<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. 41 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 42 (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 (859) 254-7741
-----------------------------------------------------------------
THOMAS P. DUPREE, SR.
Dupree & Company, Inc.
125 South Mill Street, Vine Center, Suite 100
Lexington, Kentucky 40507
-------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
--------------------------------------------------------
It is proposed that this filing will become effective
(check appropriate box)
____ immediately upon filing pursuant to paragraph (b)
X on November 1, 2000 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 Front and Back Cover Pages
2 Dupree Mutual Funds - Summary; Bar Charts and Performance Table
3 Fees and Expenses of the Trust
4 Organization of the Trust; Dupree Mutual Funds - Summary
5 Not Applicable
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
November 1, 2000
DUPREE MUTUAL FUNDS
P.O. Box 1149
Lexington, Kentucky 40588-1149
(859) 254-7741
(800) 866-0614
MUNICIPAL BOND FUNDS
Alabama Tax-Free Income Series
Alabama Tax-Free Short-to-Medium Series
Kentucky Tax-Free Income Series
Kentucky Tax-Free Short-to-Medium Series
Mississippi Tax-Free Income Series
Mississippi 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.
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
4 Charts and Tables
8 Trust Expenses
10 Organization of the Trust
10 Investment Objectives
13 Investment Policies and Restrictions
15 Management of the Trust
17 Determining Net Asset Value
18 Buying Shares
19 Selling Shares
22 Dividends
21 Taxes
23 Performance Calculations
24 Financial Highlights
28 How to Reach Us
<PAGE> 4
DUPREE MUTUAL FUNDS - SUMMARY
SINGLE STATE MUNICIPAL BOND SERIES
INVESTMENT OBJECTIVES AND GOALS
Investors in our municipal bond series are investors seeking the highest level
of tax-free income available without undue risk to principal derived from state
specific municipal securities. See "Investment Objectives".
PRINCIPAL INVESTMENT STRATEGIES
Investors in the Alabama, Kentucky, Mississippi, North Carolina and Tennessee
Tax-Free Income Series seek a steady flow of income with greater share price
fluctuation from state specific municipal securities of investment grade with a
dollar weighted average maturity of ten (10) or more years.
Investors in the Alabama, Kentucky, Mississippi, North Carolina and Tennessee
Tax-Free Short-to-Medium Series seek a steady flow of income with somewhat less
yield but with less share price fluctuation from state specific municipal
securities of investment grade with a dollar weighted average maturity of two
(2) to five (5) years.
PRINCIPAL RISKS OF INVESTING
The principal risks of investing in any of the single state municipal bond
series is the possibility of default on the municipal securities, even though
the securities are of investment grade, or loss of money. Investment in any of
the single state municipal bond series may involve greater risk than an
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 or region. Generally speaking, as
interest rates rise, the share value will decline. The effect of changes in
interest rates is more pronounced in portfolios with longer average maturities.
There is no assurance that the investment objective of any series will be
achieved. A series' return and net asset value will fluctuate.
The portfolios of the Kentucky and Tennessee Tax-Free Income Series are
diversified, while the portfolios of all the other single state series are
non-diversified. A non-diversified portfolio may have as much as 50% of the
portfolio invested in the securities of a single issuer, while a diversified
portfolio may have as much as 25% of the portfolio invested in the securities of
a single issuer. The potential for investment of 50% of the portfolio in the
securities of a single issuer may involve more risk, because the consequences of
a default by that issuer would be greater than a default by an issuer
representing only 25% of the portfolio.
Investors should recognize that, in periods of rising interest rates, the yield
of the series would 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.
INTERMEDIATE GOVERNMENT BOND SERIES
INVESTMENT OBJECTIVES AND GOALS
Investors in our Intermediate Government Bond Series are seeking the highest
level of current income without undue risk to principal derived from securities
of the U.S. Government and its agencies.
PRINCIPAL INVESTMENT STRATEGIES
65% of the portfolio of the Intermediate Government Bond Series will be invested
in securities issued by the U.S. Government of its agencies or
instrumentalities, with the remaining 35% of the portfolio invested in bank
accounts fully insured by the FDIC or collateralized by bonds issued by the U.S.
Government or its agencies or U.S. Treasury or Agency Notes and Bills. The
average dollar weighted maturity will be three (3) to ten (10) years.
