net gains or losses on securities
(both realized and unrealized) (0.11) 0.12 0.07 0.05 0.20
-------------------------------------------------------------
Total from investment operations 0.28 0.53 0.49 0.47 0.48
Less Distributions:
Distributions (from net investment income) (0.39) (0.41) (0.42) (0.42) (0.28)
-------------------------------------------------------------
Net Asset Value, end of year $10.33 $10.44 $10.32 $10.25 $10.20
=============================================================
Total return (b) 2.67% 5.26% 4.83% 4.62% 7.41%
Net assets, end of year (in thousands) (b) $5,819 $4,745 $2,993 $2,455 $1,535
Ratio of expenses to average net assets (b) 0.56% 0.51% 0.47% 0.50% 0.28%
Before expense reimbursement (b) 0.73% 0.81% 0.85% 1.19% 2.05%
Ratio of net investment income to average net assets (b) 3.52% 3.67% 3.67% 3.36% 1.03%
After expense reimbursement (b) 3.69% 3.97% 4.04% 4.05% 2.80%
Portfolio turnover 81.81% 67.59% 24.49% 23.17% 0.71%
(a) Commencement of operations November 1, 1994.
(b) Annualized for periods less than a year.
(c) Audited by other auditors.
</TABLE>
<PAGE> 33
INTERMEDIATE GOVERNMENT BOND SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report which is
available upon request.
SELECTED DATA FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------------------------------
1999 1998 1997 1996(a) 1995(a)
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.14 $9.89 $9.85 $10.15 $9.65
----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.64 0.66 0.72 0.72 0.69
Net gains or losses on securities
(both realized and unrealized) (0.41) 0.25 0.04 (0.30) 0.50
----------------------------------------------------
Total from investment operations 0.23 0.91 0.76 0.42 1.19
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.64) (0.66) (0.72) (0.72) (0.69)
----------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.73 $10.14 $9.89 $9.85 $10.15
====================================================
Total return 2.21% 9.47% 7.95% 4.15% 12.78%
Net assets, end of year (in thousands) $10,778 $9,596 $8,288 $7,765 $7,713
Ratio of expenses to average net assets 0.49% 0.53% 0.50% 0.40% 0.40%
Before expense reimbursement 0.49% 0.53% 0.56% 0.62% 0.61%
Ratio of net investment income to average net 6.32% 6.57% 7.20% 6.89% 6.85%
assets
After expense reimbursement 6.32% 6.57% 7.26% 7.11% 7.06%
Portfolio turnover 24.04% 23.49% 40.86% 33.89% 74.98%
(a) Audited by other auditors.
</TABLE>
<PAGE> 34
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'
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 the 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, October 1, 1999 FILE NO. 811-2918
<PAGE> 35
DUPREE MUTUAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY...................................................... 1
INVESTMENT OBJECTIVES AND POLICIES................................................... 1
Portfolio Turnover............................................................... 5
Investment Restrictions.......................................................... 6
NON-FUNDAMENTAL RESTRICTIONS......................................................... 9
INVESTMENT ADVISER AND OTHER SERVICES................................................ 10
(See "Management of the Trust" in Prospectus)
OFFICERS AND TRUSTEES................................................................ 12
(See "Management of the Trust" in Prospectus)
PORTFOLIO TRANSACTIONS............................................................... 13
SHARES OF BENEFICIAL INTEREST........................................................ 14
(See "Organization of the Trust" in Prospectus)
HOW TO PURCHASE SHARES............................................................... 14
(See "Buying Shares" in Prospectus)
HOW TO REDEEM SHARES................................................................. 15
(See "Selling Shares" in Prospectus)
HOW WE COMPUTE OUR YIELDS............................................................ 15
TAX INFORMATION...................................................................... 18
(See "Dividends" and "Taxes" in Prospectus)
FINANCIAL STATEMENTS................................................................. 22
NOTES TO FINANCIAL STATEMENTS........................................................ 52
REPORT OF INDEPENDENT AUDITORS....................................................... 58
</TABLE>
This Statement of Additional Information is not a Prospectus and should be read
in conjunction with the Trust's Prospectus dated October 1, 1999. A Prospectus
may be obtained, without charge, by calling or writing the Trust listed on the
back cover.
<PAGE> 36
GENERAL INFORMATION AND HISTORY
Dupree Mutual Funds is a no-load mutual fund that offers shares in separate
investment series to the public. We have been in continuous operation since
1979, first as the Kentucky Tax-Free Income Fund, Inc. and in our current form
since 1987. We were organized as a Kentucky Business Trust on July 1, 1987 as
the successor to the fund organized in 1979. We currently offer no-load mutual
fund shares in seven series that invest in professionally-managed bond
portfolios. Our Investment Adviser for each series of shares is Dupree &
Company, Inc. Dupree & Company is a Lexington, Kentucky firm with more than 50
years experience in managing, underwriting and trading Kentucky municipal
securities.
INVESTMENT OBJECTIVES AND POLICIES
As stated in our Prospectus, our investment objective for each of our seven
series is to realize the highest level of income available, as determined by a
shareholder's state of residence, without undue risk to principal. Six of the
seven series we offer invest in professionally-managed bond portfolios
consisting of municipal securities issued in a single state. These series (with
only minor exceptions) invest in municipal securities from Kentucky, North
Carolina or Tennessee in order to provide interest income exempt from federal
income tax, and in the states where our shares are offered, from state income
tax as well. Investors should consult our Prospectus for a description of the
investment objectives of each series and the manner in which each series seeks
to achieve its objectives.
We have established a number of investment policies and restrictions to help
ensure that the investments of each series are consistent with its investment
goals. Certain of these policies are deemed "fundamental", meaning that they are
subject to change only upon approval by the holders of a majority of shares of
the affected series. "Non-fundamental policies" may be changed without a vote of
the shareholders. The fundamental policies of each of the series are set forth
below and in the "Investment Restrictions" section which follows. As used in the
Prospectus and this Statement of Additional Information, with respect to any
matter requiring shareholder approval, whether it be shareholder approval within
an affected series or the shareholders of the Trust, the phrase "majority of our
shares" means the vote at a meeting of (i) 67% or more of the shares present or
represented, if the holders of more than 50% of the outstanding shares of the
affected series are present in person or represented by proxy, or (ii) more than
50% of the outstanding shares of the affected series, whichever is less.
KENTUCKY TAX-FREE INCOME SERIES
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
NORTH CAROLINA TAX-FREE INCOME SERIES
NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
TENNESSEE TAX-FREE INCOME SERIES
TENNESSEE TAX-FREE SHORT-TO MEDIUM SERIES
As stated in our Prospectus, the investment objective our six municipal bond
series is to realize the highest level of tax-exempt income, available as
determined by a shareholder's state of residence, without undue risk to
principal. In general, interest income derived from municipal securities is
exempt from federal income tax and, for residents of the states in which we
offer shares, from state income tax as well. Accordingly, as a matter of
fundamental policy, these series invest in tax-exempt issues from a single
state, one of either Kentucky, North Carolina or Tennessee, in order to maximize
the tax exemption available to shareholders in the states where are our shares
are offered. The only exception to this policy is that, when abnormal market
conditions warrant doing so, we may from time to time invest in taxable
securities on a temporary basis. Investors should consult our Prospectus and the
"Tax Information" section which follows for a more complete discussion of the
tax consequences of these investment policies. The Kentucky Tax-Free Income
Series and the Tennessee Tax-Free Income Series maintain diversified portfolios,
while the Kentucky Tax-Free Short-to-Medium Series, the North Carolina Tax-Free
Income Series, the North Carolina Tax-Free Short-to-Medium Series, and the
Tennessee Tax-Free Short-to-Medium Series maintain non-diversified portfolios.
At least 80% of the Kentucky, North Carolina or Tennessee municipal securities
we purchase must be municipal bonds within the four highest grades assigned by 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 Kentucky, North Carolina or Tennessee 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.
-1-
<PAGE> 37
No more than 20% of the value of our total assets in each of the Kentucky
Series, the North Carolina Series or the Tennessee Series will be invested in
securities which are not rated, but which, in the opinion of our Investment
Adviser, would have been rated at the grades indicated above if the issuers had
sought a rating at the time of issuance. Issuers do not always secure ratings
for reasons of cost, or when ratings are not needed to effectuate the sale. No
special or particular risk is associated solely with unrated securities.
The ratings described below reflect the opinions of Moody's and S&P as to the
quality of the municipal securities they undertake to rate. As such, the ratings
represent broad guidelines rather than absolute standards of quality. You should
also bear in mind that Moody's and S&P usually rate an issue of municipal
securities at the time it is first offered to the public, and that, once issued,
a rating is seldom updated unless and until the municipal issuer makes a further
offering of its securities. Our Investment Adviser will make its own evaluation
of each security it selects for our portfolios and will continue to evaluate
each portfolio security so long as we hold it.
RATINGS OF MUNICIPAL BONDS
MOODY'S INVESTORS SERVICE, INC. Aaa: the "best quality." Aa: "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat larger than Aaa rated municipal bonds. A: "upper medium grade
obligations." Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment some time in the future. Baa:"Medium grade," neither highly
protected, nor poorly secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time.
STANDARD & POOR'S CORPORATION. AAA: "obligations of the highest quality," AA:
issues with investment characteristics "only slightly less marked than those of
prime quality issues." A: "the third strongest capacity for payment of debt
service." Principal and interest payments on bonds in this category are regarded
as safe. It differs from the two higher ratings because, with respect to general
obligation bonds, there is some weakness which, under certain adverse
circumstances, might impair the ability of the issuer to meet debt obligations
at some future date. With respect to revenue bonds, debt service coverage is
good, but not exceptional, and stability of the pledged revenues could show some
variations because of increased competition or economic influences in revenues.
BBB: the lowest "investment grade" security rating. The difference between A and
BBB ratings is that the latter shows more than one fundamental weakness, or one
very substantial fundamental weakness. With respect to revenue bonds, debt
coverage is only fair. Stability of the pledged revenues could show substantial
variations, with the revenue flow possibly being subject to erosion over time.
RATINGS OF MUNICIPAL NOTES
MOODY'S INVESTORS SERVICE, INC. MIG 1: the best quality. MIG 2: high quality,
with margins of protection ample although not so large as in the preceding
group. MIG 3: favorable quality, with all security elements accounted for, but
lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
KENTUCKY MUNICIPAL SECURITIES
Kentucky municipal securities are obligations issued by the state of Kentucky,
its political subdivisions, and the districts, authorities, agencies and
instrumentalities of the state and its political subdivisions, the interest on
which is exempt from federal and Kentucky income taxes.
Kentucky municipal bonds are issued for various public purposes, including the
construction of airports, highways, housing, hospitals, pollution abatement
facilities, schools, streets, water and sewer works, gas and electric utilities
and university buildings. Municipal issuers in Kentucky can issue bonds for the
purposes of refunding outstanding obligations, obtaining funds to finance other
public institutions and meeting general operating expenses. Industrial building
revenue bonds, which are considered municipal bonds if the interest paid thereon
is exempt from federal and Kentucky income taxes, are issued by or on behalf of
public authorities to finance construction of privately operated facilities,
such as manufacturing plants, housing, sports arenas and pollution control
installations. Our investments in Kentucky industrial building revenue bonds are
subject to the restrictions set forth in Paragraph 10 of the "Investment
Restrictions."
There are five general types of Kentucky municipal bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, honor, credit and/or
taxing power for the payment of principal and interest. Apart from those issued
by the State of Kentucky, general obligation bonds are relatively rare since
they must be authorized by a two-thirds vote of the electorate of the municipal
issuer. Revenue bonds are payable from and secured by a particular revenue
stream, such as lease rentals, utility usage and connection charges, student
registration or housing fees, bridge or highway tolls, parking fees, sports
event gate receipts, etc. Although industrial building revenue bonds are issued
by municipal authorities, they are secured by revenues derived from a lease
rental contract with a non-governmental user. Some revenue bonds, including
industrial building revenue bonds, are secured by a mortgage on the rental
property. Improvement assessment bonds are obligations secured by a special
assessment (e.g. a sewer charge) that the governmental issuer imposes on each
owner of property benefited by the improvement (e.g. a sanitary sewer project).
The assessments are similar to taxes and have a priority which is similar to a
tax lien. Refunded or defeased bonds are secured by an escrow fund, which
usually is invested in United States government securities and occasionally in
bank certificates of deposit or similar instruments. Housing bonds, including
Kentucky Housing Corporation bonds, are usually secured by mortgages that the
issuer acquires and pledges for the payment of the bonds. Local housing
authorities sometimes issue bonds that are secured by
-2-
<PAGE> 38
rentals from the operation of a housing project. Housing bonds may also have
additional security in the form of federal guarantees of the mortgages or
rentals constituting the primary security.
Because of constitutional limitations, the state of Kentucky cannot enter into a
financial obligation of more than two years' duration, and no other municipal
issuer within the state can enter into a financial obligation of more than one
year's duration. As a consequence, the payment and security arrangements
applicable to Kentucky revenue bonds differ significantly from those generally
applicable to municipal revenue bonds in other states. Many city and county
construction projects are financed through bonds which are nominally issued in
the name of a public corporation which holds title to the project and leases the
project back to the city or county on a year-to-year renewable basis. In this
situation, the rent that the nominal issuer receives from the actual user of the
property financed by the bonds is the only source of any security for the
payment of the bonds, so that a failure by the user to renew the lease in any
year will put the bonds into default.
At times, we may purchase Kentucky municipal securities when a new issue is
being offered in an underwriting, at which time the securities are offered on a
"when-issued" basis, meaning that the delivery date is unknown. This means we
would commit to purchase the securities at an agreed price to be paid at the
time of delivery, usually in 30 to 45 days. During the period prior to delivery,
we will not have paid for the securities and will not receive interest on them.
There is a slight risk that such securities will not be delivered. It is also
possible that by the delivery date, due to changing market conditions, the
market value of the securities will be higher or lower than the price we have
committed to pay. We do not intend to make when-issued purchase commitments for
speculative purposes, but only to accomplish our investment objective.
Therefore, when we commit to purchase securities on a when-issued basis, we will
identify designated, readily marketable assets at least equal to the amount of
the purchase to pay for the commitment. During any such period in which assets
are identified to meet a "when-issued" purchase commitment, we will ordinarily
sell other assets not so identified if sales are necessary to meet shareholder
redemption requests. In the unlikely event that it becomes necessary for us to
sell when-issued securities before delivery, any resulting gain or loss would
not be tax-exempt.
Unlike other types of investments, municipal securities traditionally have not
been subject to registration with, or other regulation by, the Securities and
Exchange Commission. However, there have been proposals which could lead to
future regulation of these securities by the Commission.
NORTH CAROLINA MUNICIPAL SECURITIES
North Carolina municipal securities are obligations issued by the state of North
Carolina, its political subdivisions, and the districts, authorities, agencies
and instrumentalities of the state and its political subdivisions, the interest
on which is exempt from federal and North Carolina income taxes.
North Carolina municipal bonds are issued for various public purposes, including
the construction of airports, highways, housing, hospitals, pollution abatement
facilities, schools, streets, water and sewer works, gas and electric utilities
and university buildings. Municipal issuers in North Carolina can issue bonds
for the purposes of refunding outstanding obligations, obtaining funds to
finance other public institutions and meeting general operating expenses.
Industrial building revenue bonds, which are considered municipal bonds if the
interest paid thereon is exempt from federal income and North Carolina income
taxes, are issued by or on behalf of public authorities to finance construction
of privately operated facilities, such as manufacturing plants, housing, sports
arenas and pollution control installations. Our investments in North Carolina
building revenue bonds are subject to the restrictions set forth in Paragraph 10
of the "Investment Restrictions."
There are five general types of North Carolina municipal bonds. General
obligation bonds are secured by the issuer's pledge of its faith and credit
(taxing power) for the payment of principal and interest. Revenue bonds are
payable from and secured by a particular revenue stream, such as lease rentals,
utility usage and connection charges, student registration or housing fees,
parking fees, sports event gate receipts, etc. Although industrial development
revenue bonds are issued by municipal authorities, they are secured by revenues
derived from a lease rental contract or loan agreement with a non-governmental
user. Some revenue bonds, including industrial development revenue bonds, are
secured by a mortgage on the property financed. Refunded or defeased bonds are
secured by an escrow fund, which usually is invested in United States government
securities and occasionally in bank certificates of deposit or similar
instruments. Housing bonds, including North Carolina Housing Finance Agency
bonds, are usually secured by mortgages that the issuer acquires and pledges for
the payment of the bonds. Local housing authorities sometimes issue bonds that
are
-3-
<PAGE> 39
secured by rentals from the operation of a housing project. Housing bonds may
also have additional security in the form of federal guarantees of the mortgages
or rentals constituting the primary security. Certificates Of Participation
("COP's") are payable from a stream of revenues generated by an installment
financing contract or lease. This contract or lease is between the North
Carolina local government and the issuer, which is usually a nonprofit
corporation that is a financing instrumentality of the local government. COP's
are only secured by a lien or mortgage on the property being acquired or leased.
The local government's taxing power is not pledged to the repayment of the COP's
and no deficiency judgment may be rendered against a local government for
repayment of the COP's. Payments on COP's by the local government are subject to
the annual appropriation process of the local government. Some COP's may also be
secured with financial guarantee insurance, a letter of credit or other credit
enhancement.
At times, we may purchase North Carolina municipal securities when a new issue
is being offered in an underwriting, at which time the securities are offered on
a "when-issued" basis, meaning that the delivery date is unknown. This means we
would commit to purchase the securities at an agreed price to be paid at the
time of delivery, usually in 30 to 45 days. During the period prior to delivery,
we will not have paid for the securities and will not receive interest on them.
There is a slight risk that such securities will not be delivered. It is also
possible that by the delivery date, due to changing market conditions, the
market value of the securities will be higher or lower than the price we have
committed to pay. We do not intend to make when-issued purchase commitments for
speculative purposes, but only to accomplish our investment objective.
Therefore, when we commit to purchase securities on a when-issued basis, we will
identify designated, readily marketable assets at least equal to the amount of
the purchase to pay for the commitment. During any such period in which assets
are identified to meet a "when-issued" purchase commitment, we will ordinarily
sell other assets not so identified if sales are necessary to meet shareholder
redemption requests. In the unlikely event that it becomes necessary for us to
sell when-issued securities before delivery, any resulting gain or loss would
not be tax-exempt.
Unlike other types of investments, municipal securities traditionally have not
been subject to registration with, or other regulation by, the Securities and
Exchange Commission. However, there have been proposals which could lead to
future regulation of these securities by the Commission.
TENNESSEE MUNICIPAL SECURITIES
Tennessee municipal securities are obligations issued by the state of Tennessee,
its political subdivisions, and the districts, authorities, agencies and
instrumentalities of the state and its political subdivisions, the interest on
which is exempt from federal and Tennessee Hall income taxes.
Tennessee municipal bonds are issued for various public purposes, including the
construction of airports, highways, housing, hospitals, pollution abatement
facilities, schools, streets, water and sewer works, gas and electric utilities
and university buildings. Municipal issuers in Tennessee can issue bonds for the
purposes of refunding outstanding obligations, obtaining funds to finance other
public institutions and meeting general operating expenses. Industrial building
revenue bonds, which are considered municipal bonds if the interest paid thereon
is exempt from federal income and Tennessee Hall income taxes, are issued by or
on behalf of public authorities to finance construction of privately operated
facilities, such as manufacturing plants, housing, sports arenas and pollution
control installations. Our investments in Tennessee industrial building revenue
bonds are subject to the restrictions set forth in Paragraph 10 of the
"Investment Restrictions."
There are six general types of Tennessee municipal bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, honor, credit and/or
taxing power for the payment of principal and interest. Revenue bonds are
payable from and secured by a particular revenue stream, such as lease rentals,
utility usage and connection charges, student registration or housing fees,
bridge tolls, parking fees, sports event gate receipts, etc. Although industrial
building revenue bonds are issued by municipal authorities, they are secured by
revenues derived from a lease rental contract with a non-governmental user. Some
revenue bonds, including industrial building revenue bonds, are secured by a
mortgage on the rental property. Refunded or defeased bonds are secured by an
escrow fund, which usually is invested in United States government securities
and occasionally in bank certificates of deposit or similar instruments. Housing
bonds, including Tennessee Housing Development Agency bonds, are usually secured
by mortgages that the issuer acquires and pledges for the payment of the bonds.
Local housing authorities sometimes issue bonds that are secured by rentals from
the operation of a housing project. Housing bonds may also have additional
security in the form of federal guarantees of the mortgages or rentals
constituting the primary security. "Double Barrel Bonds" are primarily water and
sewer issues for which the revenues are the primary source of debt service, but
with taxes as the unlimited secondary
-4-
<PAGE> 40
source. Improvement Assessment bonds are obligations secured by a special
assessment (e.g. a sewer charge) that the government issuer imposes on each
owner of property benefited by the improvement (e.g. a sanitary sewer project).
The assessments are similar to taxes and have a priority which is similar to a
tax lien.
At times, we may purchase Tennessee municipal securities when a new issue is
being offered in an underwriting, at which time the securities are offered on a
"when-issued" basis, meaning that the delivery date is unknown. This means we
would commit to purchase the securities at an agreed price to be paid at the
time of delivery, usually in 30 to 45 days. During the period prior to delivery,
we will not have paid for the securities and will not receive interest on them.
There is a slight risk that such securities will not be delivered. It is also
possible that by the delivery date, due to changing market conditions, the
market value of the securities will be higher or lower than the price we have
committed to pay. We do not intend to make when-issued purchase commitments for
speculative purposes, but only to accomplish our investment objective.
Therefore, when we commit to purchase securities on a when-issued basis, we will
identify designated, readily marketable assets at least equal to the amount of
the purchase to pay for the commitment. During any such period in which assets
are identified to meet a "when-issued" purchase commitment, we will ordinarily
sell other assets not so identified if sales are necessary to meet shareholder
redemption requests. In the unlikely event that it becomes necessary for us to
sell when-issued securities before delivery, any resulting gain or loss would
not be tax-exempt.
Unlike other types of investments, municipal securities traditionally have not
been subject to registration with, or other regulation by, the Securities and
Exchange Commission. However, there have been proposals which could lead to
future regulation of these securities by the Commission.
INTERMEDIATE GOVERNMENT BOND SERIES
As stated in our Prospectus, our investment objective for this series is to
realize the highest level of income available without undue risk to principal by
investing in a portfolio consisting of: 1) bonds issued by the U.S. Government
such as U.S. Treasury Notes and Bills; 2) bonds issued by agencies or
instrumentalities of the U.S. Government such as obligations of the Federal Farm
Credit Banks, the Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Bank; 3) bank accounts fully
insured by the FDIC or collateralized by federal government or federal agency
bonds; and 4) repurchase agreements fully collateralized by issues of the U.S.
Government or its agencies. The Intermediate Government Bond Series will
maintain a non-diversified portfolio as described in our Prospectus and in the
"Investment Restrictions" section below.
PORTFOLIO TURNOVER
Portfolio turnover is defined to be the lesser of purchases or sales divided by
the average monthly value of the portfolio. The portfolio turnover rate is
expressed as a percentage ratio calculated by taking the lesser of sales or
purchases of securities as the numerator and dividing by the average monthly
value of the entire portfolio, excluding short term investments from both the
numerator and denominator. Portfolio turnover for each of the series offered
will vary depending on a number of factors, including net capital flows into or
out of each series, our investment strategy, and market conditions.
Portfolio turnover rate may influence a series' yield under certain conditions.
In periods of declining interest rates, the series' yield will tend to be
somewhat higher than prevailing market rates, and in periods of rising interest
rates, the yield of the series will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the series from the
continuous sale of its shares will likely be invested in portfolio instruments
producing lower yields than the balance of the series' portfolio, thereby
reducing the current yield of the series. In periods of rising interest rates,
the opposite can be true.
KENTUCKY TAX-FREE INCOME SERIES
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
NORTH CAROLINA TAX-FREE INCOME SERIES
NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
TENNESSEE TAX-FREE INCOME SERIES
TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
We do not intend to purchase Kentucky, North Carolina or Tennessee municipal
securities for short-term profits.
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<PAGE> 41
Securities will be purchased and sold in response to our management's evaluation
of the issuer's ability to meet its debt obligations in the future. However, a
security purchased at any earlier date may be sold in anticipation of a market
decline (a rise in interest rates), and a security purchased in anticipation of
a market rise (a decline in interest rates) may be sold at any later date. In
addition, a security may be sold and another purchased when, in the opinion of
our management, a favorable yield spread exists between those particular issuers
or in different market sectors. Finally, in order to obtain an immediate yield
on the cash proceeds from the sale of our shares pending the selection and
availability of a more permanent investment, we may temporarily acquire
Kentucky, North Carolina or Tennessee municipal securities under informal
repurchase arrangements with a bank. Typically, under these arrangements, we
would resell such securities to the bank, and the bank would repurchase them
from us, within a short period of time, usually not more than seven days.
Based on current trends, we expect portfolio turnover in the coming year to be
similar to that of the past year for all series. At this time, we do not
anticipate any change in the investment strategy that would significantly impact
portfolio turnover rate and therefore we expect that the turnover rate for the
coming year will be influenced mainly by the net growth of each series and by
market conditions.
For the fiscal year ended June 30, 1999 the portfolio turnover rate for the
Kentucky Tax-Free Income Series was approximately 10.69%, as compared with a
rate of approximately 11.80% for the fiscal year ended June 30, 1998. Fiscal
1998-1999 was a year of relatively stable turnover. Since we expect declining
interest rates for the upcoming fiscal year 1999-2000 should reflect a similar
portfolio turnover.
For the fiscal year ended June 30, 1999, the portfolio turnover rate for the
Kentucky Tax-Free Short-to-Medium Series was approximately 27.38%, as compared
with a rate of approximately 20.98% for the fiscal year ended June 30, 1998.
Since we expect declining interest rates for the upcoming year fiscal 1999-2000
should reflect a similar portfolio turnover.
For the fiscal year ended June 30, 1999, the portfolio turnover rate for the
Tennessee Tax-Free Income Series was approximately 14.76% as compared with a
rate of approximately 12.62% for the fiscal year ended June 30, 1998. Fiscal
1998-1999 was a year of growth. Since we expect declining interest rates for the
upcoming year fiscal 1998-99 should reflect a similar portfolio turnover.
For the fiscal year ended June 30, 1999, the portfolio turnover rate for the
Tennessee Tax-Free Short-to-Medium Series was approximately 81.81% as compared
with a rate of approximately 67.59% for fiscal year ended June 30, 1998. Since
we expect declining interest rates for the upcoming year fiscal 1999-2000 should
reflect a similar portfolio turnover.
For the fiscal year ended June 30, 1999, the portfolio turnover rate for the
North Carolina Tax-Free Income Series was approximately 11.70% as compared with
a rate of approximately 16.77% for the fiscal year ended June 30, 1998. Fiscal
1998-1999 was a year of growth. Since we expect declining interest rates for the
upcoming year fiscal 1999-2000 should reflect a similar portfolio turnover.
For the fiscal year ended June 30, 1999, the portfolio turnover rate for the
North Carolina Tax-Free Short-to-Medium Series was approximately 25.54% as
compared with a rate of approximately 14.89% for fiscal year ended June 30,
1998. Since we expect declining interest rates for the upcoming year fiscal
1999-2000 should reflect a similar portfolio turnover.
INTERMEDIATE GOVERNMENT BOND SERIES
For the fiscal year ended June 30, 1999 the portfolio turnover rate was
approximately 24.04% as compared with a rate of approximately 23.49% for the
fiscal year ended June 30, 1998. Since we expect declining interest rates for
the upcoming year fiscal 1999-2000 should reflect a similar portfolio turnover.
INVESTMENT RESTRICTIONS
We have adopted certain investment restrictions which may not be changed without
the approval of the holders of a majority of the shares representing the
affected series. Under these restrictions, we may not take any of the following
actions with respect to each series:
KENTUCKY AND TENNESSEE TAX-FREE INCOME SERIES
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<PAGE> 42
1. With respect to 75% of the value of our total assets as of the
close of each fiscal quarter, purchase the securities of any single
issuer (except the United States government, its agencies and
instrumentalities), if, as a result, more than 5% of the value of
our total assets would be invested in securities of such issuer
(including repurchase agreements with any one bank). For this
purpose, the states of Kentucky and Tennessee, each political
subdivision of each state, and each district, authority, agency or
instrumentality of each state or any of either states' political
subdivisions will be deemed to be a separate issuer.
2. Borrow money, except from banks as a temporary measure for
purposes of meeting redemption requests and/or bond purchase
commitments and then only in an amount not exceeding 5% of the
value of our total assets.
3. Pledge or hypothecate any of our assets, except as security for a
permissible temporary bank borrowing (see Restriction 2), and then
only in an amount not exceeding 15% of the value of our total
assets.
4. Make loans, except through the purchase of portions of issues or
publicly distributed debt securities and entry into repurchase
agreements. We will not enter into a repurchase agreement maturing
in more than seven business days, if, as a result more than 10% of
the value of our net assets would be so invested.
5. Purchase securities subject to legal or contractual restrictions on
resale (except those imposed by repurchase agreements).
6. Underwrite the securities of other issuers, except to the extent
that our purchase of Kentucky and Tennessee municipal securities
directly from the issuer (either alone or as one of a group of
bidders) may be deemed to be an underwriting of such securities.
7. Purchase or sell real estate or real estate mortgage loans, but
this limitation will not prevent us from purchasing Kentucky and
Tennessee municipal securities or other securities secured by real
estate or interest in real estate.
8. Purchase or sell commodities or commodity contracts.
9. Purchase equity securities or securities convertible into equity
securities.
10. Purchase any security, if, as a result, more than 25% of the value
of our total assets would be invested in the securities of issuers
having their principal business activities in the same industry.
This limitation would preclude us from investing more than 25% of
the value of our total assets in industrial building revenue bonds
issued to finance facilities for non-governmental issuers in any
one industry. However, the limitation does not apply to any other
tax exempt municipal securities, to securities issued or guaranteed
by the United States government or any of its agencies or
instrumentalities.
11. Invest in companies for the purpose of exercising management or
control.
12. Invest in securities of other investment companies, except where
such investment results from a merger or consolidation with, or an
acquisition of assets of, another investment company.
13. Make short sales of securities.
14. Purchase securities on margin, except that we may obtain such
short term credit as may be necessary for the clearance of
securities purchases.
15. Write or invest in put or call options, or any combination thereof.
16. Issue senior securities.
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<PAGE> 43
KENTUCKY, NORTH CAROLINA AND TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES, AND
NORTH CAROLINA TAX-FREE INCOME SERIES
1. With respect to 50% of the value of our total assets as of the
close of each fiscal quarter, purchase the securities of any single
issuer (except the United States government, its agencies and
instrumentalities), if, as a result, more than 5% of the value of
our total assets would be invested in securities of such issuer
(including repurchase agreements with any one bank). For this
purpose, the states of Kentucky, North Carolina and Tennessee, each
political subdivision of the state, and each district, authority,
agency or instrumentality of the state or any of its political
subdivisions will be deemed to be a separate issuer.
2. Borrow money, except from banks as a temporary measure for purposes
of meeting redemption requests and/or bond purchase commitments and
then only in an amount not exceeding 5% of the value of our total
assets.
3. Pledge or hypothecate any of our assets, except as security for a
permissible temporary bank borrowing (see Restriction 2), and then
only in an amount not exceeding 15% of the value of our total
assets.
4. Make loans, except through the purchase of portions of issues or
publicly distributed debt securities and entry into repurchase
agreements. We will not enter into a repurchase agreement maturing
in more than seven days, if, as a result, more than 10% of the
value of our total assets would be so invested.
5. Purchase securities subject to legal or contractual restrictions on
resale (except those imposed by repurchase agreements).
6. Underwrite the securities of other issuers, except to the extent
that our purchase of Kentucky, North Carolina and Tennessee
municipal securities directly from the issuer (either alone or as
one of a group of bidders) may be deemed to be an underwriting of
such securities.
7. Purchase or sell real estate or real estate mortgage loans, but
this limitation will not prevent us from purchasing Kentucky, North
Carolina and Tennessee municipal securities or other securities
secured by real estate or interest in real estate.
8. Purchase or sell commodities or commodity contracts.
9. Purchase equity securities or securities convertible into equity
securities.
10. Purchase any security, if, as a result as of the close of each
fiscal quarter more than 25% of the value of our total assets would
be invested in the securities of issuers having their principal
business activities in the same industry. This limitation would
preclude us from investing more than 25% of the value of our total
assets in industrial building revenue bonds issued to finance
facilities for non-governmental issuers in any one industry.
However, the limitation does not apply to any other municipal
securities, to securities issued or guaranteed by the United States
government or any of its agencies or instrumentalities.
11. Invest in companies for the purpose of exercising management or
control.
12. Invest in securities of other investment companies, except where
such investment results from a merger or consolidation with, or an
acquisition of assets of, another investment company.
13. Make short sales of securities.
14. Purchase securities on margin, except that we may obtain such short
term credit as may be necessary for the clearance of securities
purchases.
15. Write or invest in put or call options, or any combination thereof.
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<PAGE> 44
16. Issue senior securities.
INTERMEDIATE GOVERNMENT BOND SERIES
1. With respect to 50% of the value of our total assets as of the
close of each fiscal quarter, purchase the securities of any single
issuer (except the United States government, its agencies and
instrumentalities), if, as a result, more than 5% of the value of
our total assets would be invested in securities of such issuer
(including repurchase agreements with any one bank or brokerage
firm).
2. Borrow money, except from banks as a temporary measure for purposes
of meeting redemption requests and/or bond purchase commitments and
then only in an amount not exceeding 5% of the value of our total
assets.
3. Pledge or hypothecate any of our assets, except as security for a
permissible temporary bank borrowing (see Restriction 2), and then
only in an amount not exceeding 15% of the value of our total
assets.
4. Make loans, except through the purchase of portions of issues or
publicly distributed debt securities and entry into repurchase
agreements. We will not enter into a repurchase agreement maturing
in more than seven days, if, as a result, more than 10% of the
value of our total assets would be so invested.
5. Purchase securities subject to legal or contractual restrictions
on resale (except those imposed by repurchase agreements).
6. Underwrite the securities of other issuers, except to the extent
that our purchase of United States Government securities directly
from the issuer (either alone or as one of a group of bidders) may
be deemed to be an underwriting of such securities.
7. Purchase or sell real estate or real estate mortgage loans, but
this limitation will not prevent us from purchasing securities or
other securities secured by real estate or interest in real estate.
8. Purchase or sell commodities or commodity contracts.
9. Purchase equity securities or securities convertible into equity
securities.
10. Purchase any security, if, as a result as of the close of each
fiscal quarter more than 25% of the value of our total assets would
be invested in the securities of issuers having their principal
business activities in the same industry. The limitation does not
apply to securities issued or guaranteed by the United States
government or any of its agencies or instrumentalities.
11. Invest in companies for the purpose of exercising management or
control.
12. Invest in securities of other investment companies, except where
such investment results from a merger or consolidation with, or an
acquisition of assets of, another investment company.
13. Make short sales of securities.
14. Purchase securities on margin, except that we may obtain such short
term credit as may be necessary for the clearance of securities
purchases.
15. Write or invest in put or call options, or any combination thereof.
16. Issue senior securities.
NON-FUNDAMENTAL RESTRICTIONS
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<PAGE> 45
None of the single state series will invest in certificates of deposit or
banker's acceptances.
In accord with the requirements of the Texas securities laws, the Trust will not
invest in real estate limited partnerships, or in oil, gas and other mineral
leases, or invest more than 15% of average net assets of any series in
investments which are not readily marketable as described in Texas securities
regulations.
These restrictions are "non-fundamental" investment policies of the affected
series. As such, they may be changed by the Board of Trustees and do not require
a vote of shareholders of the affected series.
INVESTMENT ADVISER AND OTHER SERVICES
As stated in the Prospectus, our investment activities are managed by Dupree &
Company, Inc.. Thomas P. Dupree, Sr., is Chairman of the Board. He and his wife,
Clara, are the sole owners of the stock of Dupree & Company, Inc. Thomas P.
Dupree, Sr. also serves as our chief executive officer and as a member of our
Board of Directors. Fred L. Dupree, Jr., is Vice President, Secretary, Treasurer
and a director of both Dupree firms, and also holds the same offices with us.
Michelle M. Dragoo and William T. Griggs II are both Vice President with us, and
Alison L. Arnold is Assistant Vice Presidents with us.
INVESTMENT ADVISORY AGREEMENTS
Dupree & Company, Inc. serves as the Investment Adviser for each of our seven
series pursuant to separate Investment Advisory Agreements with each series.
Each agreement is dated as of November 1, 1997 and will continue in effect until
October 31, 1999 and may be continued from year to year after their defined
ending dates if such continuation is specifically approved at least annually by
our Board of Trustees at a meeting called for that purpose, or by a separate
vote of the holders of a majority of each series' shares, and, in either case,
also by vote of a majority of our Trustees who are not "interested persons" of
Dupree & Company, Inc. for us within the meaning of the Investment Company Act
of 1940. The Agreements are subject to termination by either party without
penalty on 60 days written notice to the other and terminate automatically in
the event of assignment. Dupree & Company, Inc. had served as the Investment
Adviser to Kentucky Tax-Free Income Fund, Inc. from our inception through
October 31, 1986, when Dupree Investment Advisers, Inc. began serving as the
Investment Adviser. Thereafter Dupree Investment Advisers, Inc. became the
Investment Adviser. In 1997 the two Dupree firms reorganized and the parent
firm, Dupree & Company, Inc. once again became the Investment Adviser without
any change in personnel or services.
Pursuant to the Agreements, Dupree & Company, Inc. provides us with investment
supervisory services, office space and facilities, and corporate administration.
Specifically, the Dupree firm has undertaken to obtain and evaluate relevant
information regarding the economy, industries, businesses, municipal issuers,
securities markets and securities; to formulate a continuing program for the
management of our assets in a manner consistent with our investment objectives;
and to implement this program by selecting the securities to be purchased or
sold by us and placing orders for such purchases and sales. In addition, the
Dupree firm provides for our office needs, maintains our books and records,
assumes and pays all sales and promotional expenses incurred in the distribution
of our shares out of its own resources without reimbursement from the Trust,
staffs us with persons competent to perform all of our executive and
administrative functions, supervises and coordinates the activities of our
institutional and other agents (e.g., custodian, transfer agent, independent
accountants, outside legal counsel), and permits its officers and employees to
serve us as trustees and officers, all without additional cost to us. Dupree &
Company, Inc. may contract with commercial banks or other entities to assist in
the provision of shareholder services.
Under the Agreements for each of the series, neither Dupree & Company, Inc. nor
any of its directors, officers or employees performing executive or
administrative functions for us will be liable to us for any error of judgment,
mistake of law or other act or omission in connection with a matter to which the
Agreements relate, unless such error, mistake, act or omission involves willful
misfeasance, bad faith, gross negligence or reckless disregard of duty, or
otherwise constitutes a breach of fiduciary duty involving personal misconduct.
Under the terms of the Agreements for the Kentucky, North Carolina and Tennessee
Series, we have agreed to pay to Dupree & Company, Inc., as compensation for all
services rendered, facilities furnished and expenses paid or assumed by it under
the Agreements, a fee at the annual rate of .50 of 1% of the first $100,000,000
average daily net assets of each series determined separately, .45 of 1% of the
average daily net assets between $100,000,001 and $150,000,000 of
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<PAGE> 46
each series determined separately, and .40 of 1% of the average daily net assets
in excess of $150,000,001 of each series determined separately. For the
Government Bond Series, we have agreed to pay to Dupree & Company, Inc., as
compensation for all services rendered, facilities furnished and expenses paid
or assumed by it under the Agreement, a fee at the annual rate of .2 of 1%. The
fees are payable to Dupree & Company, Inc. in monthly installments. Dupree &
Company, Inc. has reserved the right to voluntarily subsidize any series of the
Trust at its sole option. During the past three fiscal years the following fees
have been paid the Investment Adviser and the following reimbursements have been
received from the Investment Adviser which at the time was Dupree Investment
Advisers, Inc.:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
6-30-99 6-30-98 6-30-97
<S> <C> <C> <C>
Kentucky Tax-Free Income Series
fees $1,772,796 $1,529,994 $1,375,201
reimbursements -0- -0- -0-
Kentucky Tax-Free Short-to-Medium Series
fees 297,805 268,875 300,340
reimbursements -0- -0- -0-
North Carolina Tax-Free Income Series
fees 69,119 32,367 10,797
reimbursements 42,430 27,686 12,274
North Carolina Tax-Free Short-to-Medium Series
fees 13,989 8,143 6,989
reimbursements 9,519 7,346 8,243
Tennessee Tax-Free Income Series
fees 206,464 96,775 51,432
reimbursements 86,844 56.512 23,339
Tennessee Tax-Free Short-to-Medium Series
fees 33,510 18,236 13,694
reimbursements 11,427 10,752 10,311
Intermediate Government Bond Series
fees 21,315 17,633 16,159
reimbursements -0- -0- 5,347
</TABLE>
Indiana and Texas limit annual expenses (exclusive of interest, taxes, brokerage
commissions and extraordinary expenses) as follows: 1.5% of the first
$30,000,000 in net assets and 1% of any additional net assets for Indiana; and
2% of the first $10,000,000 of average net assets, 1.5% of the next $20,000,000
of average net assets and 1% of the remaining average net assets for Texas.
OTHER SERVICES
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
Kentucky Tax-Free Short-to-Medium Series, North Carolina Tax-Free
Short-to-Medium Series, Tennessee Tax-Free Short-to-Medium Series and the
Intermediate Government Bond Series.
Ernst & Young LLP, 1300 Chiquita Center, 250 East 5th Street, Cincinnati, Ohio
45202 serves as the independent auditors of the Trust, providing expertise in
accounting and taxation, including tax return preparation.
Dupree & Company, Inc., serves as the Transfer Agent and Dividend Paying Agent
of the Trust, collecting monies from new shareholders and paying dividends and
redemption proceeds to shareholders, in addition to maintaining books and
accounts of shareholder transactions. Each Series of the Trust has an agreement
with Dupree & Company Inc., as Transfer Agent, by the terms of which a fee is
paid computed on the average daily net asset value at the annual rate of
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<PAGE> 47
.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 &
125 South Mill Street Company, Inc., President of Dupree
Lexington, KY 40507 Investment Advisers, Inc. Director,
Age: 69 Studio Plus Hotels, Inc.
FRED L. DUPREE, JR.* Vice President, Secretary, Vice President, Secretary, Treasurer and
125 South Mill Street Treasurer and Trustee Director of Dupree & Company, Inc. and
Lexington, KY 40507 Dupree Investment Advisers, Inc.
Age: 72
WILLIAM T. GRIGGS, II* Vice President President of Dupree & Company, Inc. and
125 South Mill Street Assistant Secretary and Trustee Dupree Investment Advisers, Inc.
Lexington, KY 40507
Age: 48
LUCY A. BREATHITT Trustee Alexander Farms, farming; Kentucky Horse
1703 Fairway Drive Park Foundation Board; Kentucky Horse
Lexington, KY 40502 Park Museum Board, Kentucky State Nature
Age: 62 Preserves Commission
WILLIAM A. COMBS, JR. Trustee Secretary, Treasurer, Director, Dana
111 Woodland Ave., #510 Motor Cincinnati, Ohio;
Lexington, KY 40502 Secretary-Treasurer, Director Freedom
Age: 59 Dodge, Lexington, KY; Secretary,
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,
Louisville, KY 40202 Nugent Sand Company, Louisville, KY;
Age: 75 Director, Orr Safety Corporation,
Louisville, KY,; Director, Whip-Mix
Corporation, Louisville, KY.
WILLIAM S. PATTERSON Trustee President, CEO, Cumberland Surety Co.,
367 West Short Street Lexington, KY, President, Patterson &
Lexington, KY 40507 Co., Frankfort, KY, (real estate
Age: 67 development, thoroughbred horse breeding,
farming)
MICHELLE M. DRAGOO Vice President Vice President of Dupree & Company, Inc. and
125 South Mill Street 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
</TABLE>
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<PAGE> 48
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>
<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 0.000 .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>
Thomas P. Dupree, Sr., and Fred L. Dupree, Jr. are brothers. Thomas P. Dupree,
Sr., Fred L Dupree, Jr ., or 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. Executive officers of the Trust
receive no remuneration from us, but are instead paid by Dupree & Company, Inc.
PORTFOLIO TRANSACTIONS
Ordinarily, portfolio securities for each series are purchased from underwriters
at prices that include underwriting fees or from primary market makers acting as
principals and selling to us at net prices. In either case, we would not pay any
brokerage commission. Transactions placed with dealers serving as primary market
makers are executed at prices within the spread between the bid and asked prices
for the securities.
Decisions with respect to the purchase and sale of our portfolio securities,
including the allocation of principal business and portfolio brokerage, are made
by our Investment Adviser, Dupree & Company, Inc. Our Investment Adviser has
discretionary authority to implement these decisions by placing orders for the
purchase or sale of securities for our account with underwriters, dealers or
brokers selected by it for that purpose. However, Dupree & Company, Inc. will
not deal with us as principal, or as our agent, in purchasing and selling
securities for our accounts. Purchases and sales of securities for the Trust's
portfolios, as well as allocation of brokerage, are reviewed quarterly by the
Trust's Board of Trustees. Dupree & Company, Inc. on behalf of the Trust has
from time to time executed trades through Paine Webber, Inc., in which Thomas P.
Dupree, Jr. acted as the broker. Each of these trades is either an exclusive
offering or the high bid on bonds for sale. Each is reviewed by the board on an
individual basis.
Dupree & Company, Inc. has advised us that, in placing orders for the purchase
and sale of our portfolios transactions, it will seek execution at the most
favorable prices through responsible brokers, in agency transactions, at
competitive commission rates. Our investment adviser has also advised us that,
in selecting brokers to execute our portfolio transactions, it will give
consideration to such factors as the price of the security, the rate of
commission, if any, the size and difficulty of the order, the reliability,
integrity, financial conditions and general execution and operating capabilities
of competing brokers, and the brokerage and research services which they provide
to our investment adviser.
Dupree & Company, Inc. has further advised us that it does not presently intend
to award brokerage on our portfolios to
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<PAGE> 49
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.
Since our shares are not sold through intermediary brokers, it is not the
practice of Dupree & Company, Inc. to allocate principal business or portfolio
brokerage on the basis of such sales. However, brokers effecting purchases of
our shares for their customers may participate in principal transactions of
brokerage allocated as described in the preceding paragraphs. The Dupree firm
has advised us that, when it purchases Kentucky municipal securities for our
portfolios in underwriting, it will seek to negotiate a purchase price
reflecting a reduction from the initial public offering price by an amount equal
to some or all of the applicable selling group concessions.
No brokerage commissions have been paid by the Trust during the three most
recent fiscal years.
SHARES OF BENEFICIAL INTEREST
Dupree Mutual Funds is a Kentucky Business Trust organized under the laws of the
Commonwealth of Kentucky on July 1, 1987. The Business Trust is the successor of
Kentucky Tax-Free Income Fund, Inc. The Trust offers shares of beneficial
interest of separate series without par value. The Trust is authorized to create
an unlimited number of new series, but at this time the Trust is offering shares
in seven series as described in the Prospectus: Kentucky Tax-Free Income Series,
Kentucky Tax-Free Short-to-Medium Series, North Carolina Tax-Free Income Series,
North Carolina Tax-Free Short-to-Medium Series, Tennessee Tax-Free Income
Series, Tennessee Tax-Free Short-to-Medium Series, and Intermediate Government
Bond Series.
Each share has one vote. Fractional shares have proportionate voting rights and
participate pro rata in dividends and distributions. Our shareholders have
cumulative voting rights for the election of Trustees. This means that, in each
election of Trustees, each shareholder has the right to cast a number of votes
equal to the number of Trustees to be elected and to cast all of such votes for
one candidate or distribute such votes among two or more candidates, as the
shareholder sees fit. When issued, our shares are fully paid and non-assessable.
As of September 1, 1999, no person was known to beneficially own 5% or more of
our outstanding shares of Kentucky Tax-Free Income Series or the North Carolina
Income Series. As of that date P.M. King owned 5.64% of the outstanding shares
of the Kentucky Tax-Free Short-to-Medium Series. As of that date Terry L. Lee
owned 13.79% and NEC Industries, Inc. owned 5.27% of the outstanding shares of
the North Carolina Tax-Free Short-to-Medium Series. As of that date Memphis
Commerce Square owned 18.13% and Bank of Mississippi owned 6.41% of the
outstanding shares of the Tennessee Tax-Free Income Series. As of that date
Memphis Commerce Square owned 12.60%, The Trust Company of Knoxville owned
9.09%, Thomas F. Buchanan, Jr. Owned 7.35% National Financial Services
Corporation owned 5.90% and Gall S. Mays owned 5.22% of the outstanding shares
of the Tennessee Tax-Free Short-to-Medium Series. Shield Ayres Foundation owned
7.13% of the outstanding shares of the Intermediate Government Bond Series.
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.
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<PAGE> 50
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.