<PAGE> 5
PRINCIPAL RISKS OF INVESTING
The principal risk of investing in the Intermediate Government Bond Series is
the possibility of default, even though the securities are of investment grade,
or loss of money. Generally speaking, as interest rates rise, the share value
will decline. The effect of changes in interest rates is more pronounced in
portfolios with longer average maturities. There is no assurance that the
investment objective will be achieved. The series' return and net asset value
will fluctuate.
The portfolio of the Intermediate Government Bond Series is non-diversified. A
non-diversified portfolio may have as much as 50% of the portfolio invested in
the securities of a single issuer, while a diversified portfolio may have as
much as 25% of the portfolio invested in the securities of a single issuer. The
potential for investment of 50% of the portfolio in the securities of a single
issuer may involve more risk, because the consequences of a default by the
issuer would be greater than a default by an issuer representing only 25% of the
portfolio.
Investors should recognize that in periods of rising interest rates, the yield
of the series would 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.
<PAGE> 6
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 ten 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. Bar charts and performance tables are not included for The Alabama
Tax-Free Income Series, The Alabama Tax-Free Short-to-Medium Series, The
Mississippi Tax-Free Income Series, The Mississippi Tax-Free Short-to-Medium
Series as these funds have not been existence for one calendar year.
<PAGE> 7
KENTUCKY INCOME SERIES
ANNUAL TOTAL RETURNS
One Year
Years Total
Ending On Return
--------- ------
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%
12/31/99 -1.43%
2000 Year-To-Date Total Return through September 30, 2000: 4.24%
Maximum Total Return for the quarter ending February 28, 1995: 5.45%
Minimum Total Return for the quarter ending April 30, 1994: -5.43%
<PAGE> 8
Total Returns
KENTUCKY TAX-FREE INCOME SERIES
VS
LEHMAN 10 AND 20 YEAR MUNICIPAL INDICES
For the Calendar Year Ending On
31-Dec-99
For The For The For The
Last Last Five Last Ten
Year Years Years
---- ----- -----
Fund -1.42% 5.89% 6.56%
10-Year Index -1.25% 7.12% 7.10%
20-Year Index -4.68% 7.36% 7.21%
<PAGE> 9
KENTUCKY SHORT-TO-MEDIUM SERIES
ANNUAL TOTAL RETURNS
One Year
Years Total
Ending On Return
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%
12/31/99 0.29%
2000 Year-To-Date Total Return through September 30, 2000: 3.12%
Maximum Total Return for the quarter ending January 31, 1992: 2.69%
Minimum Total Return for the quarter ending April 30, 1994: -2.11%
<PAGE> 10
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
VS
LEHMAN TEN YEAR MUNICIPAL INDEX
For the Calendar Year Ending On
31-Dec-99
For The For The For The
Last Last Five Last Ten
Year Years Years
------- --------- --------
Fund 0.29% 4.04% 4.77%
10-Year Index -1.25% 7.12% 7.10%
<PAGE> 11
NORTH CAROLINA INCOME SERIES
ANNUAL TOTAL RETURNS
Years One Year
Ending On Total Return
12/31/96 5.37%
12/31/97 9.83%
12/31/98 7.51%
12/31/99 -2.72%
2000 Year-To-Date Total Return through September 30, 2000: 5.07%
Maximum Total Return for the quarter ending September 30, 1996: 4.09%
Minimum Total Return for the quarter ending March 31, 1996: -2.65%
<PAGE> 12
Total Returns
NORTH CAROLINA TAX-FREE INCOME SERIES
VS
LEHMAN 10 AND 20 YEAR MUNICIPAL INDICES
For the Calendar Year Ending On
31-Dec-99
For The
Last Since
Year Nov. 15, 1995
---- -------------
Fund -2.72% 5.60%
10-Year Index -1.25% 4.81%
20-Year Index -4.68% 4.47%
<PAGE> 13
NORTH CAROLINA SHORT-TO-MEDIUM SERIES
ANNUAL TOTAL RETURNS
Years One Year
Ending On Total Return
--------- ------------
12/31/96 4.56%
12/31/97 5.03%
12/31/98 4.77%
12/31/99 0.92%
2000 Year-To-Date Total Return through September 30, 2000: 2.83%
Maximum Total Return for the quarter ending July 31, 1997: 2.50%
Minimum Total Return for the quarter ending June 30, 1999: -0.65%