Under procedures currently in effect, all series securities for which
representative price quotations are not readily available are valued on the
basis of appraisals obtained from at least three dealers. The dealers furnishing
such appraisals may, but need not, be market makers with respect to the
particular issues to which their appraisals relate. Where appraisals are not
available for particular Kentucky, North Carolina or Tennessee municipal
securities in our portfolios, we value such securities on the basis of price
quotations or appraisals for comparable municipal securities. In evaluating
appraisals, as well as available price quotations, our officers will take into
account pricing data derived from a matrix system developed and used for many
years by Dupree & Company, Inc. This matrix system utilizes electronic data
processing techniques to rank and price municipal securities of the same
maturity on the basis of their respective yields.
HOW TO REDEEM SHARES
The Prospectus describes the procedures to be utilized by a shareholder desiring
to redeem our shares.
REDEMPTION BY TRUST
If transactions in your account at any time reduce its value to less than $100,
we may notify you that, unless you bring the account up to at least $100, we
will redeem all of your shares and close out your account by paying you the
redemption price and dividends declared but unpaid at the date of redemption. We
will give you this notice no earlier than the 15th of the month following the
month in which your account falls below $100, and you will have 30 days to bring
the account up to $100 before we take any action. The Trust reserves the right
to raise or lower minimum account size.
HOW WE COMPUTE OUR YIELDS
The yield for each series is determined separately. We compute the yields, the
average annual total return, and tax equivalent yields on our shares in each
portfolio separately in accord with SEC guidelines.
The average annual total return for the 1, 5 and 10 year periods ended on June
30, 1999 is computed by finding the average annual compounded rates of return
over the 1, 5 and 10 year periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula: P(1+T)n =
ERV, where: P equals a hypothetical initial payment of $1,000, T equals average
annual total return, n equals number of years, and ERV equals ending redeemable
value of a hypothetical $1,000 Set forth below is average annual total return
information for the Income Series and the Short-to-Medium Series and the
Intermediate Government Bond Series for the periods indicated.
Expressed as a Percentage
Based on a Hypothetical
$1,000 investment
---------------------------------------
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<PAGE> 51
<TABLE>
<CAPTION>
Kentucky Kentucky North North Tennessee Tennessee Intermediate
Tax-Free Tax-Free Carolina Carolina Tax-Free Tax-Free Government
Income Short-to Tax-Free Tax-Free Income Short-to Bond
Series Medium Income Short-to Series Medium Series
Series Series Medium Series
Series
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Period Average Annual Total Return
One year ended 2.52% 2.58% 2.71% 2.35% 3.03% 2.67% 2.21%
June 30, 1999
Five years ended 6.28% 4.24% 6.83%(1) 4.24%(2) 7.96% 4.81%(4) 7.26%
June 30, 1999
Ten years ended 7.07% 5.07% 6.74%(3) 7.03%(5)
June 30, 1999
</TABLE>
<TABLE>
<CAPTION>
Redeemable Value
Based on a Hypothetical $1,000
Investment at the end of the period
-------------------------------------------
Kentucky Kentucky North North Tennessee Tennessee Intermediate
Tax-Free Tax-Free Carolina Carolina Tax-Free Tax-Free Government
Income Short-to Tax-Free Tax-Free Income Short-to Bond
Series Medium Income Short-to Series Medium Series
Series Series Medium Series
Series
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Period
One year ended $1,025 $1,025 $1,027 $1,024 $1,030 $1,027 $1,022
June 30, 1999
Five years ended $1,356 $1,025 $1,270(1) $1,163(2) $1,467 $1,245(4) $1,420
June 30, 1999
Ten years ended $1,981 $1,600 $1,434(3) $1,546(5)
June 30, 1999
</TABLE>
(1) since inception 11/16/95
(2) since inception 11/16/95
(3) since inception 12/20/93
(4) since inception 11/01/94
(5) since inception 7/14/92
Payments are assumed to have been made at the beginning of the one, five or ten
year periods (or fractional portion thereof).
The series' average annual total return may be expressed either as a percentage
or as a dollar amount in order to illustrate such total return on a hypothetical
investment in the series at the beginning of each specified period.
SEC Yield quotations will be computed based on a 30-day period by dividing (a)
the interest income based on the market
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<PAGE> 52
yield, prescribed by the SEC, of each security during the period (including
appropriate adjustments for accretion of original issue discounts and
amortization of market premiums) reduced by period expenses divided by b) the
average daily number of shares outstanding during the period that were entitled
to receive dividends multiplied by the maximum offering price per share on the
last day of the period. Tax equivalent yield quotations will be computed by
dividing (a) the part of the Series' yield that is tax-exempt by (b) one minus a
stated tax rate and adding the result to that part, if any, of the series' yield
that is not tax-exempt. The yield for the 30-day period ending June 30, 1999 for
the Kentucky Tax-Free Income Series was 3.78% and for the Kentucky
Short-to-Medium Series was 2.79%. The tax-equivalent yield for Kentucky
residents for the same period (based on a tax rate of 28%) for the Kentucky
Income Series was 5.84% and for the Kentucky Short-to-Medium Series was 4.37%.
The yield for the 30-day period ending June 30, 1999 for the North Carolina
Income Series was 4.45% and for the North Carolina Short-to-Medium Series was
3.29%. The tax-equivalent yield for North Carolina residents for the same period
(based on a tax rate of 28%) was 6.65% and for the North Carolina
Short-to-Medium Series was 4.91%. The yield for the 30-day period ending June
30, 1999 for the Tennessee Tax-Free Income Series was 4.39% and for the
Tennessee Tax-Free Short-to-Medium Series was 3.02%. The tax-equivalent yield
for Tennessee residents for the same period (based on a tax rate of 28%) for the
Tennessee Income Series was 6.49% and for the Tennessee Tax-Free Short-to-Medium
Series was 4.46%. The yield for the 30-day period ending June 30, 1999 for the
Intermediate Government Bond Series was 5.89%.
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. The yield for the
30-day period ending June 30, 1999 for the Kentucky Tax-Free Income Series was
4.92% and for the Kentucky Short-to-Medium Series was 3.93%. The tax-equivalent
yield for Kentucky residents for the same period (based on a tax rate of 28%)
for the Kentucky Income Series was 7.52% and for the Kentucky Short-to-Medium
Series was 6.06%. The yield for the 30-day period ending June 30, 1999 for the
North Carolina Income Series was 4.62% and for the North Carolina
Short-to-Medium Series was 3.77%. The tax-equivalent yield for North Carolina
residents for the same period (based on a tax rate of 28%) was 6.90% and for the
North Carolina Short-to-Medium Series was 5.63%. The yield for the 30-day period
ending June 30, 1999 for the Tennessee Tax-Free Income Series was 4.80% and for
the Tennessee Tax-Free Short-to-Medium Series was 3.82%. The tax-equivalent
yield for Tennessee residents for the same period (based on a tax rate of 28%)
for the Tennessee Income Series was 7.09% and for the Tennessee Tax-Free
Short-to-Medium Series was 5.64%.
For the Kentucky, North Carolina and Tennessee Income Series, Kentucky, North
Carolina and Tennessee Short-to-Medium Series and Intermediate Government Bond
Series, if yield is computed for a period of less than one year it is annualized
on a 360 day basis. The yields we quote in response to telephone inquiries
represent such an annualization of our yields for the preceding 30 calendar
days.
Our yields for any given period in the past should not be considered a
representation as to our yields for any future period. Since the dividends we
declare are based on income earned on portfolio securities net of expenses, any
changes in our income or expenses will directly affect our yields. The income we
earn on our portfolio securities can be expected to fluctuate as we make changes
in or additions to our portfolios. Our yields will be affected if we experience
a net inflow of new money which is invested at interest rates different from
those being earned on our then-current portfolio securities. A change in our net
asset values due to fluctuations in values of our portfolio securities will, of
course, also affect our yields.
Yield information may be useful in reviewing our performance and comparing an
investment in our shares with other investment alternatives. In addition, when
comparing the yields of mutual funds, you should consider the investment
objectives, policies and programs of each fund, including the types of
investments permitted and the quality and maturity of the portfolio securities,
as well as the method used by each fund to compute yield, which may differ from
fund to fund. Finally, in evaluating our yields, you should be aware that prior
to November 1, 1986 our Investment Adviser had been bearing a portion of our
operating expenses for our Kentucky Income Series. Our Investment Adviser has
been bearing a portion of our operating expenses for our Kentucky
Short-to-Medium Series prior to July 1, 1993 and has been bearing a portion of
our operating expenses for the Government Bond Series prior to January 1, 1997,
for the Tennessee Tax-Free Income Series since its inception December 20, 1993,
for the Tennessee Tax-Free Short-to-Medium Series since its inception, November
1, 1994, for the North Carolina Income Series and for the North Carolina
Short-to-Medium Series
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<PAGE> 53
since their inception November 16, 1995.
In order to keep shareholders and prospective investors informed about our
historic and current yields, the make-up of our portfolios, and other meaningful
investment information, we (i) send reports to our shareholders on a semi-annual
and annual basis, (ii) provide such information in our sales literature, and
(iii) maintain a toll-free telephone through which such information may be
obtained.
Total return, yield and tax equivalent yield figures are based on the series'
historical performance and are not intended to indicate future performance. The
series' total return, yield and tax equivalent yield will vary depending on
market conditions; this is reflective of the securities comprising the series'
portfolio, the series' operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Trust may fluctuate and an investors' shares, when redeemed,
may be worth more or less than their original cost.
TAX INFORMATION
FEDERAL TAX INFORMATION
We have qualified as a "regulated investment company" under the Internal Revenue
Code and intend to continue to do so. By qualifying as a regulated investment
company we are relieved of federal and Kentucky income taxes on all net income
and all net realized capital gains, if any, that we distribute to shareholders.
In order to qualify for this treatment, we must (i) derive at least 90% of our
gross income from dividends, interest and gains from the sale or other
disposition of securities, (ii) derive less than 30% of our gross income from
the sale or other disposition of securities held less than three months, (iii)
meet certain diversification tests as to our investments in securities, and (iv)
distribute to shareholders at least 90% of our net tax exempt and net taxable
income earned in any year.
Distribution of net short-term capital gains we may realize from the sale of
municipal or other securities will be taxable to the shareholders as ordinary
income. Distribution of net long-term capital gains, if any, will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholder
has held the shares in respect of which the distributions are paid. The tax
effect of dividends (whether taxable or exempt) on our shareholders is the same
whether such dividends are in the form of cash or additional shares.
The net asset value at which our shares are purchased may include undistributed
income or capital gains or unrealized appreciation in the value of securities
held in our investment portfolio. To the extent that such income or gains, or
any capital gains realized from such appreciation, are subsequently distributed
to the holder of such shares, the distributed amounts, although a return of his
investment, may be taxable to him as set forth above.
The Internal Revenue Code prohibits investors from deducting for federal income
tax purposes interest paid on loans made or continued for the purpose of
purchasing or carrying shares of a mutual fund, such as the Kentucky, North
Carolina or Tennessee Income or Short-to-Medium Series, that distributes exempt
interest dividends. Under rules of the Internal Revenue Service, there are
circumstances in which purchases of our shares may be considered to have been
made with borrowed funds, even though the borrowed funds are not directly
traceable to the share purchases. However, these rules generally permit the
deduction of interest paid on mortgage borrowings to purchase or improve a
personal residence and on business borrowings directly related to business needs
or purposes.
If in any fiscal year we have taxable income, we will use the actual earned
method of allocating taxable and nontaxable income. We will also allocate
expenses between taxable and non-taxable income. In any such year, the
percentage of quarterly dividends that are exempt will vary from quarter to
quarter.
The following summary discusses some of the more important tax issues affecting
the Trust and its shareholders.
EXCISE TAX
The Internal Revenue Code contains a provision which discourages a regulated
investment company from deferring its shareholders' taxes by delaying
distributions of dividend income to shareholders. Under the provision, a 4%
non-deductible federal excise tax is levied on undistributed fund income unless
the fund distributes at least a) 98% of calendar year ordinary income during the
calendar year; b) 98% of capital gain net income earned in the year ending
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<PAGE> 54
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
Kentucky, North Carolina or Tennessee municipal securities will be exempt
interest dividends. Shareholders receiving exempt interest dividends may exclude
them from gross income for federal income tax purposes. However, dividends to
our shareholders from net income we may earn from investments in non-municipal
securities will be fully taxable as interest income.
INTERMEDIATE GOVERNMENT BOND SERIES
Ordinarily, the dividends we pay from net income earned on our investments will
not be exempt interest dividends. Accordingly, shareholders will include these
dividends in gross income for Federal income tax purposes.
The above analysis is not all-inclusive and is subject to federal regulations.
KENTUCKY TAX INFORMATION
Insofar as the dividends we pay from the Kentucky Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Kentucky income tax purposes.
For Kentucky residents who own shares of the Government Bond Series, a portion
of dividends and distributions paid by the Trust may be exempt from Kentucky
income taxes. All other dividends and distributions, as well as any earnings we
receive from taxable investments and any capital gains we realize from any
investments, will have the same general consequences to shareholders for
Kentucky income tax purposes as they have for federal income tax purposes. This
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<PAGE> 55
means that dividends paid by the Income Series and the Short-to-Medium Series
will ordinarily be excludable from gross income for Kentucky income tax
purposes.
Shareholders of the Income Series, and the Short-to-Medium Series are not
subject to Kentucky ad valorem taxes on their shares. For individual Kentucky
residents who own shares of the Intermediate Government Bond Series, a portion
of the shares of that series are subject to Kentucky ad valorem tax. The
Kentucky municipal securities in our portfolios are also exempt from Kentucky ad
valorem taxes and from the Kentucky Corporation License Tax.
INDIANA TAX INFORMATION
Insofar as the dividends it pays qualify as "exempt interest dividends" for
federal income tax purposes, they will also be excludable from the shareholder's
gross income for Indiana income tax purposes. For Indiana residents who own
shares of the Government Bond Series, a portion of the dividends paid by the
Trust are exempt from Indiana income tax. All other dividends and distributions,
as well as any earnings we receive from taxable investments and any capital
gains we realize from any investments, will have the same general consequences
to shareholders for Indiana income tax purposes as they have for federal income
tax purposes. This means that dividends paid by the Income Series and the
Short-to-Medium Series will ordinarily be excludable from gross income for
Indiana individual income tax purposes.
The state of Indiana does not impose intangible tax on resident individuals.
Accordingly, individual Indiana resident shareholders of the Income Series, the
Short-to-Medium Series and the Government Bond Series are not subject to Indiana
ad valorem taxes on their shares.
No representation is made as to the tax implications of an Indiana corporation
or other entity.
TEXAS TAX INFORMATION
The state of Texas does not impose an individual income tax or personal
intangible property tax upon resident individuals. Accordingly, Texas resident
shareholders of the Income Series, the Short-to-Medium Series or the Government
Bond Series are not subject to individual income tax or personal intangible
property tax on the dividends and distributions they receive from us.
No representation is made as to the tax implications of a Texas corporation or
other entity.
FLORIDA TAX INFORMATION
The state of Florida does not impose an individual income tax upon resident
individuals. Accordingly, individual Florida resident shareholders of the Income
Series, Short-to-Medium Series or Government Bond Series are not subject to
individual income tax.
Individual Florida resident shareholders of the Income Series or the
Short-to-Medium Series will be subject to an annual intangible property tax of
1.0 mill (.10%) per dollar of intangible property value. An additional 1.0 mill
(.10%) tax is levied against intangible property valued greater than $100,000
($200,000 for taxpayers filing jointly). Each Florida resident is entitled to
apply a $20 tax exemption ($40 for taxpayers filing jointly) against property
subject to the first mill of tax. An additional tax exemption of $100 ($200 for
taxpayers filing jointly) is available for property subject to the additional
1.0 mill tax. For individual Florida residents who own shares of the Government
Bond Series, a portion of the shares of that Series are exempt from Florida ad
valorem tax.
No representation is made as to the tax implications of a Florida corporation or
other entity.
TENNESSEE TAX INFORMATION
Insofar as the dividends we pay from the Tennessee Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Tennessee Hall income tax
purposes. All other dividends and distributions, as well as any earnings we
receive from taxable investments and any capital gains we realize from any
investments, will have the same general consequences to shareholders for
Tennessee Hall income tax purposes as they have for federal income tax purposes.
This means that dividends paid by the Tennessee Series will
-20-
<PAGE> 56
ordinarily be excludable from gross income for Tennessee Hall individual income
tax purposes.
Individual shareholders of the Tennessee Series are not subject to Tennessee ad
valorem taxes on their shares or on the dividends and distributions they receive
from us.
For Tennessee residents who own shares of the Intermediate Government Bond
Series, a portion of the dividends paid by the Trust is exempt from Tennessee
Hall income tax.
No representation is made as to the tax implications of a Tennessee corporation
or other entity.
NORTH CAROLINA TAX INFORMATION
Insofar as the dividends we pay from the North Carolina Series qualify as
"exempt interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for North Carolina income tax
purposes. For North Carolina residents who own shares of the Government Bond
Series, a portion of dividends and distributions paid by the Trust are exempt
from North Carolina income taxes. All other dividends and distributions, as well
as any earnings we receive from taxable investments and any capital gains we
realize from any investments, will have the same general consequences to
shareholders for North Carolina income tax purposes as they have for federal
income tax purposes. This means that dividends paid by the Income Series and the
Short-to-Medium Series will ordinarily be excludable from gross income for North
Carolina income tax purposes.
Shareholders of the Income Series and the Short-to-Medium Series are not subject
to North Carolina ad valorem taxes on their shares. For individual North
Carolina residents who own shares of the Intermediate Government Bond Series, a
portion of the shares of that series are subject to North Carolina ad valorem
tax.
No representation is made as to the tax implications of a North Carolina
corporation or other entity.
-21-
<PAGE> 57
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
Kentucky Municipal Bonds -- 100%
June 30, 1999
<TABLE>
<CAPTION>
Maturity
Bond Description Coupon Date Rating+ Par Value Market Value
- - ---------------------------------------------------------------------------------------------------------------------------------
INSURED MUNICIPAL REVENUE BONDS
49.88% of Net Assets
<S> <C> <C> <C> <C> <C>
Boyle County KY Hospital Revenue-Ephraim McDowell Regional 5.800 4/1/14 Aaa/AAA* $ 1,000,000 $ 1,061,870
Danville KY Multi-City Lease Revenue-Shelbyville 6.550 7/1/06 Aaa/AAA* 495,000 541,089
Danville KY Multi-City Lease Revenue 6.880 12/1/10 Aaa/AAA* 400,000 439,116
Daviess County KY Hospital Revenue 6.250 8/1/12 Aaa/AAA* 3,000,000 3,207,240
Floyd County KY Hospital Revenue-Low Highland Hospital 7.500 8/1/10 AAA* 1,360,000 1,451,582
Greater KY Housing Assistance Corporation 5.350 7/1/22 Aaa/AAA* 1,000,000 1,006,030
Greater KY Housing-Tug Fork Apartments 6.350 1/1/22 Aaa/AAA* 2,105,000 2,152,489
Greater KY Housing-Tug Fork Apartments 5.600 1/1/07 Aaa/AAA* 330,000 338,148
Greater KY Housing Assistance Corporation 6.050 7/1/22 Aaa/AAA* 1,435,000 1,464,288
Greater KY Housing Assistance Corporation 6.100 1/1/24 Aaa/AAA* 4,000,000 4,113,920
Hopkins County KY Hospital Revenue-Trover Clinic Foundation 6.630 11/15/11 Aaa/AAA* 2,000,000 2,154,100
Jefferson County KY Health Facilities Alliant Health System 5.130 10/1/17 Aaa/AAA* 6,700,000 6,472,133
Jefferson County KY Health Facilities-Alliant Health System 5.130 10/1/27 Aaa/AAA* 500,000 475,285
Jefferson County KY Health Facilities Jewish Hospital 5.700 1/1/21 Aaa/AAA* 8,000,000 8,462,880
Jefferson County KY Health Facilities University Medical 5.500 7/1/17 Aaa/AAA* 6,000,000 6,134,280
Jefferson County KY Health Facilities-Jewish Hospital 6.500 5/1/15 Aaa/AAA* 6,380,000 6,860,031
Jefferson County KY School District Finance Corporation** 5.250 1/1/17 Aaa/AAA* 3,000,000 2,942,790
Jefferson County KY Health Services - Alliant Health System 5.125 10/1/18 Aaa/AAA* 28,000,000 27,279,000
Jefferson County KY Capital Projects Corporation Revenue 5.380 6/1/18 Aaa/AAA* 1,500,000 1,509,660
Jefferson County KY Capital Projects Corporation Revenue 5.600 4/1/14 Aaa/AAA* 1,000,000 1,047,070
Jefferson County KY Hospital Revenue 6.440 10/1/14 Aaa/AAA* 1,500,000 1,623,720
Jefferson County KY Multi Family Revenue 5.000 8/20/18 AAA* 385,000 372,988
Kentucky Counties 1987 Single Family Mortgage Revenue 8.630 9/1/15 AAA* 10,000 10,325
Kentucky Economic Development Finance Authority Medical Center 5.000 2/1/18 Aaa/AAA* 2,550,000 2,460,138
Kentucky Economic Development Finance Authority-Ashland Hospital 5.000 2/1/28 Aaa/AAA* 1,000,000 936,510
Kentucky Development Finance Authority-Ashland Hospital 6.130 2/1/12 Aaa/AAA* 4,000,000 4,285,200
Kentucky Development Finance Authority-St Clair Medical 5.880 9/1/13 Aaa 2,000,000 2,109,680
Kentucky Development Finance Authority-St Elizabeth Hospital 5.900 12/1/15 Aaa/AAA* 2,500,000 2,636,450
Kentucky Development Finance Authority-St Claire Medical 5.630 9/1/21 AAA* 2,500,000 2,562,700
Kentucky Development Finance Authority-Methodist Hospital 5.630 2/1/17 AAA* 6,500,000 6,671,535
Kentucky Economic Development Authority-South Central Nursing 6.000 7/1/27 Aaa/AAA* 3,650,000 4,007,554
Kentucky Economic Development Finance Authority-Baptist Hospital 5.000 8/15/15 Aaa/AAA* 5,250,000 5,181,120
Kentucky Housing Corporation 5.950 7/1/17 Aaa/AAA* 500,000 543,490
Kentucky Housing Corporation 5.400 7/1/14 Aaa/AAA* 3,000,000 3,021,210
Kentucky Housing Corporation 7.130 1/1/10 Aaa/AAA* 3,935,000 4,228,630
Kentucky Housing Corporation 7.250 1/1/17 Aaa/AAA* 705,000 759,285
Kentucky Housing Corporation 6.600 7/1/11 Aaa/AAA* 4,500,000 4,865,175
Kentucky Housing Corporation 6.600 7/1/11 Aaa/AAA* 390,000 421,649
Kentucky Housing Corporation 6.630 7/1/14 Aaa/AAA* 1,000,000 1,081,850
Kentucky Housing Corporation 6.600 1/1/11 Aaa/AAA* 1,125,000 1,222,324
Kentucky Housing Corporation 5.800 1/1/19 Aaa/AAA* 6,755,000 6,864,228
Kentucky Housing Corporation 6.500 7/1/17 Aaa/AAA* 6,415,000 7,026,670
Kentucky Housing Corporation 5.700 7/1/17 Aaa/AAA* 500,000 519,440
Kentucky Housing Corporation 6.400 1/1/17 Aaa/AAA* 12,000,000 13,180,560
Kentucky State Turnpike Authority Resource Recovery Revenue 6.000 7/1/09 Aaa/AAA* 740,000 745,550
Lexington Fayette Urban County Government KY Sewer System 6.350 7/1/07 Aaa/AAA* 400,000 432,264
Lexington Fayette Urban County Government KY Sewer System 6.380 7/1/12 Aaa/AAA* 2,500,000 2,693,075
Lexington Fayette Urban County Government KY Sewer System 6.380 7/1/10 Aaa/AAA* 2,900,000 3,128,259
Lexington Fayette Urban County Government Public Facilities 5.130 10/1/19 Aaa/AAA* 2,415,000 2,339,386
Lexington Fayette Urban County Government Public Facilities 5.130 10/1/18 Aaa/AAA* 2,135,000 2,075,007
Lexington Fayette Urban County Government Public Facilities 5.130 10/1/15 Aaa/AAA* 1,770,000 1,745,857
Lexington-Fayette Urban County Government Transylvania University 5.130 8/1/18 Aaa/AAA* 2,000,000 1,979,500
Lexington-Fayette Urban County Government - University of Kentucky 5.000 11/1/24 Aaa/AAA* 5,000,000 4,685,950
Lexington-Fayette Urban County KY Government Project Revenue 5.000 11/1/18 Aaa 6,205,000 5,923,293
Louisville & Jefferson County KY Metropolitan Sewer District 5.300 5/15/19 Aaa/AAA* 10,000,000 9,866,400
Louisville & Jefferson County KY Metropolitian Sewer District 5.200 5/15/26 Aaa/AAA* 3,000,000 2,927,700
Louisville & Jefferson County Metropolitan Sewer 5.000 5/15/12 Aaa/AAA* 3,530,000 3,506,631
Louisville KY Parking Authority-River City First Mortgage 5.000 12/1/17 Aaa/AAA* 1,000,000 955,890
Northern Kentucky University Certificates of Participation 7.250 1/1/12 Aaa/AAA* 1,500,000 1,604,850
Owensboro KY Water Revenue 6.250 9/15/09 Aaa/AAA* 800,000 850,416
Pike County KY Mortgage Revenue-Phelps Regional Health 5.350 9/20/12 AAA* 300,000 311,463
Radcliff KY Mortgage Revenue-Lincoln Trail Care 5.650 1/20/19 AAA* 1,555,000 1,620,341
Shelbyville KY Certificate of Participation 5.150 7/1/18 Aaa 4,165,000 4,047,047
University of Kentucky Consolidated Educational Buildings 5.750 5/1/15 Aaa/AAA* 1,850,000 1,942,574
Warren County Hospital Revenue 5.000 4/1/17 Aaa/AAA* 1,000,000 950,220
Warren County KY Hospital Facility Revenue 5.000 4/1/16 Aaa/AAA* 1,000,000 953,000
-----------
210,990,105
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 58
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
Kentucky Municipal Bonds -- 100%
June 30, 1999
<TABLE>
<CAPTION>
Maturity
Bond Description Coupon Date Rating+ Par Value Market Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PUBLIC CORPORATION REVENUE BONDS
12.48% of Net Assets
Boone County KY Public Property 6.250 12/15/12 A1 $ 960,000 $ 1,035,466
Calloway County Public Property Corporation-Courthouse 5.630 3/1/18 A 1,000,000 1,045,840
Campbell County KY Public Property 6.250 12/1/15 A 810,000 867,802
Danville Multi-City Lease Revenue 5.000 9/1/11 NR 545,000 538,122
Danville KY Multi-City Lease Revenue-Cambellsville 7.000 4/1/02 NR 240,000 264,000
Danville KY Multi-City Lease Revenue-Owensboro Museum 7.050 8/1/11 A 440,000 478,174
Danville KY Multi-City Lease Revenue Housing Authority 6.500 2/1/12 A1 1,170,000 1,263,144
Danville KY Multi-City Lease Revenue Paducah Public Property 7.200 6/1/11 A 500,000 537,555
Danville KY Multi-City Lease Revenue-Mt Sterling 7.500 6/1/11 NR 205,000 222,620
Danville KY Multi-City Lease Revenue-Mt Sterling 7.380 6/1/07 NR 240,000 260,966
Jeffersontown KY Certificate of Participation 6.500 9/1/09 A 1,400,000 1,548,624
Jeffersontown KY Certificate of Participation 5.750 11/1/15 A 1,095,000 1,148,086
Kenton County KY Public Property Corporation Revenue 5.700 12/1/16 A 1,380,000 1,419,854
Kenton County KY Public Property Corporation Revenue 5.700 12/1/15 A 1,305,000 1,348,965
Kenton County KY Public Properties Corporation-Courthouse Facility 5.000 3/1/20 A1 2,000,000 1,896,180
Kentucky League of Cities-Middlesboro Series 6.200 8/1/17 A-* 555,000 601,531
Lexington-Fayette Urban County Government KY Public Parking 6.880 2/1/08 A1 300,000 311,583
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.100 3/1/08 Aa 1,500,000 1,612,590
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.200 3/1/18 Aa 5,500,000 5,917,670
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.150 3/1/13 Aa 12,000,000 12,891,120
Oldham County KY Public Facilities Construction Corporation 5.250 6/1/17 A-* 1,060,000 1,053,863
Pendleton County KY Multi-County Lease Revenue 6.500 3/1/19 A* 11,000,000 11,891,330
Richmond KY Public Recreation Corporation Revenue 7.250 10/1/11 NR 290,000 310,265
Shelbyville KY Certificates of Participation Revenue Refunding 5.350 10/1/13 NR 1,295,000 1,262,133
Shelbyville KY Certificate of Participation Revenue Refunding 5.450 10/1/17 NR 1,130,000 1,094,360
Somerset KY Municipal Projects Corporation Revenue 7.500 5/1/00 NR 140,000 141,754
Union County KY Public Property Corporation 6.130 9/1/15 NR 700,000 734,083
Woodford County KY Public Property Corporation Revenue 5.600 11/1/17 A 1,065,000 1,094,596
-----------
52,792,276
COUNTY GENERALOBLIGATIONS AND SCHOOL BONDS
8.54% of Net Assets
Adair County KY School District Finance Corporation 6.380 3/1/12 Aa3 315,000 342,893
Boone County KY School District Finance Corporation 6.000 2/1/18 Aa3 1,000,000 1,060,350
Boone County KY School District Finance Corporation 5.700 5/1/18 Aa3 2,500,000 2,581,175
Bullitt County KY School District Finance Corporation 6.000 8/1/14 Aa3 1,100,000 1,185,492
Clark County KY School District Finance Corporation 6.000 5/1/12 Aa3 320,000 339,853
Elliott County KY School District Finance Corporation 7.250 11/1/08 Aa3/A* 100,000 106,035
Elliott County KY School District Finance Corporation 7.250 11/1/07 A/A* 115,000 122,033
Estill County KY School District Finance Corporation 5.880 8/1/16 A 1,780,000 1,896,964
Floyd County KY School District Finance Corporation 6.000 6/1/14 A 1,000,000 1,078,790
Greenup County KY School District Finance Corporation 6.100 9/1/14 A/A* 1,105,000 1,199,466
Hardin County KY General Obligation 5.130 6/1/19 A2 2,255,000 2,198,580
Hardin County KY School District Finance Corporation 6.000 7/1/16 A 1,025,000 1,110,844
Harlan KY Independent School District Finance Corporation 6.000 5/1/15 A 275,000 301,078
Hopkins County KY School District Finance Corporation 6.200 6/1/15 A 2,500,000 2,715,300
Jefferson County KY School District Finance Corporation 5.000 2/1/18 Aa3/A+* 2,125,000 2,052,538
Jefferson County KY College Project Bellarmine College 5.250 5/1/19 Baa2 2,000,000 1,921,260
Jessamine County KY School District Finance Corporation 6.130 6/1/15 A 1,000,000 1,086,090
Johnson County KY School District Finance Corporation 6.750 3/1/10 A* 300,000 319,041
Johnson County KY School District Finance Corporation 6.750 3/1/11 A* 325,000 345,355
Johnson County KY School District Finance Corporation 5.000 2/1/18 A1 1,015,000 989,767
Larue County KY School District Finance Corporation 6.500 10/1/10 A 290,000 320,003
Laurel County KY School District Finance Corporation 5.600 3/1/17 A1 1,000,000 1,046,870
Letcher County KY School District Finance Corporation 6.700 10/1/14 A 1,490,000 1,664,539
Martin County KY School District Finance Corporation 5.500 6/1/15 A 1,650,000 1,697,916
McLean County KY School District Finance Corporation 6.000 6/1/14 NR 1,405,000 1,511,822
Pendleton County KY School District Finance Corporation** 5.130 6/1/19 Aa3 1,140,000 1,115,581
Pike County KY School District Finance Corporation 6.200 8/1/10 A 305,000 325,883
Pike County KY School District Finance Corporation 6.200 8/1/11 A 325,000 347,253
Powell County KY School District Finance Corporation 5.900 8/1/16 A* 1,185,000 1,267,535
Scott County KY School District Finance Corporation 5.900 6/1/16 A/A* 3,450,000 3,667,868
Simpson County KY School District Finance Corporation 6.700 1/1/11 Aa3 175,000 185,203
-----------
36,103,377
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
7.93% of Net Assets
Ashland KY Pollution Control Revenue-Ashland Oil Project 6.650 8/1/09 Baa1 8,835,000 9,485,079
Campbellsville KY Industrial Revenue-Campbellsville College 6.950 3/1/15 NR 1,150,000 1,267,599
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 59
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
Kentucky Municipal Bonds -- 100%
June 30, 1999
<TABLE>
<CAPTION>
Maturity
Bond Description Coupon Date Rating+ Par Value Market Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Campbellsville KY Industrial Revenue-Campbellsville College 6.000 3/1/17 NR $ 1,920,000 $ 2,015,942
Carroll County KY Collateralized Pollution Control Revenue 6.250 2/1/18 Aa2/AA-* 1,000,000 1,059,290
Jefferson County KY Pollution Control Revenue-E I DuPont 6.300 7/1/12 Aa3/AA* 3,500,000 3,831,205
Jefferson County KY Pollution Control-Louisville Gas 5.630 8/15/19 Aa2/AA* 7,150,000 7,405,684
Jefferson County KY Pollution Control-Louisville Gas 7.450 6/15/15 Aa2/AA* 1,750,000 1,846,338
Kentucky League of Cities-Ashland Series 6.250 8/1/17 A- 1,550,000 1,683,424
Meade County KY Pollution Control Revenue-Olin Corporation 6.000 7/1/07 NR 660,000 678,447
Mercer County KY Collateralized Pollution Control Revenue 6.250 2/1/18 Aa2/AA- 2,500,000 2,661,500
Middlesboro KY Industrial Building Revenue-Fern Lake Project 6.200 12/1/02 NR 495,000 534,254
Muhlenberg County KY Collateralized Pollution Control Revenue 6.250 2/1/18 Aa2/AA* 1,000,000 1,064,850
-----------
33,533,612
HOSPITAL AND HEALTHCARE REVENUE BONDS
7.80% of Net Assets
Christian County KY Hospital Revenue-Jennie Stuart Medical 6.000 7/1/13 A-* 2,870,000 3,039,732
Christian County KY Hospital Revenue-Jennie Stuart Medical 6.000 7/1/17 A-* 4,000,000 4,157,760
Christian County KY Hospital Revenue-Jennie Stuart Medical 5.800 7/1/11 A-* 270,000 286,106
Jefferson County KY Health Facilities Jewish Hospital 5.700 1/1/11 A1/AA-* 1,200,000 1,270,356
Jefferson County KY Medical Center Services Revenue 7.300 5/1/09 A 400,000 416,320
Kentucky Development Finance Authority-Catholic Health 5.000 12/1/27 Aa2/AA* 10,000,000 9,257,900
Kentucky Development Finance Association-Green River 6.000 11/1/10 Aa3 1,000,000 1,089,460
KY Economic Development Finance Authority-Appalachian
Regional 5.880 10/1/22 BBB* 3,500,000 3,402,420
Kentucky Economic Development Finance
Authority-Catholic Health 5.000 12/1/18 Aa2/AA* 6,950,000 6,633,845
Ky Economic Development Finance Authority
Hospital-Appalachian Regional 5.850 10/1/17 BBB* 1,000,000 973,660
Pike County KY Mortgage Revenue Phelps Regional Health 5.650 9/20/27 AAA* 2,435,000 2,482,093
-----------
33,009,652
STATE GENERAL OBLIGATION AND AGENCY BONDS
4.22% of Net Assets
Kentucky Higher Education Student Loan 9.250 6/1/01 Aa/AA-* 180,000 196,967
Kentucky Infrastructure Authority 7.630 8/1/04 Aa3/A* 20,000 20,472
Kentucky Infrastructure Authority 7.750 8/1/02 Aa3/A* 40,000 40,949
Kentucky Infrastructure Authority 5.750 8/1/18 Aa3/A* 1,500,000 1,563,120
Kentucky Infrastructure Authority 5.750 8/1/13 Aa3/A* 900,000 944,136
Kentucky Infrastructure Authority 6.380 8/1/14 Aa3/A* 700,000 775,096
Kentucky Infrastructure Authority 5.380 2/1/18 Aa3/A* 2,000,000 2,001,320
Kentucky Infrasturcture Authority 5.000 6/1/17 Aa3/A* 1,035,000 998,154
Kentucky Infrastucture Authority 4.880 6/1/14 Aa3/A* 1,000,000 962,500
Kentucky State Property & Buildings Commission Project #59 5.700 11/1/14 Aa3/A* 1,000,000 1,032,030
Kentucky State Property & Buildings Commission Project #63 5.100 11/1/18 Aa3/A* 2,000,000 1,916,820
Kentucky State Property & Buildings Commission Project #59 5.630 11/1/15 Aa3/A* 1,000,000 1,023,620
Kentucky State Property & Buildings Commission Project #62 4.630 9/1/13 Aa3/A* 3,000,000 2,842,740
Kentucky State Property & Buildings Commission Project #40 6.880 11/1/07 Aa3/A* 3,250,000 3,518,450
-----------
17,836,374
PREREFUNDED AND ESCROWED TO MATURITY BONDS
4.16% of Net Assets
Bell County KY School District Finance Corporation 6.880 9/1/10 Aa3 675,000 728,602
Bell County KY School District Finance Corporation 6.850 9/1/09 Aa3 450,000 485,501
Breathitt County KY School District Finance Corporation 6.500 3/1/11 Aaa/AAA* 420,000 457,191
Breathitt County KY School District Finance Corporation 6.500 3/1/12 NR 450,000 489,848
Carroll County KY School District Finance Corporation 7.000 7/1/10 Aaa/AAA* 270,000 293,579
Danville KY Multi-City Lease Revenue-Shelbyville 6.700 7/1/11 Aaa/AAA* 2,500,000 2,734,325
Elsmere KY Industrial Development Revenue-Courtaulds plc 6.750 4/1/10 NR 2,000,000 2,246,860
Jefferson County KY Hospital Revenue 6.440 10/1/14 Aaa/AAA* 2,500,000 2,710,975
Kentucky Infrastructure Authority 6.000 8/1/11 Aaa/AAA* 90,000 93,473
Kentucky State Property & Buildings Commission Project #56 6.000 9/1/14 A/A 1,000,000 1,089,640
Kentucky State Property & Buildings Commission Project #54 6.000 9/1/12 A/A+* 1,450,000 1,562,810
Martin County KY Public Property Corporation Revenue 7.250 9/1/11 NR 160,000 172,085
Martin County KY Public Property Corporation Revenue 7.250 9/1/10 NR 150,000 161,330
McCreary County KY School District Finance Corporation 6.600 10/1/10 A* 400,000 435,048
Perry County KY School District Finance Corporation 6.250 7/1/12 Aaa/AAA* 1,305,000 1,402,001
Perry County KY School District Finance Corporation 6.250 7/1/10 Aaa/AAA* 1,155,000 1,239,488
Richmond KY Public Recreation Corporation Revenue 6.750 8/1/13 NR 575,000 631,643
Shelbyville KY Public Property Recreational Corporation 6.900 10/1/12 NR 400,000 439,212
Wurtland KY Sewer System Revenue 7.700 10/1/04 A+* 200,000 215,782
-----------
17,589,393
STATE AND LOCAL MORTGAGE REVENUE BONDS
1.81% of Net Assets
Erlanger KY Public Property Revenue-Fire Protection 7.400 11/1/09 BBB+* 100,000 107,218
Erlanger KY Public Property Revenue-Fire Protection 7.400 11/1/08 BBB+* 75,000 80,414
Floyd County KY Public Property Revenue-Justice Center 6.130 9/1/18 A 1,240,000 1,348,562
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 60
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
Kentucky Municipal Bonds -- 100%
June 30, 1999
<TABLE>
<CAPTION>
Maturity
Bond Description Coupon Date Rating+ Par Value Market Value
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jefferson Oldham & Bullitt Counties KY Home Mortgage 10.750 11/1/14 A1 $ 10,000 $ 11,227
Kentucky Housing Corporation 7.400 1/1/10 Aaa/AAA* 2,290,000 2,409,790
Kentucky Housing Corporation 7.550 1/1/16 Aaa/AAA* 2,910,000 3,066,471
Louisville Housing Assistance Mortgage Corp Rivertown Project 5.100 1/1/24 Aa2 655,000 623,901
------------
7,647,583
MUNICIPAL UTILITY REVENUE BONDS
1.40% of Net Assets
Cynthiana KY Waterworks & Sewer Revenue 6.400 1/1/07 BBB-* 575,000 623,979
Danville KY Multi-City Lease Revenue-Ashland Utilities 6.750 4/1/12 BBB+* 915,000 997,643
Danville KY Multi-City Lease Revenue-Hopkinsville 6.880 6/1/12 Baa1 2,170,000 2,549,142
Franklin KY Water & Sewer Revenue Refunding 6.200 12/1/11 Baa 1,000,000 1,070,450
Hardin County KY Water District Number 1 Water Revenue 7.400 9/1/06 A 85,000 89,683
Hardin County KY Water District Number 1 Water Revenue 7.400 9/1/07 A 90,000 94,958
Hardin County KY Water District Number 1 Water Revenue 7.400 9/1/08 A 100,000 105,509
Hardin County KY Water District Number 1 Water Revenue 7.400 9/1/09 A 105,000 110,452
Pendleton County KY Multi-County Lease Revenue 7.450 3/1/04 AA* 245,000 261,324
------------
5,903,140
LOCAL GENERAL OBLIGATION AND SCHOOL BONDS
1.32% of Net Assets
Covington Independent School District Finance Corporation** 5.250 6/2/19 Aa3 1,225,000 1,226,017
Junction City KY College Revenue-Center College Project 5.880 4/1/17 A2 1,000,000 1,062,030
KY Interlocal Transportation Equipment Lease Revenue 6.000 12/1/20 A 400,000 427,908
Lexington-Fayette Urban County Government General Obligation 4.750 5/1/20 Aa2/AA+* 2,000,000 1,847,860
Richmond KY Court Facilities Corporation Revenue 5.250 2/1/19 A3 1,035,000 1,020,013
------------
5,583,828
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
.59% of Net Assets
Kentucky Housing Corporation Revenue Series E 4.750 7/1/17 Aaa/AAA* 1,335,000 1,238,773
University of Louisville Health & Education 6.000 11/1/13 A2 1,180,000 1,263,363
------------
2,502,136
KENTUCKY TURNPIKE AUTHORITY REVENUE BONDS
.01% of Net Assets
Kentucky State Turnpike Authority Toll Road Revenue 8.500 7/1/04 A/A* 20,000 20,800
------------
20,800
------------
Total Investments (cost $411,152,096)(a) - 100.12% of Net Assets $423,512,276
============
* Standard and Poor's Corporation
** Security purchased on a delayed delivery basis.
NR Not Rated
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
<CAPTION>
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
<S> <C> <C>
Unrealized appreciation $ 16,435,808
Unrealized depreciation (4,075,628)
------------
Net unrealized appreciation $ 12,360,180
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 61
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $411,152,096) $ 423,512,276
Cash 418,070
Interest receivable 7,748,630
Receivable for investments sold 2,180,000
-------------
Total assets 433,858,976
LIABILITIES:
Payable for:
Investments purchased $ 5,312,658
Distributions 4,992,638
Fund shares redeemed 276,470
Management fee 150,814
Transfer agent 42,655
Other fees 87,799
------------
Total liabilities 10,863,034
-------------
NET ASSETS:
Capital 410,767,134
Net accumulated realized losses on investment transactions (131,372)
Net unrealized appreciation in value of investments 12,360,180
--------------
Net assets at value $ 422,995,942
==============
NET ASSET VALUE, offering price and redemption price per share
($422,995,942 / 56,606,903 shares outstanding) $ 7.47
==============
</TABLE>
- - -------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended June 30, 1999
Net investment income:
Interest income $ 22,599,442
------------
Expenses:
Investment advisory fees 1,772,796
Transfer agent 500,339
Professional fees 85,123
Trustee fees 42,393
Other expenses 114,243
------------
Total expenses 2,514,894
------------
Net investment income 20,084,548
------------
Realized and unrealized gain on investments
Net realized gain 1,281,160
Net decrease in unrealized appreciation (11,896,917)
------------
Net realized and unrealized loss on investments (10,615,757)
------------
Net decrease in net assets resulting from operations $ 9,468,791
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 62
DUPREE MUTUAL FUNDS - KENTUCKY TAX FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Increase in net assets: 1999 1998
------------- -------------
<S> <C> <C>
Operations:
Net investment income
Net realized gain on investments $ 20,084,548 $ 18,057,002
Net increase (decrease) in unrealized appreciation 1,281,160 2,653,620
(11,896,917) 5,303,172
------------- -------------
Net increase in net assets resulting from operations
Distributions to shareholders 9,468,791 26,013,794
Net fund share transactions (20,084,548) (18,057,002)
60,459,091 37,891,984
------------- -------------
Total increase
49,843,334 45,848,776
Net assets:
Beginning of year
End of year 373,152,608 327,303,832
------------- -------------
$ 422,995,942 $ 373,152,608
============= =============
- - --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE> 63
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------------------------------------------------
1999 1998 1997 1996 (a) 1995 (a)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 7.65 $ 7.47 $ 7.35 $ 7.29 $ 7.21
-------------------------------------------------------------------------------------
Income From Investment Operations:
Net investment income 0.37 0.39 0.40 0.40 0.40
Net gains (losses) on securities
(both realized and unrealized) (0.18) 0.18 0.12 0.06 0.13
-------------------------------------------------------------------------------------
Total from investment operations 0.19 0.57 0.52 0.46 0.53
Less Distributions:
Distributions (from capital gains) -- -- -- -- (0.05)
Distributions (from net investment income) (0.37) (0.39) (0.40) (0.40) (0.40)
-------------------------------------------------------------------------------------
Net asset value, end of year $ 7.47 $ 7.65 $ 7.47 $ 7.35 $ 7.29
=====================================================================================
Total return 2.52% 7.77% 7.14% 6.38% 6.90%
Net assets, end of year (in thousands): $ 422,996 $ 373,153 $ 327,304 $ 295,029 $ 269,355
Ratio of expenses to average net assets 0.61% 0.62% 0.63% 0.62% 0.63%
Ratio of net investment income to
average net assets 4.88% 5.14% 5.32% 5.39% 5.60%
Portfolio turnover 10.69% 11.80% 6.64% 4.29% 18.05%
(a) Audited by other auditors
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
June 30, 1999
Maturity
Bond Description Coupon Date Rating+ Par Value Market Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
30.41% of Net Assets
Greater KY Housing Assistance Corporation Mortgage Revenue 6.250 1/1/05 Aaa/AAA* $ 825,000 $ 849,486
Jefferson County Ky Alliant Health Systems Revenue 5.000 10/1/06 AAA* 1,200,000 1,233,696
Jefferson County KY Health System Revenue Alliant Health 5.000 10/1/05 AAA* 1,000,000 1,026,370
Jefferson County KY Capital Project Corporation Lease Revenue 5.500 4/1/05 Aaa/AAA* 365,000 387,849
KY Economic Development Finance Authority Baptist Health System 4.750 8/15/05 Aaa/AAA* 4,000,000 4,050,680
Kentucky Economic Development Finance Authority Ashland Hospital 5.000 2/1/05 Aaa/AAA* 1,600,000 1,638,272
KY Property & Building Authority Project No 55 4.800 9/1/05 Aaa/AAA* 3,000,000 3,055,920
KY Turnpike Authority Economic Development Road Revenue 5.500 7/1/07 Aaa/AAA* 3,000,000 3,195,600
Lexington-Fayette Urban County Government Ky Alumni Association 5.000 11/1/09 Aaa 1,360,000 1,379,638
Northern KY University Certificate of Participation Housing Facilities 4.500 12/1/04 Aaa/AAA* 1,000,000 1,010,030
-----------
17,827,541
STATE AND LOCAL MORTGAGE REVENUE BONDS
13.42% of Net Assets
KY Housing Corporation Housing Revenue 4.850 7/1/04 Aaa/AAA* 1,700,000 1,740,902
KY Housing Corporation Housing Revenue 5.150 7/1/07 Aaa/AAA* 2,500,000 2,570,850
KY Housing Corporation Housing Revenue 5.300 1/1/04 Aaa/AAA* 2,250,000 2,327,243
Louisville KY Multi-Family Housing Revenue-Station House Square 5.125 7/15/19 A1 1,220,000 1,231,102
-----------
7,870,097
LOCAL REVENUE AND SCHOOL BONDS
12.06% of Net Assets
KY Interlocal Transportation Equipment Lease 6.000 3/1/00 A/A* 500,000 508,370
KY Interlocal Transportation Equipment Lease 4.750 12/1/00 Aa/AA* 175,000 178,325
KY Interlocal Transportation Equipment Lease 4.500 12/1/00 AA-* 1,282,000 1,331,998
KY Interlocal Transportation Equipment Lease 4.550 12/1/00 AA-* 319,000 322,988
Mt Sterling KY Lease Revenue KY League of Cities Series:A 5.625 3/1/03 Aa 4,500,000 4,731,300
-----------
7,072,981
STATE REVENUE AND AGENCY BONDS
10.61% of Net Assets
KY Higher Education Student Loan 6.400 6/1/00 A1/AA-* 1,835,000 1,880,986
KY Infrastructure Authority Revolving Fund Program Series:L 5.000 6/1/06 A2/A* 1,000,000 1,024,030
KY Infrastructure Authority Revolving Fund Series G 6.000 6/1/00 A2/A* 375,000 381,281
KY State Property & Building Community Revenue Project#55 4.700 9/1/04 A2/A+* 2,880,000 2,935,382
-----------
6,221,679
PREREFUNDED BONDS
6.51% of Net Assets
Danville KY Multi-City Lease Revenue Hopkinsville 6.100 6/1/00 Baa1 140,000 143,196
Danville KY Multi-City Lease Revenue Hopkinsville 6.200 6/1/01 Baa1 165,000 172,039
Owensboro KY Electric Light & Power Revenue 10.500 1/1/04 AAA* 3,050,000 3,504,450
-----------
3,819,685
HOSPITAL AND HEALTH CARE REVENUE BONDS
5.67% of Net Assets
Christian County KY Hospital Jennie Stuart Medical Center 5.250 7/1/03 A-* 200,000 205,402
KY Development Finance Authority-Sisters of Charity 6.000 11/1/00 A1/A+* 2,000,000 2,063,260
Kentucky Economic Development Finance Authority Catholic Health 5.500 12/1/05 Aa2/AA* 1,000,000 1,058,030
-----------
3,326,692
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
5.42% of Net Assets
University Of KY Consolidated Education Building Series:N 5.900 5/1/03 A1/AA-* 725,000 772,161
University Of Louisville KY Consolidated Education Building 5.200 5/1/04 A1/AA-* 1,000,000 1,043,290
University of Louisville KY Consolidated Education Building 4.700 5/1/00 A1/AA-* 1,350,000 1,363,500
-----------
3,178,951
RENTALS / MUNICIPAL LEASE BONDS
5.06% of Net Assets
KY Asset/Liability Community General Fund Project Notes 4.100 3/1/05 A2/A+* 2,000,000 1,964,160
KY Asset Liability Community General Fund Project Notes 4.000 3/1/03 A2/A+* 1,000,000 999,610
-----------
2,963,770
PUBLIC FACILITIES REVENUE BONDS
4.04% of Net Assets
Danville KY Multi-City Lease Jefferson Housing Authority 5.750 2/1/00 A1 150,000 151,935
Danville KY Mutli-City Lease Revenue Owensboro 4.650 7/1/00 A 340,000 343,080
Jeffersontown KY Certificates of Participation 4.450 11/1/00 A 555,000 559,917
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 65
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
June 30, 1999
Maturity
Bond Description Coupon Date Rating+ Par Value Market Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shelbyville Certificates of Participation Refinancing 4.900 10/1/07 NR $ 1,325,000 $ 1,315,064
---------------
2,369,996
POLLUTION CONTROL REVENUE BONDS
3.61% of Net Assets
Ashland KY Pollution Control Revenue-Ashland Oil 7.375 7/1/09 BAA1 1,370,000 1,433,856
Meade County KY Pollution Control Revenue-Olin Corporation 6.000 7/1/07 NR 665,000 683,274
---------------
2,117,130
COUNTY AND SCHOOL REVENUE BONDS
2.60% of Net Assets
Hardin County KY Building Commission Revenue 5.750 7/1/01 NR 1,000,000 1,000,030
Kenton County KY School District Finance Corporation 5.200 3/1/05 Aa3/AA 500,000 526,505
---------------
1,526,535
ESCROWED TO MATURITY BONDS
.13% of Net Assets
Danville KY Multi-City Lease Revenue Mt Sterling 6.800 9/1/99 Aaa/AAA 75,000 77,436
---------------
77,436
---------------
Total Investments (cost $57,679,463)(a) - 99.56% of Net Assets $ 58,372,493
===============
* Standard and Poor's Corporation
NR Not Rated
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 806,508
Unrealized depreciation (113,478)
----------------
Net unrealized appreciation $ 693,030
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE> 66
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<S> <C> <C>
ASSETS:
Investment in securities, at value (Cost: $57,679,463) $ 58,372,493
Interest receivable 1,062,624
Receivable for investments sold 249,234
----------------------
Total assets 59,684,351
LIABILITIES:
Cash overdraft $793,085
Payable for:
Distributions 209,733
Fund shares redeemed 6,100
Management fee 24,482
Transfer agent 6,366
Other fees 14,874
------------------
Total liabilities 1,054,640
----------------------
NET ASSETS:
Capital 58,552,373
Net accumulated realized losses on investment transactions (615,692)
Net unrealized appreciation in value of investments 693,030
----------------------
Net assets at value $ 58,629,711
======================
NET ASSET VALUE, offering price and redemption price per share
($58,629,711 / 11,283,039 share$ 5.20tanding) $ 5.20
======================
- - ----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended June 30, 1999
Net investment income:
Interest income $ 2,742,803
----------------------
Expenses:
Investment advisory fees 297,805
Transfer agent 77,473
Professional fees 9,227
Trustee fees 6,158
Other expenses 34,912
----------------------
Total expenses 425,575
----------------------
Net investment income 2,317,228
----------------------
Realized and unrealized gain/loss on investments
Net realized gain 69,983
Net decrease in unrealized appreciation (948,824)
----------------------
Net realized and unrealized loss on investments (878,841)
----------------------
Net increase in net assets resulting from operations $ 1,438,387
======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE> 67
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 2,317,228 $ 2,176,383
Net realized gain (loss) on investments 69,983 (73,155)
Net increase (decrease) in unrealized appreciation (948,824) 571,918
-----------------------------
Net increase in net assets resulting from operations 1,438,387 2,675,146
Distributions to shareholders (2,317,228) (2,176,383)
Net fund share transactions 5,384,908 (204,548)
-----------------------------
Total increase 4,506,067 294,215
Net assets:
Beginning of year 54,123,644 53,829,429
-----------------------------
End of year $ 58,629,711 $ 54,123,644
==============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE> 68
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------------------------------------------------------
1999 1998 1997 1996(a) 1995(a)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 5.27 $ 5.22 $ 5.20 $ 5.18 $ 5.17
--------------------------------------------------------------------------
Income From Investment Operations:
Net investment income 0.21 0.21 0.22 0.21 0.21
Net gains ( losses) on securities
(both realized and unrealized) (0.07) 0.05 0.02 0.02 0.02
--------------------------------------------------------------------------
Total from investment operations 0.14 0.26 0.24 0.23 0.23
Less Distributions:
Distributions (from capital gains) -- -- -- -- (0.01)
Distributions (from net investment income) (0.21) (0.21) (0.22) (0.21) (0.21)
--------------------------------------------------------------------------
Net asset value, end of year $ 5.20 $ 5.27 $ 5.22 $ 5.20 $ 5.18
==========================================================================
Total return 2.58% 5.12% 4.59% 4.51% 4.27%
Net assets, end of year (in thousands) $ 58,630 $ 54,124 $ 53,829 $ 66,574 $ 57,064
Ratio of expenses to average net assets 0.72% 0.74% 0.72% 0.75% 0.72%
Ratio of net investment income to
average net assets 3.89% 4.05% 4.11% 4.04% 4.00%
Portfolio turnover 27.38% 20.98% 20.03% 57.80% 4.07%
(a) Audited by other auditors
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
North Carolina Municipal Bonds -- 100%
June 30, 1999
Maturity
Bond Description Coupon Date Rating+ Par Value Market Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
37.37% of Net Assets
Catawba County NC Catawba Memorial Hospital Revenue 5.000 10/1/17 Aaa/AAA* $ 500,000 $ 478,043
Craven NC Regional Medical Auth Health Care Facilities Revenue 5.625 10/1/17 Aaa/AAA* 10,000 10,353
Cumberland County NC Civic Center Project Certificates
of Participation 5.000 12/1/18 Aaa/AAA* 500,000 477,835
Cumberland County NC Hospital Facilities Revenue 6.000 10/1/21 Aaa/AAA* 90,000 92,874
Dare County NC Utility System Revenue Bond 5.250 6/1/18 Aaa/AAA* 250,000 249,988
Elizabeth City NC Housing Developement Mortgage Revenue 6.125 4/1/23 Aa 140,000 146,706
Fayetteville NC Public Works Community Revenue Bond 5.100 3/1/15 Aaa/AAA* 400,000 394,456
Gaston County NC Public Facilities Project Certificates
of Participation 5.250 12/1/16 Aaa/AAA* 850,000 858,135
Greenville NC Housing Developement Corporation Series A 5.800 7/1/24 Aaa/AAA* 40,000 41,461
New Hanover County NC Certificates of Participation 5.000 12/1/17 Aaa/AAA* 250,000 242,668
New Hanover County NC Hospital Revenue 5.750 10/1/26 Aaa/AAA* 100,000 103,841
New Hanover County NC Hospital Revenue Bond 5.000 10/1/19 Aaa/AAA* 1,110,000 1,055,632
NC Central University Housing System Revenue 5.800 11/1/18 Aaa/AAA* 50,000 52,913
NC Central University Housing System Revenue 5.800 11/1/20 Aaa/AAA* 60,000 63,403
NC Eastern Municipal Power Agency Power System Revenue 5.700 1/1/15 Aaa/AAA* 345,000 363,088
NC Eastern Municipal Power Agency Power System Revenue 5.750 1/1/19 Aaa/AAA* 100,000 102,499
NC Medical Care Community Hospital Revenue-High Point 5.000 10/1/12 Aaa/AAA* 350,000 346,630
North Carolina Medical Care Community Hospital High Point 5.000 10/1/19 Aaa/AAA* 500,000 476,695
NC Medical Care Community Hospital Revenue-St Joseph 5.100 10/1/14 Aaa/AAA* 5,000 5,057
NC Medical Care Community Hospital Revenue-Stanly Hospital 5.375 10/1/14 Aaa/AAA* 50,000 51,483
NC Medical Care Community Hospital Revenue-Wilson Memorial 5.625 11/1/18 Aaa/AAA* 80,000 83,534
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.125 1/1/17 Aaa/AAA* 550,000 537,884
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.750 1/1/20 Aaa/AAA* 50,000 51,857
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.000 1/1/15 Aaa/AAA* 5,000 4,947
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.125 1/1/17 Aaa/AAA* 500,000 488,425
Pitt County NC Public Facilities Certificates of Participation 5.850 4/1/17 Aaa/AAA* 100,000 106,171
Union County NC Enterprise System Revenue Bond 5.500 6/1/21 Aaa/AAA* 245,000 251,588
University of NC at Wilmington Dorm & Dining System Revenue 5.400 1/1/18 Aaa/AAA* 120,000 122,231
Winston Salem NC State University Revenue Student Services 5.400 6/1/12 Aaa/AAA* 10,000 10,424
----------
7,270,821
HOSPITAL AND HEALTHCARE REVENUE BONDS
29.25% of Net Assets
Charlotte-Mecklenburg NC Health Care System 5.750 1/15/21 Aa3/AA* 250,000 257,123
Charlotte-Mecklenburg NC Health Care System 5.875 1/15/26 Aa3/AA* 50,000 52,514
Cumberland County NC Hospital System Revenue Bond 5.250 10/1/19 A3/A-* 1,000,000 952,020
NC Medical Care Community Hospital Revenue-Baptist Hospital 6.000 6/1/22 Aa/AA* 45,000 47,261
NC Medical Care Community Hospital Revenue-Baptist Hospital 6.375 6/1/14 Aa3/AA* 45,000 48,162
NC Medical Care Community Hospital Revenue-Carolina Medicorp 5.500 5/1/15 Aa3/AA* 70,000 71,572
NC Medical Care Community Hospital Revenue-Duke
University Hospital 5.250 6/1/21 Aa3/AA* 150,000 146,369
NC Medical Care Community Hospital Revenue-Duke
University Hospital 5.250 6/1/17 Aa3\AA* 900,000 888,642
NC Medical Care Community Heatlh Care Revenue Duke University 5.000 6/1/18 Aa3/AA* 300,000 286,215
NC Medical Care Community Hospital Revenue-Gaston Memorial 5.500 2/15/19 A2/A+* 150,000 148,923
NC Medical Care Community Hospital Revenue-Pitt County 5.000 12/1/18 Aa3/AA-* 500,000 473,795
NC Medical Care Community Hospital Revenue-Presbyterian 5.500 10/1/14 Aa/AA* 35,000 35,851
NC Medical Care Community Hospital Revenue-Presbyterian 5.500 10/1/20 Aa3/AA* 1,100,000 1,100,462
NC Medical Care Community Hospital Revenue-Rex Hospital 5.000 6/1/17 Aaa/AAA* 500,000 478,855
University of NC at Chapel Hill Hospital Revenue 5.250 2/15/19 Aa3/AA* 105,000 103,726
University of NC at Chapel Hill Hospital Revenue 6.000 2/15/24 Aa/AA* 100,000 105,934
University of NC at Chapel Hill Hospital Revenue 5.250 2/15/17 Aaa/AAA* 500,000 493,185
----------
5,690,609
MUNICIPAL UTILITY REVENUE BONDS
10.18% of Net Assets
Charlotte NC Water and Sewer Revenue 5.000 2/1/22 Aaa/AAA* 500,000 475,305
Charlotte NC Water & Sewer System Revenue 5.250 12/1/21 Aa/AA* 715,000 699,299
Greenville NC Utility Enterprise System Revenue 4.800 9/1/14 A1/A+* 350,000 334,345
Greenville NC Utility Enterprise System Revenue 6.000 9/1/10 A1/A+* 100,000 107,374
NC Eastern Municipal Power Agency Power System Revenue 5.500 1/1/17 Aaa/AAA* 150,000 152,864
Orange NC Water and Sewer Revenue 5.200 7/1/16 Aa2/AA* 210,000 210,966
----------
1,980,152
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE> 70
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
North Carolina Municipal Bonds -- 100%
June 30, 1999
Maturity
Bond Description Coupon Date Rating+ Par Value Market Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING
REVENUE BONDS
6.26% of Net Assets
NC Educational Facilities Finance Agency St Augustines 5.250 10/1/28 AA* $ 630,000 $ 617,035
NC Educational Facilities Finance Agency St Augustines 5.250 10/1/18 AA* 600,000 600,960
----------
1,217,995
STATE AND LOCAL MORTGAGE REVENUE BONDS
4.61% of Net Assets
Lenoir NC Housing Authority Mortgage Revenue 5.700 8/20/24 AAA* 100,000 102,547
NC Housing Finance Agency Single Family Revenue Series Y 6.300 9/1/15 Aaa/AA* 145,000 157,946
NC Housing Finance Agency Single Family Revenue Series II 6.200 3/1/16 Aa2/AA* 90,000 95,370
NC Housing Finance Agency Single Family Revenue Series KK 5.875 9/1/17 Aa2/AA* 90,000 92,669
NC Housing Finance Agency Homeownership Revenue 5.125 7/1/13 Aa2/AA* 100,000 98,576
NC Housing Finance Agency Home Ownership Revenue 5.000 7/1/11 Aa2/AA* 250,000 246,673
Vance County NC Housing Mortgage Revenue Henderson Project 6.150 3/1/22 Aa2 100,000 103,020
----------
896,801
COUNTY GENERAL OBLIGATION BONDS
3.54% of Net Assets
Durham County NC Certificates of Participation 5.000 5/1/14 Aa1/AA* 300,000 295,350
Forsyth County NC General Obligation Public Improvement 5.600 8/1/09 Aa1/AAA* 5,000 5,268
Forsyth County NC Certificates of Participation 5.000 10/1/18 Aa2/AA* 400,000 387,944
----------
688,562
VARIABLE RATE BONDS
3.08% of Net Assets
University of NC Athletic Facilities Revenue 3.800 11/1/18 AA* 600,000 600,000
----------
600,000
PREREFUNDED BONDS
2.44% of Net Assets
Catawba County NC Catawba Memorial Hospital Revenue 6.000 10/1/17 Aaa/AAA* 100,000 106,874
NC Eastern Municipal Power Agency Power System Revenue 6.000 1/1/26 AAA/BBB* 15,000 16,391
Pitt County NC Memorial Hospital Revenue 5.500 12/1/15 Aaa/AAA* 325,000 351,608
----------
474,873
PUBLIC FACILITIES REVENUE BONDS
1.71% of Net Assets
Charlotte NC Certificate of Participation Law Project B 5.375 6/1/13 Aa1/AA* 100,000 102,307
Greensboro NC Coliseum Complex Improvement Project Series A 5.700 12/1/10 A1/AA* 55,000 59,476
Monroe NC Combined Enterprise System Revenue 6.000 3/1/19 A/A* 100,000 107,959
Shelby NC Combined Enterprise System Revenue 5.625 5/1/14 A/A-* 40,000 41,680
Shelby NC Combined Enterprise System Revenue 5.625 5/1/14 A/A-* 20,000 20,839
----------
332,261
------------
Total Investments (cost $19,357,016)(a) - 98.44% of Net Assets $ 19,152,074
============
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 152,961
Unrealized depreciation (357,903)
------------
Net unrealized appreciation $ (204,942)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE> 71
<TABLE>
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost $19,357,016) $ 19,152,074
Cash 269,628
Interest receivable 239,417
Receivable from Advisor 2,581
-------------
Total assets 19,663,700
LIABILITIES:
Payable for:
Distributions $ 194,394
Management fee 7,955
Transfer agent 2,387
Other fees 2,620
---------
Total liabilities 207,356
-------------
NET ASSETS:
Capital 19,631,175
Net accumulated realized gains on investment transactions 30,111
Net unrealized depreciation in value of investments (204,942)
-------------
Net assets at value $ 19,456,344
=============
NET ASSET VALUE, offering price and redemption price per share
($19,456,344 / 1,833,488 shares outstanding $ 10.61
=============
- - ----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended June 30, 1999
Net investment income:
Interest income $ 690,705
------------
Expenses:
Investment advisory fees 69,119
Transfer agent 20,737
Professional fees 1,910
Trustee fees 1,329
Other expenses 8,769
------------
Total expenses 101,864
Expenses reimbursed by Investment Advisor (42,430)
------------
Net investment income 631,271
------------
Realized and unrealized gain/loss on investments
Net realized gain 49,547
Net decrease in unrealized appreciation (528,565)
------------
Net realized and unrealized loss on investments (479,018)
------------
Net increase in net assets resulting from operations $ 152,253
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE> 72
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 631,271 $ 317,060
Net realized gain (loss) on investments 49,547 (9,023)
Net increase (decrease) in unrealized appreciation (528,565) 249,438
-----------------------------------
Net increase in net assets resulting from operations 152,253 557,475
Distributions to shareholders from:
Net capital gains (6,826) --
Net investment income (631,271) (317,060)
Net fund share transactions 10,030,995 6,084,478
-----------------------------------
Total increase 9,545,151 6,324,893
Net assets:
Beginning of year 9,911,193 3,586,300
-----------------------------------
End of year $ 19,456,344 $ 9,911,193
===================================
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes ae an integral part of the financial statements.
35
<PAGE> 73
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------------------
1999 1998 1997 1996(a)(c)
--------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.82 $10.33 $9.88 $10.00
--------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.50 0.53 0.54 0.32
Net gains (losses) on securities
(both realized and unrealized) (0.20) 0.49 0.45 (0.12)
--------------------------------------------
Total from investment operations 0.30 1.02 0.99 0.20
LESS DISTRIBUTIONS:
Distributions (from capital gains) (0.01) -- -- --
Distributions (from net investment
income) (0.50) (0.53) (0.54) (0.32)
--------------------------------------------
NET ASSET VALUE, END OF YEAR $10.61 $10.82 $10.33 $9.88
============================================
Total return (b) 2.71% 9.99% 10.18% 3.23%
Net assets, end of year (in thousands) $19,456 $9,911 $3,586 $1,063
Ratio of expenses to average net assets (b) 0.45% 0.33% 0.25% 0.18%
Before expense reimbursement (b) 0.77% 0.76% 0.81% 2.47%
Ratio of net investment income to average
net assets (b) 4.43% 4.47% 4.72% 0.98%
After expense reimbursement (b) 4.74% 4.90% 5.29% 3.27%
Portfolio turnover 11.70% 16.77% 24.13% 22.83%
(a) Commencement of operations November 16, 1995.
(b) Annualized for periods less than a year.
(c) Audited by other auditors.
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - NORTH CAROLINA SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS -- 100%
JUNE 30, 1999
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HOSPITAL AND HEALTHCARE REVENUE BONDS
28.85% OF NET ASSETS
Charlotte-Mecklenburg Hospital Authority Revenue Series-A 4.400 1/15/03 Aa3/AA* $ 100,000 $ 100,814
Cumberland County NC Hospital Facility Revenue 4.100 10/1/03 A3/A-* 175,000 172,839
Cumberland County NC Hospital Facility Revenue 4.500 10/1/07 A3/A-* 200,000 195,536
NC Community Health Care Facility Duke Hospital 4.100 6/1/05 Aa3/AA* 100,000 97,938
NC Medical Care Community Health Care Facility Duke University 4.500 6/1/07 Aa3/AA* 200,000 196,854
North Carolina Medical Care Community Hospital-Scotland Memorial 5.375 10/1/11 AA* 60,000 61,204
NC Medical Care Community Hospital-Baptist Hospital 5.400 6/1/01 Aa/AA-* 10,000 10,323
NC Medical Care Community Hospital-Presbytarian Health 5.350 10/1/01 Aa/AA* 25,000 25,849
NC Medical Care Community Hospital-Presbytarian Health 5.000 10/1/02 Aa3/AA* 40,000 41,206
NC Medical Care Community Hospital-Presbytarian Health 4.600 10/1/99 Aa3/AA* 10,000 10,030
NC Medical Care Community Hospital Gaston Memorial 5.250 2/15/07 A2/A+* 50,000 51,452
NC Medical Care Community Hospital Pitt County Memorial 4.750 12/1/04 Aa3/AA* 170,000 172,100
----------
1,136,145
INSURED MUNICIPAL BONDS
25.59% OF NET ASSETS
Asheville NC Certificates of Participation Series B 4.300 6/1/02 Aaa/AAA* 25,000 25,204
Burke County NC General Obligation 6.250 3/1/00 Aaa/AAA* 50,000 50,976
Catawba County NC Hospital Revenue Catawba Memorial Hospital 4.000 10/1/03 Aaa 110,000 108,387
Coastal Regualtion Solid Waste Management Authority NC 4.250 6/1/05 Aaa/AAA* 125,000 124,093
New Hanover County NC Regional Medical Center Hospital Revenue 4.250 10/1/09 Aaa/AAA* 100,000 94,958
NC Medical Care Community Hospital-High Point Health System 4.400 10/1/03 Aaa/AAA* 50,000 50,305
NC Municipal Power Agency No 1 Catawba Electric Revenue 5.500 1/1/01 Aaa/AAA* 70,000 71,784
NC Municipal Power Agency No 1 Catawba Electric Revenue 5.100 1/1/07 Aaa/AAA* 125,000 128,848
NC Medical Care Community Hospital Wilson Memorial Hospital 4.900 11/1/07 Aaa/AAA* 75,000 76,124
Sanford NC Refunding-Water & Sewer General Obligation 4.500 3/1/00 Aaa/A+* 15,000 15,119
Wilkes County NC Refinancing 5.250 6/1/06 Aaa/AAA* 250,000 261,923
----------
1,007,721
LOCAL GENERAL OBLIGATION BONDS
13.32% OF NET ASSETS
Asheville NC Certificates of Participation Series:A 4.600 6/1/05 A1/A* 50,000 50,593
Charlotte NC General Obligation 5.250 2/1/04 Aaa/AAA* 150,000 157,011
Charlotte NC Certificates of Participation Governmental Equipment 5.050 9/1/99 AA* 55,000 55,169
Charlotte NC Certificates of Participation Equipment Aquisition 4.350 9/1/00 AA* 70,000 70,624
Durham NC Certificates of Participation 5.100 6/1/05 Aa3/AA* 100,000 103,979
Forsyth County NC Refunding General Obligation 4.600 3/1/01 Aa1/AAA* 15,000 15,250
Greensboro NC Refunding General Obligation 4.600 3/1/00 Aa1/AAA* 25,000 25,217
Rocky Mount NC General Obligation 6.100 5/1/01 A/A+* 25,000 26,009
Surf City NC Refunding General Obligation 5.400 3/1/01 BBB-* 20,000 20,521
----------
524,373
PREREFUNDED BONDS
12.67% OF NET ASSETS
Charlotte-Mecklenburg Hospital Nc Health Care Systems 6.000 1/1/22 Aa3/AA* 150,000 160,017
Charlotte NC General Obligation 6.900 10/1/06 Aaa/AAA* 25,000 26,465
Charlotte NC Certificates of Participation Convention Center 6.750 12/1/21 Aaa/AAA* 200,000 217,060
Forsyth County NC General Obligation 6.700 3/1/04 Aa1/AAA* 30,000 31,245
Franklin County NC Certificates of Participation Jail & School 6.000 6/1/02 Aaa/AAA* 15,000 15,839
Pitt County NC Revenue-Pitt County Memorial Hospital 6.900 12/1/21 Aaa/AA-* 5,000 5,436
Polk County NC General Obligation 6.700 5/1/11 Aaa/AAA* 40,000 42,790
----------
498,852
RENTALS/MUNICIPAL LEASE BONDS
4.37% OF NET ASSETS
Centennial Authority Hotel Tax Revenue Arena Project 4.500 9/1/03 Aaa/AAA* 170,000 171,923
----------
171,923
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
3.88% OF NET ASSETS
NC Education Facility Finance Agency (St Augustine College) 4.450 10/1/02 AA* 100,000 101,141
University of NC Utility System Revenue 4.900 8/1/03 Aa2/AA* 50,000 51,489
----------
152,630
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE> 75
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - NORTH CAROLINA SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS -- 100%
JUNE 30, 1999
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ESCROWED TO MATURITY BONDS
3.67% OF NET ASSETS
Durhan County NC Certificates of Participation 5.200 5/1/02 Aa/AA* $ 100,000 $ 103,073
Durham NC General Obligation 7.000 5/1/00 Aaa/AAA* 40,000 41,471
----------
144,544
MUNICIPAL UTILITY REVENUE BONDS
2.58% OF NET ASSETS
Buncombe County NC Water & Sewer Revenue 6.100 7/1/01 A/A+* 25,000 26,045
Orange County NC Water & Sewer Authority Revenue Refunding 4.250 7/1/01 Aa/AA* 5,000 5,048
Winston-Salem NC Water & Sewer Revenue Refunding 4.300 6/1/03 Aa2/AA* 70,000 70,627
----------
101,720
STATE GENERAL OBLIGATION BONDS
1.32% OF NET ASSETS
NC State General Obligation 5.000 6/1/03 Aaa/AAA* 50,000 51,906
----------
51,906
COUNTY GENERAL OBLIGATION BONDS
1.31% OF NET ASSETS
Caldwell County NC General Obligation 6.000 2/1/05 A1/A* 50,000 51,689
----------
51,689
STATE MORTGAGE REVENUE BONDS
.78% OF NET ASSETS
NC Housing Finance Agency Single Family 4.750 3/1/02 Aa/AA* 30,000 30,551
----------
30,551
----------
Total Investments (cost $3,894,570)(a) - 98.32% of Net Assets $3,872,054
==========
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
depreciation of securities as follows:
Unrealized appreciation $ 9,646
Unrealized depreciation (32,162)
----------
Net unrealized depreciation $ (22,516)
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE> 76
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities,at value (Cost: $3,894,570) $ 3,872,054
Cash 51,949
Interest receivable 44,332
Receivable from Advisor 5,701
-----------------
Total assets 3,974,036
LIABILITIES:
Payable for:
Distributions $ 13,131
Fund shares redeemed 10,683
Transfer agent 9,430
Other fees 2,691
-----------
Total liabilities 35,935
-----------------
NET ASSETS:
Capital 3,965,798
Net accumulated realized losses on investment transactions (5,181)
Net unrealized depreciation in value of investments (22,516)
-----------------
Net assets at value $ 3,938,101
=================
NET ASSET VALUE, offering price and redemption price per share
($3,938,101 / 390,156 shares oustanding) $ 10.09
=================
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended June 30, 1999
<S> <C>
Net investment income:
Interest income $ 117,909
-----------------
Expenses:
Investment advisory fees 13,989
Transfer agent 4,197
Professional fees 440
Trustee fees 271
Other expenses 2,924
-----------------
Total expenses 21,821
Expenses reimbursed by Investment Advisor (9,519)
-----------------
Net investment income 105,607
-----------------
Realized and unrealized loss on investments
Net realized loss (1,920)
Net decrease in unrealized appreciation (56,088)
-----------------
Net realized and unrealized loss on investments (58,008)
-----------------
Net increase in net assets resulting from operations $ 47,599
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE> 77
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF CHANGES IN NET ASSETS
For the years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------------------------------
Increase in net assets:
Operations:
<S> <C> <C>
Net investment income $ 105,607 $ 63,384
Net realized loss on investments (1,920) (804)
Net decrease in unrealized appreciation (56,088) 18,639
----------------------------------
Net increase in net assets resulting from operations 47,599 81,219
Distributions to shareholders (105,607) (63,384)
Net fund share transactions 1,802,142 717,742
----------------------------------
Total increase 1,744,134 735,577
Net assets:
Beginning of year 2,193,967 1,458,390
----------------------------------
End of year $ 3,938,101 $ 2,193,967
==================================
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE> 78
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------------
1999 1998 1997 1996(a)(c)
---------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of year $10.24 $10.12 $9.99 $10.00
---------------------------------------------
Income From Investment Operations:
Net investment income 0.39 0.40 0.41 0.24
Net gains (losses) on securities
(both realized and unrealized) (0.15) 0.12 0.13 (0.01)
---------------------------------------------
Total from investment operations 0.24 0.52 0.54 0.23
Less Distributions:
Distributions (from net investment income) (0.39) (0.40) (0.41) (0.24)
---------------------------------------------
Net Asset Value, end of year $10.09 $10.24 $10.12 $9.99
=============================================
Total return (b) 2.35% 5.20% 5.49% 3.79%
Net assets, end of year (in thousands) $3,938 $2,194 $1,458 $1,159
Ratio of expenses to average net assets (b) 0.44% 0.41% 0.23% 0.16%
Before expense reimbursement (b) 0.78% 0.86% 0.82% 1.78%
Ratio of net investment income to average
net assets (b) 3.44% 3.44% 3.46% 0.85%
After expense reimbursement (b) 3.78% 3.89% 4.06% 2.47%
Portfolio turnover 25.54% 14.89% 17.20% 17.18%
</TABLE>
(a) Commencement of operations November 16, 1995.
(b) Annualized for periods less than a year.
(c) Audited by other auditors.
<PAGE> 79
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1999
MATURITY PAR MARKET
BOND DESCRIPTION COUPON DATE RATING+ VALUE VALUE
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
33.39% OF NET ASSETS
Blount County TN Public Building Authority Revenue 5.000 4/1/19 Aaa/AAA* $ 470,000 $ 452,822
Bristol TN Health & Educational Facilities Bristol Memorial Hospital 5.250 9/1/21 Aaa/AAA* 400,000 395,320
Chattanooga/Hamilton County TN Hospital Revenue Erlanger 5.625 10/1/18 Aaa/AAA* 30,000 30,848
Chattanooga/Hamilton County TN Hospital Revenue Erlanger 5.000 10/1/18 Aaa/AAA* 800,000 765,608
Clarksville TN Water Sewer & Gas Refunding & Improvement 6.250 2/1/18 Aaa/AAA* 200,000 213,074
Clarksville TN Water Sewer & Gas Revenue 5.650 2/1/17 Aaa 200,000 207,940
Fayetteville/Lincoln County TN Hospital Facility Revenue 5.250 5/1/19 AAA* 1,765,000 1,743,449
Franklin TN Industrial Development Board Landings Apartment 5.900 10/1/16 Aaa/AAA* 800,000 825,808
Franklin TN Industrial Development Board Landings Apartment 5.550 10/1/08 Aaa/AAA* 50,000 52,695
Gatlinburg TN Public Building Authority Convention Center 6.900 12/1/12 Aaa/AAA* 90,000 97,702
Greater Tennessee Housing Assistance Refunding 7.250 7/1/24 Aaa/AAA* 5,000 5,430
Harpeth Valley TN Utility District Improvement Revenue 5.050 9/1/20 Aaa/AAA* 500,000 478,045
Jackson TN Hospital Revenue Refunding & Improvement 5.625 4/1/15 Aaa/AAA* 310,000 321,492
Johnson City TN Health & Educational Revenue 5.000 7/1/18 AAA* 500,000 478,705
Knox County/Chapman TN Utility District Water & Sewer 6.000 1/1/14 Aaa/AAA* 40,000 43,246
Knox County TN Health Educational & Housing Facilities Baptist Hospital 5.500 4/15/17 AAA* 1,315,000 1,336,882
Knox County TN Health Educational & Housing Facilities Ft Sanders 5.650 1/1/08 Aaa/AAA* 20,000 21,082
Knox County TN Health Educational & Housing Facilities Ft Sanders 6.250 1/1/13 Aaa/AAA* 10,000 11,206
Knox County TN Health Educational & Housing Facilities Ft Sanders 5.250 1/1/23 Aaa/AAA* 400,000 400,872
Knox County TN Health Educational & Housing Facilities Mercy Health 6.000 9/1/19 Aaa/AAA* 100,000 106,825
Knox County TN Health Educational & Housing Facilities Mercy Health 5.875 9/1/15 Aaa/AAA* 15,000 16,241
Knox County TN Utility District Water & Sewer 5.625 12/1/19 Aaa 400,000 418,784
Knoxville TN Development Corporation Housing Revenue Morningside 6.100 7/20/20 AAA* 500,000 522,730
Lauderdale County TN General Obligation 6.000 4/1/13 Aaa/AAA* 20,000 21,330
Lawrence County TN Public Improvements General Obligation 6.300 3/1/08 Aaa/AAA* 50,000 53,887
Memphis Shelby County TN Airport Revenue Refunding 5.650 9/1/15 Aaa/AAA* 55,000 57,318
Metropolitan Nashville & Davidson County TN Stadium Project 5.875 7/1/21 Aaa/AAA* 350,000 372,302
Metropolitan Nashville & Davidson County TN Stadium Project 5.750 7/1/14 Aaa/AAA* 100,000 105,577
Metropolitan Nashville TN Airport Series C 6.625 7/1/07 Aaa/AAA* 30,000 32,194
Metropolitan Nashville TN Airport Series C 6.600 7/1/15 Aaa/AAA* 120,000 127,901
North Anderson TN Utility District Waterworks Revenue 5.600 1/1/15 Aaa/AAA* 100,000 104,797
Oak Ridge TN Industrial Development Board Gardens Refunding Revenue 5.250 8/20/18 Aaa 655,000 654,168
Sevier County TN Public Buildings Authority Solid Waste Facility 5.600 9/1/15 Aaa/AAA* 100,000 103,703
Shelby County TN Health Educational & Housing Heritage Place 6.900 7/1/14 Aaa/AAA* 150,000 168,222
Shelby County TN Health Educational & Housing Methodist Hospital 5.300 8/1/15 Aaa/AAA* 780,000 794,602
Shelby County TN Health Educational & Housing Methodist Hospital 5.000 4/1/18 Aaa/AAA* 1,000,000 962,240
Shelby County TN Health Educational & Housing Methodist Hospital 5.375 4/1/13 Aaa/AAA* 690,000 717,669
Sullivan County TN Health Educational & Housing Holston Valley 5.750 2/15/13 Aaa/AAA* 130,000 136,824
TN Housing Development Agency Homeownership Program 5.900 7/1/17 Aaa/AAA* 35,000 36,450
TN Housing Development Agency Mortgage Finance Program 5.900 7/1/18 Aaa/AAA* 100,000 104,091
TN Housing Development Agency Mortgage Finance Program 5.850 7/1/13 Aaa/AAA* 100,000 104,730
TN Housing Development Agency Mortgage Finance Program 6.200 7/1/18 Aaa/AAA* 755,000 813,112
TN Local Development Authority Student Loan Program 5.125 3/1/22 Aaa/AAA* 1,000,000 970,570
----------
15,388,493
HOSPITAL AND HEALTHCARE REVENUE BONDS
16.81% OF NET ASSETS
Anderson County TN Health & Educational Facilities Revenue 5.650 7/1/07 A1 155,000 161,791
Chattanooga TN Health Educational & Housing Revenue 5.000 12/1/18 Aa2/AA* 1,000,000 959,160
Metropolitan Nashville-Davidson County TN Health & Educational Charity Hospital 5.000 11/1/19 Aa2/AA+* 800,000 758,840
Metropolitan Nashville & Davidson County TN Health & Educational Multi Modal 5.500 5/1/23 AA* 1,755,000 1,774,551
Metropolitan Nashville & Davidson County TN Open Arms 5.100 8/1/16 AA* 1,000,000 970,000
Metropolitan Nashville & Davidson County TN Open Arms 5.100 8/1/19 AA* 1,660,000 1,589,516
Montgomery County TN Health Educational & Housing Hospital 5.375 1/1/18 Baa/BBB* 1,500,000 1,433,145
Signal Mountain TN Health Educational & Housing Alexian Village 7.500 1/1/19 A2 15,000 15,565
Sumner County TN Health Educational & Housing Sumner Health 7.500 11/1/14 A-* 75,000 86,242
----------
7,748,810
STATE AND LOCAL MORTGAGE REVENUE
12.89% OF NET ASSETS
Knoxville TN Development Corp Housing Revenue Clinton Tower 6.650 10/15/10 A* 285,000 304,557
Memphis TN Health Education & Housing Board Hunters Trace 6.250 6/1/13 Aa/AAA* 55,000 56,925
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE> 80
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1999
MATURITY PAR MARKET
BOND DESCRIPTION COUPON DATE RATING+ VALUE VALUE
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Memphis TN Health Education & Housing Board Riverdale Plaza 6.350 7/20/28 AAA* $ 300,000 $ 322,320
Memphis TN Health Education & Housing Board River Trace II 6.250 10/1/13 Aaa 50,000 54,325
Metropolitan Nashville & Davidson County TN Dandridge Tower 6.375 1/1/11 A* 200,000 221,420
Metropolitan Nashville & Davidson County TN Hermitage Apts 5.900 2/1/19 A* 395,000 405,803
Murfreesboro TN Housing Authority Westbrooks Towers Project 5.875 1/15/10 A* 310,000 322,524
Shelby County TN Health Educational & Housing Corners Apts 6.000 1/1/17 A 250,000 260,470
Shelby County TN Health Educational & Housing Four Stones 5.350 1/1/19 A* 2,000,000 1,959,700
Shelby County TN Health Educational & Housing Harbour Apts 6.000 4/15/18 A* 125,000 128,094
Shelby County TN Health Educational & Housing Harbour Apts 6.000 4/15/24 A* 50,000 51,091
Shelby County TN Health Educational & Housing Harbour Apts 5.750 4/15/11 A* 100,000 102,491
Shelby County TN Health Educational & Housing Windsor Apts 6.750 10/1/17 AA* 355,000 386,950
TN Housing Development Agency Homeownership Program 6.700 7/1/12 Aa2/AA* 85,000 92,160
TN Housing Development Agency Homeownership Program 5.850 1/1/11 Aa2/AA* 200,000 212,202
TN Housing Development Agency Mortgage Finance Program 5.850 7/1/13 A1/A+* 125,000 128,689
TN Housing Development Agency Mortgage Finance Program 5.900 7/1/18 A1/A+* 800,000 828,968
TN Housing Development Agency Mortgage Finance Program 5.700 1/1/08 A1/A+* 100,000 104,011
----------
5,942,700
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
8.74% OF NET ASSETS
Metropolitan Nashville & Davidson County TN Belmont University 6.300 12/1/14 Baa3 10,000 10,828
Metropolitan Nashville & Davidson County TN McKendree 5.125 1/1/20 AA* 2,700,000 2,582,820
Metropolitan Nashville & Davidson County TN Vanderbilt 6.000 10/1/16 Aa3/AA* 130,000 138,446
Metropolitan Nashville & Davidson County TN Vanderbilt 5.375 7/1/18 Aa3/AA* 1,200,000 1,211,544
Metropolitan Nashville & Davidson County TN Vanderbilt 6.500 5/1/16 Aa3/AA* 80,000 85,166
----------
4,028,804
COUNTY GENERAL OBLIGATION
6.41% OF NET ASSETS
Marshall County TN General Obligation 5.600 6/1/14 A* 5,000 5,127
Metropolitan Nashville/Davidson County General Obligation 5.125 5/15/25 Aa2/AA* 500,000 484,985
Metropolitan Nashville & Davidson County TN Limited Obligation 7.000 9/1/11 A1*/A* 180,000 194,324
Shelby County TN General Obligation 5.625 4/1/14 Aa3/AA+* 60,000 63,210
Shelby County TN Health Educational & Housing Cameron Kirby 5.900 7/1/18 A* 1,500,000 1,541,025
Shelby County TN Health Educational & Housing Cameron Kirby 6.000 7/1/28 A* 500,000 510,930
Williamson County TN Rural School Building Revenue 5.800 3/1/12 Aa 100,000 107,319
Williamson County TN General Obligation 5.600 9/1/10 Aa 45,000 48,166
----------
2,955,086
STATE GENERAL OBLIGATION AND AGENCY
6.17% OF NET ASSETS
Hamilton County TN Multi-Family Housing Revenue 6.700 3/1/21 A* 450,000 496,130
Knoxville TN Development Corp Housing Revenue Clinton Tower 6.600 10/15/07 A* 350,000 374,815
Metropolitan Nashville & Davidson County TN General Obligation 5.125 11/15/19 Aa2/AA* 1,000,000 974,650
Shelby County TN General Olbigation Refunding 5.875 3/1/07 Aa2/AA+* 15,000 15,674
Tennessee Local Development Authority Student Loan Program 5.750 3/1/11 A2/AA-* 200,000 210,984
Tennessee School Building Authority Revenue 6.250 5/1/17 A1/AA* 35,000 37,112
Wilson County TN General Obligation Refunding 5.100 5/1/16 AAA* 745,000 734,190
----------
2,843,555
MUNICIPAL UTILITIES REVENUE BONDS
4.66% OF NET ASSETS
Knoxville TN Gas System Revenue 5.400 3/1/15 Aa3/AA* 100,000 102,292
Knoxville TN Gas System Revenue Refunding & Improvement 5.900 3/1/12 A1/AA* 25,000 26,098
Knoxville TN Waste Water System Revenue 5.100 4/1/18 Aa3/AA* 435,000 427,235
Memphis TN Sanitary Sewer System Revenue 5.750 10/1/14 Aa/AA* 100,000 105,249
Metropolitan Nashville & Davidson County TN Electric System 5.625 5/15/14 Aa/AA* 500,000 522,510
Metropolitan Nashville & Davidson County TN Electric System 5.200 5/15/23 Aa3/AA* 800,000 778,624
Metropolitan Nashville & Davidson County TN Water & Sewer 5.500 1/1/16 A1/A* 185,000 185,709
----------
2,147,717
PREREFUNDED BONDS
3.88% OF NET ASSETS
Chattanooga TN General Obligation 6.000 8/1/11 A1/AA-* 110,000 118,003
Jackson TN Water & Sewer Revenue 7.200 7/1/12 Aaa/AAA* 10,000 11,700
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE> 81
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1999
MATURITY PAR MARKET
BOND DESCRIPTION COUPON DATE RATING+ VALUE VALUE
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Memphis TN Water Revenue 6.000 1/1/12 Aa/AA* $ 140,000 $ 149,349
Metropolitan Nashville & Davidson County TN Electric System 6.000 5/15/12 Aa/AA* 30,000 32,114
Metropolitan Nashville & Davidson County TN Water & Sewer 6.500 12/1/14 Aaa/AAA* 60,000 69,100
Milan TN Special School District 6.750 4/1/13 Aaa/AAA* 60,000 65,229
Shelby County TN General Obligation Public Improvement Series A 6.000 3/1/13 Aa/AA+* 30,000 31,671
Shelby County TN General Obligation Bond Prerefunded 5.875 3/1/07 AA+* 35,000 36,545
Shelby County TN General Obligation Bond Prerefunded 5.625 4/1/14 AA+* 20,000 21,472
Shelby County TN School Building Revenue 5.900 3/1/12 Aa/AA+* 10,000 10,532
Shelby County TN School Building Revenue 6.000 3/1/13 Aa/AA+* 35,000 36,950
Shelby County TN School Building Revenue 5.900 3/1/16 Aa/AA+* 50,000 52,660
Shelby County TN School Building Revenue 5.875 3/1/12 Aa/AA+* 150,000 158,120
Shelby County TN School Building Revenue 5.950 3/1/19 Aa/AA+* 40,000 42,178
Shelby County TN School Building Revenue 5.950 3/1/17 Aa/AA+* 100,000 105,445
Shelby County TN School Building Revenue 5.800 4/1/19 Aa/AA+* 100,000 107,278
Tipton County TN General Obligation High School 6.650 4/1/14 Aaa/AAA* 30,000 32,564
Wilson County TN Unlimited General Obligation 5.750 6/1/17 Aaa/AAA* 250,000 260,205
Wilson County TN Certificates of Participation 6.125 6/30/10 A 410,000 446,482
----------
1,787,597
LOCAL GENERAL OBLIGATION BONDS
3.35% OF NET ASSETS
Cleveland TN Public Improvement General Obligation 5.125 6/1/18 Aaa/AAA* 835,000 814,718
Collierville TN General Obligation Improvement 5.900 5/1/12 A1 30,000 32,384
Johnson City TN General Obligation 5.500 5/1/20 Aaa/AAA* 300,000 307,455
Memphis TN General Obligation Improvement 5.500 10/1/10 Aa/AA* 20,000 20,743
Metropolitan Nashville & Davidson County TN General Obligation 5.625 5/15/17 Aa/AA* 250,000 260,305
Metropolitan Nashville & Davidson County TN General Obligation 5.875 5/15/26 Aa/AA* 100,000 107,372
----------
1,542,977
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
1.39% OF NET ASSETS
Chattanooga TN Industrial Development Board F L Haney Co 7.200 2/15/09 AAA* 25,000 29,878
Chattanooga TN Industrial Development Board F L Haney Co 7.200 8/15/10 AAA* 20,000 24,273
Chattanooga TN Industrial Development Board F L Haney Co 7.200 2/15/10 AAA* 100,000 120,621
Chattanooga TN Industrial Development Board F L Haney Co 7.200 8/15/09 AAA* 25,000 30,122
Cookeville TN Industrial Development Board General Hospital 5.625 10/1/16 A* 200,000 209,152
Franklin TN Industrial Development Board Sussex Downs LTD 6.250 6/1/07 AAA* 30,000 33,354
Maury County TN Pollution Control Revenue Saturn Corp Project 6.500 9/1/24 A2/A* 100,000 110,226
TN Local Development Auth Cmnty Provider Pooled Loan Program 6.450 10/1/14 A-* 40,000 43,613
TN Local Development Auth Cmnty Provider Pooled Loan Program 6.250 10/1/09 A-* 30,000 32,609
TN Local Development Auth Cmnty Provider Pooled Loan Program 7.000 10/1/11 A-* 5,000 5,459
----------
639,307
RENTALS / MUNICIPAL LEASE BONDS
.65% OF NET ASSETS
Memphis Shelby County TN Airport Revenue Refunding FedX 6.750 9/1/12 Baa/BBB* 155,000 167,442
Memphis Shelby County TN Airport Special Facilities Revenue 7.875 9/1/09 Baa/BBB* 120,000 131,820
----------
299,262
----------
Total Investments (cost $45,169,427)(a) - 98.35% of Net Assets $45,324,308
==========
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 750,880
Unrealized depreciation (595,999)
----------
Net unrealized appreciation $ 154,881
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE> 82
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $45,169,427) $ 45,324,308
Cash 400,665
Interest receivable 856,960
Receivable from advisor 3,900
------------
Total assets 46,585,833
LIABILITIES:
Payable for:
Distributions $ 462,651
Management fee 19,291
Transfer agent 5,123
Other fees 12,393
---------
Total liabilities 499,458
------------
NET ASSETS:
Net assets consist of:
Capital $ 46,040,370
Net accumulated capital gain distributions in excess of realized gains
on investment transactions (108,876)
Net unrealized appreciation in value of investments 154,881
------------
Net assets at value $ 46,086,375
============
NET ASSET VALUE, offering price and redemption price per share
($46,086,375 / 4,279,143 shares outstanding) $ 10.77
============
- - -----------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
Net investment income:
Interest income $ 2,142,317
------------
Expenses:
Investment advisory fees 206,464
Transfer agent 55,552
Professional fees 5,841
Trustee fees 4,085
Other expenses 12,380
------------
Total expenses 284,322
Expenses reimbursed by Investment Advisor (86,844)
------------
Net investment income 1,944,839
------------
Realized and unrealized gain on investments
Net realized loss (57,095)
Net decrease in unrealized appreciation (1,016,125)
------------
Net realized and unrealized gain on investments (1,073,220)
------------
Net increase in net assets resulting from operations $ 871,619
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE> 83
DUPREE MUTUAL FUNDS - TENNESSEE TAX FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 1,944,839 $ 962,119
Net realized loss on investments (57,095) 18,613
Net decrease in unrealized appreciation (1,016,125) 679,328
----------- -----------
Net increase in net assets resulting from operations 871,619 1,660,060
Distributions to shareholders from:
Net capital gains (45,331) (17,066)
Net investment income (1,944,839) (962,119)
Net fund share transactions 18,032,867 14,812,946
----------- -----------
Total increase 16,914,318 15,493,821
Net assets:
Beginning of year 29,172,059 13,678,238
----------- -----------
End of year $46,088,375 $29,172,059
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE> 84
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
For the year ended June 30,
--------------------------------------------------------------
1999 1998 1997 1996 (a) 1995 (a)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.97 $ 10.53 $ 10.17 $10.05 $ 9.51
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.54 0.54 0.54 0.54 0.54
Net gains (losses) on securities
(both realized and unrealized) (0.19) 0.45 0.36 0.12 0.54
--------------------------------------------------------------
Total from investment operations 0.35 0.99 0.90 0.66 1.08
LESS DISTRIBUTIONS:
Distributions (from capital gains) (0.01) (0.01) -- -- --
Distributions (from net investment income) (0.54) (0.54) (0.54) (0.54) (0.54)
--------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.77 $ 10.97 $ 10.53 $10.17 $10.05
==============================================================
Total return 3.03% 9.57% 8.96% 6.65% 11.65%
Net assets, end of year (in thousands) $46,086 $29,172 $13,678 $8,056 $5,010
Ratio of expenses to average net assets 0.48% 0.44% 0.55% 0.54% 0.34%
Before expense reimbursement 0.69% 0.74% 0.77% 0.90% 1.16%
Ratio of net investment income to average net assets 4.50% 4.64% 4.92% 4.91% 4.77%
After expense reimbursement 4.71% 4.94% 5.15% 5.27% 5.59%
Portfolio turnover 14.76% 12.62% 5.14% 9.13% 6.84%
(a) Audited by other auditors.