<PAGE> 14
Total Returns
NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
VS
LEHMAN THREE YEAR MUNICIPAL INDEX
For the Calendar Year Ending On
31-Dec-99
For The
Last Since
Year Nov. 30, 1995
---- -------------
Fund 0.92% 4.03%
3-Year Index 1.96% 4.28%
<PAGE> 15
TENNESSEE INCOME SERIES
ANNUAL TOTAL RETURNS
Years One Year
Ending On Total Return
--------- ------------
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%
12/31/99 -2.71%
2000 Year-To-Date Total Return through September 30, 2000: 2.26%
Maximum Total Return for the quarter ending March 31, 1995: 7.29%
Minimum Total Return for the quarter ending June 30, 1999: -1.81%
<PAGE> 16
Total Returns
TENNESSEE TAX-FREE INCOME SERIES
VS
LEHMAN 10 AND 20 YEAR MUNICIPAL INDICES
For the Calendar Year Ending On
31-Dec-99
For The For The
Last Last Five Since
Year Years Dec. 31, 1993
---- ----- -------------
Fund -2.71% 7.26% 5.80%
10-Year Index -1.25% 7.12% 5.04%
20-Year Index -4.68% 7.36% 4.75%
<PAGE> 17
TENNESSEE SHORT-TO-MEDIUM SERIES
ANNUAL TOTAL RETURNS
Years One Year
Ending On Total Return
--------- ------------
31-Dec-95 7.12%
31-Dec-96 3.92%
31-Dec-97 5.38%
31-Dec-98 4.33%
31-Dec-99 1.14%
2000 Year-To-Date Total Return through September 30, 2000: 5.03%
Maximum Total Return for the quarter ending October 31, 1995: 2.41%
Minimum Total Return for the quarter ending April 30, 1996: -0.43%
<PAGE> 18
Total Returns
TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
VS
LEHMAN THREE YEAR MUNICIPAL INDEX
For the Calendar Year Ending On
31-Dec-99
For The
Last Since
Year Nov. 1, 1994
---- ------------
Fund 1.14% 4.52%
3-Year Index 1.96% 5.17%
<PAGE> 19
INTERMEDIATE GOVERNMENT BOND SERIES
ANNUAL TOTAL RETURNS
Years One Year
Ending On Total Return
--------- ------------
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%
31-Dec-99 -1.78%
2000 Year-To-Date Total Return through September 30, 2000: 6.90%
Maximum Total Return for the quarter ending May 31, 1995: 6.23%
Minimum Total Return for the quarter ending May 31, 1994: -6.00%
<PAGE> 20
Total Returns
INTERMEDIATE GOVERNMENT BOND SERIES
VS
LEHMAN INTERMEDIATE TREASURY INDEX
For the Calendar Year Ending On
31-Dec-99
For The For The
Last Last Five Since
Year Years Aug. 1, 1992
------- --------- ------------
Fund -1.78% 7.00% 6.00%
Intermediate
Treasury 0.41% 6.92% 5.78%
Index
<PAGE> 21
FEES AND EXPENSES OF THE TRUST:
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE TRUST.
<TABLE>
<CAPTION>
Alabama Alabama Kentucky Kentucky Mississippi Mississippi
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Short-to Income Short-to Income Short-to
Series Medium Series Medium Series Medium
Series Series Series
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES: (fees paid directly from your investment)
Maximim Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price) NONE NONE NONE NONE NONE NONE
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) 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
Redemption Fees
(as a percentage of amount
redeemed, if applicable) NONE NONE NONE NONE NONE NONE
Exchange Fee NONE NONE NONE NONE NONE NONE
MAXIMUM ACCOUNT FEE NONE NONE NONE NONE NONE NONE
</TABLE>
<TABLE>
<CAPTION>
North North Tennessee Tennessee Intermediate
Carolina Carolina Tax-Free Tax-Free Government
Tax-Free Tax-Free Income Short-to Bond
Income Short-to Series Medium Series
Series Medium Series
<S> <C> <C> <C> <C> <C>
SHAREHOLDER FEES: (fees paid directly from your investment)
-
Maximim Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price) NONE NONE NONE NONE NONE
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) 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
Redemption Fees
(as a percentage of amount
redeemed, if applicable) NONE NONE NONE NONE NONE
Exchange Fee NONE NONE NONE NONE NONE
MAXIMUM ACCOUNT FEE NONE NONE NONE NONE NONE
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Alabama Alabama (4) Kentucky Kentucky Mississippi Mississippi (4)
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