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1999
MATURITY PAR MARKET
BOND DESCRIPTION COUPON DATE RATING+ VALUE VALUE
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
31.06% OF NET ASSETS
Bristol TN Health & Education Facility-Memphis Hospital 6.30 9/1/00 Aaa/AAA* $ 50,000 $ 51,564
Chattanooga-Hamilton TN Hospital Authority-Erlanger Medical 5.10 10/1/01 Aaa/AAA* 10,000 10,267
Chattanooga-Hamilton TN Hospital Authority-Erlanger Medical 5.13 10/1/02 Aaa/AAA* 50,000 51,635
Hamilton County TN Industrial Development Lease Revenue 5.50 9/1/02 Aaa/AAA* 100,000 104,539
Knox County Utility District Water & Sewer Revenue 5.25 12/1/06 Aaa/AAA* 220,000 227,119
LaFollette TN Electric System Revenue 5.50 3/1/01 Aaa 165,000 169,620
Metropolitan Nashville Airport Revenue 6.20 7/1/02 Aaa/AAA* 25,000 26,545
Metropolitan Nashville Airport Authority TN Airport 5.00 7/1/04 Aaa/AAA* 200,000 206,422
Monroe County TN Rural School Refinancing General Obligation 4.50 6/1/08 Aaa 210,000 205,762
TN Energy Acquisition Corporation Gas Revenue Ser:A 4.75 9/1/02 Aaa/AAA* 250,000 253,358
TN Energy Acquisition Corporation Gas Revenue Ser:B 4.50 9/1/08 Aaa/AAA* 300,000 294,021
Unicoi County TN General Obligation Unlimited 5.40 4/1/10 Aaa/AAA* 200,000 206,170
------------
1,807,022
COUNTY GENERAL OBLIGATION BONDS
19.48% OF NET ASSETS
Cheatham County TN General Obligation 4.35 4/1/04 A3 200,000 200,328
Madison County TN School General Obligation 6.00 4/1/01 A1 10,000 10,386
Maury County TN General Obligation 4.50 6/1/01 A1 75,000 76,016
Metropolitan Government Nashville & Davidson County TN General Obligation 4.60 11/15/01 Aa/AA* 50,000 50,785
Metropolitan Government Nashville & Davidson County TN General Obligation 4.25 11/15/05 Aa2/AA* 400,000 394,492
Metropolitan Government Nashville & Davidson County TN General Obligation 6.50 9/1/00 A1/A* 50,000 51,602
Rutherford County TN General Obligation 4.75 4/1/01 Aa/AA* 100,000 101,573
Rutherford County TN Capital Outlay Notes General Obligation 4.70 4/1/02 Aa/AA-* 45,000 45,905
Shelby County Mutli-Family Housing Cameron Kibry-A General Obligation 4.70 7/1/02 A* 200,000 202,454
------------
1,133,541
PREREFUNDED BONDS
12.96% OF NET ASSETS
Bristol TN Health & Education Facility-Memorial Hospital 7.00 9/1/21 Aaa/AAA* 100,000 107,151
Johnson City TN Health & Education Revenue 6.75 7/1/06 Aaa/AAA* 20,000 21,506
Johnson City TN Health & Education Revenue 6.75 7/1/16 Aaa/AAA* 430,000 462,216
Metropolitan Government Nashville & Davidson Co Elec RevS:A 9.90 7/1/05 Aaa/AAA* 50,000 54,066
Metropolitan Nashville TN Airport Improvement Revenue 7.75 7/1/06 Aaa/AAA* 100,000 109,423
------------
754,362
HOSPITAL AND HEALTHCARE REVENUE BONDS
9.74% OF NET ASSETS
Chattanooga TN Catholic Health Initiatives Series A 5.50 12/1/06 Aa2/AA* 200,000 208,770
Jackson TN Hospital Refunding & Improvement Revenue 4.80 4/1/02 A1/A+* 60,000 61,142
Metropolitan Government Nashville & Davidson Counties TN 4.30 8/1/04 AA* 300,000 297,018
------------
566,930
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
8.47% OF NET ASSETS
Metro Government Nashville/Davidson County TN Multi-Family 4.80 1/1/01 AAA* 50,000 50,716
Metropolitan Government of Nashville & Davidson Counties 4.50 10/1/03 Aa3/AA* 100,000 100,841
Shelby County TN Multi-Family Housing Memphis Series A 5.00 1/1/09 A* 240,000 238,387
TN Housing Development Agency Mortgage Finance 5.30 1/1/03 A1/A+* 100,000 103,055
------------
492,999
ESCROWED TO MATURITY BONDS
4.64% OF NET ASSETS
Knox County TN 1st Utility District Water Revenue 6.00 12/1/01 Aaa 100,000 104,846
Metro Government Nashville/Davidson County TN Meharry Medical 7.88 12/1/04 AAA* 150,000 165,000
------------
269,846
STATE MORTGAGE REVENUE BONDS
3.57% OF NET ASSETS
TN Housing Development Mortgage Agency Series A 5.50 1/1/05 A1/A+* 200,000 207,974
------------
207,974
INDUSTRIAL REVENUE BONDS
2.54% OF NET ASSETS
Bristol TN Industrial Development Board Revenue 4.80 3/1/01 AA* 70,000 71,027
Chattanooga TN Industrial Development-F.L.Haney Corporation 6.70 8/15/00 AAA* 25,000 25,882
Franklin TN Industrial Development Multi-Family Housing 4.65 10/1/00 Aaa/AAA* 50,000 50,739
------------
147,648
STATE GENERAL OBLIGATION BONDS
1.77% OF NET ASSETS
TN State General Obligation 5.00 3/1/03 Aaa/AA+* 100,000 103,065
------------
103,065
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE> 86
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 1999
MATURITY PAR MARKET
BOND DESCRIPTION COUPON DATE RATING+ VALUE VALUE
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOCAL GENERAL OBLIGATION BONDS
1.13% OF NET ASSETS
Chattanooga TN Refunding General Obligation 5.00 11/1/00 A1/AA-* $ 30,000 $ 30,498
Kingsport TN Water Refunding General Obligation 5.30 8/1/00 A1/A+* 25,000 25,459
Mufreesboro TN General Obligation 5.70 9/1/99 A1 10,000 10,043
------------
66,000
PUBLIC FACILITY BONDS
.77% OF NET ASSETS
Hardeman County TN Correctional Facility Revenue 7.00 8/1/05 A* 40,000 45,089
------------
45,089
MUNICIPAL UTILITY BONDS
.43% OF NET ASSETS
Memphis TN Sanitation Sewer System Revenue 5.50 10/1/99 Aa/AA* 25,000 25,137
------------
25,137
------------
Total Investments (cost $5,612,508)(a) - 96.58% of Net Assets $ 5,619,613
============
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
appreciation of securities as follows:
Unrealized appreciation $ 29,698
Unrealized depreciation (22,593)
------------
Net unrealized appreciation $ 7,105
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE> 87
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $5,612,508) $ 5,619,613
Cash 288,684
Receivable from investments sold 45,200
Interest receivable 97,339
Receivable from Advisor 3,017
-----------
Total assets 6,053,853
LIABILITIES:
Payable for:
Investments purchased $ 208,754
Distributions 19,807
Transfer agent 5,615
Other fees 938
---------
Total liabilities 235,114
-----------
NET ASSETS:
Capital 5,831,253
Net accumulated realized losses on investment transactions (19,619)
Net unrealized appreciation in value of investments 7,105
-----------
Net assets at value $ 5,818,739
===========
NET ASSET VALUE, offering price and redemption price per share
($5,818,739 / 563,149 shares outstanding) $ 10.33
===========
- - -------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
Net investment income:
Interest income $ 284,826
-----------
Expenses:
Investment advisory fees 33,510
Transfer agent 10,053
Professional fees 1,055
Trustee fees 669
Other expenses 3,755
-----------
Total expenses 49,042
Expenses reimbursed by Investment Advisor (11,427)
-----------
Net investment income 247,211
-----------
Realized and unrealized loss on investments
Net realized loss (14,486)
Net decrease in unrealized appreciation (69,288)
-----------
Net realized and unrealized loss on investments (83,774)
-----------
Net increase in net assets resulting from operations $ 163,437
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE> 88
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX FREE SHORT-TO-MEDIUM SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
-----------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 247,211 $ 144,765
Net realized loss on investments (14,486) (2,666)
Net increase (decrease) in unrealized appreciation (69,288) 38,777
-----------------------------
Net increase in net assets resulting from operations 163,437 180,876
Dividends to shareholders (247,211) (144,765)
Net fund share transactions 1,157,488 1,716,083
-----------------------------
Total increase 1,073,714 1,752,194
Net assets:
Beginning of year 4,745,025 2,992,831
-----------------------------
End of year $ 5,818,739 $ 4,745,025
=============================
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE> 89
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
For the years ended June 30,
-------------------------------------------------------------
1999 1998 1997 1996(c) 1995(a)(c)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $10.44 $10.32 $10.25 $10.20 $10.00
-------------------------------------------------------------
Income From Investment Operations:
Net investment income 0.39 0.41 0.42 0.42 0.28
Net gains or losses on securities
(both realized and unrealized) (0.11) 0.12 0.07 0.05 0.20
-------------------------------------------------------------
Total from investment operations 0.28 0.53 0.49 0.47 0.48
Less Distributions:
Distributions (from net investment income) (0.39) (0.41) (0.42) (0.42) (0.28)
-------------------------------------------------------------
Net Asset Value, end of year $10.33 $10.44 $10.32 $10.25 $10.20
=============================================================
Total return (b) 2.67% 5.26% 4.83% 4.62% 7.41%
Net assets, end of year (in thousands) (b) $5,819 $4,745 $2,993 $2,455 $1,535
Ratio of expenses to average net assets (b) 0.56% 0.51% 0.47% 0.50% 0.28%
Before expense reimbursement (b) 0.73% 0.81% 0.85% 1.19% 2.05%
Ratio of net investment income to average net assets (b) 3.52% 3.67% 3.67% 3.36% 1.03%
After expense reimbursement (b) 3.69% 3.97% 4.04% 4.05% 2.80%
Portfolio turnover 81.81% 67.59% 24.49% 23.17% 0.71%
(a) Commencement of operations November 1, 1994.
(b) Annualized for periods less than a year.
(c) Audited by other auditors.
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
GOVERNMENT SECURITIES AND AGENCIES -- 100%
JUNE 30, 1999
MATURITY
BOND DESCRIPTION COUPON DATE RATING+ PAR VALUE MARKET VALUE
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
72.59% OF NET ASSETS
Medium Term Note 7.700 08/10/2004 Aaa/AAA* $ 250,000 $ 250,480
Medium Term Note 7.170 06/26/2007 Aaa/AAA* 1,000,000 993,020
Medium Term Note 6.950 11/13/2008 Aaa/AAA* 1,105,000 1,100,916
Medium Term Note 6.560 11/26/2007 Aaa/AAA* 300,000 293,193
Medium Term Note 7.780 09/29/2006 Aaa/AAA* 300,000 300,693
Medium Term Note 7.280 05/23/2007 Aaa/AAA* 1,000,000 1,006,944
Medium Term Note 6.470 03/13/2008 Aaa/AAA* 600,000 585,472
Medium Term Note 6.000 09/29/2008 Aaa/AAA* 500,000 469,949
Medium Term Note 6.030 02/02/2009 Aaa/AAA* 2,000,000 1,877,194
Medium Term Note 6.160 03/02/2009 Aaa/AAA* 1,000,000 946,372
-----------
7,824,233
FEDERAL HOME LOAN BANK
21.56% OF NET ASSETS
Medium Term Note 8.170 12/16/2004 Aaa/AAA* 2,000,000 2,165,307
Medium Term Note 7.560 09/01/2004 Aaa/AAA* 150,000 158,074
-----------
2,323,381
FEDERAL HOME LOAN MORTGAGE CORPORATION
6.67% OF NET ASSETS
Medium Term Note 7.225 11/08/2006 Aaa/AAA* 250,000 248,743
Medium Term Note 6.010 12/29/2008 Aaa/AAA* 500,000 470,083
-----------
718,826
-----------
Total Investments (cost $10,938,031)(a) - 100.82% of Net Assets $10,866,440
===========
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
+ Bond ratings are unaudited.
(a) Represents cost for financial reporting and federal income tax purposes and differs from market value by net unrealized
depreciation of securities as follows:
Unrealized appreciation 183,501
Unrealized depreciation (255,092)
-----------
Net unrealized depreciation $ (71,591)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE> 91
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $10,938,031) $ 10,866,440
Interest receivable 137,571
------------------
Total assets 11,004,011
LIABILITIES:
Cash overdraft $ 149,023
Payable for:
Distributions 62,357
Fund shares redeemed 1,000
Management fee 1,809
Transfer agent 1,357
Other fees 10,268
-----------------
Total liabilities 225,814
------------------
NET ASSETS:
Capital 11,601,762
Net accumulated realized losses on investment transactions (751,974)
Net unrealized depreciation in value of investments (71,591)
------------------
Net assets at value $ 10,778,197
==================
NET ASSET VALUE, offering price and redemption price per share
($10,778,197 / 1,108,018 shares outstanding) $ 9.73
==================
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended June 30, 1999
Net investment income:
Interest income $ 722,933
------------------
Expenses:
Investment advisory fees 21,315
Transfer agent 15,987
Professional fees 1,555
Trustee fees 1,096
Other expenses 11,668
------------------
Total expenses 51,621
------------------
Net investment income 671,312
------------------
Realized and unrealized gain on investments
Net realized gain 23,592
Net decrease in unrealized appreciation (498,462)
------------------
Net realized and unrealized loss on investments (474,870)
------------------
Net increase in net assets resulting from operations $ 196,442
==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE> 92
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended June 30, 1999 and 1998
<TABLE>
1999 1998
----------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 671,312 $ 579,327
Net realized gain on investments 23,592 11,397
Net increase (decrease) in unrealized appreciation (498,462) 198,164
----------------------------------
Net increase in net assets resulting from operations 196,442 788,888
Distributions to shareholders (671,312) (579,327)
Net fund share transactions 1,656,961 1,098,229
----------------------------------
Total increase 1,182,091 1,307,790
Net assets:
Beginning of year 9,596,106 8,288,316
----------------------------------
End of year $ 10,778,197 $ 9,596,106
==================================
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE> 93
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996(a) 1995(a)
---------------------------------------------------
Net Asset Value, beginning of year $10.14 $9.89 $9.85 $10.15 $9.65
---------------------------------------------------
Income From Investment Operations:
Net investment income 0.64 0.66 0.72 0.72 0.69
Net gains or losses on securities
(both realized and unrealized) (0.41) 0.25 0.04 (0.30) 0.50
---------------------------------------------------
Total from investment operations 0.23 0.91 0.76 0.42 1.19
Less Distributions:
Distributions (from net investment
income) (0.64) (0.66) (0.72) (0.72) (0.69)
---------------------------------------------------
Net asset value, end of year $9.73 $10.14 $9.89 $9.85 $10.15
===================================================
Total return 2.21% 9.47% 7.95% 4.15% 12.78%
Net assets, end of year (in thousands) $10,778 $9,596 $8,288 $7,765 $7,713
Ratio of expenses to average net assets 0.49% 0.53% 0.50% 0.40% 0.40%
Before expense reimbursement 0.49% 0.53% 0.56% 0.62% 0.61%
Ratio of net investment income to average
net assets 6.32% 6.57% 7.20% 6.89% 6.85%
After expense reimbursement 6.32% 6.57% 7.26% 7.11% 7.06%
Portfolio turnover 24.04% 23.49% 40.86% 33.89% 74.98%
(a) Audited by other auditors.
</TABLE>
<PAGE> 94
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
Dupree Mutual Funds is registered under the Investment Company Act of
1940, as amended, as a no-load, open-end investment company. The
Declaration of Trust of Dupree Mutual Funds (the "Trust") permits the
Trustees to create an unlimited number of series of investment portfolios
(each a "Fund" and collectively the "Funds") and with respect to each
series to issue an unlimited number of full or fractional shares of a
single class. The Trust currently offers seven series:
the Kentucky Tax-Free Income Series, a diversified portfolio,
the Kentucky Tax-Free Short-to-Medium Series, a non-diversified
portfolio,
the North Carolina Tax-Free Income Series, a non-diversified
portfolio,
the North Carolina Tax-Free Short-to-Medium Series, a
non-diversified portfolio,
the Tennessee Tax-Free Income Series, a diversified portfolio,
the Tennessee Tax-Free Short-to-Medium Series, a non-diversified
portfolio, and
the Intermediate Government Bond Series, a non-diversified
portfolio.
The investment strategy of the six state tax-free funds is to maintain
100% of their investments in Kentucky, North Carolina or Tennessee
municipal securities. Regarding the Kentucky Series, unlike many states,
payment on nearly all Kentucky municipal securities depends upon revenue
generated by the property financed by the securities, and the securities
are not general obligations of the issuer.
The Intermediate Government Bond Series' investment strategy is to invest
only in obligations of the U.S. Treasury and Agencies of the U.S.
Government. The Intermediate Government Bond Series will buy bonds and
notes that will maintain an average maturity of no more than ten years.
The following is a summary of significant accounting policies
consistently followed by the Funds in the preparation of their financial
statements. The policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION
Securities are valued by using market quotation or obtained from
yield data relating to instruments or securities with similar
characteristics as determined in good faith under the direction of
the Funds' Board of Trustees.
B. SECURITY TRANSACTIONS
Security transactions are accounted for on a trade date basis.
Gains and losses on securities sold are determined on an
identified cost basis.
C. SECURITY INCOME
Interest income, which includes the amortization of premiums and
the accretion of original issue discounts for financial and tax
reporting purposes, is recorded on the accrual basis.
52
<PAGE> 95
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
D. FEDERAL INCOME TAXES
Each of the Funds is a separate entity for federal income tax
purposes. It is each Fund's policy to qualify as a regulated
investment company by complying with the requirements of the
Internal Revenue Code (the "code") applicable to regulated
investment companies, including the distribution of all taxable
income to their shareholders. The Funds have met the requirements
of the code applicable to regulated investment companies for the
year ended June 30, 1999. Therefore, no federal income tax
provision is required.
E. DISTRIBUTIONS
All of the net investment income of the Funds is declared as a
dividend to shareholders of record as of the close of business
each day. Distributions to be paid are payable in cash or in
additional shares at the net asset value on the payable date.
Distributions are payable:
MONTHLY for: the Kentucky Tax-Free Short-to-Medium Series, and
the North Carolina Tax-Free Short-to-Medium
Series, and
the Tennessee Tax-Free Short-to-Medium Series, and
the Intermediate Government Bond Series, and
QUARTERLY for: the Kentucky Tax-Free Income Series, and
the North Carolina Tax-Free Income Series, and
the Tennessee Tax-Free Income Series
Timing differences relating to shareholder distributions are
reflected in the components of net assets and permanent book and
tax basis differences relating to shareholder distributions have
been reclassified to capital.
F. ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
and disclosures. Actual amounts could differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Trustees of the Trust consist of six individuals, four of whom are
not "interested persons" of the Trust as defined in the Investment
Company Act of 1940. Two of the Trust's trustees are "interested persons"
of the Trust's Investment Advisor 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 Funds have a contractual agreement with Star Bank, N.A. whereby the
bank will provide certain custodial services for $1.00 per year.
Subject to the direction of the Trustees, Dupree & Company, Inc. is
responsible for the management of the Funds' portfolios. The compensation
paid to Dupree & Company, Inc. pursuant to the Investment Advisory
Agreements is a percentage of the daily net assets of each series
(determined separately) as follows:
53
<PAGE> 96
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES, CONTINUED:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
RANGE OF NET ASSETS $100,000,001-
$0-$100,000,000 $150,000,000 $150,000,001+
Kentucky Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Kentucky Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
North Carolina Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
North Carolina Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
Tennessee Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Tennessee Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
Intermediate Government Bond Series .20 of 1% .20 of 1% .20 of 1%
</TABLE>
However, the advisor may voluntarily waive or refund investment advisory
fees payable to it under the Investment Advisory Agreement with each
Fund, and assume and pay other operating expenses.
For the period ended June 30, 1999 investment advisory fees for:
the North Carolina Tax-Free Income Series totaled $69,119; however,
Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses
totaling $42,430 in accordance with the investment advisory agreement,
the North Carolina Tax-Free Short-to-Medium Series totaled $13,989;
however, Dupree & Company, Inc. voluntarily refunded fees and reimbursed
expenses totaling $9,519 in accordance with the investment advisory
agreement,
the Tennessee Tax-Free Income Series totaled $206,464; however, Dupree &
Company, Inc. voluntarily refunded fees and reimbursed expenses totaling
$86,844 in accordance with the investment advisory agreement,
the Tennessee Tax-Free Short-to-Medium Series totaled $33,510; however,
Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses
totaling $11,427 in accordance with the investment advisory agreement,
and
In addition, each Fund has entered into a 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 amounts in excess of $20,000,000.
3. PURCHASES AND SALES OF SECURITIES
The Funds may purchase securities with delivery or payments to occur at a
later date. At the time the Funds enter into a commitment to purchase a
security, the transaction is recorded and the value of the security is
reflected in the net asset value. The value of the security may vary
with market fluctuations. No interest accrues to the Fund until payment
takes place. At the time the Fund enters into this type of transaction,
it is required to segregate cash or other liquid assets equal to the
value of the securities purchased. At June 30, 1999, the market value of
securities segregated for these types of transactions was as follows:
<TABLE>
<S> <C>
Kentucky Tax-Free Income Series $5,284,388
</TABLE>
54
<PAGE> 97
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
3. PURCHASES AND SALES OF SECURITIES, CONTINUED:
During the period, the cost of purchases and the proceeds from sales of
securities for each Series were as follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- ----------
<S> <C> <C>
Kentucky Tax-Free Income Series $ 106,082,194 $ 43,570,749
Kentucky Tax-Free Short-to-Medium Series 23,383,117 15,932,130
North Carolina Tax-Free Income Series 11,487,794 1,646,001
North Carolina Tax-Free Short-to-Medium Series 2,477,274 705,650
Tennessee Tax-Free Income Series 22,830,585 5,908,931
Tennessee Tax-Free Short-to-Medium Series 6,620,978 5,367,939
Intermediate Government Bond Series 4,580,500 2,544,938
</TABLE>
4. CAPITAL SHARES
At June 30, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
KENTUCKY TAX-FREE INCOME SERIES YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 12,037,741 $ 92,522,784 8,274,443 $ 63,166,991
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 1,497,738 11,537,082 1,330,547 10,107,037
SHARES REDEEMED (5,684,458) (43,600,775) (4,637,701) (35,382,044)
NET INCREASE 7,851,021 $60,459,091 4,967,289 $37,891,984
- - ------------------------------------------------- --------------- ----------------- ---------------- ----------------
- - ------------------------------------------------- --------------------------------- ---------------------------------
KENTUCKY TAX-FREE
SHORT-TO-MEDIUM SERIES YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------
SHARES SOLD 6,072,689 $ 32,118,854 4,280,299 $ 22,602,280
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 320,987 1,698,602 301,877 1,593,039
SHARES REDEEMED (5,379,335) (28,432,548) (4,621,840) (24,399,867)
NET DECREASE 1,014,341 $5,384,908 (39,664) $(204,548)
- - ------------------------------------------------- --------------- ----------------- ---------------- ----------------
- - ------------------------------------------------- --------------------------------- ---------------------------------
NORTH CAROLINA TAX-FREE
INCOME SERIES YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------
SHARES SOLD 1,056,498 $ 11,551,644 612,725 $ 6,555,188
SHARES ISSUED FOR REINVESTMENT FROM
CAPITAL GAINS 533 5,859 0 0
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 35,760 391,836 16,794 178,616
SHARES REDEEMED (175,335) (1,918,344) (60,759) (649,326)
NET INCREASE 917,456 $10,030,995 568,760 $6,084,478
- - ------------------------------------------------- --------------- ----------------- ---------------- ----------------
</TABLE>
55
<PAGE> 98
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
4. CAPITAL SHARES, CONTINUED:
<TABLE>
<CAPTION>
- - ------------------------------------------------- --------------------------------- ---------------------------------
NORTH CAROLINA TAX-FREE
SHORT-TO-MEDIUM SERIES YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 308,018 $ 3,155,669 166,808 $ 1,702,208
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 8,750 89,774 5,170 52,695
SHARES REDEEMED (140,946) (1,443,301) (101,790) (1,037,161)
NET INCREASE 175,822 $1,802,142 70,188 $717,742
- - ------------------------------------------------- --------------- ----------------- ---------------- ----------------
- - -------------------------------------------------- -------------------------------- ---------------------------------
TENNESSEE TAX-FREE INCOME SERIES YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------
SHARES SOLD 2,393,811 $ 26,549,094 1,497,327 $ 16,307,421
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 69,683 773,724 40,478 436,058
SHARES ISSUED FOR REINVESTMENT FROM
CAPITAL GAIN 3,050 33,982 1,015 11,036
SHARES REDEEMED (846,081) (9,323,933) (179,345) (1,941,569)
NET INCREASE 1,620,463 $18,032,867 1,359,475 $14,812,946
- - -------------------------------------------------- --------------- ---------------- ----------------- ---------------
- - ------------------------------------------------- --------------------------------- ---------------------------------
TENNESSEE TAX-FREE
SHORT-TO-MEDIUM SERIES YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------
SHARES SOLD 744,695 $ 7,803,486 464,170 $ 4,840,427
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 15,072 157,957 10,556 109,973
SHARES REDEEMED (650,969) (6,803,955) (310,299) (3,234,317)
NET INCREASE 108,798 $1,157,488 164,427 $1,716,083
- - ------------------------------------------------- --------------- ----------------- ---------------- ----------------
- - ------------------------------------------------- --------------------------------- ---------------------------------
INTERMEDIATE GOVERNMENT BOND
SERIES YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------
SHARES SOLD 382,007 $ 3,884,292 197,726 $ 1,997,534
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 42,147 428,535 36,875 371,910
SHARES REDEEMED (262,548) (2,655,866) (126,069) (1,271,215)
NET INCREASE 161,606 $1,656,961 108,532 $1,098,229
- - ------------------------------------------------- --------------- ----------------- ---------------- ----------------
</TABLE>
56
<PAGE> 99
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
5. FEDERAL INCOME TAXES
At June 30, 1999, the Kentucky Tax-Free Income Series, the Kentucky Tax-Free
Short-to-Medium Series, the North Carolina Tax-Free Income Series, the North
Carolina Tax-Free Short-to-Medium Series, the Tennessee Tax-Free
Short-to-Medium Series and the Intermediate Government Bond Series have
capital loss carryforwards which are available to offset future capital
gains, if any. The capital loss carryforwards expire as follows:
<TABLE>
<CAPTION>
KY NC TN
KY Tax-Free Tax-Free Tax-Free Intermediate
Tax-Free Short-to Short-to Short-to Government
Income Medium Medium Medium Bond
Series Series Series Series Series
<S> <C> <C> <C> <C> <C>
2003 $131,372 $344,195 $ --- $ --- $664,593
2004 --- 10,144 1,436 807 87,381
2005 --- 188,198 1,015 1,660 ---
2006 --- 73,155 804 2,666 ---
---------------------------------------------------------------------
Net accumulated
realized losses $131,372 $615,692 $3,255 $5,133 $751,974
=====================================================================
</TABLE>
The amount of long-term capital gains paid for the fiscal year ended June
30, 1999 were as follows:
Tennessee Tax-Free Income Series $29,465
North Carolina Tax-Free Income Series $ 6,826
For the year ended June 30, 1999, all of the distributions made from net
investment income of the Dupree municipal bond funds are tax-exempt for
federal income tax purposes.
6. LINE OF CREDIT AGREEMENT
Under the terms of an agreement with Star Bank, N.A., principal amounts
up to 5% of a Fund's net assets are available on an uncommitted line of
credit. The principal amounts borrowed are due on demand. Interest will
be payable based on the prime rate of the bank (8.00% at June 30, 1999).
Securities with a minimum value of three times the loan proceeds will be
assigned as collateral until the balance of the note and unpaid interest
is paid in full and terminated. Debt covenants, among others, require the
Funds to:
- Provide the lender with the Funds' annual report
- Comply with all agreements with the lender and with
applicable laws and regulations
- Maintain appropriate insurance coverage
No borrowings were outstanding nor was the line of credit drawn on during
the fiscal year 1999.
57
<PAGE> 100
Report of Independent Auditors
The Board of Trustees and Shareholders
Dupree Mutual Funds
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of Dupree Mutual Funds (comprised of
Kentucky Tax-Free Income Series, Kentucky Tax-Free Short-to-Medium Series, North
Carolina Tax-Free Income Series, North Carolina Tax-Free Short-to-Medium Series,
Tennessee Tax-Free Income Series, Tennessee Tax-Free Short-to-Medium Series and
Intermediate Government Bond Series) (the Funds) as of June 30, 1999, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the three years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1999, by correspondence with the custodian and
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting Dupree Mutual Funds as of June 30,
1999, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and their
financial highlights for each of the three years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
July 30, 1999
Cincinnati, Ohio
<PAGE> 101
DUPREE MUTUAL FUNDS
POST-EFFECTIVE AMENDMENT NO. 39
PART C of Form N-1A OTHER INFORMATION-------------Page-------------------------
Item 23.
(A) Articles of Incorporation
(B) Bylaws
(C) Certificates of shares of beneficial interest are available for
investors of each series, if requested. Most investors keep only a book
entry of their shares of beneficial interest and do not request the
issuance of actual certificates. Articles V and VI of the Declaration
of Trust of the Registrant define the rights of holders of the
securities. The Declaration of Trust is included herein as Articles V
and VI of Exhibits (a).
(D) Investment Advisory Contracts
(E) NA
(F) NA
(G) Custodian Agreements
(H) Transfer Agent Agreement
(I) Legal Opinion
(J) Consent of Independent Accountants
(K) Schedule for computation of each performance quotation shown at
"How to Compute Our Yields" in Statement of Additional Information
(L) NA
(M) NA
(N) NA
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable
Item 25. INDEMNIFICATION
Inapplicable
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, Secretary and Treasurer 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.
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
None
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of Fayette and State of Kentucky on the
this 2nd day of September 8, 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. 39 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) 9-8-99
- - ------------------------- and Trustee
/s/ Fred L. Dupree, Jr. Vice President, Secretary, and Treasurer 9-8-99
- - ------------------------- (Principal Financial and Accounting Officer)
and Trustee
/s/ William T. Griggs II Vice President, Assistant Secretary and Trustee 9-8-99
- - -------------------------
/s/ William A. Combs, Jr. Trustee 9-8-99
- - -------------------------
Trustee
- - ------------------------- ------
Robert L. Maddox
/s/ William S. Patterson Trustee 9-8-99
- - -------------------------
/s/ Lucy A. Breathitt Trustee
- - ------------------------- ------
</TABLE>
<PAGE> 103
DUPREE MUTUAL FUNDS
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO 39
TO
FORM N-1A REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
AND
INVESTMENT COMPANY ACT OF 1940
<PAGE> 104
Item 23(A)
DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
INDEX
Page
Article I Name and Principal Office ........ 1
Article II Definitions ............... 2
Article III Purpose ................. 3
Article IV The Trustees .............. 4
Section 4.1 Number, Designation, Election, Term,
etc. ................ 4
(A) Initial Trustees ............ 4
(B) Number ................. 4
(C) Term .................. 5
(D) Resignation and Retirement ........ 5
(E) Removal ................. 5
(F) Vacancies ................ 5
(G) Effect of Death, Resignation, etc. ... 6
(H) No Accounting .............. 6
Section 4.2 Powers of Trustees ......... 7
(A) Investments ............... 8
(B) Disposition of Assets .......... 8
(C) Ownership Powers ............. 9
(D) Subscription .............. 9
(E) Form of Holding ............. 9
(F) Reorganization, etc. .......... 9
(G) Voting Trusts, etc. ........... 10
(H) Compromise ............... 10
(1) Partnerships, .etc. ........... 10
(J) Borrowing and Security .......... 10
(K) Guarantees, etc. ............ 11
(L) Insurance ................ 11
(M) Pensions, etc. ............. 12
Section 4.3 Certain Contracts .......... 12
(A) Advisory ................ 13
(B) Administration ............. 13
(C) Distribution .............. 13
(D) Custodian and Depository ........ 14
(E) Transfer and Dividend Disbursing Agent . . 14
(F) Shareholder Servicing .......... 14
(G) Accounting ............... 14
Section 4.4 Payment of Trust Expenses and
Compensation of Trustees ...... 16
<PAGE> 105
Section 4.5 Ownership of Assets of the Trust . . 17
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<PAGE> 106
Index Page
Article V Shares ................. 17
Section 5.1 Description of Shares ........ 17
Section 5.2 Establishment and Designation of
Series ............... 20
(A) Assets Belonging to Series ....... 21
(B) Liabilities Belonging to Series .... 22
(C) Dividends ............... 23
(D) Liquidation .............. 24
(E) Voting ................. 25
(F) Redemption by Shareholder ....... 26
(G) Redemption by Trust .......... 28
(H) Net Asset Value ............ 29
(1) Transfer ................ 31
(J) Equality ................ 31
(K) Fractions ................ 32
(L) Conversion Rights ............ 32
Section 5.3 Ownership of Shares ........ 32
Section 5.4 Investments in the Trust ...... 33
Section 5.5 No Preemptive Rights ........ 33
Section 5.6 Status of Shares and Limitations 33
of Personal Liability ....... 33
Article VI Voting and Meeting of Shareholders ... 34
Section 6.1 Voting Powers ............ 34
Section 6.2 Meetings .............. 35
Section 6.3 Record Dates ............ 36
Section 6.4 Quorum and Required Vote ...... 37
Section 6.5 Action by Unanimous Consent .... 38
Section 6.6 Inspection of Records ........ 38
Section 6.7 Additional Provisions ........ 38
Article VII Limitation of Liability-Indemnification . 38
Section 7.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice . 38
Section 7.2 Trustee's Good Faith Action;
Expert Advice; No Bond or Surety . . 39
Section 7.3 Indemnification of Shareholders ..... 40
Section 7.4 Indemnification of Trustees,
Officers, etc. ........... 41
Section 7.5 Advances of Expenses ........ 42
Section 7.6 Indemnification Not Exclusive, etc. . 43
Section 7.7 Liability of Third Persons
Dealing with Trustees ....... 44
Article VIII Termination of Trust-Miscellaneous .. 44
Section 8.1 Duration and Termination of Trust . . 44
Section 8.2 Reorganization ........... 44
Section 8.3 Amendments ............. 45
Section 8.4 Filing of Copies; References;
Headings .............. 46
<PAGE> 107
Section 8.5 Applicable Law ........... 47
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DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
THIS DECLARATION OF TRUST is made and entered into at
167 West Main Street, Lexington, Kentucky 40507 as of the 25th day
of June, 1987, by the TRUSTEES, hereinafter named, for the
purpose of creating an express business trust pursuant to the
provisions of Section 386.370, et seq. of the Kentucky Revised
Statutes.
WITNESSETH THAT:
WHEREAS, the Trust hereinafter expressed has been created
for the purpose of carrying on the business of an investment
company pursuant to the Investment Company Act of 1940, and
WHEREAS, the Trustees, hereinafter named, have agreed to
manage the property which may come into their hands as provided
hereunder as the trustees of a Kentucky business trust.
NOW THEREFORE, the hereinafter named Trustees by these
presents declare that they will hold the assets, cash and
securities which they may acquire as trustees hereunder in trust
and that they will manage and dispose of said assets, cash and
securities upon the terms and conditions enumerated herein for the
benefit of the holders, from time to time, of the shares of
beneficial interest of this Kentucky Business Trust.
ARTICLE I - NAME AND PRINCIPAL OFFICE
This Trust shall be known and designated as "Dupree
Mutual Funds". Its Trustees shall conduct the business of
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the Trust under said name or any other name which they may from
time to time determine. The principal office of this Trust shall
be at 167 West Main Street, Lexington, Kentucky, 40507 or at such
other location as may from time to time be determined and
designated by the Trustees.
ARTICLE II - DEFINITIONS
As used herein, unless otherwise clearly required by the
context or otherwise specifically provided, the following terms
shall be accorded the following meanings:
(A) The "Trust" refers to the Kentucky Business Trust
established by this Declaration of Trust, as amended
from time to time;
(B) "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article IV.
(C) "Shares" refers to the transferable units of
interest into which the beneficial interest in the
Trust or any Series of the Trust (as the context may
require) shall be divided from time to time;
(D) "Series" refers to Series of Shares established and
designated under or in accordance with the
provisions of Article V;
(E) "Shareholder" means a record owner of Shares;
(F) The "1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder,
all as amended from time to time;
(G) "Commission" shall have the meaning given it in the
1940 Act;
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(H) "Declaration of Trust" shall mean this Declaration
of Trust as amended or restated from time to time;
and
(1) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.
ARTICLE III - PURPOSE
The purpose of the Trust is to operate as an investment
company, to offer Shareholders one or more investment programs
primarily in securities and debt instruments and to transact any or
all lawful business.
The Trust may:
(A) Invest and reinvest its funds in, to purchase or
otherwise acquire, to hold for investment or otherwise, to lend and
to sell or otherwise dispose of, securities (including but not
limited to bonds, debentures, notes and other obligations and
evidences of indebtedness, repurchase agreements, options, stocks,
shares, and any certificates, receipts, warrants or other
instruments representing rights to subscribe to, purchase, receive
or otherwise acquire the same or evidencing any other rights or
interests therein) created or issued by any country, state, county,
municipality or other political subdivision, or by any other
governmental or quasi-governmental district, authority, agency or
instrumentality, or by any corporation, association, firm or other
business organization;
(B) Exercise all rights, powers and privileges of
ownership or interest in all securities held or owned by the Trust,
including but not limited to the exercise of any voting rights
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pertaining thereto, and to do all acts and things for the
preservation, protection, improvement and enhancement in value
thereof;
(C) Aid by further investment any corporation,
association, firm or other business organization, or any country,
state, county, municipality or other political subdivision, or any
governmental or quasi-governmental district, authority, agency or
instrumentality, any securities of which are held or owned by the
Trust, or in the affairs of which the Trust has any other direct or
indirect interest: and
(D) Promote or aid the incorporation of any organization
or enterprise under the laws of any subdivision, and to cause the
same to be dissolved, wound up, liquidated, merged or consolidated.
ARTICLE IV - THE TRUSTEES
Section 4.1 Number, Designation, Election, Term, etc.
(A) Initial Trustees. Upon his execution of this
Declaration of Trust or a counterpart hereof or some other writing
in which he accepts such Trusteeship and agrees to the provisions
hereof, each of Fred L. Dupree, Jr., Thomas P. Dupree, Sr., Jack
Langley, Robert L. Maddox and William S. Patterson shall become a
Trustee hereof.
(B) Number. The Trustees serving as such, whether named
above or hereafter becoming a Trustee, may increase or decrease (to
not less than three) the number of Trustees to a number other than
the number theretofore determined. No decrease in the number of
Trustees shall have the effect of removing any Trustee from office
prior to the expiration of his or her term, but the number of
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Trustees may be decreased in conjunction with the removal of a
Trustee pursuant to section (E) of this Section 4.1.
(C) Term. Each Trustee, whether named above or
hereafter becoming a Trustee, shall serve as a Trustee until the
next annual meeting of Shareholders or any special meeting in lieu
thereof and until the election and qualification of his or her
successor, if any, elected at such meeting, or until such Trustee
sooner dies, resigns, retires or is removed.
(D) Resignation and Retirement. Any Trustee may resign
his or her trust or retire as a Trustee, by written instrument
signed by said Trustee and delivered to the other Trustees or to
any officer of the Trust, and such resignation or retirement shall
take effect upon such delivery or upon such later date as is
specified in such instrument.
(E) Removal. Any Trustee may be removed with or without
cause at any time either by written instrument, signed by at least
two-thirds of the number of Trustees prior to such removal,
specifying the date upon which such removal shall become effective,
or by the Shareholders a; any meeting called for the purpose.
(F) Vacancies. Any vacancy or anticipated vacancy
resulting from any reason, including without limitation the death,
resignation, retirement, removal or incapacity of any of the
Trustees, or resulting from an increase in the number of Trustees
by the Trustees may (but so long as there are at least three
remaining Trustees, need not unless required by the 1940 Act) be
filled either by a majority of the remaining Trustees through the
appointment in writing of such other person as such remaining
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Trustees in their discretion shall determine (unless a shareholder
election is required by the 1940 Act) or by the election by the
Shareholders, at a meeting called for the purpose, of a person to
fill such vacancy, and such appointment or election shall be
effective upon the written acceptance of the person named therein
to serve as a Trustee and agreement by such person to be bound by
the provisions of this Declaration of Trust, except that any such
appointment or election in anticipation of a vacancy to occur by
reason of retirement, resignation, or increase in number of
Trustees to be effective at a later date shall become effective
only at or after the effective date of said retirement,
resignation, or increase in number of Trustees. As soon as any
Trustee so appointed or elected shall have accepted such
appointment or election and shall have agreed in writing to be
bound by this Declaration of Trust and the appointment or election
is effective, the Trust estate shall vest in the new Trustee,
together with the continuing Trustees, wlthout any further act or
conveyance.
(G) Effect of Death, Resignation, etc. The death,
resignation, retirement, removal, or incapacity of the Trustees, or
any one of them, shall not operate to annul or terminate the Trust
or to revoke or terminate any existing agency or contract created
or entered into pursuant to the terms of this Declaration of Trust.
(H) No Accounting. Except to the extent required by the
1940 Act or under circumstances which would justify his or her
removal for cause, no person ceasing to be a Trustee as a result of
death, resignation, retirement, removal or incapacity (nor the
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estate of any such person) shall be required to make an accounting
to the Shareholders or remaining Trustees upon such cessation.
Section 4.2 Powers of Trustees. Subject to the
provisions of this Declaration of Trust, the business of the Trust
shall be managed by the Trustees, and they shall have all powers
necessary or convenient to carry out that responsibility and the
purpose of the Trust. Without limiting the foregoing, the Trustees
may adopt By-Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business and affairs of the Trust
and may amend and repeal them to the extent that such By-Laws do
not reserve that right to the Shareholders; they may as they
consider appropriate elect and remove officers and appoint and
terminate agents and consultants and hire and terminate employees,
any one or more of the foregoing of whom may be a Trustee, and may
provide for the compensation of all of the foregoing; they may
appoint from their own number, and terminate, any one or more
committees consisting of two or more Trustees, including without
implied limitation an executive committee, which may, when the
Trustees are not in session and subject to the 1940 Act, exercise
some or all of the power and authority of the Trustees as the
Trustees may determine; in accordance with Section 4.3 they may
employ one or more Advisers, Administrators, Depositories and
Custodians and may authorize any Depository or Custodian to employ
subcustodians or agents and to deposit all or any part of such
assets in a system or systems for the central handling of
securities and debt instruments, retain transfer, dividend,
accounting or Shareholder servicing agents or any of the foregoing,
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provide for the distribution of Shares by the Trust through one or
more distributors, principal underwriters or otherwise, set record
dates or times for the determination of Shareholders or various of
them with respect to various matters; they may compensate or
provide for the compensation of the Trustees, officers, advisers,
administrators, custodians, other agents, consultants and employees
of the Trust or the Trustees on such terms as they deem
appropriate; and in general they may delegate to any officer of the
Trust, to any committee of the Trustees and to any employee,
adviser, administrator, distributor, depository, custodian,
transfer and dividend disbursing agent, or any other agent or
consultant of the Trust such authority, powers, functions and
duties as they consider desirable or appropriate for the conduct of
the business and affairs of the Trust, including without implied
limitation the power and authority to act in the name of the Trust
and of the Trustees, to sign documents and to act as attorney-in-
fact for the Trustees.
Without limiting the foregoing and to the extent not
inconsistent with the 1920 Act or other applicable law, the
Trustees shall have power and authority:
(A) Investments. To invest and reinvest cash and other
property, and to hold cash or other property
uninvested without in any event being bound or
Limited by any present or future law or custom in
regard to investments by trustees;
(B) Disposition of Assets. To sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and
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lease any or all of the assets of the Trust;
Ownership Powers. To vote or give assent, or
exercise any rights of ownership, with respect to
stock or other securities, debt instruments or
property; and to execute and deliver proxies or
powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person
or persons such power and discretion with relation
to securities, debt instruments or property as the
Trustees shall deem proper;
Subscription. To exercise powers and rights of
subscription or otherwise which in any manner arise
out of ownership of securities or debt instruments;
Form of Holding. To hold any security, debt
instrument or property in a form not indicating any
trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or
of the Trust or in the name of a custodian,
subcustodian or other depository or a nominee or
nominees or otherwise;
Reorganization, etc. To consent to or participate
in any plan for the reorganization, consolidation or
merger of any corporation or issuer, any security or
debt instrument of which is or was held in the
Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with
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respect to any security or debt instrument held in
the Trust;
(G) Voting Trusts, etc. To join with other holders of
any securities or debt instruments in acting through
a committee, depository, voting trustee or
otherwise, and in that connection to deposit any
security or debt instrument with, or transfer any
security or debt instrument to, any such committee,
depository or trustee, and to delegate to them such
power and authority with relation to any security or
debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper, and
to agree to pay, and to pay, such portion of the
expenses and compensation of such committee,
depository or trustee as the Trustees shall deem
proper;
(H) Compromise. To compromise, arbitrate or otherwise
adjust claims in favor of or against the Trust with
respect to any matter in controversy, including but
not limited to claims for taxes;
(I) Partnerships, etc. To enter into joint ventures,
general or limited partnerships and any other
combinations or associations;
(J) Borrowing and Security. To borrow funds and to
mortgage and pledge the assets of the Trust or any
part thereof to secure obligations arising in
connection with such borrowing;
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(K) Guarantees, etc. To endorse or guarantee the
payment of any notes or other obligations of any
person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof;
and to mortgage and pledge the Trust property or any
part thereof to secure any of or all such
obligations;
(L) Insurance. To purchase and pay for entirely out of
Trust property such insurance as they may deem
necessary or appropriate for the conduct of the
business, including without limitation, insurance
policies insuring the assets of the Trust and
payment of distributions and principal on its
portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers,
employees, agents, consultants, investment advisers,
managers, administrators, distributors, principal
underwriters, or independent contractors, or any
thereof (or any person connected therewith), of the
Trust individually against all claims and
liabilities of every nature arising by reason of
holding, being or having held any such office or
position, or by reason of any action alleged to have
been taken or omitted by any such person in any such
capacity, including any action taken or omitted that
may be determined to constitute negligence, whether
or not the Trust would have the power to indemnify
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such person against such liability; and
(M) Pensions, etc. To pay pensions for faithful service, as deemed appropriate
by the Trustees, and to adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including
the purchasing of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
Except as otherwise provided by the 1940 Act or other
applicable law, this Declaration of Trust or the By-Laws, any
action to be taken by the Trustees may be taken by a majority of
the Trustees present at a meeting of Trustees (a quorum, consisting
of at least a majority of the Trustees then in office, being
present), within or without Kentucky, including any meeting held by
means of a conference telephone or other communications equipment
by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall
constitute presence in person at a meeting, or by written consents
of a majority of the Trustees then in office.
Section 4.3 Certain Contracts. Subject to compliance
with the provisions of the 1940 Act, but notwithstanding any
limitations of present and future law or custom in regard to
delegation of powers by trustees generally, the Trustees may, at
any time and from time to time and without limiting the generality
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Of their powers and authority otherwise set forth herein, enter
into one or more contracts with any one or more corporations,
trusts, associations, partnerships, limited partnerships, other
type of organizations, or individuals ("Contracting Party") to
provide for the performance and assumption of some or all of the
following services, duties and responsibilities to, for or of the
Trust and/or the Trustees, and to provide for the performance and
assumption of such other services, duties and responsibilities in
addition to those set forth below as the Trustees may determine
appropriate:
(A) Advisory. Subject to the general supervision of the
Trustees and in conformity with the stated policy of the Trustees
with respect to the investments of the Trust or of the assets
belonging to any Series of Shares of the Trust (as that phrase is
defined in subsection (A) of Section 5.2), to manage such
investments and assets, make investment decisions with respect
thereto, and to place purchase and sale orders for portfolio
transactions relating to such investments and assets;
(B) Administration. Subject to the general supervision
of the Trustees and in conformity with any policies of the Trustees
with respect to the operations of the Trust, to supervise all or
any part of the operations of the Trust, and to provide all or any
part of the administrative and clerical personnel, office space and
office equipment and services appropriate for the efficient
administration and operations of the Trust;
(C) Distribution. To distribute the Shares of the
Trust, to be principal underwriter of such Shares, and/or to act as
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agent of the Trust in the sale of Shares and the acceptance or
rejection of orders for the purchase of Shares;
(D) Custodian and Depository. To act as depository for
and to maintain custody of the property of the Trust and accounting
records in connection therewith;
(E) Transfer and Dividend Disbursing Agency. To
maintain records of the ownership of outstanding Shares, the
issuance and redemption and the transfer thereof, and to disburse
any dividends declared by the Trustees and in accordance with the
policies of the Trustees and/or the instructions of any particular
Shareholder to reinvest any such dividends;
(F) Shareholder Servicing. To provide service with
respect to the relationship of the Trust and its Shareholders,
records with respect to Shareholders and their Shares, and similar
matters; and
(G) Accounting. To perform all or any part of the
accounting responsibilities, whether with respect to the Trust's
properties, Shareholders or otherwise.
The same person may be the Contracting Party for some or all of the
services, duties and responsibilities to, for and of the Trust
and/or the Trustees, and the contracts with respect thereto may
contain such terms interpretive of or in addition to the
delineation of the services, duties and responsibilities provided
for, including provisions that are not inconsistent with the 1940
Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the
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Trustees may determine.
Subject to the provisions of the 1940 Act, the fact that:
(i) any of the Shareholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner, trustee,
employee, manager, adviser, principal underwriter or distributor or
agent of or for any Contracting Party, or of or for any parent or
affiliate of any Contracting Party or that the Contracting Party or
any parent or affiliate thereof is a Shareholder or has an interest
in the Trust, or that
(ii) any Contracting Party may have a contract providing
for the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited
partnerships or other organizations. or has other business or
interests,
shall not affect the validity of any contract for the performance
and assumption of services, duties and responsibilities to, for or
of the Trust and/or the Trustees or disqualify any Shareholder,
Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its
Shareholders, provided that in the case of any relationship or
interest referred to in the preceding clause (i) on the part of any
Trustee or officer of the Trust either (1) the material facts as to
such relationship or interest have been disclosed to or are known
by the Trustees not having any such relationship or interest and
the contract involved is approved in good faith by a majority of
such Trustees not having any such relationship or interest (even
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though such unrelated or disinterested Trustees are less than a
quorum of all of the Trustees), (2) the material facts as to such
relationship or interest and as to the contract have been disclosed
to or are known by the Shareholders entitled to vote thereon and
the contract involved is specifically approved in good faith by
vote of the Shareholders or (3) the specific contract involved is
fair to the Trust as of the time it is authorized, approved or
ratified by the Trustees or by the Shareholders.
Section 4.4. Payment of Trust Expenses and Compensation
of Trustees. The Trustees are authorized to pay or to cause to be
paid out of the principal or income of the Trust, or partly out of
principal and partly out of income, and to charge or allocate the
same to, between or among such one or more of the Series that may
be established and designated pursuant to Article V, as the
Trustees deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in
connection with the management thereof, including, but not limited
to, the Trustees' compensation and such expenses and charges for
the services of the Trust's officers, employees, investment
adviser, administrator, distributor, principal underwriter,
auditor, counsel, depository, custodian, transfer agent, dividend
disbursing agent, accounting agent, Shareholder servicing agent,
and such other agents, consultants, and independent contractors and
such other expenses and charges as the Trustees may deem necessary
or proper to incur. Without limiting the generality of any other
provision hereof, the Trustees shall be entitled to reasonable
compensation from the Trust for their services as Trustees and may
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fix the amount of such compensation.
Section 4.5 Ownership of Assets of the Trust. Title to
all of the assets of the Trust shall at all times be considered to
be vested in the Trustees.
ARTICLE V - SHARES
Section 5.1 Description of Shares. The beneficial
interest in the Trust shall be divided into Shares, all without par
value and of one class, but the Trustees shall have the authority
from time to time to divide the class of Shares into two or more
Series of shares (including without limitation those Series
specifically established and designated in Section 5.2), as they
deem necessary or desirable, to establish and designate such
Series, and to fix and determine the relative rights and
preferences as between the different Series of Shares as to right
of redemption and the price, terms and manner of redemption,
special and relative rights as to dividends and other distributions
and on liquidation, sinking or purchase fund provisions, conversion
rights, and conditions under which the several Series shall have
separate voting rights or no voting rights. Except as aforesaid
all Shares of the different Series shall be identical.
The Shares of each Series may be issued or reissued from
time to time in one or more sub-series ("Sub-Series"), as
determined by the Board of Trustees pursuant to resolution. Each
Sub-Series shall be appropriately designated, prior to the issuance
of any shares thereof, by some distinguishing letter, number or
title. All Shares of each Series shall be of equal rank and have
the same powers, preferences and rights, and shall be subject to
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the same qualifications, limitations and restrictions without
distinction between the shares of different Sub-Series thereof,
except with respect to such differences among such Sub-Series as
the Trustees shall from time to time determine to be necessary to
comply with the Investment Company Act of 1940 or other applicable
laws, including differences in the rate or rates of dividends or
distributions. The Trustees may from time to time increase the
number of Shares allocated to any Sub-Series already created by
providing that any unissued Shares of the applicable Series shall
constitute part of such Sub-Series, or may decrease the number of
Shares allocated to any Sub-Series already created by providing
that any unissued Shares previously assigned to such Sub-Series
shall no longer constitute part thereof. The Trustees are hereby
empowered to classify or reclassify from time to time any unissued
Shares of each Series by fixing or altering the terms thereof and
by assigning such unissued shares to an existing or newly created
Sub-Series. Notwithstanding anything to the contrary in this
paragraph the Trustees are hereby empowered (i) to redesignate any
issued Shares of any Series by assigning a distinguishing letter,
number or title to such shares and (ii) to reclassify all or any
part of the issued Shares of any Series to make them part of an
existing or newly created Sub-Series.
The number of authorized Shares that may be issued is
unlimited, and the Trustees may issue Shares of any Series for such
consideration and on such terms as they may determine (or for no
consideration if pursuant to a Share dividend or split-up), all
without action or approval of the Shareholders. All Shares when so
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issued on the terms determined by the Trustees shall be fully paid
and non-assessable (but may be subject to mandatory contribution
back to the Trust as provided in subsection (H) of Section 5.2).
The Trust may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any Series into one or
more Series that may be established and designated from time to
time. The Trustees may hold as Treasury Shares (of the same or
some other Series), reissue for such consideration and on such
terms as they may determine, or cancel, at their discretion from
time to time, any Shares of any Series reacquired by the Trust.
The Trustees may from time to time close the transfer
books or establish record dates and times for the purposes of
determining the holders of Shares entitled to be treated as such,
to the extent required for the operation of the Trust.
The establishment and designation of any Series of Shares
in addition to those established and designated in Section 5.2, or
of any Sub-Series of shares, shall be effective upon the execution
by a majority of the then Trustees of an instrument setting forth
such preferences of such Series or Sub-Series, or as otherwise
provided in such instrument. At any time that there are no Shares
outstanding of any particular Series or Sub-Series previously
established and designated the Trustees may by an instrument
executed by a majority of their number abolish that Series or Sub-
Series and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of
an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any
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organization in which any such person is interested may acquire,
own, hold and dispose of Shares of any Series of the Trust to the
same extent as if such person were not a Trustee, officer or other
agent of the Trust; and the Trust may issue and sell or cause to be
issued and sold and may purchase Shares of any Series from any such
person or any such organization subject only to the general
limitations, restrictions or other provisions applicable to the
sale or purchase of Shares of such Series generally.
Section 5.2 Establishment and Designation of Series.
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 two series of shares: (i) The
"Kentuckv Tax-Free Income Series" which shall initially be issued
to holders of the shares of the Kentucky Tax-Free Income Fund,
Inc., a Kentucky corporation, in a one-to-one exchange for their
shares in the said Kentucky Tax-Free Income Fund, Inc., subject
only to the affirmative vote of a majority of said shares at a
meeting called for said purpose on July 22, 1987. (If said
exchange is consummated the assets of Kentucky Tax-Free Income
Fund, Inc. shall, immediately thereafter, constitute "assets
belonging to" the Kentucky Tax-Free Income Series as said term is
used in Subsection (A) hereinafter and the liabilities of said
corporation shall, immediately thereafter, constitute "liabilities
belonging to" the Kentucky Tax-Free Income Series as said term is
used in Subsection (B) hereinafter.) (ii) The "Kentucky Tax-Free
Short to Medium Series", no shares of which are issued or
outstanding as of the date of execution of this Declaration of
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The shares of the Series established and designated
hereinabove and any shares of any Series that may from time to time
in the future be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some
further Series or Sub-Series at the time of establishing and
designating the same) have the following relative rights and
preferences:
(A) Assets Belonging to Series. All consideration
received by the Trust for the issue or sale of Shares of a.
particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, and shall be
so recorded upon the books of account of the Trust. Such
consideration, assets, income , earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds, in whatever form the same may
be, together with any General Items allocated to that Series as
provided in the following sentence, are herein referred to as
"assets belonging to" that Series. In the event that there are any
assets, income, earnings, profits, and proceeds thereof, funds, or
payments which are not readily identifiable as belonging to any
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particular Series (collectively "General Items"), the Trustees
shall allocate such General Items to and among any one or more of
the Series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem
fair and equitable; and any General Items so allocated to a
particular Series shall belong to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
The Trustees shall have full discretion, to the extent
not inconsistent with the 1940 Act, to determine which items shall
be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon
the Shareholders.
(B) Liabilities Belonging to Series. The assets
belonging to each particular Series shall be charged with the
liabilities of the Trust in respect of that Series and all
expenses, costs, charges and reserves attributable to that Series,
and any general liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any
particular Series shall be allocated and charged by the Trustees to
and among any one or more of the Series established and designated
from time to time in such manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges and reserves allocated and so charged to a
Series are herein referred to as "liabilities belonging to" that
Series. Each allocation of liabilities, expenses, costs, charges
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and reserves by the Trustees shall be conclusive and binding upon
the holders of all Series for all purposes.
(C) Dividends. Dividends and distributions on Shares of
a particular Series may be declared with such frequency as the
Trustees may determine, which may be daily or otherwise pursuant to
a standing resolution or resolutions adopted only once or with such
frequency as the Trustees may determine, to the holders of Shares
of that Series, from such of the income and capital gains, accrued
or realized, from the assets belonging to that Series, as the
Trustees may determine, after providing for actual and accrued
liabilities belonging to that Series. All dividends and
distributions on Shares of a particular Series shall be distributed
pro rata to the holders of that Series held by such holders at the
date and time of record established for the payment of such
dividends or distributions, except that in connection with any
dividend or distribution program or procedure the Trustees may
determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment
have not been received by the time or times established by the
Trustees under such program or procedure, and except that if Sub-
Series have been established for any Series, the rate of dividends
or distributions may vary among such Sub-Series pursuant to
resolution, which may be a standing resolution, of the Trustees.
Such dividends and distributions may be made in cash or Shares or a
combination thereof as determined by the Trustees or pursuant to
any program that the Trustees may have in effect at the time for
the election by each Shareholder of the mode of the making of such
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dividend or distribution to that Shareholder. Any such dividend or
distribution paid in Shares will be paid at the net asset value
thereof as determined in accordance with subsection (H) of this
Section 5.2.
The Trust intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended, or
any successor comparable statute, and regulations promulgated
thereunder. Inasmuch as the computation of net income and gains
for federal income tax purposes may vary from the computation
thereof on the books of the Trust, the Trustees shall have the
power, in their sole discretion, to distribute in any fiscal year
as dividends, including dividends designated in whole or in part as
capital gains distributions, amounts sufficient, in the opinion of
the Trustees, to enable the Trust to qualify as a regulated
investment company and to avoid liability of the Trust for federal
income tax in respect of that year. However, nothing in the
foregoing shall limit the authority of the Trustees to make
distributions greater than or less than the amount necessary to
qualify as a regulated investment company and to avoid liability of
the Trust for such tax.
(D) Liquidation. In event of the liquidation or
dissolution of the Trust, the Shareholders of each Series that has
been established and designated shall be entitled to receive, as a
Series, when and as declared by the Trustees, the excess of the
assets belonging to that Series over the liabilities belonging to
that Series. The assets so distributable to the Shareholders of
any particular Series shall be distributed among such Shareholders
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in proportion to the number of shares of that Series held by them
and recorded on the books of the Trust. The liquidation of any
particular Series may be authorized by vote of a majority of the
Trustees then in office subject to the approval of a majority of
the outstanding voting securities, as defined in the 1940 Act, of
that Series.
(E) Voting. On each matter submitted to a vote of the
Shareholders, each holder of a Share shall be entitled to one vote
for each such Share standing in his or her name on the books of the
Trust irrespective of the Series thereof and all Shares of all
Series shall vote as a single class ("Single Class Voting");
provided, however, that (a) as to any matter with respect to which
a separate vote of any Series is required by the 1940 Act or rules
and regulations promulgated thereunder, or would be required under
the Kentucky Business Corporation Act if the Trust were a Kentucky
business corporation, such requirements as to a separate vote by
that Series shall apply in lieu of Single Class Voting as described
above; (b) in the event that the separate vote requirements
referred to in (a) above apply with respect to one or more Series,
then, subject to (c) below, the Shares of all other Series shall
vote as a single class; and (c) as to any matter which does not
affect the interest of a particular Series, only the holders of
Shares of the one or more affected Series shall be entitled to
vote.
Each Shareholder entitled to vote at the election of
Trustees shall have the right to cast, in person or by proxy, as
many votes in the aggregate as he shall have standing in his name
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on the books of the Trust as of the record date selected by the
Trustees, multiplied by the number of Trustees to be elected at such
election; and each Shareholder may cast the whole number of votes
for one candidate, or distribute such votes among two or more
candidates.
(F) Redemption by Shareholder. Each holder of Shares of
a particular Series shall have the right at such times as may be
permitted by the Trust to require the Trust to redeem all or any
part of his Shares of that Series at a redemption price equal to
the net asset value per Share of that Series next determined in
accordance with subsection (H) of this Section 5.2 after the Shares
are properly tendered for redemption. Payment of the redemption
price shall be in cash; provided, however, that if the Trustees
determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the
Trust may make payment wholly or partly in securities or other
assets belonging to the Series of which the Shares being redeemed
are part at the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing and except as hereinafter
set forth, payment for Shares so redeemed by the Trust shall be
made to the Shareholder within seven (7) days after the date on
which the application for redemption thereof is received. Such
payment shall be made in cash or other assets of the Trust, or
both, as the Trustees shall prescribe. For such purpose, the value
of any assets other than cash delivered in payment for shares
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redeemed shall be determined as set forth in Subsection (H) hereof
as of the same time that the current net asset value applicable to
such shares is determined.
The Trustees may, by resolution, suspend the right of
redemption conferred upon the Shareholders and postpone the date of
payment for Shares redeemed from Shareholders pursuant to this
provision for the whole or any part of any period:
(1) during which the New York Stock Exchange is
closed other than customary week-end and holiday closings; or
(2) during which trading on the New York Stock
Exchange is restricted; or
(3) during which an emergency exists as a result of
which (i) disposal by the Trust of securities owned by it is not
reasonably practicable, or (ii) it is not reasonably practicable
for the Trust fairly to determine the value of its net assets; or
(4) for which the Securities and Exchange Commission
may by order permit for the protection of security holders of the
Trust.
Any such suspension and postponement shall become
effective at such time as the Trustees shall specify in such
resolution, but not later than the close of business on the
business day next succeeding the adoption of such resolution, and
shall terminate at such times as the Trustees shall, by resolution,
declare such suspension and postponement to be terminated, but not
later than the close of business on the first business day on which
none of the conditions specified above shall exist.
If the right of redemption is suspended with respect to
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any Shares for which a proper application has been made but in
respect of which the redemption price has not been determined,
then:
(1) The holder of such shares may, during the period of
such suspension, by written notice to the Trust's office or agency
where such application was made, revoke such application and
withdraw any share certificate or certificates that accompanied it;
and
(2) If such application is not revoked, such shares
shall be redeemed at their net asset value next determined, as set
forth in Subsection (H) hereof, after the termination of such
suspension, and payment therefor shall be made within a period
determined by adding to seven (7) days after the date such
application was made the number of days that the redemption of such
shares was suspended.
(G) Redemption by Trust. Each Share of each Series that
has been established and designated is subject to redemption by the
Trust at the redemption price which would be applicable if such
Share was then being redeemed by the Shareholder pursuant to
Subsection (F) of this Section 5.2 at any time if the Trustees
determine in their sole discretion that failure to so redeem may
have materially adverse consequences to all or any of the holders
of the Shares, or any Series thereof, of the Trust, and upon such
redemption the holders of the Shares so redeemed shall have no
further right with respect thereto other than to receive payment of
such redemption price. In addition, the Trustees, in their sole
discretion, may require a Shareholder to redeem all of his or her
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Shares of any Series after thirty day's notice, if the value of all
of his or her Shares of that Series is less than Five Hundred
Dollars ($500.00) or such other minimum amount established from
time to time by the Board of Trustees.
(H) Net Asset Value. The Trustees shall have the power
and duty to cause the net asset value per share of any series to be
determined from time to time in accordance with the provisions of
this Section, It may delegate the power and duty to determine net
asset value per share to one or more of the Trustees or officers of
the Trust or to a custodian, depository, investment adviser, or
other agent appointed for the purpose. Net asset value per share
shall be determined at such times as may be prescribed by
resolution of the Trustees, but no less often than once each week
as of the close of business on a business day, or, in the absence
of such resolution, as of the close of trading on the New York
Stock Exchange on each business day.
Each determination of net asset value per share shall be
made by subtracting from the value of the assets belonging to that
series the liabilities belonging to that series, dividing the
remainder by the number of shares of the series issued and
outstanding, and adjusting the result to the nearest full cent per
share. For purposes of such determination:
(1) Securities included among the assets of the
series for which representative quotations are available shall,
except as hereinafter set forth, be valued at the mean between the
quoted bid and asked prices therefor. Securities and other assets
(except goodwill, which shall not be taken into account) for which
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such procedure is deemed not to reflect fair market value or for
which representative quotations are not readily available shall be
appraised at prices or values deemed best to reflect their fair
market value, as determined in good faith by or under the
supervision of one or more officers of the Trust in a manner
specifically authorized by the Trustees. The Trustees may, by
resolution, prescribe or approve the use of any system, process,
pricing service or other facility or method for valuing securities
owned by the Trust, provided that the Trustees determine that such
facility or method will properly reflect the fair market value of
such securities. All quotations or other information required for
the valuation of securities and other assets of the Trust shall 'be
obtained from such sources as the person or persons making such
determination believe to be reliable, and any determination based
thereon shall be conclusive and binding for all purposes.
(2) Securities which the Trust has contracted to
purchase for any series shall be included among its assets, and the
cost thereof shall simultaneously be included among its
liabilities, no later than the first business day following the
making of such contract.
(3) Securities belonging to any series which the
Trust has contracted to sell shall be excluded from its assets, and
the amount receivable therefor shall simultaneously be included
among its assets, no later than the first business day following
the making of such contract.
(4) Liabilities shall include expenses and reserves,
accrued and determined in such manner as the Trustees may from time
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to time prescribe or approve, and the amount necessary to pay any
dividends or distributions declared and unpaid on the shares of
such series, but shall not include any liabilities represented by
its outstanding shares and surplus.
(5) Shares of each series sold shall be deemed to be
outstanding, and the amount receivable for such shares shall
simultaneously be included among the assets belonging to such
series, no later than the first business day following receipt of
any unconditional purchase order for such shares.
(6) Shares of any series for which a proper
application for redemption has been received or which the Trust has
contracted to repurchase shall be deemed to be no longer
outstanding, and the amount payable for such shares shall be
included among the liabilities belonging to the applicable series
no later than the first business day following receipt of such
application or the making of such contract.
(I) Transfer. All Shares of each Series shall be
transferable, but transfers of Shares of a particular Series will
be recorded on the Share transfer records of the Trust applicable
to that Series at such times as Shareholders shall have the right
to require the Trust to redeem Shares of that Series and at such
other times as may be permitted by the Trustees.
(J) Equality. All Shares of each particular Series
shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities belonging to
that Series), and each Share of any particular Series shall be
equal to each other Share of that Series; but the provisions of
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this sentence shall not restrict any distinctions permissible under
subsection (C) of this Section 5.2 that may exist with respect to
dividends and distributions on Shares of the same Series. The
Trustees may from time to time divide or combine the Shares of any
particular Series into a greater or lesser number of Shares of that
Series without thereby changing the proportionate beneficial
interest in the assets belonging to that Series or in any way
affecting the rights of Shares of any other Series.
(K) Fractions. Any fractional Share of any Series or
Sub-Series, if any such fractional Share is outstanding, shall
carry proportionately all the rights and obligations of a whole
Share of that Series or Sub-Series, including with respect to
voting, receipt of dividends and distributions, redemption of
Shares, and liquidation of the Trust.
(L) Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority
to provide that holders of Shares of any Series shall have the
right to convert said Shares into Shares of one or more other
Series of Shares in accordance with such requirements and
procedures as may be established by the Trustees.
Section 5.3. Ownership of Shares. The ownership of
Shares shall be recorded on the books of the Trust or of a transfer
or similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series that has been established
and designated. Certificates certifying the ownership of Shares
may be issued by the Trustees, which certificates shall be
transferable in the same manner as stock certificates of a
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corporation. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the use of
facsimile signatures, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer
or similar agent, as the case may be, shall be conclusive as to
ownership and as to the number of Shares of each Series and Sub-
Series held from time to time by each Shareholder.
Section 5.4 Investments in the Trust. The Trustees
may accept investments in the Trust from such persons and on such
terms and for such consideration, not inconsistent with the
provisions of the 1940 Act, as they from time to time authorize.
The Trustees may authorize any distributor, principal underwriter,
custodian, transfer agent or other person to accept orders for the
purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to
such authorized terms.
Section 5.5. No Preemptive Rights. Shareholders shall
have no preemptive or other right to subscribe to any additional
Shares or other securities issued by the Trust.
Section 5.6. Status of Shares and Limitation of
Personal Liability. Shares shall be deemed to be personal property
giving only the rights provided in this instrument. Every
Shareholder by virtue of having become a Shareholder shall be held
to have expressly assented and agreed to the terms hereof and to
have become a party hereto. No assessments shall be made against
the interest of any shareholder and no shareholder shall be
personally liable for any debts or liabilities incurred by the
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Trustees or the Trust. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the Trust
nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against the
Trust or the Trustees, but only to the rights of said decedent
under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders partners. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholder.
ARTICLE VI - VOTING AND MEETINGS OF SHAREHOLDERS
Section 6.1 Voting Powers. The Shareholders shall
have power to vote only (i) for the election or removal of Trustees
as provided in Section 4.1, (ii) with respect to any contract with
a Contracting Party as provided in Section 4.3 as to which
Shareholder approval is required by the 1940 Act, (iii) with
respect to any termination or reorganization of the Trust or any
Series to the extent and as provided in Sections 8.1 and 8.2, (iv)
with respect to any amendment of this Declaration of Trust to the
extent and as provided in Section 8.3, (v) to the same extent as
the stockholders of a Kentucky business corporation as to whether
or not a court action, proceeding or claim should or should not be
brought or maintained derivately or as a class action on behalf of
the Trust or the Shareholders, and (vi) with respect to such
additional matters relating to the Trust as may be required by the
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1940 Act, this Declaration of Trust, the By-Laws or any
registration of the Trust with the Commission (or any successor
agency) or any state, or as the Trustees may consider necessary or
desirable. Shares may be voted in person or by proxy. A proxy
with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice
to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Unless Shares are
issued, the Trustees may exercise all rights of Shareholders and
may take any action required by law, this Declaration of Trust or
the By-Laws to be taken by Shareholders.
Section 6.2 Meetings. There shall be an annual
meeting of Shareholders at such place within or without the
Commonwealth of Kentucky and on such date as may be designated in
the call thereof, which call shall be made by the Trustees. In the
event that such meeting is not held in any year within the time
period fixed in the By-Laws, whether the omission be by oversight
or otherwise, a subsequent special meeting may be called by the
Trustees and held in lieu of the annual meeting with the same
effect as though held within such time period. Special meetings
(including meetings involving only the holders of Shares of one or
more but less than all Series) may also be called by the Trustees
from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein
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provided or upon any other matter deemed by the Trustees to be
necessary or desirable. Written notice of any such meeting shall
be given or caused to be given by the Trustees by mailing such
notice at least seven days before such meeting, postage prepaid,
stating the time, place and purpose of the meeting, to each
Shareholder entitled to vote at such meeting at the Shareholder's
address as it appears on the records of the Trust. If the Trustees
shall fail to call or give notice of any meeting of Shareholders
(including a meeting involving only the holders of Shares of one or
more but less than all Series) for a period of 30 days after
written request by Shareholders holding at least 25% of the Shares
then outstanding of any Series entitled to vote upon any matter
requiring action by the Shareholders as provided herein that a
meeting be called to consider such matter, then Shareholders
holding at least 25% of the Shares then outstanding of such Series
may call and give notice of such meeting, and thereupon the meeting
shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 6.3 Record Dates. For the purpose of
determining the Shareholders who are entitled to vote or act at any
meeting or any adjournment thereof, or who are entitled to
participate in any dividend or distribution, or for the purpose of
any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding 30 days (except at or
in connection with the termination of the Trust), as the Trustees
may determine; or without closing the transfer books the Trustees
may fix a date and time not more than 60 days prior to the date of
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any meeting of Shareholders or other action as the date and time of
record for the determination of Shareholders entitled to vote at
such meeting or any adjournment thereof or to be treated as
Shareholders of record for purposes of such other action, and any
Shareholder who was a Shareholder at the date and time so fixed
shall be entitled to vote at such meeting or any adjournment
thereof or (subject to any provisions permissible under subsection
(C) of Section 5.2 with respect to dividends or distributions on
Shares that have not been ordered and/or paid for by the time or
times established by the Trustees under the applicable dividend or
distribution program or procedure then in effect) to be treated as
a Shareholder of record for purposes of such other action, even
though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so
entitled to vote at such meeting or any adjournment thereof or to
be treated as a Shareholder of record for purposes of such other
action.
Section 6.4 Quorum and Required Vote. A majority of
the Shares entitled to vote shall be a quorum for the transaction
of business at a Shareholders' meeting, but any lesser number shall
be sufficient for adjournments. Any adjourned session or sessions
may be held, within a reasonable time after the date set for the
original meeting without the necessity of further notice. A
majority of the Shares voted, at a meeting at which a quorum is
present, shall decide any questions and a plurality shall elect a
Trustee, except when a different vote is required or permitted by
any provision of the 1940 Act or other applicable law or by this
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Declaration of Trust or the By-Laws. Notwithstanding any provision
of applicable law requiring a greater proportion than a majority of
the Votes entitled to be cast in order to take or authorize any
action (unless otherwise provided in this Declaration of Trust or
the By-Laws), any such action may be taken or authorized upon the
concurrence of at least a majority of the aggregate number of votes
entitled to be cast thereon.
Section 6.5 Action by Unanimous Consent. Subject to
the provisions of the 1940 Act and other applicable law, any action
taken by Shareholders may be taken without a meeting if all of the
Shareholders entitled to vote on the matter consent to the action
in writing and such written consents are filed with the records of
the meeting of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
Section 6.6 Inspection of Records. The records of the
Trust shall be open to inspection by Shareholders to the same
extent as is permitted stockholders of a Kentucky business
corporation under the Kentucky Business Corporation Law.
Section 6.7 Additional Provisions. The By-Laws may
include further provisions for Shareholders' votes and meetings and
related matters.
ARTICLE VII - LIMITATION OF LIABILITY-INDEMNIFICATION
Section 7.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice. All persons extending credit to,
contracting with or having any claim against the Trust shall look
only to the assets of the Trust for payment under such credit,
contract or claim: and neither the Shareholders nor the Trustees,
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nor any of the Trust's officers, employees or agents, whether past,
present or future, shall be personally liable therefor. Every
note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection
with the Trust shall be conclusively deemed to have been executed
or done only by or for the Trust or the Trustees and not
personally. Nothing in this Declaration of Trust shall protect any
Trustee or officer against any liability to the Trust or the
Shareholders to which such Trustee or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers or
officer shall be construed to give notice that this Declaration of
Trust is on file with the Secretary of State of the Commonwealth of
Kentucky and may recite to the effect that the same was executed or
made by or on behalf of the Trust or by them as Trustees or Trustee
or as officers or officer and not individually and that the
obligations of such instrument are not binding upon any of them or
the Shareholders individually but are binding only upon the assets
and property of the Trust, but the omission thereof shall not
operate to bind any Trustees or Trustee or officers or officer or
Shareholders or Shareholder individually.
Section 7.2 Trustee's Good Faith Action; Expert
Advice; No Bond or Surety. The exercise by the Trustees of their
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powers and discretions hereunder shall be binding upon everyone
interested. A Trustee shall be liable for his own willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or
mistakes of fact or law. Subject to the foregoing, (a) the
Trustees shall not be responsible or liable in any event for any
neglect or wrongdoing of any officer, agent, employee, consultant,
adviser, administrator, distributor or principal underwriter,
custodian or transfer, dividend disbursing, Shareholder servicing
or accounting agent of the Trust, nor shall any Trustee be
responsible for the act or omission of any other Trustee; (b) the
Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow
such advice; and (c) in discharging their duties, the Trustees,
when acting in good faith, shall be entitled to rely upon the books
of account of the Trust and upon written reports made to the
Trustees by any officer appointed by them, any independent public
accountant, and (with respect to the subject matter of the contract
involved) any officer, partner or responsible employee of a
Contracting Party appointed by the Trustees pursuant to Section
4.3. The Trustees as such shall not be required to give any bond
or surety or any other security for the performance of their
duties.
Section 7.3 Indemnification of Shareholders. In case
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any Shareholder or former Shareholder shall be charged or held to
be personally liable for any obligation or liability of the Trust
solely by reason of being or having been a Shareholder and not
because of such Shareholder's acts or omissions or for some other
reason, the Trust (upon proper and timely request by the
Shareholder) shall assume the defense against such charge and
satisfy any judgment thereon, and the Shareholder or former
Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out of
the assets of the Trust estate to be held harmless from and
indemnified against all loss and expense arising from such
liability.
Section 7.4 Indemnification of Trustees, Officers,
etc. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise), (hereinafter
referred to as a "Covered Person") against all liabilities,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before
any court or administrative or legislative body in which such
Covered person may be or may have been involved as a party or
otherwise or with which such person may be or may have been
- 41 -
<PAGE> 149
threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, and
except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered
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 such Covered Person's office ("disabling
conduct"). Anything herein contained to the contrary
notwithstanding, no Covered Person shall be indemnified for any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject unless (1) a final decision on
the merits is made by the court or other body before whom the
proceeding was brought that the Covered Person to be indemnified
was not liable by reason of disabling conduct or, (2) in the
absence of such a decision, a reasonable determination is made,
based upon a review of the facts, that the Covered Person was not
liable by reason of disabling conduct, by (a) the vote of a
majority of a quorum of Trustees who are neither "interested
persons" of the Company as defined in the Investment Company Act of
1940 nor parties to the proceeding ("disinterested. non-party
Trustees"), or (b) an independent legal counsel in a written
opinion.
Section 7.5 Advances of Expenses. The Trust shall
advance attorneys' fees or other expenses incurred by a Covered
Person in defending a proceeding, upon the undertaking by or on
behalf of the Covered Person to repay the advance unless it is
ultimately determined that such Covered Person is entitled to
- 42 -
<PAGE> 150
indemnification, so long as one of the following conditions is met:
(i) the Covered Person shall provide security for his undertaking;
(ii) the Trust shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an independent
legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
Section 7.6 Indemnification Not Exclusive, etc. The
right of indemnification provided by this Article VII shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VII, "Covered
Person" shall include such person's heirs, executors and
administrators; an "interested Covered Person" is one against whom
the action, suit or other proceeding in question or another action,
suit or other proceeding on the same or similar grounds is then or
has been pending or threatened; and a "disinterested" person is a
person against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same
or similar grounds is then or has been pending or threatened.
Nothing contained in this article shall affect any rights to
indemnification to which personnel of the Trust, other than
Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such
person.
-43-
<PAGE> 151
Section 7.7 Liability of Third Persons Dealing with
Trustees. No person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made or
to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
ARTICLE VIII - TERMINATION OF TRUST-MISCELLANEOUS
Section 8.1 Duration and Termination of Trust. Unless
terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by a
majority of the Trustees then in office subject to a favorable vote
of a majority of the outstanding voting securities, as defined in
the 1940 Act, of each Series voting separately by Series.
Upon termination, after paying or otherwise providing for
all charges, taxes, expenses and liabilities, whether due or
accrued or anticipated as may be determined by the Trustees, the
Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets to distributable
form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in
conformity with the provisions of subsection (D) of Section 5.2.
Section 8.2 Reorganization. The Trustees may sell,
convey and transfer the assets of the Trust, or the assets
belonging to any one or more Series, to another trust, partnership,
association or corporation organized under the laws of any state of
the United States, or to the Trust to be held as assets belonging
to another Series of the Trust, in exchange for cash, shares or
- 44 -
<PAGE> 152
other securities (including, in the case of a transfer to another
Series of the Trust, Shares of such other Series) with such
transfer being made subject to, or with the assumption by the
transferee of, the liabilities belonging to each Series the assets
of which are so transferred; provided, however, that if shareholder
approval is required by the 1940 Act, no assets belonging to any
particular Series shall be so transferred unless the terms of such
transfer shall have first been approved at a meeting called for the
purpose by the affirmative vote of the holders of a majority of the
outstanding voting securities, as defined in the 1940 Act, of that
Series. Following such transfer, the Trustees shall distribute
such cash, shares or other securities (giving due effect to the
assets and liabilities belonging to and any other differences among
the various Series the assets belonging to which have so been
transferred) among the Shareholders of the Series the assets
belonging to which have been so transferred; and if all of the
assets of the Trust have been so transferred, the Trust shall be
terminated.
Section 8.3 Amendments. All rights granted to the
Shareholders under this Declaration of Trust are granted subject to
the reservation of the right to amend this Declaration of Trust as
herein provided, except that no amendment shall repeal the
limitations on personal liability of any Shareholder or Trustee or
repeal the prohibition of assessment upon the Shareholders without
the express consent of each Shareholder or Trustee involved.
Subject to the foregoing, the provisions of this Declaration of
Trust (whether or not related to the rights of Shareholders) may be
- 45 -
<PAGE> 153
amended at any time by an instrument in writing signed by a
majority of the then Trustees (or by an officer of the Trust
pursuant to the vote of a majority of such Trustees), when
authorized so to do by the vote in accordance with subsection (E)
of Section 5.2 of Shareholders holding a majority of the Shares
entitled to vote, except that amendments either (a) establishing
and designating any new Series of Shares not established and
designated in Section 5.2, or any Sub-Series or (b) having the
purpose of changing the name of the Trust or the name of any Shares
theretofore established and designated or of supplying any
omission, curing any ambiguity or curing, correcting or
supplementing any provision hereof which is internally inconsistent
with any other provision hereof or which is defective or
inconsistent with the 1940 Act or with the requirements of the
Internal Revenue Code and applicable regulations for the Trust's
obtaining the most favorable treatment thereunder available to
regulated investment companies, shall not require authorization by
Shareholder vote. Subject to the foregoing, any such amendment
shall be effective as provided in the instrument containing the
terms of such amendment or, if there is no provision therein with
respect to effectiveness, upon the execution of such instrument and
of a certificate (which may be a part of such instrument) executed
by a Trustee or officer of the Trust to the effect that such
amendment has been duly adopted.
Section 8.4 Filing of Copies; References; Headings.
The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the trust where it may be
- 46 -
<PAGE> 154
inspected by any shareholder. A copy of this instrument and of
each amendment hereto shall be filed by the Trust with the
Secretary of State of the Commonwealth of Kentucky and with the
Clerk of Fayette County, Kentucky, as well as any other
governmental office where such filing may from time to time be
required, but the failure to make any such filing shall not impair
the effectiveness of this instrument or any such amendment. Anyone
dealing with the Trust may rely on a certificate by an officer of
the Trust as to whether or not any such amendments have been made,
as to the identities of the Trustees and officers, and as to any
matters in connection with the Trust hereunder: and, with the same
effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any
such amendments. In this instrument and in any such amendment,
references to this instrument, and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this
instrument as a whole as the same may be amended or affected by any
such amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument.
This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
Section 8.5 Applicable Law. This Declaration of Trust
is made in the Commonwealth of Kentucky, and it is created under
and is to be governed by and construed and administered according
to the laws of said Commonwealth. The Trust shall be of the type
referred to in Section 386.370 of the Kentucky Revised Statutes and
- 47 -
<PAGE> 155
of the type commonly called a Kentucky Business Trust, and without
limiting the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
IN WITNESS WHEREOF, the undersigned have hereunto set
their hands and seals in Lexington, Fayette County, Kentucky, for
themselves and their assigns, as of the day and year first above
written.
/s Thomas P. Dupree, Sr.
-----------------------------------
THOMAS P. DUPREE, SR.
/s Fred L. Dupree, Jr.
-----------------------------------
FRED L. DUPREE, JR.
/s Jack Langley
-----------------------------------
JACK LANGLEY
/s Robert L. Maddox
-----------------------------------
ROBERT L. MADDOX
s/ William S. Patterson
-----------------------------------
WILLIAM S. PATTERSON
- 48 -
<PAGE> 156
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 23rd day of June, 1987, before me personally appeared
Thomas P. Dupree, Sr., to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he executed the same
as his free act and deed.
WITNESS my hand and notarial seal this 23rd day of
June, 1987.
/s Dorine D. Kelly
-------------------------------------------
NOTARY PUBLIC
State at Large , Ky.
----------------------------------------
My commission expires: 1-16-89
----------------------------------------
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 23rd day of June, 1987, before me personally appeared Fred.
L. Dupree, Jr., to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed. WITNESS my hand and notarial seal this 23rd day of June, 1987.
/s Dorine D. Kelly
-------------------------------------------
NOTARY PUBLIC
State at Large , Ky.
----------------------------------------
My commission expires: 1-16-89
----------------------------------------
- 49 -
<PAGE> 157
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 23rd day of June, 1987, before me personally appeared
Jack Langley, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
WITNESS my hand and notarial seal this 23rd day of June, 1987.
/s Dorine D. Kelly
-------------------------------------------
NOTARY PUBLIC
State at Large , Ky.
---------------------------------------
My commission expires: 1-16-89
---------------------------------------
STATE OF KENTUCKY)
( SCT.
COUNTY OF JEFFERSON)
On this the 25rd day of June , 1987 , before me personally appeared
Robert L. Maddox, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
WITNESS my hand and notarial seal this 25rd day of June, 1987.
/s E. Christine Ruehl
---------------------------------------
NOTARY PUBLIC
State at Large , Ky.
---------------------------------------
My commission expires: June 19, 1990
---------------------------------------
- 50 -
<PAGE> 158
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 23rd day of June, 1987 , before me personally appeared
William S. Patterson, to me known to be the person described in and who executed
the foregoing instrument, and acknowledged that he executed the same as his free
act and deed.
WITNESS my hand and notarial seal this 23rd day of June, 1987.
/s Dorine D. Kelly
--------------------------------------
NOTARY PUBLIC
State at Large , Ky.
--------------------------------------
My commission expires: 1-16-89
--------------------------------------
This Instrument Prepared By:
DARSIE & ELSTE
Attorneys at Law
P.O. Box 22219
Lexington, ,Kentucky, 40522
By: /s John C. Darsie
----------------------
- 51 -
<PAGE> 159
AMENDMENT TO DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
THIS AMENDMENT TO THAT CERTAIN DECLARATION OF TRUST of
Dupree Mutual Funds dated June 25, 1987 is made and entered into at 167 West
Main Street, Lexington, Kentucky 40507 as the 1st day of November, 1989, by the
TRUSTEES, hereinafter named, for the purpose of creating two additional 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 four series of shares:
(i) The "Kentucky Tax-Free Income Series" which shall
initially be issued to holders of the shares of the Kentucky
Tax-Free Income Fund, Inc., a Kentucky corporation, in a
one-to-one exchange for their shares in the said Kentucky
Tax-Free Income Fund, Inc., subject only to the affirmative
vote of a majority of said shares at a meeting called for said
purpose on July 22, 1987. (If said exchange is consummated the
assets of Kentucky Tax-Free Income Series as said term is used
in Subsection (A) hereinafter and the liabilities of said
corporation shall, immediately thereafter, constitute
"liabilities belonging to" the Kentucky Tax-Free Income Series
as said term is used in Subsection (B) hereinafter.) (ii) The
"Kentucky Tax-Free Short to Medium Series", no shares of which
are issued or outstanding as of the date of execution of this
Declaration of Trust. (iii) The "Dupree
<PAGE> 160
Cash Management Series", no shares of which are issued or
outstanding as of the date of execution of this Amendment to
the Declaration of Trust. (iv) The "Government Bond 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,
/s Thomas P. Dupree, Sr.
-------------------------------------------
THOMAS P. DUPREE, SR.
/s Fred L. Dupree, Jr.
-------------------------------------------
FRED L. DUPREE, JR.
/s Jack Langley
-------------------------------------------
JACK LANGLEY
/s Robert L. Maddox
-------------------------------------------
ROBERT L. MADDOX
s/ William S. Patterson
-------------------------------------------
WILLIAM S. PATTERSON
STATE OF KENTUCKY)
( SCT.
COUNTY OF Fayette
On this the 11th day of October , 1989, before me personally appeared
Thomas P. Dupree, Sr., to me known to be the person described in and who
executed the foregoing
<PAGE> 161
instrument, and acknowledged that he executed the same as his
free act and deed.
WITNESS my hand and notarial seal this 11th day
of October , 1989
/s Gay M. Elste
---------------------------------
State at Large , Ky.
---------------------------------
My commission expires: January 17, 1993
---------------------------------
STATE OF KENTUCKY)
( SCT.
COUNTY OF Fayette)
On this the 11th day of October , 1989, before me personally appeared
Fred L. Dupree, Jr., to me known to be the person described in and who executed
the foregoing instrument, and acknowledged that he executed the same as his free
act and deed.
WITNESS my hand and notarial seal this 11th day
of October , 1989
/s Gay M. Elste
----------------------------------
State at Large , Ky.
----------------------------------
My commission expires: January 17, 1993
----------------------------------
STATE OF KENTUCKY)
( SCT.
COUNTY OF Fayette)
On this the 11th day of October , 1989, before me
personally appeared William A. Combs, Jr., to me known to be
<PAGE> 162
the person described in and who executed the foregoing instrument, and
acknowledged that he executed the same as his free act and deed.
WITNESS my hand and notarial seal this 11th day
of October , 1989
/s Gay M. Elste
---------------------------------
State at Large , Ky.
---------------------------------
My commission expires: January 17, 1993
---------------------------------
STATE OF KENTUCKY)
( SCT.
COUNTY OF Jefferson )
On this the 20th day of October , 1989, before me personally appeared
Robert L. Maddox to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
WITNESS my hand and notarial seal this 20th day
of October , 1989
/s E. Christine Ruehl
---------------------------------
State at Large
Louisville, Jeff. Cty , Ky.
----------------------------------
My commission expires: June 19, 1990
----------------------------------
<PAGE> 163
STATE OF KENTUCKY)
( SCT.
COUNTY OF Fayette)
On this the 11th day of October , 1989, before me personally appeared
William S. Patterson to me known to be the person described in and who executed
the foregoing instrument, and acknowledged that he executed the same as his free
act and deed.
WITNESS my hand and notarial seal this 11th day
of October , 1989
/s Gay M. Elste
----------------------------------
State at Large , Ky.
----------------------------------
My commission expires: January 17, 1993
----------------------------------
<PAGE> 164
AMENDMENT TO DECLARATION OF
DUPREE MUTUAL FUNDS
THIS AMENDMENT TO THAT CERTAIN DECLARATION OF TRUST of
-
Dupree Mutual Funds dated June 25, 1987 is made and entered into at 167 West
Main Street, Lexington, Kentucky 40507 as of the 22nd day of October , 1991, by
the TRUSTEES, hereinafter named for the purpose of creating an additional 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 five series of shares:
(i) The "Kentucky Tax-Free Income Series" which shall
initially be issued to holders of the shares of the Kentucky
Tax-Free Income Fund, Inc., a Kentucky corporation, in a
one-to-one exchange for their shares in the said Kentucky
Tax-Free Income Fund, Inc., subject only to the affirmative
vote of a majority of said shares at a meeting called for said
purpose on July 22, 1987. (If said exchange is consummated the
assets of Kentucky Tax-Free Income series as said term is used
in Subsection (A) hereinafter and the liabilities of said
corporation shall, immediately thereafter, constitute
"liabilities belonging to" the Kentucky Tax-Free Income Series
as said term is used in Subsection (B) hereinafter); (ii) The
"Kentucky Tax-Free Short to Medium Series", no shares of which
are issued or outstanding as of the date of execution of this
Declaration of Trust (though shares are
<PAGE> 165
outstanding as of the date of this
amendment); (iii) The "Dupree Cash
Management Series" no shares of which are
issued or outstanding as of the date of the -
execution of this Amendment to the Declaration of
Trust; (iv) The "Government Bond Intermediate
Series,,, no shares of which are issued or
outstanding as of the date of execution of this
Amendment to the Declaration of Trust; and (v) The
Mississippi Tax-Free Investment Trust
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.
/s Thomas P. Dupree, Sr.
-------------------------------------------
THOMAS P. DUPREE, SR.
/s Fred L. Dupree, Jr.
-------------------------------------------
FRED L. DUPREE, JR.
/s Jack Langley
-------------------------------------------
JACK LANGLEY
/s Robert L. Maddox
-------------------------------------------
ROBERT L. MADDOX
s/ William S. Patterson
-------------------------------------------
WILLIAM S. PATTERSON
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22th day of October , 1991,
before me personally appeared Thomas P. Dupree, Sr., to me
<PAGE> 166
known to be the person described in and who executed the foregoing instrument,
and acknowledged that he executed the same as his free act and deed.
WITNESS my hand and notarial seal this 22nd day of October , 1991 .
My commission expires: January 21, 1993
----------------------------------
/s Gay M. Elste
----------------------------------
NOTARY PUBLIC
State at Large , Ky.
----------------------------------
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22th day of October , 1991, before me personally appeared
Fred L. Dupree, Jr., to me known to be the person described in and who executed
the foregoing instrument, and acknowledged that he executed the same as his free
act and deed.
WITNESS my hand and notarial seal this 22nd day of . October , 1991.
My commission expires: January 21, 1993
---------------------------------
/s Gay M. Elste
---------------------------------
NOTARY PUBLIC
State at Large , Ky.
---------------------------------
<PAGE> 167
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22th day of October , 1991, before me personally appeared
William A. Combs, Jr., to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he executed the same as
his free act and deed.
WITNESS my hand and notarial seal this 22nd day of . October , 19 91.
My commission expires: January 21, 1993
---------------------------------
/s Gay M. Elste
---------------------------------
NOTARY PUBLIC
State at Large , Ky.
---------------------------------
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22th day of October , 1991, before me personally appeared
Robert L. Maddox to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
<PAGE> 168
WITNESS my hand and notarial seal this 22nd day of . October , 19 91.
My commission expires: January 21, 1993
---------------------------------
/s Gay M. Elste
---------------------------------
NOTARY PUBLIC
State at Large , Ky.
---------------------------------
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22th day of October , 1991, before me personally appeared
William S. Patterson, to me known to be the person described in and who executed
the foregoing instrument, and acknowledged that he executed the same as his free
act and deed.
WITNESS my hand and notarial seal this 22nd day of . October , 19 91.
My commission expires: January 21, 1993
----------------------------------
/s Gay M. Elste
----------------------------------
NOTARY PUBLIC
State at Large , Ky.
----------------------------------
This instrument prepared by:
/s Gay M Elste
- - -----------------------
Darsie & Elste
P.O. Box 22219
Lexington, Kentucky 40522
(606) 257-2936
AmendDecTrust
<PAGE> 169
AMENDMENT TO DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
THIS AMENDMENT TO THAT CERTAIN DECLARATION- OF TRUST of
Dupree Mutual Funds dated June 25, 1987 is made and entered into at 167 West
Main Street, Lexington, Kentucky 40507 as of the 22nd day of April ,1992, by the
TRUSTEES, hereinafter named for the purpose of creating an additional 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 five series of shares:
(i) The "Kentucky Tax-Free Income Series" which shall
initially be issued to holders of the shares of the Kentucky
Tax-Free Income Fund, Inc., a Kentucky corporation, in a
one-to-one exchange for their shares in the said Kentucky
Tax-Free Income Fund, Inc., subject only to the affirmative
vote of a majority of said shares at a meeting called for said
purpose on July 22, 1987. (If said exchange is consummated the
assets of Kentucky Tax-Free Income series as said term is used
in Subsection (A) hereinafter and the liabilities of said
corporation shall, immediately thereafter, constitute
"liabilities belonging to" the Kentucky Tax-Free Income Series
as said term is used in Subsection (B) hereinafter); (ii) The
"Kentucky Tax-Free Short to Medium Series", no shares of which
are issued or outstanding as of the date of execution of this
Declaration of Trust (though shares are
<PAGE> 170
outstanding as of the date of this amendment); (iii) The
"Dupree Cash Management Series", no shares of which are issued
or outstanding as of the date of the execution of this
Amendment to the Declaration of Trust; (iv) The "Intermediate
Government Bond Series", no shares of which are issued or
outstanding as of the date of execution of this Amendment to
the Declaration of Trust; and (v) The Mississippi Tax-Free
Investment Trust 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 and seals for
themselves and their assigns, as of the day and year first above written.
/s Thomas P. Dupree, Sr
-------------------------------------------
THOMAS P. DUPREE, SR.
/s Fred L. Dupree, Jr
-------------------------------------------
FRED L. DUPREE, JR.
/s William A. Combs,
-------------------------------------------
WILLIAM A. COMBS, JR.
/s Robert L. Maddox
-------------------------------------------
ROBERT L. MADDOX
/s William S. Patterson
-------------------------------------------
WILLIAM S. PATTERSON
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22nd day of April , 1992,
before me personally appeared Thomas P. Dupree, Sr.,
<PAGE> 171
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 22nd day of April , 1992.
This instrument prepared by:
/s Gay M Elste
- - ---------------------
Darsie & Elste
P.O. Box 22219
Lexington, Kentucky 40522
(606) 257-2936
AmendDecTrust
-3-
<PAGE> 172
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 21st day of October ,
1993 , by the TRUSTEES, hereinafter named for the purpose of
renaming one series of shares of beneficial interest,
correcting the name of another series of shares of beneficial
interest and removing surplus language.
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 five 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" 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.
/s Thomas P. Dupree, Sr
-------------------------------------------
THOMAS P. DUPREE, SR.
<PAGE> 173
/s Fred L. Dupree, Jr
-------------------------------------------
FRED L. DUPREE, JR.
/s William A. Combs,
-------------------------------------------
WILLIAM A. COMBS, JR.
/s Robert L. Maddox
-------------------------------------------
ROBERT L. MADDOX
/s William S. Patterson
-------------------------------------------
WILLIAM S. PATTERSON
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 21st day of October , 1993,
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 21st day of
October , 1993
My commission expires: January 17, 1997
-------------------------------------------
/s Gay M. Elste
-------------------------------------------
NOTARY PUBLIC, STATE AT LARGE, KY
This instrument prepared by:
/s Gay M Elste
- - -------------------
Darsie & Elste
P.O. Box 22219
Lexington, Kentucky 40522
(606) 257-2936
<PAGE> 174
AMENDMENT TO DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
THIS AMENDMENT TO THAT CERTAIN DECLARATION OF TRUST of Dupree
Mutual Funds dated June 25, 1987 is made and entered into at 167 West Main
Street, Lexington, Kentucky 40507 as of the 22 day of October , 1991, by the
TRUSTEES, hereinafter named for the purpose of creating an additional 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 five series of shares:
(i) The "Kentucky Tax-Free Income Series" which shall initially
be issued to holders of the shares of the Kentucky Tax-Free
Income Fund, Inc., a Kentucky corporation, in a one-to-one
exchange for their shares in the said Kentucky Tax-Free Income
Fund, Inc., subject only to the affirmative vote of a majority
of said shares at a meeting called for said purpose on July 22,
1987. (If said exchange is consummated the assets of Kentucky
Tax-Free Income series as said term is used in Subsection (A)
hereinafter and the liabilities of said corporation shall,
immediately thereafter, constitute "liabilities belonging to"
the Kentucky Tax-Free Income Series as said term is used in
Subsection (B) hereinafter); (ii) The "Kentucky Tax-Free Short
to Medium Series", no shares of which are issued or outstanding
as of the date of execution of this Declaration of Trust (though
shares are
<PAGE> 175
outstanding as of the date of this amendment); (iii) The "Dupree
Cash Management Series", no shares of which are issued or
outstanding as of the date of the execution of this Amendment to
the Declaration of Trust; (iv) The "Intermediate Government Bond
Series", no shares of which are issued or outstanding as of the
date of execution of this Amendment to the Declaration of Trust;
and (v) The Mississippi Tax-Free Investment Trust 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.
s/Thomas P. Dupree, Sr.
----------------------------------
THOMAS P. DUPREE, SR.
s/Fred L. Dupree, Jr.
----------------------------------
FRED L. DUPREE, JR.
s/William A. Combs, Jr.
----------------------------------
WILLIAM A. COMBS, JR.
s/Robert L. Maddox
----------------------------------
ROBERT L. MADDOX
s/William S. Patterson
----------------------------------
WILLIAM S. PATTERSON
<PAGE> 176
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22 day of October , 1991 , before me personally
appeared Thomas P. Dupree, Sr., to me known to be the person described in and
who executed the foregoing instrument, and acknowledged that he executed the
same as his free act and deed.
WITNESS my hand and notarial seal this 22 day of October, 1991.
My commission expires: January 21, 1993
------------------------------------------
s/Gay M. Elste
--------------------------------
NOTARY PUBLIC
State at Large , Ky.
------------------------
<PAGE> 177
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22 day of October , 1991, before me personally
appeared Fred. L. Dupree, Jr., to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he executed the same as
his free act and deed.
WITNESS my hand and notarial seal this 22 day of October, 1991.
My commission expires: January 21, 1993
-----------------------------------------
s/Gay M. Elste
-----------------------
NOTARY PUBLIC
State at Large , Ky.
------------------------
<PAGE> 178
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22 day of October, 1991, before me personally
appeared William A. Combs, Jr., to me known to be the person described in and
who executed the foregoing instrument, and acknowledged that he executed the
same as his free act and deed.
WITNESS my hand and notarial seal this 22 day of October, 1991.
My commission expires: January 21, 1993
-----------------------------------------
s/Gay M. Elste
-------------------------------
NOTARY PUBLIC
State at Large , Ky.
-------------------------
<PAGE> 179
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22 day of October, 1991, before me personally
appeared Robert L. Maddox, to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he executed the same as
his free act and deed.
WITNESS my hand and notarial seal this 22 day of October, 1991.
My commission expires: January 21, 1993
-----------------------------------------
s/ Gay M. Elste
--------------------------------
NOTARY PUBLIC
State at Large , Ky.
-------------------------
<PAGE> 180
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 22 day of October, 1991, before me personally
appeared William S. Patterson, to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he executed the same as
his free act and deed.
WITNESS my hand and notarial seal this 22 day of October, 1991.
My commission expires: January 21, 1993
-----------------------------------------
s/Gay M. Elste
-------------------------------
NOTARY PUBLIC
State at Large , Ky.
------------------------
This instrument prepared by:
Gay M. Elste
- - ------------------------------
Darsie & Elste
P.O. Box 22219
Lexington, Kentucky 40522
(606) 257-2936
AmendDecTrust
<PAGE> 181
AMENDMENT TO DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
THIS AMENDMENT TO THAT CERTAIN DECLARATION OF TRUST of 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 21 day of
October, 1993, by the TRUSTEES, hereinafter named for the purpose of renaming
one series of shares of beneficial interest, correcting the name of another
series of shares of beneficial interest and removing surplus language.
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 five 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", 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.
s/Thomas P. Dupree
--------------------------
THOMAS P. DUPREE, SR.
s/Fred L. Dupree, Jr.
--------------------------
FRED L. DUPREE, JR.
s/William A. Combs, Jr.
--------------------------
WILLIAM A. COMBS, JR.
s/Robert L. Maddox
--------------------------
ROBERT L. MADDOX
s/William S. Patterson
--------------------------
WILLIAM S. PATTERSON
<PAGE> 182
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 21 day of October, 1993, 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 21 day of October, 1993.
My commission expires: January 17, 1997
------------------------------------------
s/Gay M. Elste
--------------------------------
NOTARY PUBLIC, STATE AT LARGE, KY
This instrument prepared by:
Gay M. Elste
- - -----------------------------
Darsie & Elste
P.O. Box 22219
Lexington, Kentucky 40522
(606) 257-2936
72/1
- 2 -
<PAGE> 183
AMENDMENT TO DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
This Amendment to that Certain Declaration of Trust of Dupree
Mutual Funds dated June 25, 1997 is made and entered into at 125 South Mill
Street, Vine Center, Suite 100, Lexington, Kentucky 40507 as of the 31st day of
October, 1994 by the Trustees, hereinafter named for the purpose of adding one
series 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 six 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"; (v) the "Tennessee Tax-Free Short to Medium Series", of
which no shares of the latter series are issued or outstanding as of the date of
execution of this Amendment of 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.
s/Thomas P. Dupree
------------------------------
THOMAS P. DUPREE, SR.
s/Fred L. Dupree, Jr.
------------------------------
FRED L. DUPREE, JR.
s/William A. Combs, Jr.
------------------------------
WILLIAM A. COMBS, JR.
s/Robert L. Maddox
------------------------------
ROBERT L. MADDOX
s/William S. Patterson
------------------------------
WILLIAM S. PATTERSON
<PAGE> 184
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 31 day of October, 1994, 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 31 day of October, 1994.
My commission expires: January 17, 1997
-----------------------------------------
s/Gay M. Elste
--------------------------
NOTARY PUBLIC, STATE AT LARGE, KY
This instrument prepared by:
Gay M. Elste
- - ------------------------------
Darsie & Elste
P.O. Box 22219
Lexington, Kentucky 40522
(606) 257-2936
<PAGE> 185
AMENDMENT TO DECLARATION OF TRUST
DUPREE MUTUAL FUNDS
THIS AMENDMENT TO THAT CERTAIN DECLARATION OF TRUST OF 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 18th day of October 1995 by the
TRUSTEES, hereinafter named for the purpose of adding two 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 eight 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",
(v) The"Tennessee Tax-Free Income Series"; (vii) The "North Carolina Tax-Free
Income Series"; and (viii) The "North Carolina 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.
s/Thomas P. Dupree
----------------------------
THOMAS P. DUPREE, SR.
s/Fred L. Dupree, Jr.
----------------------------
FRED L. DUPREE, JR.
s/William A. Combs, Jr.
----------------------------
WILLIAM A. COMBS, JR.
s/Robert L. Maddox
----------------------------
ROBERT L. MADDOX
s/William S. Patterson
----------------------------
WILLIAM S. PATTERSON
<PAGE> 186
STATE OF KENTUCKY)
( SCT.
COUNTY OF FAYETTE)
On this the 16th day of October, 1995, 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 16 day of October, 1995.
My commission expires: December 16, 1996
----------------------------------------
s/Dorine D. Kelly
---------------------------
NOTARY PUBLIC, STATE AT LARGE, KY
<PAGE> 187
STATE OF KENTUCKY)
(SCT
COUNTY OF JEFFERSON)
On this 18th day of October, 1995 before me personally appeared
Robert L. Maddox, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
WITNESS my hand and notarial seal this 18th day of October 1995.
My commission expires June 19, 1998
-------------
s/ E. Christine Ruehl
-----------------------
Notary Public, State at Large
This instrument prepared by:
Gay M. Elste
- - ------------------------
Darsie & Elste
P.O. Box 22219
Lexington, Kentucky 40522
(606) 257-2936
<PAGE> 188
ITEM 23(B)
DUPREE MUTUAL FUNDS
(A Kentucky Business Trust)
* *
BY-LAWS
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office
of the Trust within the State of Kentucky shall be located at the
principal place of business in said state of the Trust or the
individual acting as the Trust's registered agent in Kentucky.
Section 1.02. Business Offices. The Trust may conduct
its business and have offices at such place or places, within or
without the State of Kentucky, as the Board of Trustees may from
time to time determine or the business of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Time and Place. Meetings of shareholders
shall be held at such time and place, within or without the State
of Kentucky, as shall be determined by the Board of Trustees in
accordance with these By-Laws.
Section 2.02. Annual Meetings. An annual meeting of
shareholders shall be held during the second quarter of each fiscal
year of the Trust beginning on or after January 1, 1987 on such
date not a legal holiday as shall be fixed by the Board of
<PAGE> 189
Trustees. At each annual meeting, the shareholders shall elect a
Board of Trustees and may transact any other business which is
properly brought before the meeting.
Section 2.03. Special Meetings. Special meetings of
shareholders may be called by the Board of Trustees or by the
holders of not less than one-fifth (l/5) of all the shares entitled
to vote at the meeting.
Section 2.04. Notice of Shareholders' Meetings. Written
notice of each meeting of shareholders stating the day, hour and
place of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. shall be
delivered not less than ten (10) nor more than fifty (50) days
before the date of the meeting, in the manner prescribed by Section
5.01 of these By-Laws, by or at the direction of the President, the
Secretary or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting.
Section 2.05. Adjournment. When a meeting is adjourned
to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, the
shareholders may transact any business which might have been
transacted at the original meeting. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to
vote at the meeting.
Section 2.06. Quorum and Vote Required. Except as
- 2 -
<PAGE> 190
otherwise provided in the Declaration of Trust, the holders of a
majority of the shares of the Trust issued and outstanding and
entitled to vote, represented in person or by proxy, shall
constitute a quorum at each meeting of shareholders. At any
meeting at which a quorum is present, all elections shall be
determined by plurality vote. and all other matters shall be
determined by the vote of a majority of the shares represented and
entitled to vote, unless the matter is one as to which a greater
vote is required by statute, the Declaration of Trust or these By-
Laws. The shareholders present at a duly organized meeting can
continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 2.07. Voting. At any meeting of shareholders,
each shareholder entitled to vote may vote in person or by proxy;
and, except as otherwise provided by statute, the Investment
Company Act of 1940 or rules and regulations issued thereunder, the
Declaration of Trust or these By-Laws, each outstanding share shall
be entitled to one vote on each matter submitted to a vote at such
meeting. At each election of trustees, each shareholder entitled
to vote shall have the right to cast as many votes in the aggregate
as he shall be entitled to vote under the Declaration of Trust,
multiplied by the number of trustees to be elected at such election,
and each shareholder may cast the whole number of votes for one
candidate, or distribute such votes among two or more candidates.
Section 2.08. Proxies. Each proxy shall be in writing
executed by the shareholder giving the proxy or by his duly
-3-
<PAGE> 191
authorized attorney-in-fact. No proxy shall be valid after eleven
(11) months from the date of its execution, unless otherwise
provided in the proxy, but in no event shall a proxy, unless
coupled with an interest, be voted on after three years from the
date of its execution. The revocation of a proxy shall not be
effective until the Secretary of the Trust has received written
notice of the revocation.
Section 2.09. Action Without Meeting. Any action
required or permitted to be taken at a meeting of shareholders may
be taken without a meeting if a consent in writing setting forth
the action so taken shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof; and
such consent shall have the same effect as a unanimous vote of
shareholders.
ARTICLE III
TRUSTEES
Section 3.01. Board of Trustees. The business and
affairs of the Trust shall be managed by its Board of Trustees,
which may exercise all of the powers of the Trust and do all lawful
acts and things which are not, by statute, the Declaration of Trust
or these By-Laws, directed or required to be exercised or done by
the shareholders. Trustees need not be residents of the State of
Kentucky or shareholders of the Trust.
Section 3.02. Number; Election and Tenure. The initial
Board of Trustees shall consist of the number of trustees fixed by
the Declaration of Trust. Thereafter, the number of trustees
-4-
<PAGE> 192
constituting the full Board shall be not less than three (3), as
fixed from time to time by resolution adopted by a majority of the
number of trustees constituting the full Board or by the
shareholders at any annual or special meeting; provided, that no
decrease in the number of trustees shall shorten the term of any
incumbent trustee. With the exception of the initial Board of
Trustees, the members of which shall be designated in the
Declaration of Trust, and except as otherwise provided in these
By-Laws, trustees shall be elected at the annual meeting of
shareholders. Each trustee shall hold office for a term expiring
at the annual meeting of shareholders next succeeding his election
and until his successor 1s elected and qualified or his earlier
displacement from office by resignation, removal or otherwise.
Section 3.03. Resignation and Removal. Any trustee may
resign at any time by written notice to the Trust or an Officer
thereof. Any trustee holding office may be removed, with or
without cause, by vote of a majority of the shares then entitled to
vote at an election of trustees or by two-thirds of the trustees
.
prior to such removal.
Section 3.04. Vacancies. Any vacancy on the Board of
Trustees may be filled by the shareholders at any annual or special
meeting or by the affirmative vote of a majority of the remaining
trustees as provided in Section 4.1(F) of the Declaration of Trust.
Each trustee elected to fill a vacancy shall hold office for the
unexpired term of his predecessor.
Section 3.05. Executive and Other Committees.
The Board of Trustees, by resolution adopted by a majority of the
-5-
<PAGE> 193
number of trustees constituting the full Board, may designate from
among its members one or more committees, each consisting of two
(2) or more trustees and having such title as the Board may
consider to be properly descriptive of its function (except that
only one such committee shall be designated as the Executive
Committee), and each of which, to the extent provided in such
resolution, shall have and may exercise all the authority of the
Board, except that no such committee shall have authority as to any
of the following matters:
(a) amending the Declaration of Trust;
(b) adopting a plan of merger or consolidation;
(c) recommending to the shareholders the sale, lease,
exchange or other disposition of all or substantially all of the
property and assets of the Trust otherwise than in the usual and
regular course of its business;
(d) recommending to the shareholders a voluntary
dissolution of the Trust or a revocation thereof; or
(e) amending the By-Laws of the Trust.
Each such committee shall serve at the pleasure of the Board of
Trustees. It shall keep minutes of its meetings and report the
same to the Board of Trustees as and when requested by the Board,
and it shall observe such other procedures with respect to its
meetings as may be prescribed by the Board, or, to the extent not
so prescribed, as are specified in these By-Laws with respect to
meetings of the Board.
Section 3.06. Chairman of the Board. The trustees may
elect or appoint from among their number a Chairman of the Board.
-6-
<PAGE> 194
The Chairman of the Board, if there be one, shall preside at all
meetings of shareholders and trustees, and he shall have such other
powers and duties as the Board of Trustees may from time to time
prescribe.
Section 3.07. Compensation. The Board of Trustees shall
have authority to fix the compensation of trustees and to provide
for reimbursement of expenses incurred by trustees in attending
meetings of the Board or of any committee of the Board in which
they hold membership.
ARTICLE IV
MEETINGS OF THE BOARD
Section 4.01. Time and Place. Meetings of the Board of
Trustees may be held at such time and place, within or without the
State of Kentucky, as shall be determined in accordance with these
By-Laws.
Section 4.02. Organizational Meetings. Within ten (10)
days after each annual meeting of shareholders, the trustees
elected at the annual melting shall hold an initial meeting for the
purposes of organizing, electing officers and transacting any other
business they deem to be appropriate. Each organizational meeting
shall be held at such time and place as shall be fixed by
resolution of the Board of Trustees prior to the annual meeting of
shareholders or by the written consent of all of the trustees
elected at such annual meeting; and no notice of such
organizational meeting need be given to such trustees in order
legally to constitute the meeting, provided a quorum shall be
-7-
<PAGE> 195
present.
Section 4.03.
Regular Meetings. Regular meetings of the Board of Trustees may be
held, with or without notice, at such time
and place as shall from time to time be fixed in advance by
resolution of the Board.
Section 4.04. Special Meetings. Special meetings of the
Board of Trustees may be called by the President and shall be
called by the President or the Secretary at the written request of
any two (2) trustees. Any such request shall specify the purpose
or purposes for which the special meeting is to be called. Written
notice of each special meeting of trustees stating the day, hour
and place, and, if deemed appropriate by the person or persons by
whom or at whose request the meeting is being called, the purpose
or purposes thereof, shall be delivered to each trustee, in the
manner provided in Section 5.01 of these By-Laws, at least forty-
eight (48) hours before such meeting. The time and place of any
special meeting of trustees may also be fixed by a duly executed
waiver of notice thereof.
Section 4.05. Quorum and Voting. A majority of the
number of trustees constituting the entire Board of Trustees then
in office shall constitute a quorum for the transaction of business
at any meeting of the Board, and the vote of a majority of the
trustees present at any meeting at which a quorum is present shall
be the act of the Board, except as otherwise provided by statute,
the Declaration of Trust or these By-Laws. If a quorum is not
present at any meeting of the Board of Trustees, the trustees
<PAGE> 196
present at such meeting may adjourn it from time to time, without
-8-
<PAGE> 197
notice other than an announcement at the meeting, until a quorum is
present.
Section 4.06. Action by Unanimous Written Consent. Any
action required or permitted to be taken at any meeting of the
Board of Trustees or of any committee of the Board may be taken
without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all of the trustees, or all of the
members of the committee, as the case may be; and such consent
shall have the same effect as a unanimous vote.
ARTICLE V
NOTICES
Section 5.01. Delivery of Notices. Notices to
shareholders and trustees shall be in writing and may be delivered
personally or by mail. Notice by mail shall be deemed to be
delivered when deposited in the United States mail addressed to the
trustee or shareholder at his address as it appears on the books of
the Trust with postage thereon prepaid. Notice to trustees may
also be given by telegram or by leaving the notice at a trustee's
residence or usual place of business.
Section 5.02. Waiver of Notice. Whenever any notice is
required by statute, the Declaration of Trust or these By-Laws to
be given to any shareholder or trustee, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether
before or after the time stated thereon, shall be equivalent to the
giving of such notice. Neither the business to be transacted at,
nor the purposes of, any meeting of trustees need to specified in a
- 9 -
<PAGE> 198
waiver of notice of such meeting. Attendance of a trustee at a
meeting shall constitute a waiver of notice of such meeting, except
where the trustee attends the meeting for the express purpose of
objecting to the transaction of any business because the meeting is
not lawfully called or convened.
ARTICLE VI
OFFICERS
Section 6.01. Executive Officers. The executive
officers of the Trust shall be a President, one or more Vice
Presidents, a Secretary and a Treasurer. The President shall be
selected from among the trustees, but no other officer need be a
member of the Board of Trustees. Two or more offices, except those
of President and Vice President and those of President and
Secretary, may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one
capacity. The executive officers of the Trust shall be elected
annually by the Board of Trustees at its organizational meeting
following the annual meeting of shareholders at which the members
of the Board were elected.
Section 6.02. Other Officers and Agents. The Board of
Trustees may also elect or appoint or may delegate to the President
authority to appoint, to fix the term of office, duties and
compensation of, and to remove, one or more Assistant Vice
Presidents, Assistant Treasurers and Assistant Secretaries, and
such other officers and agents as the Board may at any time or from
time to time determine to be advisable.
- 10 -
<PAGE> 199
Section 6.03. Tenure; Resignation; Removal; Vacancies.
Each officer of the Trust shall hold office until his successor is
elected or appointed or until his earlier displacement from office
by resignation, removal or otherwise; provided, that if the term of
office of any officer elected or appointed pursuant to Section 6.02
of these By-Laws shall have been fixed by the Board of Trustees or
by the President acting under authority delegated to him by the
Board, then such officer shall cease to hold such office no later
than the date of expiration of such fixed term, regardless of
whether any other person shall have been elected or appointed to
succeed him. Any officer may resign by written notice to the
Trust. Any officer may be removed by the Board of Trustees, and,
if the Board has delegated such authority to the President, any
officer elected or appointed pursuant to Section 6.02 of these By-
Laws may be removed by the President, whenever in the judgment of
the Board or the President, as the case may be, the best interests
of the Trust will be served thereby; provided, that any such
removal shall be without prejudice to the contract rights, if any,
of the officer so remove; under any employment or other agreement
with the Trust; and provided further, that the election or
appointment of an officer shall not of itself create any contract
rights in his favor. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Trustees,
or, in the case of an officer elected or appointed pursuant to
Section 6.02 of these By-Laws, by the President acting pursuant to
authority delegated to him by the Board.
Section 6.04. Compensation. The compensation of all
- 11 -
<PAGE> 200
officers and agents of the Trust shall be fixed by the Board of
Trustees, or, in the case of officers elected or appointed pursuant
to Section 6.02, by the President acting pursuant to authority
delegated to him by the Board.
Section 6.05. Authority and Duties. All officers and
agents of the Trust, as between themselves and it, shall have such
authority and perform such duties in the management of the Trust as
may be provided in these By-Laws, or, to the extent not provided
herein, as may be prescribed by the Board, or, in the case of
officers and agents elected or appointed pursuant to Section 6.02
of these By-Laws, by the President acting pursuant to authority
delegated to him by the Board.
Section 6.06. The President. The President shall be the
Chief Executive Officer of the Trust. He shall have general and
active management of the business of the Trust, shall see to it
that all resolutions and orders of the Board of Trustees are
carried into effect, and, in connection therewith, shall be
authorized to delegate to the other executive officers of the Trust
such of his powers and duties as President at such times and in
such manner as he may deem to be advisable; and, in the absence
disability of the Chairman of the Board, or if there be no
Chairman, he shall preside at all meetings of shareholders and
trustees.
or
Section 6.07. The Vice Presidents. The Vice President,
or, if there be more than one, the Vice Presidents, shall assist
the President in the management of the business of the Trust and
<PAGE> 201
the implementation of resolutions and orders of the Board of
- 12 -
<PAGE> 202
Trustees at such times and in such manner as the President may deem
to be advisable. If there be more than one Vice President, the
Board of Trustees may designate one of them as Executive Vice
President, in which case he shall be first in order of seniority,
and may also grant to others such titles as shall be descriptive of
their respective functions or indicative of their relative
seniority. The Vice President, or, if there be more than one, the
Vice Presidents in their order of seniority as indicated by their
titles or as otherwise determined by the Board of Trustees shall,
in the absence or disability of the President, exercise the powers
and perform the duties of the President; and he or they shall have
such other powers and duties as the Board or the President may from
time to time prescribe.
Section 6.08. The Assistant Vice Presidents. The
Assistant Vice President, if any, or, if there be more than one,
the Assistant Vice Presidents, shall perform such duties as the
Board of Trustees or the President may from time to time prescribe.
Section 6.09. The Secretary. The Secretary shall:
(a) Attend all meetings of the shareholders and the
Board of Trustees and record the minutes of all proceedings taken
at such meetings, and maintain all documents evidencing trust
actions taken by written consent of the shareholders or the Board
of Trustees, in a book to be kept for that purpose; and, when
required, he shall perform like duties for any committees of the
Board;
(b) See to it that all notices of meetings of the
shareholders and of special meetings of the Board of Trustees are
- 13 -
<PAGE> 203
duly given in accordance with these By-Laws or as required by
statute;
(c) Be the custodian of the seal of the Trust, and, when
authorized by the Board of Trustees, cause the trust's seal to be
affixed to any document requiring It, and, when so affixed,
attested by his signature as Secretary or by the signature of an
Assistant Secretary; and
(d) Perform all other duties incident to the office of a
trust secretary and such other duties as the Board of Trustees or
the President may from time to time prescribe.
Section 6.10. The Assistant Secretaries. The Assistant
Secretary, if any, or, if there be more than one, the Assistant
Secretaries, in the order determined by the Board of Trustees or by
the President, shall, in the absence or disability of the
Secretary, exercise the powers and perform the duties of the
Secretary; and he or they shall perform such other duties as the
Board of Trustees, the President or the Secretary may from time to
time prescribe.
Section 6.11. -The Treasurer. The Treasurer shall:
(a) See to it that all monies, securities and other
valuable effects of the Trust are deposited in its name and for its
account with such custodians and depositories as may be designated
by the Board of Trustees;
(b) Keep full and accurate accounts of receipts and
disbursements and revenues and expenses in books belonging to the
Trust;
(c) Render to the President and the Board of Trustees,
- 14 -
<PAGE> 204
at meetings or whenever they may require it, an account of the
financial condition of the Trust; and
(d) Perform all other duties incident to the office of a
treasurer and such other duties as the Board of Trustees or the
President may from time to time prescribe.
Section 6.12. The Assistant Treasurers, The Assistant
Treasurer, if any, or, if there be more than one, the Assistant
Treasurers, in the order determined by the Board of Trustees or by
the President, shall, in the absence or disability of the
Treasurer, exercise the powers and perform the duties of the
Treasurer; and he or they shall perform such other duties as the
Board of Trustees, the President or the Treasurer may from time to
time prescribe.
ARTICLE VII
ISSUANCE AND TRANSFER OF SHARES
Section 7.01. Share Certificates. The certificates
representing shares of the Trust shall be in the form approved by
the Board of Trustees and shall set forth the statements required
by statute and these By-Laws. Each certificate shall state the
name of the person to whom it is issued, the number and class and
designation of any series or sub-series of shares that it
represents and the date of its issuance, and shall be signed on
behalf of the Trust by the President or a Vice President and the
Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, any or all of whose signatures may be
facsimile if the certificate is manually signed on behalf of a
- 15 -
<PAGE> 205
transfer agent or a registrar other than the Trust itself or an
employee of the Trust. Certificates representing shares of the
Trust may but need not be sealed with its seal or a facsimile
thereof. In case any officer who has signed or whose facsimile
signatures has been placed upon any such certificate shall have
ceased to be such officer before such certificate is issued, it may
be issued by the Trust with the same effect as if he were such
officer at the date of its issue.
Section 7.02. Lost Certificates. The Board of Trustees
may direct that a new share certificate or certificates be issued
in place of any certificate or certificates theretofore issued by
the Trust which have been mutilated or which are alleged to have
been lost, stolen or destroyed, upon presentation of each such
mutilated certificate or the making by the person claiming any such
certificate to have been lost, stolen or destroyed of an affidavit
as to the fact and circumstances of the loss, theft or destruction thereof.
The Board of Trustees, in its discretion and as a
precedent to the issuance of any new certificate, may
require the owner of any certificate alleged to have been lost,
stolen or destroyed. or his legal representative, to furnish the
Trust or its transfer agent with a bond, in such sum and with such
surety or sureties as it may direct, as indemnity against any claim
that may be made against the Trust or its transfer agent in respect
of such lost, stolen or destroyed certificate.
Section 7.03. Registration of Share Transfers. The
Trust shall register or cause its transfer agent to register
transfers of shares on the books of the Trust, upon compliance with
- 16 -
<PAGE> 206
such lawful share transfer rules and regulations as may be
prescribed by the Board of Trustees or by any Transfer Agent acting
for the Trust and, if such shares are represented by one or more
certificates, upon surrender to the Trust or its transfer agent of
such certificate or certificates duly endorsed or accompanied by
appropriate evidence of succession, assignment or authority to
transfer.
Section 7.04. Fractional Shares. The Trust shall not
issue certificates to represent fractional share interests, but
shall register or cause its transfer agent to register ownership of
such interests in the names of the persons entitled thereto on the
books of the Trust. Ownership of any fractional share interest
shall entitle the holder thereof to exercise voting rights, receive
any dividends and participate in any liquidation of the Trust on a
proportionate basis.
Section 7.05. Registered Shareholders. Except as
otherwise required by law, the Trust shall be entitled to recognize
a person registered on its books as the holder of shares as the
sole owner of such shares for all purposes, and shall not be bound
to recognize any equitable or legal claim to or interest in such
shares on the part of any person other than such registered holder,
regardless of whether it shall have knowledge or notice of any such
claim or interest. Without limiting the generality of the
foregoing, the Trust shall be entitled to recognize the exclusive
right of a person whose holding of shares is so registered on its
books as of any record date fixed or determined pursuant to Section
8.1 of these By-Laws to be treated as the sole owner of such
-17 -
<PAGE> 207
shares for the purpose for which such record date was so fixed or
determined and to hold a person registered on its books as the
holder of snares liable for calls and assessments in respect of
such shares.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Record Date.
(a) For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or
adjournment thereof, or entitled to receive payment of any
dividends or other distribution or any allotment of rights, or
entitled to exercise any rights in respect of any change,
conversion or exchange of shares, or for any other proper purpose,
the stock transfer books of the Trust shall not be closed. but in
lieu thereof the Board of Trustees may fix in advance a date as the
record date for any such determination of shareholders. The record
date so fixed shall not be more than fifty (50) nor less than ten
(10) days prior to the date of any such meeting of shareholders,
nor more than fifty (50) days prior to the date of any such other
action.
(b) If no record date is fixed by the Board of Trustees:
(i) The record date for determining the
shareholders entitled to notice of or to vote at a meeting shall be
the close of business on the first date on which notice of the
meeting is mailed; and
(ii) The record date for determining shareholders
- 18 -
<PAGE> 208
for any other proper purpose shall be the close of business on the
day on which the resolution of the Board of Trustees relating
thereto is adopted.
(c) When a determination of shareholders entitled to
vote any meeting of shareholders has been made as provided in
this Section 8.01, such determination shall apply to any
adjournment of such meeting, unless the Board of Trustees fixes a
new record date for any such adjourned meeting.
Section 8.02. Signing of Checks, Notes, Etc. All checks
or other orders for the payment of money and all notes or other
evidences of indebtedness of the Trust shall be signed on its
behalf by such officers and agents as the Board of Trustees may
from time to time designate.
Section 8.03. Voting of Securities. In the event that
the Trust shall at any time or from time to time own and have power
to vote any securities of any other issuer, such securities shall
be voted by such persons and in such manner as the Board of
Trustees may from time to time determine, or, in the absence of any
such determination, by the President or any Vice President in such
manner as such officer deems to be in the best interests of the
Trust.
Section 8.04. Seal. The seal shall have inscribed
thereon the name of the Trust, the year of its formation and the
words "A Kentucky Business Trust". The seal may be used by causing
it or a facsimile to be impressed, affixed or otherwise reproduced.
Section 8.05. Fiscal Year. The fiscal year of the Trust
- 19 -
<PAGE> 209
shall be fixed and may from time to time be changed by resolution
of the Board of Trustees; provided, that if a different fiscal year
shall not have been fixed by the Board on or before June 30, 1988,
the first fiscal year of the Trust shall end on that date, and
thereafter, unless and until the Board shall fix a different fiscal
year f it shall be the period of twelve (12) consecutive calendar
months ending on the 30th day of June in each calendar year.
ARTICLE IX
INSURANCE
The Trust may purchase and maintain insurance on behalf
of any person who is or was a trustee, officer, employee or agent
of the Trust. or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the
Trust would have the power to indemnify against such liability
under the provisions of section 271A.026 of the Kentucky Business
Corporation Act or the indemnification provisions of any successor
statute.
ARTICLE X
APPLICABILITY OF INVESTMENT COMPANY ACT OF 1940
Section 10.01. Investment Company Act to Be Controlling.
If at a time when the Trust is registered as an investment company
under the federal Investment Company Act of 1940, any provision of
- 20 -
<PAGE> 210
these By-Laws shall conflict or be inconsistent with any applicable
provision of said Act or of any rule, regulation or order
thereunder, such applicable provision of said Act or rule,
regulation or order thereunder shall be controlling and the
operation of the conflicting or inconsistent provision of these
By-Laws shall be suspended.
ARTICLE XI
AMENDMENTS
Section 11.01. General Power to Amend. Subject to
Section 11.02, these By-Laws may be amended or repealed, and new
By-Laws may be adopted, by resolution adopted by the shareholders
or by a majority of the number of trustees constituting the full
Board of Trustees; provided, that any By-Law or amendment to the
By-Laws so adopted by the Board may be amended or repealed, and any
By-Law so repealed by the Board may be reinstated, by resolution of
the shareholders, in which case the Board shall not thereafter take
action with respect to the By-Laws which is inconsistent with the
action so taken by the shareholders.
Section 11.02. Amendment by Shareholders Only. This
Article XI may be amended or repealed only by the shareholders. In
addition, the shareholders shall have exclusive power to amend or
repeal any By-Law adopted by the shareholders which expressly
states that it may be amended or repealed only by the shareholders.
- 21 -
<PAGE> 211
UNANIMOUS WRITTEN CONSENT
BOARD OF TRUSTEES
RESOLVED, that the Board of Trustees of Dupree Mutual Funds modify its
resolutions of July 27, 1988, with respect to the Annual Meeting of Shareholders
as follows:
1. Pursuant to Section 3.02 of the By-laws of Dupree Mutual Funds, the
number of trustees shall be increased to six (6) with a sixth trustee to take
office following the Annual Meeting of Shareholders and to serve until the next
Annual Meeting of Shareholders and until a successor is duly elected and
qualified.
2. William A. Combs, Jr. Is designated as a nominee of this Board of
Trustees for election at the 1988 Annual Meeting of Shareholders.
/s Thomas P. Dupree 9/11/88
/s Fred L. Dupree 9/11/88
/s Jack Langley 9/11/88
/s Robert L Maddox 9/11/88
/s William S. Patterson 9/11/88
<PAGE> 212
UNANIMOUS WRITTEN CONSENT
DUPREE MUTUAL FUNDS
The undersigned, being all of the Trustees of Dupree
Mutual Funds, a Kentucky Business Trust, do hereby severally
consent to the following actions and the adoption of the
following resolutions pursuant to Section 4.06 of the By-Laws
of the Trust:
RESOLVED, that the Board of Trustees of Dupree Mutual Funds hereby lowers the
initial investment in any Series of the Trust to $100.00. The Trust retains the
right to redeem shares for accounts which fall below $500.00 as set forth in the
current Prospectus.
IN WITNESS WHEREOF, the undersigned
instrument effective as of April 2, 1990
/s Thomas P. Dupree, Sr.
/s Fred L. Dupree, Jr.
/s William A. Combs, Jr.
/s Robert L. Maddox
/s William S. Patterson
<PAGE> 213
Item 23(c)
KENTUCKY TAX-FREE INCOME SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO. ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615510-0
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the KENTUCKY 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> 214
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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 KENTUCKY TAX-FREE INCOME SERIES of
Dupree Mutual Funds, represented by the Certificate and do hereby irrevocably
constitute and appoint
Attorney
- - -----------------------------------------------------------------------
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)
</TABLE>
<PAGE> 215
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO. ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615520-9
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the KENTUCKY 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> 216
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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 KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
of Dupree Mutual Funds, represented by the Certificate and do hereby irrevocably
constitute and appoint
Attorney
- - -----------------------------------------------------------------------
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)
</TABLE>
<PAGE> 217
NORTH CAROLINA TAX-FREE INCOME SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO. ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615570-4
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the NORTH CAROLINA 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> 218
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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 NORTH CAROLINA TAX-FREE INCOME SERIES
of Dupree Mutual Funds, represented by the Certificate and do hereby irrevocably
constitute and appoint
Attorney
- - -----------------------------------------------------------------------
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)
</TABLE>
<PAGE> 219
NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO. ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615580-3
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the NORTH CAROLINA 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> 220
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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 NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM
SERIES of Dupree Mutual Funds, represented by the Certificate and do hereby
irrevocably constitute and appoint
Attorney
- - -----------------------------------------------------------------------
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)
</TABLE>
<PAGE> 221
TENNESSEE TAX-FREE INCOME SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO. ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615550-6
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the TENNESSEE 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> 222
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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 TENNESSEE TAX-FREE INCOME SERIES of
Dupree Mutual Funds, represented by the Certificate and do hereby
irrevocably constitute and appoint
Attorney
- - -----------------------------------------------------------------------
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)
</TABLE>
<PAGE> 223
TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO. ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615560-5
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the Tennessee 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> 224
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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 TENNESSEE TAX-FREE SHORT-TO-MEDIUM
SERIES of Dupree Mutual Funds, represented by the Certificate and do hereby
irrevocably constitute and appoint
Attorney
- - -----------------------------------------------------------------------
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)
</TABLE>
<PAGE> 225
INTERMEDIATE GOVERNMENT BOND SERIES
DUPREE MUTUAL FUNDS
A Kentucky Business Trust
ACCOUNT NO. ALPHA CODE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26615540-7
THIS CERTIFIES THAT is the owner of
Fully paid and Nonassessable Shares, of Beneficial Interest, without
Par Value, of the INTERMEDIATE GOVERNMENT BOND SERIES 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> 226
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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 INTERMEDIATE GOVERNMENT BOND SERIES of
Dupree Mutual Funds, represented by the Certificate and do hereby irrevocably
constitute and appoint
Attorney
- - -----------------------------------------------------------------------
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)
</TABLE>
<PAGE> 227
ITEM 23(D)
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Kentucky Tax-Free Income Series, (hereinafter called "Income Series"), and
DUPREE & COMPANY, INC., a corporation organized and existing under the laws of
the State of Kentucky (hereinafter called the "Adviser").
WITNESSETH:
WHEREAS, the Income Series is engaged in business as part of an
open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Income Series desires to retain the Adviser to render
investment supervisory services and provide office space and facilities and
corporate administration to the Income Series in the manner and on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Income Series and shall provide the Income Series
with office space and facilities and corporate administration, subject to and
upon the terms and conditions set forth in this Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Income Series in a manner consistent with its
investment objectives; shall determine the securities to be purchased and sold
by the Income Series, and the portion of its assets to be held in cash or cash
equivalents, in order to carry out such program; and generally shall take such
other steps, including the placing of orders for the purchase or sales of
securities on behalf of the Income Series, as the Adviser may deem necessary or
appropriate for the implementation of such program. The Adviser shall also
furnish to or place at the disposal of the Income Series such of the
information, reports evaluations, analyses and opinions formulated or obtained
by the Adviser in the discharge of its duties hereunder as the Income Series
may, at the time or from time to time, reasonably request or as the Adviser may
deem helpful to the Income Series.
3. (a) The Adviser shall:
(i) Pay or provide for and furnish to the Income Series such
office space, equipment facilities, personnel and services (exclusive of and in
addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Income Series) as the Income Series may
reasonably require in the conduct of its business;
(ii) Maintain and preserve on behalf of the Income Series, for
such periods and in such forms as are prescribed by rules and regulations of the
Securities and Exchange Commission (the "Commission"), all of the accounts,
books and other documents the Income Series is required to maintain and preserve
pursuant to Section 31(a) of the Investment company Act of 1940 and the rules
and regulations of the Commission thereunder which are not maintained and
preserved on
<PAGE> 228
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> 229
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Income Series pursuant to paragraph 3(a)(i) hereof
are the property of the Income Series and shall be surrendered by the Adviser
promptly on request by the Income Series. The Income Series shall furnish or
otherwise make available to the Adviser such financial reports, proxy statements
and other information relating to the business and affairs of the Income Series
as the Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Income Series shall
pay the Adviser a fee at the annual rate of one-half of one percent (1/2 of 1%)
of the first $100,000,000 average daily net asset value, .45 of 1% of the
average daily net assets between $100,000,001 and $150,000,000, and .4 of 1% of
the average daily net assets in excess of $150,000,001 of the Income Series, as
determined in accordance with the Declaration of Trust of Dupree Mutual Funds.
The amounts due the Adviser in payment of such fees shall be accrued daily by
the Income Series on the basis of the net asset value of the Income Series
applicable to the close of each business day, and in the case of any day which
is not a business day, the net asset value of the Income Series applicable to
the close of the last preceding business day; and the total amount thus accrued
with respect to each calendar month or portion thereof during which this
Agreement remains in effect shall become due and payable to the Adviser in the
first business day of the next succeeding calendar month. The term "business
day" means a day for all or part of which the New York Stock Exchange is open
for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the Income
Series; but this prohibition shall not prevent the purchase by or for the
Adviser or any of its officers or directors of shares of the Income Series at
the price at which such shares are available to the public at the moment of
purchase.
8. Nothing herein contained shall be deemed to require the Income
Series to take any action to the Declaration of Trust of Dupree Mutual Funds or
the Trust By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the Board
of Trustees of Dupree Mutual Funds of its responsibility for and control of the
conduct of the Income Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Income Series at the 1997 Annual Meeting,
and, unless sooner terminated as provided in paragraph 10 hereof, this Agreement
shall remain in effect through the close of business on October 31, 1999, and
thereafter subject to the termination provisions and other terms and conditions
hereof; if: (a) such continuation shall be specifically approved at least
annually by the Board of Trustees, or by vote of a majority of the outstanding
voting securities of the Income Series, and concurrently with such approval by
the Board of Trustees or prior to such approval by the holders of the
outstanding voting securities of the Income Series, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the trustees of the Dupree Mutual Funds who are not
parties to this Agreement or interested persons of any such party; and (b) the
Adviser shall have not notified the Income Series, in writing, at least sixty
(60) days prior to October 31 of each year after 1998 that it does not desire
such
<PAGE> 230
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> 231
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Kentucky Tax-Free Income Series
By: /s William T Griggs II
----------------------------------
Vice President
Attest /s Michelle Dragoo
--------------------------
DUPREE & COMPANY, INC.
By: /s William T. Griggs
----------------------------------
President
Attest /s Michelle Dragoo
--------------------------
<PAGE> 232
ITEM 23(D)
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Kentucky Tax-Free Short-to-Medium Series, (hereinafter called
"Short-to-Medium Series"), and DUPREE & COMPANY, INC., a corporation organized
and existing under the laws of the State of Kentucky (hereinafter called the
"Adviser").
WITNESSETH:
WHEREAS, the Short-to-Medium Series is engaged in business as part of
an open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Short-to-Medium Series desires to retain the Adviser to
render investment supervisory services and provide office space and facilities
and corporate administration to the Income Series in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Short-to-Medium Series and shall provide the
Short-to-Medium Series with office space and facilities and corporate
administration, subject to and upon the terms and conditions set forth in this
Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Short-to-Medium Series in a manner consistent
with its investment objectives; shall determine the securities to be purchased
and sold by the Short-to-Medium Series, and the portion of its assets to be held
in cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the purchase or
sales of securities on behalf of the Short-to-Medium Series, as the Adviser may
deem necessary or appropriate for the implementation of such program. The
Adviser shall also furnish to or place at the disposal of the Short-to-Medium
Series such of he information, reports evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties hereunder
as the Short-to-Medium Series may, at the time or from time to time, reasonably
request or as the Adviser may deem helpful to the Short-to-Medium Series.
3. (a) The Adviser shall:
(i) Pay or provide for and furnish to the Short-to-Medium Series
such office space, equipment facilities, personnel and services (exclusive of
and in addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Short-to-Medium Series) as the
Short-to-Medium Series may reasonably require in the conduct of its business;
(ii) Maintain and preserve on behalf of the Short-to-Medium
Series, for such periods and in such forms as are prescribed by rules and
regulations of the Securities and Exchange Commission (the "Commission"), all
of the accounts, books and other documents the Short-to-Medium Series is
required to maintain and preserve pursuant to Section 31(a) of the Investment
<PAGE> 233
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> 234
excess of the amount of commission another member of an exchange or another
broker or dealer would have charged for effecting that transaction, if the
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Short-to-Medium Series pursuant to paragraph
3(a)(i) hereof are the property of the Short-to-Medium Series and shall be
surrendered by the Adviser promptly on request by the Short-to-Medium Series.
The Short-to-Medium Series shall furnish or otherwise make available to the
Adviser such financial reports, proxy statements and other information relating
to the business and affairs of the Short-to-Medium Series as the Adviser may, at
any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Short-to-Medium
Series shall pay the Adviser a fee at the annual rate of one-half of one percent
(1/2 of 1%) of the first $100,000,000 average daily net asset value, .45 of 1%
of the average daily net assets between $100,000,001 and $150,000,000, and .4 of
1% of the average daily net assets in excess of $150,000,000 of the
Short-to-Medium Series, as determined in accordance with the Declaration of
Trust of Dupree Mutual Funds. The amounts due the Adviser in payment of such
fees shall be accrued daily by the Short-to-Medium Series on the basis of the
net asset value of the Short-to-Medium Series applicable to the close of each
business day, and in the case of any day which is not a business day, the net
asset value of the Short-to-Medium Series applicable to the close of the last
preceding business day; and the total amount thus accrued with respect to each
calendar month or portion thereof during which this Agreement remains in effect
shall become due and payable to the Adviser in the first business day of the
next succeeding calendar month. The term "business day" means a day for all or
part of which the New York Stock Exchange is open for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the
Short-to-Medium Series; but this prohibition shall not prevent the purchase by
or for the Adviser or any of its officers or directors of shares of the
Short-to-Medium Series at the price at which such shares are available to the
public at the moment of purchase.
8. Nothing herein contained shall be deemed to require the
Short-to-Medium Series to take any action to the Declaration of Trust of Dupree
Mutual Funds or the Trust By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Trustees of Dupree Mutual Funds of its responsibility for
and control of the conduct of the Short-to-Medium Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Short-to-Medium Series at the 1997 Annual
Meeting, and, unless sooner terminated as provided in paragraph 10 hereof, this
Agreement shall remain in effect through the close of business on October 31,
1999, and thereafter subject to the termination provisions and other terms and
conditions hereof; if: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees, or by vote of a majority of the
outstanding voting securities of the Short-to-Medium Series, and concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Short-to-Medium Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the trustees of the Dupree Mutual
Funds who are not parties to this
<PAGE> 235
Agreement or interested persons of any such party; and (b) the Adviser shall
have not notified the Short-to-Medium Series, in writing, at least sixty (60)
days prior to October 31 of each year after 1998 that it does not desire such
continuation. The Adviser shall furnish to the Short-to-Medium Series, promptly
upon its request such information in the possession of or readily available to
the Adviser as the Trustees of Dupree Mutual Funds may at any time from time to
time deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Short-to-Medium Series, and
this Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Short-to-Medium Series,
such action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Short-to-Medium Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the
Short-to-Medium Series whose services were made available to the Short-to-Medium
Series by the Adviser shall be liable to the Short-to-Medium Series for any
error of judgment or mistake of law or for any loss suffered by the
Short-to-Medium Series by reason of any action taken or omission to act
committed in connection with the matters to which this Agreement relates, except
that nothing herein contained shall be construed (i) to protect the Adviser or
any affiliated person of the Adviser (whether or not such affiliated person is
or was an officer, director or member of any advisory board of the
Short-to-Medium Series and/or Dupree Mutual Funds) against any liability to the
Short-to-Medium Series or its security holders for any breach of fiduciary duty
with respect to the Adviser's receipt of compensation for services to the
Short-to-Medium Series, (ii) to protect the Adviser or any affiliated person of
the Adviser who is or was an officer, trustee or member of any advisory board of
the Short-to-Medium Series and/or Dupree Mutual Funds against any liability to
the Short-to-Medium Series or its security holders for any act or practice (
other than the Adviser's receipt of compensation for services to the
Short-to-Medium Series) constituting a breach of fiduciary duty involving
personal misconduct in respect of the Short-to-Medium Series, (iii) to protect
the Adviser against any liability to the Short-to-Medium Series or its security
holders to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations or duties, under this
Agreement, or (iv) to protect any affiliated person of the Adviser who is or was
a Trustee or officer of the Short-to-Medium Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Short-to-Medium Series and/or Dupree Mutual
Funds. In the event that any affiliated person of the Adviser shall become a
Trustee, officer or employee of the Short-to-Medium Series and/or Dupree Mutual
Funds, then all actions taken or omissions to act made by such person in
connection with the discharge of his duties to the Short-to-Medium Series shall
be deemed to have been taken or made by such person solely in his capacity as
such Trustee, officer or employee of said entity, notwithstanding the fact that
the services of such person are being or have been furnished by the Adviser to
said entity as provided in this Agreement or that the compensation and expenses
of such person are being or have been paid by the Adviser or any other
affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other
<PAGE> 236
persons, firms or corporations or to engage in other business activities; but so
long as this Agreement or any extension, renewal or amendment hereof shall
remain in effect and until the Adviser shall otherwise consent, the Adviser
shall be the only investment adviser to the Short-to-Medium Series.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Kentucky Tax-Free Short-to-Medium Series
By:
------------------------------------
Vice President
Attest
------------------------
DUPREE & COMPANY, INC.
By:
------------------------------------
President
Attest
------------------------
<PAGE> 237
ITEM 23(D)
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its North Carolina Tax-Free Income Series, (hereinafter called "Income Series"),
and DUPREE & COMPANY, INC., a corporation organized and existing under the laws
of the State of Kentucky (hereinafter called the "Adviser").
WITNESSETH:
WHEREAS, the Income Series is engaged in business as part of an
open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Income Series desires to retain the Adviser to render
investment supervisory services and provide office space and facilities and
corporate administration to the Income Series in the manner and on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Income Series and shall provide the Income Series
with office space and facilities and corporate administration, subject to and
upon the terms and conditions set forth in this Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Income Series in a manner consistent with its
investment objectives; shall determine the securities to be purchased and sold
by the Income Series, and the portion of its assets to be held in cash or cash
equivalents, in order to carry out such program; and generally shall take such
other steps, including the placing of orders for the purchase or sales of
securities on behalf of the Income Series, as the Adviser may deem necessary or
appropriate for the implementation of such program. The Adviser shall also
furnish to or place at the disposal of the Income Series such of the
information, reports evaluations, analyses and opinions formulated or obtained
by the Adviser in the discharge of its duties hereunder as the Income Series
may, at the time or from time to time, reasonably request or as the Adviser may
deem helpful to the Income Series.
3. (a) The Adviser shall:
(i) Pay or provide for and furnish to the Income Series such
office space, equipment facilities, personnel and services (exclusive of and in
addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Income Series) as the Income Series may
reasonably require in the conduct of its business;
(ii) Maintain and preserve on behalf of the Income Series, for
such periods and in such forms as are prescribed by rules and regulations of
the Securities and Exchange Commission (the "Commission"), all of the accounts,
books and other documents the Income Series is required to maintain and
preserve pursuant to Section 31(a) of the Investment company Act of 1940 and
the rules and regulations of the Commission thereunder which are not maintained
and preserved on
<PAGE> 238
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> 239
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Income Series pursuant to paragraph 3(a)(i) hereof
are the property of the Income Series and shall be surrendered by the Adviser
promptly on request by the Income Series. The Income Series shall furnish or
otherwise make available to the Adviser such financial reports, proxy statements
and other information relating to the business and affairs of the Income Series
as the Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Income Series shall
pay the Adviser a fee at the annual rate of one-half of one percent (1/2 of 1%)
of the first $100,000,000 average daily net asset value, .45 of 1% of the
average daily net assets between $100,000,001 and $150,000,000, and .4 of 1% of
the average daily net assets in excess of $150,000,001 of the Income Series, as
determined in accordance with the Declaration of Trust of Dupree Mutual Funds.
The amounts due the Adviser in payment of such fees shall be accrued daily by
the Income Series on the basis of the net asset value of the Income Series
applicable to the close of each business day, and in the case of any day which
is not a business day, the net asset value of the Income Series applicable to
the close of the last preceding business day; and the total amount thus accrued
with respect to each calendar month or portion thereof during which this
Agreement remains in effect shall become due and payable to the Adviser in the
first business day of the next succeeding calendar month. The term "business
day" means a day for all or part of which the New York Stock Exchange is open
for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the Income
Series; but this prohibition shall not prevent the purchase by or for the
Adviser or any of its officers or directors of shares of the Income Series at
the price at which such shares are available to the public at the moment of
purchase.
8. Nothing herein contained shall be deemed to require the Income
Series to take any action to the Declaration of Trust of Dupree Mutual Funds or
the Trust By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the Board
of Trustees of Dupree Mutual Funds of its responsibility for and control of the
conduct of the Income Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Income Series at the 1997 Annual Meeting,
and, unless sooner terminated as provided in paragraph 10 hereof, this Agreement
shall remain in effect through the close of business on October 31, 1999, and
thereafter subject to the termination provisions and other terms and conditions
hereof; if: (a) such continuation shall be specifically approved at least
annually by the Board of Trustees, or by vote of a majority of the outstanding
voting securities of the Income Series, and concurrently with such approval by
the Board of Trustees or prior to such approval by the holders of the
outstanding voting securities of the Income Series, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the trustees of the Dupree Mutual Funds who are not
parties to this Agreement or interested persons of any such party; and (b) the
Adviser shall have not notified the Income Series, in writing, at least sixty
(60) days prior to October 31 of each year after 1998 that it does not desire
such
<PAGE> 240
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> 241
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
North Carolina Tax-Free Income Series
By:
-------------------------------------
Vice President
Attest
--------------------------
DUPREE & COMPANY, INC.
By:
-------------------------------------
President
Attest
--------------------------
<PAGE> 242
ITEM 23(D)
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its North Carolina Tax-Free Short-to-Medium Series, (hereinafter called
"Short-to-Medium Series"), and DUPREE & COMPANY, INC., a corporation organized
and existing under the laws of the State of Kentucky (hereinafter called the
"Adviser").
WITNESSETH:
WHEREAS, the Short-to-Medium Series is engaged in business as part of
an open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Short-to-Medium Series desires to retain the Adviser to
render investment supervisory services and provide office space and facilities
and corporate administration to the Income Series in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Short-to-Medium Series and shall provide the
Short-to-Medium Series with office space and facilities and corporate
administration, subject to and upon the terms and conditions set forth in this
Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Short-to-Medium Series in a manner consistent
with its investment objectives; shall determine the securities to be purchased
and sold by the Short-to-Medium Series, and the portion of its assets to be held
in cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the purchase or
sales of securities on behalf of the Short-to-Medium Series, as the Adviser may
deem necessary or appropriate for the implementation of such program. The
Adviser shall also furnish to or place at the disposal of the Short-to-Medium
Series such of he information, reports evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties hereunder
as the Short-to-Medium Series may, at the time or from time to time, reasonably
request or as the Adviser may deem helpful to the Short-to-Medium Series.
3. (a) The Adviser shall:
(i) Pay or provide for and furnish to the Short-to-Medium Series
such office space, equipment facilities, personnel and services (exclusive of
and in addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Short-to-Medium Series) as the
Short-to-Medium Series may reasonably require in the conduct of its business;
(ii) Maintain and preserve on behalf of the Short-to-Medium
Series, for such periods and in such forms as are prescribed by rules and
regulations of the Securities and Exchange Commission (the "Commission"), all
of the accounts, books and other documents the Short-to-Medium Series is
required to maintain and preserve pursuant to Section 31(a) of the Investment
<PAGE> 243
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> 244
excess of the amount of commission another member of an exchange or another
broker or dealer would have charged for effecting that transaction, if the
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Short-to-Medium Series pursuant to paragraph
3(a)(i) hereof are the property of the Short-to-Medium Series and shall be
surrendered by the Adviser promptly on request by the Short-to-Medium Series.
The Short-to-Medium Series shall furnish or otherwise make available to the
Adviser such financial reports, proxy statements and other information relating
to the business and affairs of the Short-to-Medium Series as the Adviser may, at
any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Short-to-Medium
Series shall pay the Adviser a fee at the annual rate of one-half of one percent
(1/2 of 1%) of the first $100,000,000 average daily net asset value, .45 of 1%
of the average daily net assets between $100,000,001 and $150,000,000, and .4 of
1% of the average daily net assets in excess of $150,000,000 of the
Short-to-Medium Series, as determined in accordance with the Declaration of
Trust of Dupree Mutual Funds. The amounts due the Adviser in payment of such
fees shall be accrued daily by the Short-to-Medium Series on the basis of the
net asset value of the Short-to-Medium Series applicable to the close of each
business day, and in the case of any day which is not a business day, the net
asset value of the Short-to-Medium Series applicable to the close of the last
preceding business day; and the total amount thus accrued with respect to each
calendar month or portion thereof during which this Agreement remains in effect
shall become due and payable to the Adviser in the first business day of the
next succeeding calendar month. The term "business day" means a day for all or
part of which the New York Stock Exchange is open for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the
Short-to-Medium Series; but this prohibition shall not prevent the purchase by
or for the Adviser or any of its officers or directors of shares of the
Short-to-Medium Series at the price at which such shares are available to the
public at the moment of purchase.
8. Nothing herein contained shall be deemed to require the
Short-to-Medium Series to take any action to the Declaration of Trust of Dupree
Mutual Funds or the Trust By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Trustees of Dupree Mutual Funds of its responsibility for
and control of the conduct of the Short-to-Medium Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Short-to-Medium Series at the 1997 Annual
Meeting, and, unless sooner terminated as provided in paragraph 10 hereof, this
Agreement shall remain in effect through the close of business on October 31,
1999, and thereafter subject to the termination provisions and other terms and
conditions hereof; if: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees, or by vote of a majority of the
outstanding voting securities of the Short-to-Medium Series, and concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Short-to-Medium Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the trustees of the Dupree Mutual
Funds who are not parties to this
<PAGE> 245
Agreement or interested persons of any such party; and (b) the Adviser shall
have not notified the Short-to-Medium Series, in writing, at least sixty (60)
days prior to October 31 of each year after 1998 that it does not desire such
continuation. The Adviser shall furnish to the Short-to-Medium Series, promptly
upon its request such information in the possession of or readily available to
the Adviser as the Trustees of Dupree Mutual Funds may at any time from time to
time deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Short-to-Medium Series, and
this Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Short-to-Medium Series,
such action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Short-to-Medium Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the
Short-to-Medium Series whose services were made available to the Short-to-Medium
Series by the Adviser shall be liable to the Short-to-Medium Series for any
error of judgment or mistake of law or for any loss suffered by the
Short-to-Medium Series by reason of any action taken or omission to act
committed in connection with the matters to which this Agreement relates, except
that nothing herein contained shall be construed (i) to protect the Adviser or
any affiliated person of the Adviser (whether or not such affiliated person is
or was an officer, director or member of any advisory board of the
Short-to-Medium Series and/or Dupree Mutual Funds) against any liability to the
Short-to-Medium Series or its security holders for any breach of fiduciary duty
with respect to the Adviser's receipt of compensation for services to the
Short-to-Medium Series, (ii) to protect the Adviser or any affiliated person of
the Adviser who is or was an officer, trustee or member of any advisory board of
the Short-to-Medium Series and/or Dupree Mutual Funds against any liability to
the Short-to-Medium Series or its security holders for any act or practice (
other than the Adviser's receipt of compensation for services to the
Short-to-Medium Series) constituting a breach of fiduciary duty involving
personal misconduct in respect of the Short-to-Medium Series, (iii) to protect
the Adviser against any liability to the Short-to-Medium Series or its security
holders to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations or duties, under this
Agreement, or (iv) to protect any affiliated person of the Adviser who is or was
a Trustee or officer of the Short-to-Medium Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Short-to-Medium Series and/or Dupree Mutual
Funds. In the event that any affiliated person of the Adviser shall become a
Trustee, officer or employee of the Short-to-Medium Series and/or Dupree Mutual
Funds, then all actions taken or omissions to act made by such person in
connection with the discharge of his duties to the Short-to-Medium Series shall
be deemed to have been taken or made by such person solely in his capacity as
such Trustee, officer or employee of said entity, notwithstanding the fact that
the services of such person are being or have been furnished by the Adviser to
said entity as provided in this Agreement or that the compensation and expenses
of such person are being or have been paid by the Adviser or any other
affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other
<PAGE> 246
persons, firms or corporations or to engage in other business activities; but so
long as this Agreement or any extension, renewal or amendment hereof shall
remain in effect and until the Adviser shall otherwise consent, the Adviser
shall be the only investment adviser to the Short-to-Medium Series.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
North Carolina Tax-Free Short-to-Medium Series
By:
-------------------------------------------
Vice President
Attest
------------------------
DUPREE & COMPANY, INC.
By:
-------------------------------------------
President
Attest
------------------------
<PAGE> 247
ITEM 23(D)
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Tennessee Tax-Free Income Series, (hereinafter called "Income Series"), and
DUPREE & COMPANY, INC., a corporation organized and existing under the laws of
the State of Kentucky (hereinafter called the "Adviser").
WITNESSETH:
WHEREAS, the Income Series is engaged in business as part of an
open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Income Series desires to retain the Adviser to render
investment supervisory services and provide office space and facilities and
corporate administration to the Income Series in the manner and on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Income Series and shall provide the Income Series
with office space and facilities and corporate administration, subject to and
upon the terms and conditions set forth in this Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Income Series in a manner consistent with its
investment objectives; shall determine the securities to be purchased and sold
by the Income Series, and the portion of its assets to be held in cash or cash
equivalents, in order to carry out such program; and generally shall take such
other steps, including the placing of orders for the purchase or sales of
securities on behalf of the Income Series, as the Adviser may deem necessary or
appropriate for the implementation of such program. The Adviser shall also
furnish to or place at the disposal of the Income Series such of the
information, reports evaluations, analyses and opinions formulated or obtained
by the Adviser in the discharge of its duties hereunder as the Income Series
may, at the time or from time to time, reasonably request or as the Adviser may
deem helpful to the Income Series.
3. (a) The Adviser shall:
(i) Pay or provide for and furnish to the Income Series such
office space, equipment facilities, personnel and services (exclusive of and in
addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Income Series) as the Income Series may
reasonably require in the conduct of its business;
(ii) Maintain and preserve on behalf of the Income Series, for
such periods and in such forms as are prescribed by rules and regulations of
the Securities and Exchange Commission (the "Commission"), all of the
accounts, books and other documents the Income Series is required to maintain
and preserve pursuant to Section 31(a) of the Investment company Act of 1940
and the rules and regulations of the Commission thereunder which are not
maintained and preserved on
<PAGE> 248
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> 249
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Income Series pursuant to paragraph 3(a)(i) hereof
are the property of the Income Series and shall be surrendered by the Adviser
promptly on request by the Income Series. The Income Series shall furnish or
otherwise make available to the Adviser such financial reports, proxy statements
and other information relating to the business and affairs of the Income Series
as the Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Income Series shall
pay the Adviser a fee at the annual rate of one-half of one percent (1/2 of 1%)
of the first $100,000,000 average daily net asset value, .45 of 1% of the
average daily net assets between $100,000,001 and $150,000,000, and .4 of 1% of
the average daily net assets in excess of $150,000,001 of the Income Series, as
determined in accordance with the Declaration of Trust of Dupree Mutual Funds.
The amounts due the Adviser in payment of such fees shall be accrued daily by
the Income Series on the basis of the net asset value of the Income Series
applicable to the close of each business day, and in the case of any day which
is not a business day, the net asset value of the Income Series applicable to
the close of the last preceding business day; and the total amount thus accrued
with respect to each calendar month or portion thereof during which this
Agreement remains in effect shall become due and payable to the Adviser in the
first business day of the next succeeding calendar month. The term "business
day" means a day for all or part of which the New York Stock Exchange is open
for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the Income
Series; but this prohibition shall not prevent the purchase by or for the
Adviser or any of its officers or directors of shares of the Income Series at
the price at which such shares are available to the public at the moment of
purchase.
8. Nothing herein contained shall be deemed to require the Income
Series to take any action to the Declaration of Trust of Dupree Mutual Funds or
the Trust By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the Board
of Trustees of Dupree Mutual Funds of its responsibility for and control of the
conduct of the Income Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Income Series at the 1997 Annual Meeting,
and, unless sooner terminated as provided in paragraph 10 hereof, this Agreement
shall remain in effect through the close of business on October 31, 1999, and
thereafter subject to the termination provisions and other terms and conditions
hereof; if: (a) such continuation shall be specifically approved at least
annually by the Board of Trustees, or by vote of a majority of the outstanding
voting securities of the Income Series, and concurrently with such approval by
the Board of Trustees or prior to such approval by the holders of the
outstanding voting securities of the Income Series, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the trustees of the Dupree Mutual Funds who are not
parties to this Agreement or interested persons of any such party; and (b) the
Adviser shall have not notified the Income Series, in writing, at least sixty
(60) days prior to October 31 of each year after 1998 that it does not desire
such
<PAGE> 250
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> 251
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Tennessee Tax-Free Income Series
By: William T. Griggs II
-------------------------------------
Vice President
Attest Michelle Dragoo
-------------------------
DUPREE & COMPANY, INC.
By: William T. Griggs II
-------------------------------------
President
Attest Michelle Dragoo
-------------------------
<PAGE> 252
ITEM 23(D)
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Tennessee Tax-Free Short-to-Medium Series, (hereinafter called
"Short-to-Medium Series"), and DUPREE & COMPANY, INC., a corporation organized
and existing under the laws of the State of Kentucky (hereinafter called the
"Adviser").
WITNESSETH:
WHEREAS, the Short-to-Medium Series is engaged in business as part of
an open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Short-to-Medium Series desires to retain the Adviser to
render investment supervisory services and provide office space and facilities
and corporate administration to the Income Series in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Short-to-Medium Series and shall provide the
Short-to-Medium Series with office space and facilities and corporate
administration, subject to and upon the terms and conditions set forth in this
Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Short-to-Medium Series in a manner consistent
with its investment objectives; shall determine the securities to be purchased
and sold by the Short-to-Medium Series, and the portion of its assets to be held
in cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the purchase or
sales of securities on behalf of the Short-to-Medium Series, as the Adviser may
deem necessary or appropriate for the implementation of such program. The
Adviser shall also furnish to or place at the disposal of the Short-to-Medium
Series such of he information, reports evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties hereunder
as the Short-to-Medium Series may, at the time or from time to time, reasonably
request or as the Adviser may deem helpful to the Short-to-Medium Series.
3. (a) The Adviser shall:
(i) Pay or provide for and furnish to the Short-to-Medium Series
such office space, equipment facilities, personnel and services (exclusive of
and in addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Short-to-Medium Series) as the
Short-to-Medium Series may reasonably require in the conduct of its business;
(ii) Maintain and preserve on behalf of the Short-to-Medium
Series, for such periods and in such forms as are prescribed by rules and
regulations of the Securities and Exchange Commission (the "Commission"), all
of the accounts, books and other documents the Short-to-Medium Series is
required to maintain and preserve pursuant to Section 31(a) of the Investment
<PAGE> 253
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> 254
excess of the amount of commission another member of an exchange or another
broker or dealer would have charged for effecting that transaction, if the
Adviser or the individual allocating such brokerage determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Short-to-Medium Series pursuant to paragraph
3(a)(i) hereof are the property of the Short-to-Medium Series and shall be
surrendered by the Adviser promptly on request by the Short-to-Medium Series.
The Short-to-Medium Series shall furnish or otherwise make available to the
Adviser such financial reports, proxy statements and other information relating
to the business and affairs of the Short-to-Medium Series as the Adviser may, at
any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Short-to-Medium
Series shall pay the Adviser a fee at the annual rate of one-half of one percent
(1/2 of 1%) of the first $100,000,000 average daily net asset value, .45 of 1%
of the average daily net assets between $100,000,001 and $150,000,000, and .4 of
1% of the average daily net assets in excess of $150,000,000 of the
Short-to-Medium Series, as determined in accordance with the Declaration of
Trust of Dupree Mutual Funds. The amounts due the Adviser in payment of such
fees shall be accrued daily by the Short-to-Medium Series on the basis of the
net asset value of the Short-to-Medium Series applicable to the close of each
business day, and in the case of any day which is not a business day, the net
asset value of the Short-to-Medium Series applicable to the close of the last
preceding business day; and the total amount thus accrued with respect to each
calendar month or portion thereof during which this Agreement remains in effect
shall become due and payable to the Adviser in the first business day of the
next succeeding calendar month. The term "business day" means a day for all or
part of which the New York Stock Exchange is open for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the
Short-to-Medium Series; but this prohibition shall not prevent the purchase by
or for the Adviser or any of its officers or directors of shares of the
Short-to-Medium Series at the price at which such shares are available to the
public at the moment of purchase.
8. Nothing herein contained shall be deemed to require the
Short-to-Medium Series to take any action to the Declaration of Trust of Dupree
Mutual Funds or the Trust By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Trustees of Dupree Mutual Funds of its responsibility for
and control of the conduct of the Short-to-Medium Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Short-to-Medium Series at the 1997 Annual
Meeting, and, unless sooner terminated as provided in paragraph 10 hereof, this
Agreement shall remain in effect through the close of business on October 31,
1999, and thereafter subject to the termination provisions and other terms and
conditions hereof; if: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees, or by vote of a majority of the
outstanding voting securities of the Short-to-Medium Series, and concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Short-to-Medium Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the trustees of the Dupree Mutual
Funds who are not parties to this
<PAGE> 255
Agreement or interested persons of any such party; and (b) the Adviser shall
have not notified the Short-to-Medium Series, in writing, at least sixty (60)
days prior to October 31 of each year after 1998 that it does not desire such
continuation. The Adviser shall furnish to the Short-to-Medium Series, promptly
upon its request such information in the possession of or readily available to
the Adviser as the Trustees of Dupree Mutual Funds may at any time from time to
time deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Short-to-Medium Series, and
this Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Short-to-Medium Series,
such action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Short-to-Medium Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the
Short-to-Medium Series whose services were made available to the Short-to-Medium
Series by the Adviser shall be liable to the Short-to-Medium Series for any
error of judgment or mistake of law or for any loss suffered by the
Short-to-Medium Series by reason of any action taken or omission to act
committed in connection with the matters to which this Agreement relates, except
that nothing herein contained shall be construed (i) to protect the Adviser or
any affiliated person of the Adviser (whether or not such affiliated person is
or was an officer, director or member of any advisory board of the
Short-to-Medium Series and/or Dupree Mutual Funds) against any liability to the
Short-to-Medium Series or its security holders for any breach of fiduciary duty
with respect to the Adviser's receipt of compensation for services to the
Short-to-Medium Series, (ii) to protect the Adviser or any affiliated person of
the Adviser who is or was an officer, trustee or member of any advisory board of
the Short-to-Medium Series and/or Dupree Mutual Funds against any liability to
the Short-to-Medium Series or its security holders for any act or practice (
other than the Adviser's receipt of compensation for services to the
Short-to-Medium Series) constituting a breach of fiduciary duty involving
personal misconduct in respect of the Short-to-Medium Series, (iii) to protect
the Adviser against any liability to the Short-to-Medium Series or its security
holders to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations or duties, under this
Agreement, or (iv) to protect any affiliated person of the Adviser who is or was
a Trustee or officer of the Short-to-Medium Series or its security holders for
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office with the Short-to-Medium Series and/or Dupree Mutual
Funds. In the event that any affiliated person of the Adviser shall become a
Trustee, officer or employee of the Short-to-Medium Series and/or Dupree Mutual
Funds, then all actions taken or omissions to act made by such person in
connection with the discharge of his duties to the Short-to-Medium Series shall
be deemed to have been taken or made by such person solely in his capacity as
such Trustee, officer or employee of said entity, notwithstanding the fact that
the services of such person are being or have been furnished by the Adviser to
said entity as provided in this Agreement or that the compensation and expenses
of such person are being or have been paid by the Adviser or any other
affiliated person of the Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to other investment companies, to act as
investment adviser or investment counselor to other
<PAGE> 256
persons, firms or corporations or to engage in other business activities; but so
long as this Agreement or any extension, renewal or amendment hereof shall
remain in effect and until the Adviser shall otherwise consent, the Adviser
shall be the only investment adviser to the Short-to-Medium Series.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Tennessee Tax-Free Short-to-Medium Series
By: /s/ William T. Griggs II
--------------------------------------
Vice President
Attest Michelle Dragoo
--------------------------
DUPREE & COMPANY, INC.
By: /s/ William T. Griggs II
--------------------------------------
President
Attest Michelle Dragoo
--------------------------
<PAGE> 257
ITEM 23(D)
INVESTMENT ADVISORY AGREEMENT, made this 1st day of November 1997 by
and between DUPREE MUTUAL FUNDS, a Kentucky Business Trust, for and on behalf of
its Intermediate Government Bond Series, (hereinafter called "Government Bond
Series"), and DUPREE & COMPANY, INC., a corporation organized and existing under
the laws of the State of Kentucky (hereinafter called the "Adviser").
WITNESSETH:
WHEREAS, the Government Bond Series is engaged in business as part of
an open-end management investment company which is registered as such under the
federal Investment Company Act of 1940; and
WHEREAS, the Adviser is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered as
an investment adviser under the federal Investment Advisers Act of 1940; and
WHEREAS, the Government Bond Series desires to retain the Adviser to
render investment supervisory services and provide office space and facilities
and corporate administration to the Government Bond Series in the manner and on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser and render investment
supervisory services to the Government Bond Series and shall provide the
Government Bond Series with office space and facilities and corporate
administration, subject to and upon the terms and conditions set forth in this
Agreement.
2. The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the management
of the assets and resources of the Government Bond Series in a manner consistent
with its investment objectives; shall determine the securities to be purchased
and sold by the Government Bond Series, and the portion of its assets to be held
in cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the purchase or
sales of securities on behalf of the Government Bond Series, as the Adviser may
deem necessary or appropriate for the implementation of such program. The
Adviser shall also furnish to or place at the disposal of the Government Bond
Series such of the information, reports evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties hereunder
as the Government Bond Series may, at the time or from time to time, reasonably
request or as the Adviser may deem helpful to the Government Bond Series.
3. (a) The Adviser shall:
(i) Pay or provide for and furnish to the Government Bond Series
such office space, equipment facilities, personnel and services (exclusive of
and in addition to those provided by any custodian, transfer agent or other
institutional agent retained by the Government Bond Series) as the Government
Bond Series may reasonably require in the conduct of its business;
(ii) Maintain and preserve on behalf of the Government Bond
Series, for such periods and in such forms as are prescribed by rules and
regulations of the Securities and Exchange Commission (the "Commission"), all
of the accounts, books and other documents the Government
<PAGE> 258
Bond Series is required to maintain and preserve pursuant to Section 31(a) of
the Investment company Act of 1940 and the rules and regulations of the
Commission thereunder which are not maintained and preserved on behalf of the
Government Bond Series by any custodian, transfer agent or other institutional
agent retained by the Government Bond Series;
(iii) Furnish the services and pay or provide for the compensation
and expenses of individuals competent (A) to perform for the Government Bond
Series all executive and administrative functions that are not assigned to any
custodian, transfer agent or other institutional agent retained by the
Government Bond Series, and (B) to supervise and coordinate the activities of
such institutional agents and the other agents (e.g., independent accountants
and legal counsel) retained by the Government Bond Series; and
(iv) Permit officers or employees of the Adviser who are duly
elected or appointed as officers, trustees, members of any committee of trustees
or members of any advisory board or committee of the Government Bond Series to
serve as such without remuneration from or other cost to the Government Bond
Series.
(b) The adviser shall pay all sales and promotional expenses
incurred in the distribution of shares of the Government Bond Series. The
expenses to be assumed and paid by the Adviser include the costs of:
(i) Media and direct mail advertising;
(ii) Printing copies of the prospectus of Dupree Mutual Funds
and shareholder reports which are used in its sales or promotional efforts; it
being understood that the Government Bond Series will bear printing costs
relating to copies of its prospectus and reports which are distributed to its
shareholders;
(iii) Printing share purchase order forms to accompany the
prospectus of Dupree Mutual Funds and
(iv) Corresponding and dealing with prospective investors, up
to and including receipt of their orders for the purchase of Government Bond
Series shares.
(c) The Government Bond Series shall bear all expenses of its
operation not specifically assumed by the Adviser as hereinabove set forth or as
provided elsewhere in this Agreement. The Adviser, in its sole discretion, may
at any time or from time to time pay or assume any expense that the Government
Bond Series would or might otherwise be required to bear. However, the Adviser's
payment or assumption of any such expenses on one or more occasion shall neither
relieve the Adviser of any obligation to the Government Bond Series pursuant to
paragraph 6(b) hereof nor obligate the Adviser to pay or assume the same or any
similar expense of the Government Bond Series on any subsequent occasion.
4. The Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Adviser or the Government Bond Series with such statistical and
other factual information, such advice regarding economic factors and trends,
such advice as to occasional transactions in specific securities or such other
information, advice or assistance as the Adviser may deem necessary, appropriate
or convenient for the discharge of its obligations hereunder or for the
discharge of Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser. The Adviser and any individual
performing executive or administrative functions for the Government Bond Series
whose services were made available to it by the Adviser are specifically
authorized to allocate brokerage and principal business to firms that provide
such services or facilities and to cause the Government Bond Series to pay a
member of a securities exchange, or any other
<PAGE> 259
securities broker or dealer, an amount of commission for effecting a securities
transaction in excess of the amount of commission another member of an exchange
or another broker or dealer would have charged for effecting that transaction,
if the Adviser or the individual allocating such brokerage determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services (as such services are defined in Section
28(e) of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which the
Adviser exercises investment discretion (as such term is defined in Section
3(a)(35) of the Securities Exchange act of 1934).
5. All accounts, books and other documents maintained and preserved by
the Adviser on behalf of the Government Bond Series pursuant to paragraph
3(a)(i) hereof are the property of the Government Bond Series and shall be
surrendered by the Adviser promptly on request by the Government Bond Series.
The Government Bond Series shall furnish or otherwise make available to the
Adviser such financial reports, proxy statements and other information relating
to the business and affairs of the Government Bond Series as the Adviser may, at
any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished
and expenses paid or assumed hereunder by the Adviser, the Government Bond
Series shall pay the Adviser a fee at the annual rate of .20 of 1% of the
average daily net assets of the Government Bond Series, as determined in
accordance with the Declaration of Trust of Dupree Mutual Funds. The amounts due
the Adviser in payment of such fees shall be accrued daily by the Government
Bond Series on the basis of the net asset value of the Government Bond Series
applicable to the close of each business day, and in the case of any day which
is not a business day, the net asset value of the Government Bond Series
applicable to the close of the last preceding business day; and the total amount
thus accrued with respect to each calendar month or portion thereof during which
this Agreement remains in effect shall become due and payable to the Adviser in
the first business day of the next succeeding calendar month. The term "business
day" means a day for all or part of which the New York Stock Exchange is open
for unrestricted trading.
7. The Adviser agrees that neither it nor any of its officers or
directors shall take any long or short position in the shares of the Government
Bond Series; but this prohibition shall not prevent the purchase by or for the
Adviser or any of its officers or directors of shares of the Government Bond
Series at the price at which such shares are available to the public at the
moment of purchase.
8. Nothing herein contained shall be deemed to require the Government
Bond Series to take any action to the Declaration of Trust of Dupree Mutual
Funds or the Trust By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Trustees of Dupree Mutual Funds of its responsibility for
and control of the conduct of the Government Bond Series.
9. The term of this Agreement shall begin on November 1, 1997 subject
to approval by the shareholders of the Government Bond Series at the 1997 Annual
Meeting, and, unless sooner terminated as provided in paragraph 10 hereof, this
Agreement shall remain in effect through the close of business on October 31,
1999, and thereafter subject to the termination provisions and other terms and
conditions hereof; if: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees, or by vote of a majority of the
outstanding voting securities of the Government Bond Series, and concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Government Bond Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of 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
<PAGE> 260
not notified the Government Bond Series, in writing, at least sixty (60) days
prior to October 31 of each year after 1998 that it does not desire such
continuation. The Adviser shall furnish to the Government Bond Series, promptly
upon its request such information in the possession of or readily available to
the Adviser as the Trustees of Dupree Mutual Funds may at any time from time to
time deem reasonably necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or
in any manner hypothecated or pledged, without the affirmative vote of a
majority of the outstanding voting securities of the Government Bond Series, and
this Agreement shall automatically and immediately terminate in the event of its
assignment.
11. This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) day notice in writing to the other
party; provided that in the case of termination by the Government Bond Series,
such action shall have been authorized by resolution of the Board of Trustees of
Dupree Mutual Funds or by vote of a majority of the outstanding voting
securities of the Government Bond Series.
12. Neither the Adviser, any affiliated person of the Adviser, nor any
other person performing executive or administrative functions for the Government
Bond Series whose services were made available to the Government Bond Series by
the Adviser shall be liable to the Government Bond Series for any error of
judgment or mistake of law or for any loss suffered by the Government Bond
Series by reason of any action taken or omission to act committed in connection
with the matters to which this Agreement relates, except that nothing herein
contained shall be construed (i) to protect the Adviser or any affiliated person
of the Adviser (whether or not such affiliated person is or was an officer,
director or member of any advisory board of the Government Bond Series and/or
Dupree Mutual Funds) against any liability to the Government Bond Series or its
security holders for any breach of fiduciary duty with respect to the Adviser's
receipt of compensation for services to the Government Bond Series, (ii) to
protect the Adviser or any affiliated person of the Adviser who is or was an
officer, trustee or member of any advisory board of the Government Bond Series
and/or Dupree Mutual Funds against any liability to the Government Bond Series
or its security holders for any act or practice ( other than the Adviser's
receipt of compensation for services to the Government Bond Series) constituting
a breach of fiduciary duty involving personal misconduct in respect of the
Government Bond Series, (iii) to protect the Adviser against any liability to
the Government Bond Series or its security holders to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations or duties, under this Agreement, or (iv) to protect any
affiliated person of the Adviser who is or was a Trustee or officer of the
Government Bond Series or its security holders for which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office with the Government Bond Series and/or Dupree Mutual Funds. In the event
that any affiliated person of the Adviser shall become a Trustee, officer or
employee of the Government Bond Series and/or Dupree Mutual Funds, then all
actions taken or omissions to act made by such person in connection with the
discharge of his duties to the Government Bond Series shall be deemed to have
been taken or made by such person solely in his capacity as such Trustee,
officer or employee of said entity, notwithstanding the fact that the services
of such person are being or have been furnished by the Adviser to said entity as
provided in this Agreement or that the compensation and expenses of such person
are being or have been paid by the Adviser or any other affiliated person of the
Adviser.
13. Nothing herein contained shall limit the freedom of the Adviser or
any affiliated person of the Adviser to render investment supervisory services
and provide corporate administration to 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
<PAGE> 261
Agreement or any extension, renewal or amendment hereof shall remain in effect
and until the Adviser shall otherwise consent, the Adviser shall be the only
investment adviser to the Government Bond Series.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States courts, or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Commission validly issued pursuant
to said Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "interested person", assignment" and "affiliated person", as
used in paragraphs 9, 10, 11, 12 and 13 hereof, shall have the meanings assigned
to them by Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DUPREE MUTUAL FUNDS for and on behalf of
Intermediate Government Bond Series
By: /s William T. Griggs
-------------------------------------
Vice President
Attest /s Michelle Dragoo
------------------------
DUPREE & COMPANY, INC.
By: /s William T. Griggs
-------------------------------------
President
Attest /s Michelle Dragoo
------------------------
<PAGE> 262
ITEM 23(G)
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the 29th day of
August, 1995, by and between Dupree Mutual Funds, (the "Fund"), an open-end
diversified investment business trust organized under the laws of Kentucky and
having its office at 125 South Mill Street, Lexington, Kentucky 40507 and Star
Bank, National Association, (the "Custodian"), a national banking association
having its principal office at 425 Walnut Street, Cincinnati, Ohio, 45202.
WHEREAS, the Fund and the Custodian desire to enter into this Agreement to
provide for the custody and safekeeping of the assets of the Fund as required by
the Investment Company Act of 1940, as amended (the "Act").
WHEREAS, the Fund hereby appoints the Custodian as custodian of all the
Fund's Securities and moneys at any time owned by the Fund during the term of
this Agreement (the "Fund Assets").
WHEREAS, the Custodian hereby accepts such appointment as Custodian and
agrees to perform the duties thereof as hereinafter set forth.
THEREFORE, in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
Definitions
The following words and phrases, when used in this Agreement, unless the
context otherwise requires, shall have the following meanings:
Authorized Person - the Chairman, President, Secretary, Treasurer,
Controller, or Senior Vice President of the Fund, or any other person, whether
or not any such person is an officer or employee of the Fund, duly authorized by
the Board of Trustees of the Fund to give Oral
<PAGE> 263
Instructions and Written Instructions on behalf of the Fund, and listed in the
Certificate annexed hereto as Appendix A, or such other Certificate as may be
received by the Custodian from time to time.
Book-Entry System - the Federal Reserve Bank book-entry system for United
States Treasury securities and federal agency securities.
Depository - The Depository Trust Company ("DTC"), a limited purpose trust
company its successor(s) and its nominee(s) or any other person or clearing
agent
Dividend and Transfer m - the dividend and transfer agent appointed, from
time to time, pursuant to a written agreement between the dividend and transfer
agent and the Fund
Foreign Securities - a) securities issued and sold primarily outside of the
United States by a foreign government, a national of any foreign country, or a
trust or other organization incorporated or organized under the laws of any
foreign country or; b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by any entity organized under the laws of the United States or of any state
thereof, which have been issued and sold primarily outside of the United States.
Monev Market Securitv - debt obligations issued or guaranteed as to principal
and/or interest by the government of the United States or agencies or
instrumentality thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
Officers - the Chairman, President, Secretary, Treasurer, Controller, and
Senior Vice President of the Fund listed in the Certificate annexed hereto as
Appendix A, or such other Certificate as may be received by the Custodian from
time to time.
Oral Instructions - verbal instructions received by the Custodian from an
Authorized Person (or from a person that the Custodian reasonably believes in
good faith to be an Authorized Person) and confirmed by Written Instructions in
such a manner that such Written
<PAGE> 264
Instructions are received by the Custodian on the business day immediately
following receipt of such Oral Instructions.
Prospectus - the Fund's then currently effective prospectus and Statement of
Additional Information, as filed with and declared effective from time to time
by the Securities and Exchange Commission.
Security or Securities - Money Market Securities, common stock, preferred
stock, options, financial futures, bonds, notes, debentures, corporate debt
securities, mortgages, and any certificates, receipts, warrants, or other
instruments representing rights to receive, purchase, or subscribe for the same
or evidencing or representing any other rights or interest therein, or any
property or assets.
Written Instructions - communication received in writing by the Custodian
from an Authorized Person.
ARTICLE II
Documents and Notices to be Furnished bv the Fund
A The following documents, including any amendments thereto, will be
provided contemporaneously with the execution of the Agreement, to the Custodian
by the Fund:
1. A copy of the Articles of Incorporation of the Fund certified by the
Secretary.
2. A copy of the By-Laws of the Fund certified by the Secretary.
3. A copy of the resolution of the Board of Trustees of the Fund appointing
the Custodian, certified by the Secretary.
4. A copy of the then current Prospectus.
5. A Certificate of the President and Secretary of the Fund setting forth
the names and signatures of the Officers of the Fund.
B. The Fund agrees to notify the Custodian in writing of the appointment of
any Dividend and Transfer Agent.
<PAGE> 265
ARTICLE III
Receipt of Fund Assets
A. During the term of this Agreement, the Fund will deliver or cause to be
delivered to the Custodian all moneys constituting Fund Assets. The Custodian
shall be entitled to reverse any deposits made on the Fund's behalf where such
deposits have been entered and moneys are not finally collected within 30 days
of the making of such entry.
B. During the term of this Agreement, the Fund will deliver or cause to be
delivered to the Custodian all Securities constituting Fund Assets. The
Custodian will not have any duties or responsibilities with respect to such
Securities until actually received by the Custodian.
C. As and when received, the Custodian shall deposit to the account(s) of
the Fund any and all payments for shares of the Fund issued or sold from time to
time as they are received from the Fund's distributor or Dividend and Transfer
Agent or from the Fund itself.
ARTICLE IV
Disbursement of Fund Assets
A. The Fund shall furnish to the Custodian a copy of the resolution of the
Board of Trustees of the Fund, certified by the Fund's Secretary, either (i)
setting forth the date of the declaration of any dividend or distribution in
respect of shares of the Fund, the date of payment thereof, the record date as
of which Fund shareholders entitled to payment shall be determined, the amount
payable per share to Fund shareholders of record as of that date, and the total
amount to be paid by the Dividend and Transfer Agent on the payment date, or
(ii) authorizing the declaration of dividends and distributions in respect of
shares of the Fund on a daily basis and authorizing the Custodian to rely on a
Certificate setting forth the date of the declaration of any such dividend or
distribution, the date of payment thereof, the record date as of which Fund
shareholders entitled to payment shall be determined, the amount payable per
share to Fund
<PAGE> 266
shareholders of record as of that date, and the total amount to be paid by the
Dividend and Transfer Agent on the payment date.
On the payment date specified in such resolution or Certificate described
above, the Custodian shall segregate such amounts from moneys held for the
account of the Fund so that they are available for such payment.
B. Upon receipt of Written Instructions so directing it, the Custodian shall
segregate amounts necessary for the payment of redemption proceeds to be made by
the Dividend and Transfer Agent from moneys held for the account of the Fund so
that they are available for such payment.
C. Upon receipt of a Certificate directing payment and setting forth the
name and address of the person to whom such payment is to be made, the amount of
such payment, and the purpose for which payment is to be made, the Custodian
shall disburse amounts as and when directed from the Fund Assets. The Custodian
is authorized to rely on such directions and shall be under no obligation to
inquire as to the propriety of such directions.
D. Upon receipt of a Certificate directing payment, the Custodian shall
disburse moneys from the Fund Assets in payment of the Custodian's fees and
expenses as provided in Article VIII hereof.
ARTICLE V
.
Custody of Fund Assets
A. The Custodian shall open and maintain a separate bank account or accounts
in the United States in the name of the Fund, subject only to draft or order by
the Custodian acting pursuant to the terms of this Agreement, and shall hold all
cash received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used by the Fund in
accordance with Rule 17f-3 under the Act. Moneys held by the Custodian on behalf
of the Fund may be deposited by the Custodian to its credit as Custodian in the
banking
<PAGE> 267
department of the Custodian. Such moneys shall be deposited by the Custodian in
its capacity m such, and shall be withdrawable by the Custodian only in such
capacity.
B. The Custodian shall hold all Securities delivered to it in safekeeping in
a separate account or accounts maintained at Star Bank, N.A. for the benefit of
the Fund.
C. All Securities held which are issued or issuable only in bearer form,
shall be held by the Custodian in that form; all other Securities held for the
Fund shall be registered in the name of the Custodian or its nominee. The Fund
agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold, or deliver in proper form for transfer, any Securities that
it may hold for the account of the Fund and which may, from time to time, be
registered in the name of the Fund.
D. With respect to all Securities held for the Fund , the Custodian shall on
a timely basis (concerning items 1 and 2 below, as defined in the Custodian's
Standards of Service Guide, as amended from time to time, annexed hereto as
Appendix C):
1.) Collect all income due and payable with respect to such Securities;
2.) Present for payment and collect amounts payable upon all Securities
which may mature or be called, redeemed, or retired, or otherwise
become payable;
3.) Surrender Securities in temporary form for definitive Securities; and
4.) Execute, as agent, any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority, including any foreign taxing
authority, now or hereafter in effect.
E. Upon receipt of a Certificate and not otherwise, the Custodian shall:
1.) Execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as beneficial owner of
any Securities may be exercised;
2.) Deliver any Securities in exchange for other Securities or cash issued
or paid in connection with the liquidation, reorganization,
refinancing,
<PAGE> 268
merger, consolidation, or recapitalization of any trust, or the
exercise of any conversion privilege;
3.) Deliver any Securities to any protective committee, reorganization
committee, or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization, or sale of assets
of any trust, and receive and hold under the terms of this Agreement
such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
4.) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said Certificate to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Fund;
and
5.) Deliver any Securities held for the Fund to the depository agent for
tender or other similar offers.
F. The Custodian shall promptly deliver to the Fund all notices, proxy
material and executed but unvoted proxies pertaining to shareholder meetings of
Securities held by the Fund. The Custodian shall not vote or authorize the
voting of any Securities or give any consent, waiver or approval with respect
thereto unless so directed by a Certificate or Written Instruction.
G. The Custodian shall promptly deliver to the Fund all information received
by the Custodian and pertaining to Securities held by the Fund with respect to
tender or exchange offers, calls for redemption or purchase, or expiration of
rights.
ARTICLE VI
Purchase and Sale of Securities
A. Promptly after each purchase of Securities by the Fund, the Fund shall
deliver to the Custodian (i) with respect to each purchase of Securities which
are not Money Market
<PAGE> 269
Securities, Written Instructions, and (ii) with respect to each purchase of
Money Market Securities, Written Instructions or Oral Instructions, specifying
with respect to each such purchase the;
1.1 name of the issuer and the title of the Securities,
2.) principal amount purchased and accrued interest, if any,
3.) date of purchase and settlement,
4.) purchase price per unit,
5.) total amount payable, and
6.) name of the person from whom, or the broker through which, the
purchase was made.
The Custodian shall, against receipt of Securities purchased by or for the Fund,
pay out of the Fund Assets, the total amount payable to the person from whom or
the broker through which the purchase was made, provided that the same conforms
to the total amount payable as set forth in such Written Instructions or Oral
Instructions, as the case may be.
B. Promptly after each sale of Securities by the Fund, the Fund shall
deliver to the Custodian (i) with respect to each sale of Securities which are
not Money Market Securities, Written Instructions, and (ii) with respect to each
sale of Money Market Securities, Written Instructions or Oral Instructions,
specifying with respect to each such sale the;
1.) name of the issuer and the title of the Securities,
2.) principal amount sold and accrued interest, if any,
3.) date of sale &d settlement,
4.) sale price per unit,
5.) total amount receivable, and
6.) name of the person to whom, or the broker through which, the sale
was made.
The Custodian shall deliver the Securities against receipt of the total amount
receivable, provided that the same conforms to the total amount receivable as
set forth in such Written Instructions or Oral Instructions, as the case may be.
C. On contractual settlement date, the account of the Fund will be charged
for all purchased Securities settling on that day, regardless of whether or not
delivery is made.
<PAGE> 270
Likewise, on contractual settlement date, proceeds from the sale of Securities
sealing that day will be credited to the account of the Fund, irrespective of
delivery.
D. Purchases and sales of Securities effected by the Custodian will be. made
on a delivery versus payment basis. The Custodian may, in its sole discretion,
upon receipt of a Certificate, elect to settle a purchase or sale transaction in
some other manner, but only upon receipt of acceptable indemnification from the
Fund.
E. The Custodian shall, upon receipt of a Written Instructions so directing
it, establish and maintain a segregated account or accounts for and on behalf of
the Fund. Cash and/or Securities may be transferred into such account or
accounts for specific purposes, to-wit:
1.1 in accordance with the provision of any agreement among the Fund, the
Custodian, and a broker-dealer registered under the Securities and
Exchange Act of 1934, as amended, and also a member of the National
Association of Securities Dealers (NASD) (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of the Options Clearing Corporation and of
any registered national securities exchange, the Commodity Futures
Trading Commission, any registered contract market, or any similar
organization or organizations requiring escrow or other similar
arrangements in connection with transactions by the Fund;
2.1 for purposes of segregating cash or government securities in
connection with options purchased, sold, or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund;
3.) for the purpose of compliance by the fund with the procedures
required for reverse repurchase agreements, firm commitment
agreements, standby commitment agreements, and short sales by Act
Release No. 10666, or any subsequent release or releases or rule of
the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies; and
<PAGE> 271
4.) for other corporate purposes, only in the case of this clause 4 upon
receipt of a copy of a resolution of the Board of Trustees of the Fund,
certified by the Secretary of the Fund, setting forth the purposes of
such segregated account.
F. Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with any Written Instructions to
settle the purchase of any Securities on behalf of the Fund unless there is
sufficient cash in the account(s) at the time or to settle the sale of any
Securities from an account(s) unless such Securities are in deliverable form.
Notwithstanding the foregoing, if the purchase price of such Securities exceeds
the amount of cash in the account(s) at the time of such purchase, the Custodian
may, in its sole discretion, advance the amount of the difference in order to
settle the purchase of such Securities. The amount of any such advance shall be
deemed a loan from the Custodian to the Fund payable on demand and bearing
interest accruing from the date such loan is made up to but not including the
date such loan is repaid at a rate per annum customarily charged by the
Custodian on similar loans.
ARTICLE VII
Fund Indebtedness
In connection with any borrowings by the Fund, the Fund will cause to be
delivered to the Custodian by a bank or broker requiring Securities as
collateral for such borrowings (including the Custodian if the borrowing is from
the Custodian), a notice or undertaking in the form currently employed by such
bank or broker setting forth the amount of collateral. The Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
borrowing: (a) the name of the bank or broker, (b) the amount and terms of the
borrowing, which may be set forth by incorporating by reference an attached
promissory note duly endorsed by the Fund, or a loan agreement, (c) the date,
and time if known, on which the loan is to be entered into, (d) the date on
which the loan becomes due and payable, (e) the total amount payable to the Fund
on the
<PAGE> 272
borrowing date, and (f) the description of the Securities securing the loan,
including the name of the issuer, the title and the number of shares or the
principal amount. The Custodian shall deliver on the borrowing date specified in
the Certificate the required collateral against the lender's delivery of the
total loan amount then payable, provided that the same conforms to that which is
described in the Certificate. The Custodian shall deliver, in the manner
directed by the Fund, such Securities as additional collateral, as may be
specified in a Certificate, to secure further any transaction described in this
Article VII. The Fund shall cause all Securities released from collateral status
to be returned directly to the Custodian and the Custodian shall receive from
time to time such return of collateral as may be tendered to it.
The Custodian may, at the option of the lender, keep such collateral in its
possession, subject to all rights therein given to the lender because of the
loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
ARTICLE VIII
Concerning the Custodian
A. Except as otherwise provided herein, the Custodian shall not be liable
for any loss or damage resulting from its action or omission to act or
otherwise, except for any such loss or damage arising out of its own gross
negligence or willful misconduct. The Fund shall defend, indemnify and hold
harmless the Custodian and its directors, officers, employees and agents with
respect to any loss, claim, liability or cost (including reasonable attorneys'
fees) arising or alleged to arise from or relating to the Fund's duties
hereunder or any other action or inaction of the Fund or its Trustees, officers,
employees or agents, except such as may arise from the negligent action,
omission, willful misconduct or breach of this Agreement by the Custodian. The
Custodian may, with respect to questions of law, apply for and obtain the advice
and opinion of counsel, at the expense of the Fund, and shall be fully protected
with respect to
<PAGE> 273
anything done or omitted by it in good faith in conformity with the advice or
opinion of counsel. The provisions under this paragraph shall survive the
termination of this Agreement.
B. Without limiting the generality of the foregoing, the Custodian, acting
in the capacity of Custodian hereunder, shall be under no obligation to inquire
into, and shall not be liable for:
1.) The validity of the issue of any Securities purchased by or for the
account of the Fund, the legality of the purchase thereof, or the
propriety of the amount paid therefor;
2.) The legality of the sale of any Securities by or for the account of the
Fund, or the propriety of the amount for which the same are sold;
3.) The legality of the issue or sale of any shares of the Fund, or the
sufficiency of the amount received therefor;
4.) The legality of the redemption of any shares of the Fund, or the
propriety of the amount to be paid therefor;
5.) The legality of the declaration or payment of any dividend by the Fund in
respect of shares of the Fund.
6.) the legality of any borrowing by the Fund on behalf of the Fund, using
Securities as collateral;
C. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount due to the Fund from any Dividend and Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
any Dividend and Transfer Agent of the Fund of any amount paid by the Custodian
to any Dividend and Transfer Agent of the Fund in accordance with this
Agreement.
D. Notwithstanding Section D of Article V, the Custodian shall not be under
any duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (i) it shall be
directed to take such action by a Certificate and (ii)
<PAGE> 274
it shall be assured to its satisfaction (including prepayment thereof) of
reimbursement of its costs and expenses in connection with any such action.
E. The Fund acknowledges and hereby authorizes the Custodian to hold
Securities through its various agents described in Appendix B annexed hereto.
The Fund hereby represents that such authorization has been duly approved by the
Board of Trustees of the Fund as required by the Act. The Custodian acknowledges
that although certain Fund Assets are held by its agents, the Custodian remains
primarily liable for the safekeeping of the Fund Assets.
In addition, the Fund acknowledges that the Custodian may appoint one or more
financial institutions, as agent or agents or as sub-custodian or
sub-custodians, including, but not limited to, banking institutions located in
foreign countries, for the purpose of holding Securities and moneys at any time
owned by the Fund. The Custodian shall not be relieved of any obligation or
liability under this Agreement in connection with the appointment or activities
of such agents or sub-custodians. Any such agent or sub-custodian shall be
qualified to serve as such for assets of investment companies registered under
the Act. Upon request, the Custodian shall promptly forward to the Fund any
documents it receives from any agent or sub-custodian appointed hereunder which
may assist trustees of registered investment companies fulfill their
responsibilities under Rule 17f-5 of the Act.
F. The Custodian shall not be under any duty or obligation to ascertain
whether any Securities at any time delivered to or held by it for the account of
the Fund are such as properly may be held by the Fund under the provisions of
the Articles of Incorporation and the Fund's By-Laws.
G. The Custodian shall treat all records and other information relating to
the Fund and the Fund Assets as confidential and shall not disclose any such
records or information to any other person unless (i) the Fund shall have
consented thereto in writing or (ii) such disclosure is required by law.
H. The Custodian shall be entitled to receive and the Fund agrees to pay to
the Custodian such compensation as shall be determined pursuant to Appendix D
attached hereto, or
<PAGE> 275
as shall be determined pursuant to amendments to such Appendix D. The Custodian
shall be entitled to charge against any money held by it for the account of the
Fund, the amount of any of its fees, any loss, damage, liability or expense,
including counsel fees. The expenses which the Custodian may charge against the
account of the Fund include, but are not limited to, the expenses of agents or
sub-custodians incurred in settling transactions involving the purchase and sale
of Securities of the Fund.
I. The Custodian shall be entitled to rely upon any Oral Instructions and
any Written Instructions. The Fund agrees to forward to the Custodian Written
Instructions confirming Oral Instructions in such a manner so that such Written
Instructions are received by the Custodian, whether by hand delivery, facsimile
or otherwise, on the same business day on which such Oral Instructions were
given. The Fund agrees that the failure of the Custodian to receive such
confirming instructions shall in no way affect the validity of the transactions
or enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund for acting upon
Oral Instructions given to the Custodian hereunder concerning such transactions.
J. The Custodian will (i) set up and maintain proper books of account and
complete records of all transactions in the accounts maintained by the Custodian
hereunder in such manner as will meet the obligations of the Fund under the Act,
with particular attention to Section 31 thereof and Rules 319-l and 31a-2
thereunder and those records are the property of the Fund, and (ii) preserve for
the periods prescribed by applicable Federal statute or regulation all records
required to be so preserved. All such books and records shall be the property of
the Fund, and shall be open to inspection and audit at reasonable times and with
prior notice by Officers and auditors employed by the Fund.
K. The Custodian shall send to the Fund any report received on the systems
of internal accounting control of the Custodian, or its agents or
sub-custodians, as the Fund may reasonably request from time to time.
<PAGE> 276
L. The Custodian performs only the services of a custodian and shall have no
responsibility for the management, investment or reinvestment of the Securities
from time to time owned by the Fund. The Custodian is not a selling agent for
shares of the Fund and performance of its duties as custodian shall not be
deemed to be a recommendation to the Fund's depositors or others of shares of
the Fund as an investment.
M. The Custodian shall take all reasonable action, that the Fund may from
time to time request, to assist the Fund in obtaining favorable opinions from
the Fund's independent accountants, with respect to the Custodian's activities
hereunder, in connection with the preparation of the Fund's Form N-l A, Form
N-SAR, or other annual reports to the Securities and Exchange Commission.
N. The Fund hereby pledges to and grants the Custodian a security interest
in any Fund Assets to secure the payment of any liabilities of the Fund to the
Custodian, whether acting in its capacity as Custodian or otherwise, or on
account of money borrowed from the Custodian. This pledge is in addition to any
other pledge of collateral by the Fund to the Custodian.
ARTICLE X
A. Either of the parties; hereto may terminate this Agreement for any reason
by giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. If such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Trustees of the Fund,
certified by the Secretary of the Fund, electing to terminate this Agreement and
designating a successor custodian or custodians. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board of Trustees of the
Fund, certified by the Secretary, designating a successor custodian or
custodians to act on behalf of the Fund. In the absence of such designation
<PAGE> 277
by the Fund, the Custodian may designate a successor custodian which shall be a
bank or trust company having not less than $100,000,000 aggregate capital,
surplus, and undivided profits. Upon the date set forth in such notice this
Agreement shall terminate, and the Custodian, provided that it has received a
notice of acceptance by the successor custodian, shall deliver, on that date,
directly to the successor custodian all Securities and monies then owned by the
Fund and held by it as Custodian. Upon termination of this Agreement, the Fund
shall pay to the Custodian on behalf of the Fund such compensation as may be due
as of the date of such termination. The Fund agrees on behalf of the Fund that
the Custodian shall be reimbursed for its reasonable costs in connection with
the termination of this Agreement.
B. If a successor custodian is not designated by the Fund, or by the
Custodian in accordance with the preceding paragraph, or the designated
successor cannot or will not serve, the Fund shall, upon the delivery by the
Custodian to the Fund of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund, be deemed to be the custodian for the Fund, and the Custodian shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement, other than the duty with respect to Securities held in the Book-Entry
System, which cannot be delivered to the Fund, which shall be held by the
Custodian in accordance with this Agreement.
ARTICLE XI
A. Appendix A sets forth the names and the signatures of all Authorized
Persons, as certified by the Secretary of the Fund. The Fund agrees to furnish
to the Custodian a new Appendix A in form similar to the attached Appendix A, if
any present Authorized Person ceases to be an Authorized Person or if any other
or additional Authorized Persons are elected or appointed. Until such new
Appendix A shall be received, the Custodian shall be fully protected
<PAGE> 278
in acting under the provisions of this Agreement upon Oral Instructions or
signatures of the then current Authorized Persons as set forth in the last
delivered Appendix A.
B. No recourse under any obligation of this Agreement or for any claim based
thereon shall be had against any organizer, shareholder, Officer, Director,
past, present or future as such, of the Fund or of any predecessor or successor,
either directly or &rough the Fund or any such predecessor or successor, whether
by virtue of any constitution, statute or rule of law or equity, or be the
enforcement of any assessment or penalty or otherwise; it being expressly agreed
and understood that this Agreement and the obligations thereunder are
enforceable solely against the Fund, and that no such personal liability
whatever shall attach to, or is or shall be incurred by, the organizers,
shareholders, Officers, Trustees of the Fund or of any predecessor or successor,
or any of them as such. To the extent that any such liability exists, it is
hereby expressly waived and released by the Custodian as a condition of, and as
a consideration for, the execution of this Agreement.
C. The obligations set forth in this Agreement as having been made by the
Fund have been made by the Board of Trustees, acting as such Trustees for and on
behalf of the Fund, pursuant to the authority vested in them under the laws of
the State of Kentucky, the Articles of Incorporation and the By-Laws of the
Fund. This Agreement has been executed by Officers of the Fund as officers, and
not individually, and the obligations contained herein are not binding upon any
of the Trustees, Officer;, agents or holders of shares, personally, but bind
only the Fund.
D. Provisions of the Prospectus and any other documents (including
advertising material) specifically mentioning the Custodian (other than merely
by name and address) shall be reviewed with the Custodian by the Fund prior to
publication and/or dissemination or distribution, and shall be subject to the
consent of the Custodian.
E. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Custodian, shall be sufficiently given if addressed
to the Custodian and mailed or delivered to it at its offices at Star Bank
Center, 425 Walnut Street,
<PAGE> 279
M. L. 6118, Cincinnati, Ohio 45202, attention Mutual Fund Custody Department, or
at such other place as the Custodian may from time to time designate in writing.
F. Any notice or other instrument in writing, authorized or required by the
Agreement to be given to the Fund shall be sufficiently given when delivered to
the Fund or on the second business day following the time such notice is
deposited in the U.S. mail postage prepaid and addressed to the Fund at its
office at Dupree Mutual Funds 125 South Mill Street Lexington, Kentucky 40507 or
at such other place as the Fund may from time to time designate in writing.
G. This Agreement, with the exception of the Appendices, may not be amended
or modified in any manner except by a written agreement executed by both parties
with the same formality as this Agreement, and authorized and approved by a
resolution of the Board of Trustees of the Fund.
H. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund or by the Custodian, and no
attempted assignment by the Fund or the Custodian shall be effective without the
written consent of the other party hereto.
I. This Agreement shall be construed in accordance with the laws of the
State of Ohio.
J. This Agreement ma; be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
<PAGE> 280
Standards of Service Guide
STAR BANK, N.A.
MAIL LOCATION #6 118,
425 WALNUT STREET,
CINCINNATI, OH 45202
February, 1995
<PAGE> 281
Star Bank, N.A.
Standards of Service Guide
Star Bank, N.A. is committed to providing superior quality service to all
customers and their agents at all times. We have compiled this guide as a tool
for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to compete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a direct
member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers Trust
Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SE15 Reorg Source,
Financial Information, Inc., XCITEK, DTC Important Notices, and the Wall Street
Journal.
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond Source,
Kenny Information Systems, Standard & Poor's Corporation, and DTC Important
Notices. Star Bank will not notify clients of optional put opportunities.
Any securities delivered free to Star Bank or its agents must be received
three (3) business days prior to any payment or settlement in order for the Star
Bank standards of service to apply.
Should you have any questions regarding the information contained in this
guide, please feel free to contact your account representative.
The information contained in this Standards of Service Guide is subject to
change. Should any changes be made Star Bank will provide you with an updated
copy of its Standards of Service Guide.
<PAGE> 282
I N WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year fist above written.
ATTEST:
ATTEST:
Title:
Star Bank, N.A.
By:
Title:
19
<PAGE> 283
APPENDIX C
Standards of Service Guide
<PAGE> 284
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 seven Distinct Series.
<PAGE> 285
ITEM 23(H)
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT SERVICE AGREEMENT
--------------------------------------------------------------
THIS AGREEMENT made on November 1, 1997 by and between DUPREE MUTUAL
FUNDS, a Kentucky Business Trust acting for and on behalf of each series of the
Trust (hereinafter known as the "Trust") and DUPREE & COMPANY, INC., Lexington,
Kentucky a corporation organized under the laws of the State of Kentucky
(hereinafter called "Dupree").
WHEREAS, the Trust desires to appoint Dupree as Transfer Agent and
Dividend Disbursing Agent, and Dupree desires to accept such appointment; NOW,
THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
SECTION 1. TERMS OF APPOINTMENT
--------------------
1.01 Subject to the conditions set forth in this Agreement, The Trust
hereby employs and appoints Dupree as Transfer Agent and Dividend Disbursing
Agent effective November 1, 1997.
1.02 Dupree hereby accepts such employment and appointment and agrees
that on and after the effective date of its appointment it will act as The
Trust's Transfer Agent and Dividend Disbursing Agent. Dupree agrees that it will
also act as agent in connection with any periodic investment plan, periodic
withdrawal program or other accumulation, open-account or similar plans for the
Trust's shareholders.
1.03 Dupree agrees to provide the necessary facilities, equipment and
personnel to perform its duties and obligations hereunder in accordance with
industry practice.
1.04 Dupree agrees that it will perform all the usual and ordinary
services as Transfer Agent and Dividend Disbursing Agent and as agent for the
various shareholder accounts including but not limited to: registering, issuing,
transferring and canceling stock certificates, maintaining all shareholder
accounts, preparing annual shareholder meeting lists, withholding taxes as
required by law, disbursing income dividends and capital gains distributions,
preparing and filing U.S. Treasury Department Form 1099 for all shareholders,
preparing and mailing confirmation forms to
<PAGE> 286
shareholders for all purchases and liquidations of the Trust shares, causing
liquidation of shares and causing disbursements to be made to withdrawal plan
holders, and (if and to the extent not performed by the Trust) mailing proxies,
receiving and tabulating proxies and mailing shareholder reports and
prospectuses.
SECTION 2. RECEIPT OF FUNDS; SHARE PURCHASE ORDERS
---------------------------------------
2.01 Upon receipt at the office designated by Agent of any check or
other order for the payment of money drawn or endorsed to it as transfer agent
for the Trust or as plan agent for any shareholder of the Trust, Agent shall
stamp the check or other order with the date of receipt, shall forthwith process
the same for collection, and, no later than the opening of business on the
second business day following receipt of such check or such other order, shall
credit federal funds to the Trust in the face amount of the check or other order
and shall deposit the amount due the Trust in the bank account maintained for
the Trust by its custodian bank (the "Custodian"). Upon receipt of funds through
the Federal Reserve Wire System or conversion into federal funds of funds
transmitted by any other bank wire transfer system, Agent shall notify the Trust
of such deposits and shall, on a daily basis, notify the Trust of the total
amount so deposited.
2.02 Upon receipt of a check or other order in payment for shares of
the Trust purchased by an investor, accompanied, in the case of a new account,
by a completed account application, Agent shall process such order in accordance
with the procedures set forth in the Trust's current prospectus and credit the
investor's share account with the number of shares so purchased, and shall
promptly mail the investor a notice of such notice to the Trust. All such
actions are subject to any instructions which the Trust may give Agent with
respect to acceptance of orders for shares so received by Agent.
2.03 Within 30 calendar days after receipt of any check in the amount
of $200,000 or over, Agent will call the paying bank to confirm that the check
has been paid. Trust will be notified immediately if Agent receives information
that payment for any check in the amount of $200,000 or over has been refused.
Further, if Agent is unable to confirm the status of any check in the amount of
$200,000 or over within 30 calendar days of receipt of such check, Trust will be
so
<PAGE> 287
notified. Proceeds of a redemption of shares purchased by such check or
certificate representing shares purchased by such check will not be mailed until
payment of the check has been confirmed.
2.04 The Trust expects that situations may develop whereby it would be
beneficial to determine if a person who has placed an order for shares has
sufficient funds in his checking account to cover the payment for the shares
purchased. Upon receipt of a request from the Trust, Agent will call the bank in
question and request that it confirm that sufficient funds to cover the purchase
are currently credited to the account in question. The results of any such calls
will be reported to the Trust.
2.05 Agent will maintain written documentation of each telephone call
which is made under the procedures outlined above.
2.06 None of the above procedures shall preclude Agent from inquiring
as to the status of any check received by it in payment for Trust shares as
Agent may deem appropriate or necessary to protect both the Trust and the Agent.
SECTION 3. RETURNED CHECKS
---------------
In the event that any check or other order for the payment of money is
returned unpaid for any reason, Agent shall:
3.01 Give prompt notification to the Trust of the non-payment of said
check;
3.02 Take such other steps, including re-depositing said check for
collection or redelivering said check to the investor, as Agent may in its
discretion, deem appropriate, or as the Trust may instruct.
3.03 If the check or other order remains unpaid after such additional
steps have been taken, and in the absence of other instructions from Trust,
Agent shall take such steps as may be necessary to enable Trust to redeem any
shares purchased on the basis of such returned check or order. Upon redemption,
Agent shall credit the proceeds of such redemption plus any dividends declared
with respect to such shares up to the amount paid for the shares to the Trust's
account. Agent shall forward such returned check or order to the person who
originally submitted
<PAGE> 288
same. In the event that the amount paid for such shares exceeds the proceeds of
the redemption of such shares plus the amount of any dividends declared with
respect to such shares, Agent shall receive reimbursement of such excess from
Trust.
SECTION 4. REDEMPTIONS
-----------
Agent shall receive and shall stamp with the date of receipt, all
certificates delivered to it for redemption or repurchase as well as all
requests for redemptions or repurchase of shares and shall process said
certificate and redemption and repurchase requests as follows:
4.01 Upon receipt of a request for redemption, Agent will determine if
any of the shares to be redeemed have been purchased within the previous thirty
(30) calendar days. If it is determined that any portion of the shares to be
redeemed have been purchased within the previous thirty (30) calendar days,
Agent will promptly obtain the necessary information relative to the check used
to purchase the shares, and will call the paying bank requesting confirmation
that the check in question has been paid.
4.02 If such certificates, redemption request or repurchase request
comply with the standards for redemption or repurchase as approved by the Trust
and if it is determined that none of the shares to be redeemed have been
purchased within the previous thirty (30) calendar days or if Agent has not
received information that the check in question has been returned to Agent as
unpaid by the close of Agent's business on the date of receipt of the redemption
request, Agent shall notify Trust of the total number of shares presented and
covered by such requests received by Agent on said date. On or prior to the
seventh calendar day succeeding any such receipt of certificates or request for
redemption or repurchase, Agent shall from cash available in the bank account
maintained by the Custodian, pay the applicable redemption or repurchase price,
as the case may be, to the investor as set forth in the Articles of
Incorporation and the then current prospectus of the Trust.
4.03 If by the end of the seventh (7) calendar day after receipt of a
redemption request Agent has been unable to determine the status of any check in
question, Agent will calculate the amount due to the shareholder for shares
which were purchased and credited to the shareholder's
<PAGE> 289
account over thirty (30) days prior to receipt of the redemption request and
will send a check representing the proceeds of the redemption of these shares to
the shareholder, together with a letter of explanation. Funds representing
redemption of shares purchased within the prior thirty (30) days will be held
until the paying bank can confirm payment of the check used for purchase of
shares.
4.04 If any certificate or request for redemption or repurchase does
not comply with the standards for redemption approved by the Trust, Agent shall
promptly notify the investor of such fact, together with the reason therefor,
and shall effect such redemption or repurchase at the price applicable to the
date and time of receipt of documents complying with said standards, or in the
case of a repurchase, at such other time as the Trust shall so direct.
SECTION 5. INFORMATION TO BE FURNISHED TO SHAREHOLDERS
-------------------------------------------
5.01 Agent shall answer that correspondence from shareholders relating
to their accounts and such other correspondence as may from time to time be
mutually agreed upon.
5.02 Agent shall mail such proxy cards and other material supplied to
it by Trust in connection with shareholder meetings of Trust and shall receive,
examine and tabulate returned proxies and certify the vote of the Trust.
SECTION 6. FEES AND EXPENSES
6.01 For the services to be rendered by Dupree pursuant to paragraph
1.04, the Trust agrees to pay Dupree such fees as set out in the appendix
attached hereto and made a part hereof.
6.02 The Trust agrees to promptly reimburse Dupree for all reasonable
out-of-pocket expenses or advances incurred by Dupree in connection with the
performance of services under the Agreement including, but not limited to,
expenditures for reasonable counsel fees, postage, envelopes, checks, continuous
forms, reports and statements, telephone, telegraph, stationery, supplies, costs
of outside mailing firms, record storage costs and media for storage of records
(e.g., microfilm, computer tapes) so long as supplies purchased are expected to
last for a
<PAGE> 290
reasonable period of time. In addition, any other expenses incurred by Dupree at
the request or with the consent of the Trust will be promptly reimbursed by the
Trust.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF DUPREE
----------------------------------------
Dupree represents and warrants to the Trust that:
7.01 It is a Corporation duly organized and existing in good standing
under the laws of the State of Kentucky.
7.02 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform the services contemplated in this Agreement;
7.03 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement; and
7.04 It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and obligations under
the Agreement.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE TRUST
-------------------------------------------
The Trust represents and warrants to Dupree that:
8.01 It is a Trust duly organized and existing and in good standing
under the laws of the State of Kentucky;
8.02 It is an open-end diversified management investment company
registered under the Investment Company Act of 1940;
8.03 A registration statement under the Securities Act of 1933 is
currently effective with respect to all shares of the Trust being offered for
sale;
8.04 The Trust is empowered under the applicable laws and regulations
and by it charter and by-laws to enter into and perform this Agreement; and all
requisite corporate proceedings have been taken to authorize it to enter into
and perform this Agreement.
SECTION 9. INDEMNIFICATION
---------------
9.01 Dupree shall not be responsible for and the Trust shall indemnify
and hold Dupree harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
<PAGE> 291
(a) All actions of Dupree required to be taken by Dupree
pursuant to this Agreement provided that Dupree has acted in good faith
and with due diligence.
(b) The reliance on, or use by Dupree of, information
furnished or records and documents received by Dupree which have been
prepared and/or maintained by the Trust, or any other person or firm on
behalf of the Trust.
(c) Defaults by dealers with respect to payment for share
orders previously entered.
(d) The reliance on, or carrying out of, any instructions or
requests of the Trust.
(e) The offer of sale of the Trust's shares in violation of
any requirement under the securities laws or regulations of any state
that such shares be registered in such state of in violation of any
stop order or other determination or ruling by any state with respect
to the offer or sale of such shares in such state (unless such
violation results from Dupree's failure to comply with written
instructions of the Trust or of any other officer of the Trust that no
offers or sales be made in or to residents of such state).
9.02 It is understood that if any case the Trust may be asked to
indemnify or save Agent harmless, the Trust shall be fully and promptly advised
of all pertinent facts concerning the situation in question, and it is further
understood that Agent will use all reasonable care to identify and notify the
Trust promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Trust.
The Trust shall have the option to defend Agent against any claim which may be
subject of this indemnification, and in the event that the Trust so elects it
will so notify Agent, and thereupon the Trust shall take over complete defense
of the claim, and Agent shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification. Agent shall in no case
confess any claim or make any comprise in any case in which the Trust will be
asked to indemnify Agent except with the Trust's prior written consent. In the
event of any advance of cash for any purpose made by Agent resulting from orders
or instructions of the Trust, or in the event that Agent shall incur any
<PAGE> 292
claims, liabilities or related expenses in connection with the performance of
this agreement, except such as may arise from its own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the Trust shall be security therefor.
9.03 Dupree shall indemnify and hold the Trust harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of Dupree's failure to comply with the terms
of this Agreement or which arise out of Dupree's negligence or misconduct.
9.04 At any time Dupree may apply to any officer of the Trust for
instructions, and may consult with legal counsel for the Trust at the expense of
the Trust, with respect to any matter arising in connection with the services to
be performed by Dupree under this Agreement and Dupree shall be indemnified by
the Trust for any action taken or omitted by it in good faith in reliance upon
such instructions or upon the opinion of counsel for the Trust. Dupree shall be
protected and indemnified in acting upon any paper or document believed by it to
be genuine and to have been signed by the proper person or persons and shall not
be held to have notice of any change of authority of any person, until receipt
of written notice thereof from the Trust. Dupree shall also be protected and
indemnified in recognizing stock certificates which Dupree reasonably believes
to bear the proper manual or facsimile signatures of the officer or the Trust,
and the proper counter-signature of any former transfer agent or registrar, or
of a co-transfer agent or co-registrar.
SECTION 10. COVENANTS OF DUPREE AND THE TRUST
---------------------------------
10.01 The Trust shall promptly furnish to Dupree the following:
(a) A certified copy of the resolution of the Board of
Directors of the Trust authorizing the appointment of Dupree and the
execution and delivery of this Agreement.
(b) Certified copy of the Articles of Incorporation and
By-Laws of the Trust and all amendments thereto.
<PAGE> 293
(c) Specimens of all forms of outstanding stock certificates
in the form approved by the Trust's Board of Directors with a
certificate of the Secretary of the Trust as to such approval.
10.02 Dupree hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trust for safekeeping or stock
certificates, check forms, and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of such certificates,
forms and devices.
10.03 To the extent required by SECTION 31 of the Investment Company
Act of 1940 and Rules thereunder, Dupree agrees that all records maintained by
Dupree relating to the services to be performed by Dupree under this Agreement
are the property of the Trust and will be preserved and will be surrendered
promptly to the Trust on request.
10.04 Dupree and the Trust agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or and the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any other
person.
SECTION 11. TERMINATION AND AGREEMENT
-------------------------
11.01 This Agreement may be terminated by either party by ninety (90)
days written notice to the other.
SECTION 12. ASSIGNMENT
----------
12.01 Neither this Agreement nor any rights or obligations hereunder
may be assigned by Dupree without the written consent of the Trust.
12.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective successors and assigns.
<PAGE> 294
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their corporate seals by and
through their duly authorized officers, as of the day and the year first above
written.
DUPREE MUTUAL FUNDS
By: /s/ William T. Griggs II
-------------------------------
Title: Vice President
----------------------------
ATTEST:
By: /s/ Michelle Dragoo
-------------------------------
Title: Vice President
----------------------------
DUPREE & COMPANY, INC.
By: /s/ William T. Griggs II
--------------------------------
Title: President
----------------------------
ATTEST:
By: /s/ Michelle Dragoo
------------------------------
Title: Vice President
----------------------------
<PAGE> 295
AGREEMENT AS TO FEES FOR TRANSFER AGENT/DIVIDEND DISBURSING AGENT
SHAREHOLDER SERVICES OF DUPREE & COMPANY, INC.
Dupree & Company, Inc., in accordance with the Agreement dated November
1, 1997 by and between Dupree & Company, Inc. and Dupree Mutual Funds, shall be
compensated monthly at a rate of 1/12 of .15% on the first $20,000,000 and 1/12
of .12% of all net assets over $20,000,000 per the monthly average net asset
value as is declared and determined by each individual series at the close of
each month.
Additionally, the Trust shall reimburse Dupree & Company, Inc., for
out-of-pocket expenses incurred on behalf of the Trust. Theses expenses include,
but are not necessarily limited to, postage, insurance, telephone charges, and
cost of forms. Dupree & Company, Inc., will bill the Trust monthly for the
service fee and expenses.
<PAGE> 296
ITEM 23(I)
DARSIE & ELSTE
ATTORNEYS AT LAW
P.O. Box 22219
LEXINGTON, KENTUCKY 40522
GAY M. ELSTE JOHN C. DARSIE, JR.
(1936-1994)
September 2, 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. 39 to the Registration
Statement filed under the Securities Act of 1933 (File No. 2-64233) and
Amendment No. 40 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 seven series, known as Kentucky Tax-Free Income
Series, Kentucky Tax-Free Short to Medium Series, Intermediate Government Bond
Series, North Carolina Tax-Free Income Series, North Carolina Tax-Free Short to
Medium Series, Tennessee Tax-Free Income Series, and Tennessee 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. Subject to the filing of Annual Rule 24f-2 Notices to register
shares sold during each preceding fiscal year, the shares which are issued by
the Trust are legally issued and outstanding and 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 39, Amendment 40.
Yours very truly,
DARSIE & ELSTE
By /s/ Gay M. Elste
-------------------------
GME:bh
<PAGE> 297
ITEM 23(J)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in the prospectus and under the caption
"Other Services" in the Statement of Additional Information, both included in
Post-Effective Amendment No. 40 to the Registration Statement (Form N-1A No.
811-2918) of Dupree Mutual Funds and to use of our report dated July 30, 1999
incorporated therein.
/s Ernst & Young LLP
Cincinnati, Ohio
September 7, 1999
<PAGE> 298
Item 23(K)
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1999, the yield for the Kentucky Tax-Free Income Series was 3.78%
and was calculated as follows:
YIELD=
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $5,546,405.40.
b = Expenses accrued for the period:
$221,028.88
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
56,704,873.533
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $7.47
1
<PAGE> 299
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1999, the yield for the Kentucky Tax-Free Income Series was 4.92%
and was calculated as follows:
YIELD=
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $1,953,544.69
b = Expenses accrued for the period:
$221,028.88
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
56,704,873.553
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $7.47.
2
<PAGE> 300
The average annual total return for the Kentucky Tax-Free Income Series for the
one-year period ended June 30, 1999, was 2.52% and was calculated as follows:
P(1 + T)nth power = ERV
Where: P = a hypothetical initial payment of
$1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at
the beginning of the one-year
period: $1,025.19
The average annual total return for the Kentucky Tax-Free Income Series for the
period July 1, 1994 to June 30, 1999, was 6.28% and for the period July 1, 1989
to June 30, 1999, was 7.07%. The average annual total return for each of these
periods was calculated in a manner similar to that described.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-year period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset Value per
share ($7.65) equals initial number of shares (130.719 shares).
Step 2 - Convert initial shares to ending shares assuming timely reinvested
distributions. Initial shares of 130.719 plus incremental number of
shares of 6.516 equals 137.235 ending shares.
Step 3 - Determine value of ending shares. Number of ending shares times ending
Net Asset Value per share equals ending value. (137.235 shares x
$7.47 = $1,025.15)
<PAGE> 301
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares for the one-year period ending June 30, 1999
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- - ---- -------- ----- ------
<S> <C> <C> <C>
06/30/98 7.65
09/30/98 .0955115 7.76 1.609
12/31/98 .09512902 7.72 3.240
03/31/99 .09156029 7.68 4.837
06/30/99 .09254452 7.47 6.516
</TABLE>
4
<PAGE> 302
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
June 30, 1999, the tax equivalent yield for the Kentucky Tax-Free Income Series
was 5.25% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that
is tax-exempt: 3.78%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
5
<PAGE> 303
7
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
June 30, 1999, the tax equivalent yield for the Kentucky Tax-Free Income Series
was 6.83% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.92%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
1
<PAGE> 304
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1999, the yield for the Kentucky Tax-Free Short-to-Medium Series was
2.79% and was calculated as follows:
YIELD =
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $171,149.18
b = Expenses accrued for the period:
$34,380.69
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
11,397,156.542
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $5.20
1
<PAGE> 305
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1999, the yield for the Kentucky Tax-Free Short-to-Medium Series was
3.93% and was calculated as follows:
YIELD =
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $3,137,559.31
b = Expenses accrued for the period:
$34,380.69
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
11,397,156.542
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $5.20
<PAGE> 306
The average annual total return for the Kentucky Tax-Free Short-to-Medium Series
for the one-year period ended June 30, 1999, was 2.58% and was calculated as
follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of
$1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at
the beginning of the one-year
period: $1025.82
The average annual total return for the Kentucky Tax-Free Short-to-Medium Series
for the period July 1, 1994 to June 30, 1999, was 4.24% and for the period July
1, 1989 to June 30, 1999 was 5.07% The average annual total return for each of
these periods was calculated in a manner similar to that described.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-year period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset Value per
share ($5.22) equals initial number of shares (189.753 shares).
Step 2 - Convert initial shares to ending shares assuming timely reinvested
distributions. Initial shares of 189.752 plus incremental number of
shares of 7.520 equals 197.273 ending shares.
Step 3 - Determine value of ending shares. Number of ending shares times ending
Net Asset Value per share equals ending value. (197.273 shares x
$5.20 = $1,025.82)
3
<PAGE> 307
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares of the one-year period ending June 30, 1999 was
as follows:
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- - ---- -------- ----- ------
06/30/98 5.27
07/31/98 .01779071 5.27 .640578
08/31/98 .01747884 5.29 1.269664
09/30/98 .01670282 5.32 1.869405
10/31/98 .01765974 5.31 2.506695
11/30/98 .01704446 5.32 3.122666
12/31/98 .01753605 5.32 3.758434
01/31/99 .01746249 5.31 4.394817
02/28/99 .01540919 5.29 4.960349
03/31/99 .01730776 5.28 5.598618
04/30/99 .01716893 5.27 6.235047
05/31/99 .01732985 5.25 6.88199
06/30/99 .01685653 5.20 7.519411
4
<PAGE> 308
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the Kentucky Tax-Free
Short-to-Medium Series was 3.88% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 2.79%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
5
<PAGE> 309
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the Kentucky Tax-Free
Short-to-Medium Series was 5.46% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 3.93%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
1
<PAGE> 310
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1999, the yield for the Tennessee Tax-Free Income Series was 4.39%
and was calculated as follows:
YIELD =
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $189,375.98
b = Expenses accrued for the period:
$20,835.89
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
4,319,844.415
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $10.77.
1
<PAGE> 311
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1999, the yield for the Tennessee Tax-Free Income Series was 4.80%
and was calculated as follows:
YIELD =
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $207,329.43
b = Expenses accrued for the period:
$20,834.14
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
4,319,844.415
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $10.77.
2
<PAGE> 312
The average annual total return for the Tennessee Tax-Free Income Series for the
one year period ended June 30, 1999, was 3.03% and was calculated as follows:
P(1 + T)nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at
the beginning of the one-year
period: $1,030.30
The average annualized total return for the Tennessee Tax-Free Income Series for
the period June 30, 1994 to June 30, 1999 was 7.96% December 15, 1993 to June
30, 1999, was 6.74% and was calculated in a manner similar to that described.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset Value per
share ($10.97) equals initial number of shares (91.158 shares).
Step 2 - Convert initial shares to ending shares assuming timely reinvested
distributions. Initial shares of 91.158 plus incremental number of
shares of 4.502 equals 95.660 ending shares.
Step 3 - Determine value of ending shares. Number of ending shares times ending
Net Asset Value per share equals ending value. (95.660 shares x
$10.77 = $1,030.26)
3
<PAGE> 313
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares for the one-year period ending June 30, 1999
was as follows:
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- - ---- -------- ----- ------
06/30/98 10.97
09/30/98 .133191 11.18 1.085991
12/31/98 .012754 11.14 1.191596
12/31/98 .132088 11.14 2.286586
03/31/99 .128396 11.10 3.367479
06/30/99 .129263 10.77 4.501979
4
<PAGE> 314
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the Tennessee Tax-Free Income
Series was 6.10% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.39%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
5
<PAGE> 315
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the Tennessee Tax-Free Income
Series was 6.67% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.80%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
1
<PAGE> 316
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1999, the yield for the Tennessee Tax-Free Short-to-Medium Series
was 3.02% and was calculated as follows:
YIELD:
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $17,660.71
b = Expenses accrued for the period:
$2,388.63
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
590,904.993
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $10.33.
1
<PAGE> 317
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1999, the yield for the Tennessee Tax-Free Short-to-Medium Series
was 3.02% and was calculated as follows:
YIELD:
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $17,660.71
b = Expenses accrued for the period:
$2,388.63
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
590,904.993
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $10.33.
2
<PAGE> 318
The average annual total return for the Tennessee Tax-Free Short-to-Medium
Series for the one year period ended June 30, 1999, was 2.67% and was calculated
as follows:
P(1 + T)nth power = ERV
Where: P = a hypothetical initial payment of
$1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the
initial hypothetical $1,000 payment
made at the beginning of the
one-year period: $1026.73
The average annualized total return for the Tennessee Tax-Free Short-to-Medium
Series for the period November 1, 1994 to June 30, 1999 was 4.81% and was
calculated in a manner similar to that described.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset Value per
share ($10.44) equals initial number of shares (95.785 shares).
Step 2 - Convert initial shares to ending shares assuming timely reinvested
distributions. Initial shares of 95.785 plus incremental number of
shares of 3.608 equals 99.393 ending shares.
Step 3 - Determine value of ending shares. Number of ending shares times ending
Net Asset Value per share equals ending value. (99.393 shares x
$10.33 = $1,026.73)
<PAGE> 319
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares for the one year period ending June 30, 1999
was as follows:
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- - ---- -------- ----- ------
06/30/98 10.44
07/31/98 .03332126 10.43 .306011
08/31/98 .03462024 10.48 .623445
09/30/98 .0320863 10.52 .917495
10/31/98 .03327836 10.51 1.22369
11/30/98 .03197437 10.52 1.518539
12/31/98 .0325212 10.50 1.819914
01/31/99 .03252047 10.52 2.121641
02/28/99 .03022302 10.48 2.403993
03/31/99 .03179246 10.47 2.702148
04/30/99 .03156376 10.45 2.999626
05/31/99 .0312286 10.42 3.295683
06/30/99 .03250477 10.33 3.607456
4
<PAGE> 320
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the Tennessee Tax-Free
Short-to-Medium Series was 4.19% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 3.02%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
<PAGE> 321
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the Tennessee Tax-Free
Short-to-Medium Series was 5.31% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 3.82%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
1
<PAGE> 322
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1999, the yield for the Intermediate Government Bond Series was
5.89% and was calculated as follows:
YIELD =
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $56,887.85
b = Expenses accrued for the period:
$4,297.09
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
1,113,798.942
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $9.73
1
<PAGE> 323
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1999, the yield for the Intermediate Government Bond Series was
6.45% and was calculated as follows:
YIELD =
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $62,394.75
b = Expenses accrued for the period:
$4297.09
c = The average daily number of shares
outstanding during the period that
were entitled to receive
dividends:1,113,798.942
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $9.73
2
<PAGE> 324
The average annual total return for the Intermediate Government Bond Series for
the one-year period ended June 30, 1999, was 2.21% and was calculated as
follows:
P(1 + T)nth power = ERV
Where: P = a hypothetical initial payment of
$1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at
the beginning of the one-year
period: $1,022.06.
The average annual total return for the Intermediate Government Bond Series for
the period July 1, 1994 to June 30, 1999 was 7.26% and for the period July 14,
1992 to June 30, 1999 was 7.03%. The average annual total return for each of
these periods were calculated in a manner similar to described.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-year period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset Value per
share ($10.14) equals initial number of shares (98.619 shares).
Step 2 - Convert initial shares to ending shares assuming timely reinvested
distributions. Initial shares of 98.619 plus incremental number of
shares of 6.424 equals 105.043 ending shares.
Step 3 - Determine value of ending shares. Number of ending shares times ending
Net Asset Value per share equals ending value. (105.043 shares x
$9.73 = $1,022.06)
3
<PAGE> 325
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares of the one-year period ending June 30, 1999 was
as follows:
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
06/30/98 10.14
07/31/98 .05658728 10.12 .551443
08/31/98 .05556007 10.22 1.090575
09/30/98 .05327 10.39 1.601792
10/31/98 .05512514 10.30 2.138171
11/30/98 .05312104 10.26 2.659842
12/31/98 .05492552 10.23 3.203617
01/31/99 .05496987 10.22 3.751287
02/28/99 .04773254 10.06 4.237014
03/31/99 .05214587 10.01 4.772831
04/30/99 .05178943 9.98 5.309367
05/31/99 .05302051 9.86 5.868226
06/30/99 .05169737 9.73 6.423388
4
<PAGE> 326
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the Intermediate Government Bond
Series was 5.89% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 0%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 100%.
5
<PAGE> 327
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the Intermediate Government Bond
Series was 6.45% (based on a tax rate of 28%) and was calculated as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 0%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 100%.
6
<PAGE> 328
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1999, the yield for the North Carolina Tax-Free Income Series was
4.45% and was calculated as follows:
YIELD:
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $79,215.57
b = Expenses accrued for the period:
$8,750.35
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
1,805,730.109
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $10.61.
1
<PAGE> 329
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1999, the yield for the North Carolina Tax-Free Income Series was
4.62% and was calculated as follows:
YIELD:
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $81,854.20
b = Expenses accrued for the period:
$8,750.35
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
1,805,730.109
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $10.61.
2
<PAGE> 330
The average annual total return for the North Carolina Tax-Free Income Series
for the one-year period ended June 30, 1999, was 2.71% and was calculated as
follows:
P(1 + T)nth power = ERV
Where: P = a hypothetical initial payment of
$1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at
the beginning of the one-year
period: $1,027.12
The average annual total return for the North Carolina Tax-Free Income Series
for the period November 16, 1995 to June 30, 1999 was 6.83%. The average annual
total return for this period was calculated in a manner similar to described.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset Value per
share ($10.82) equals initial number of shares (92.421 shares).
Step 2 - Convert initial shares to ending shares assuming timely reinvested
distributions. Initial shares of 92.421 plus incremental number of
shares of 4.380 equals 96.801 ending shares.
Step 3 - Determine value of ending shares. Number of ending shares times ending
Net Asset Value per share equals ending value. (96.801 shares x
$10.61 = $1,027.06)
3
<PAGE> 331
The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares of the one-year period ending June 30, 1999 was
as follows:
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- - ---- -------- ----- ------
06/30/98 10.82
09/30/98 .129756 11.04 1.086251
12/31/98 .006292 11.00 1.13974
12/31/98 .128126 11.00 2.229527
03/31/99 .122566 10.95 3.288982
06/30/99 .120924 10.61 4.379814
4
<PAGE> 332
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the North Carolina Tax-Free
Income Series was 6.18% (based on a tax rate of 28%) and was calculated as
follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.45
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
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COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the North Carolina Tax-Free
Income Series was 6.42% (based on a tax rate of 28%) and was calculated as
follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 4.62%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
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SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
Interest earned is determined by computing yield to maturity on each obligation
held by the fund during the period and is based on the market value of the
obligation plus accrued interest at the close of business on each day during the
thirty-day period. Daily interest income for premium obligations is calculated
using the daily yield to maturity rate applied to market value plus accrued
interest of the obligations. For discount bonds, other than original issue
discounts, the coupon rate is used instead of the yield to maturity rate and the
par value of the obligation plus accrued interest is used instead of market
value.
At June 30, 1999, the yield for the North Carolina Tax-Free Short-to-Medium
Series was 3.29% and was calculated as follows:
YIELD:
2[ ((a-b divided by cd) +1)sixth power - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $12,023.71
b = Expenses accrued for the period:
$1,527.12
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
381,682.044
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $10.09.
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SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to interest earned during a
thirty-day period less expenses accrued for the period and is based on the
average number of shares outstanding for the period and on the maximum offering
price per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized.
At June 30, 1999, the yield for the North Carolina Tax-Free Short-to-Medium
Series was 3.77% and was calculated as follows:
YIELD:
2[ ((a-b divided by cd) +1)6 - 1 ]
Where: a = Interest earned during the period.
Interest earned during the 30-day
period ended was $15,406.36
b = Expenses accrued for the period:
$1,527.12
c = The average daily number of shares
outstanding during the period that
were entitled to receive dividends:
381,682.044
d = The maximum offering price per share
on the last day of the period, June
30, 1999: $10.09.
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<PAGE> 336
The average annual total return for the North Carolina Short-to-Medium Series
for the one-year period ended June 30, 1999, was 2.35% and was calculated as
follows:
P(1 + T)nth power = ERV
Where: P = a hypothetical initial payment of
$1,000
T = average annual total return
n = number of years - 1
ERV = The redeemable value of the initial
hypothetical $1,000 payment made at
the beginning of the one-year
period: $1,023.46
The average annual total return for the North Carolina Short-to-Medium Series
for the period November 16, 1995 to June 30, 1999 was 4.24%. The average annual
total return for this period was calculated in a manner similar to described.
The ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset Value per
share ($10.24) equals initial number of shares (97.656 shares).
Step 2 - Convert initial shares to ending shares assuming timely reinvested
distributions. Initial shares of 97.656 plus incremental number of
shares of 3.777 equals 101.433 ending shares.
Step 3 - Determine value of ending shares. Number of ending shares times ending
Net Asset Value per share equals ending value. (101.433 shares x
$10.09 = $1,023.46)
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The above calculation assumes that all distributions are reinvested on the
payment date at the then current net asset value per share. The resulting
calculation of reinvested shares of the one-year period ending June 30, 1999 was
as follows:
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
- - ---- -------- ----- ------
06/30/98 10.24
07/31/98 .033904 10.22 .323969
08/31/98 .035171 10.28 .659194
09/30/98 .032293 10.31 .967133
10/31/98 .034072 10.30 1.293378
11/30/98 .033011 10.30 1.610508
12/31/98 .033857 10.29 1.937119
01/31/99 .032865 10.30 2.254896
02/28/99 .029801 10.26 2.545092
03/31/99 .030676 10.25 2.844976
04/30/99 .030811 10.23 3.147664
05/31/99 .031722 10.19 3.461473
06/30/99 .031438 10.09 3.776528
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COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the North Carolina Tax-Free
Short-to-Medium Series was 4.57% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 3.29%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
6
<PAGE> 339
COMPUTATION OF TAX EQUIVALENT YIELD
The tax equivalent yield is computed by dividing (a) the part of the series
yield that is tax-exempt by (b) one minus a stated tax rate and adding the
result to that part, if any, of the series yield that is not tax-exempt.
At June 30, 1999, the tax equivalent yield for the North Carolina Tax-Free
Short-to-Medium Series was 5.24% (based on a tax rate of 28%) and was calculated
as follows:
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is
tax-exempt: 3.77%
B = Stated tax rate: 28%
C = That part of the series yield that
is not tax-exempt: 0.
7
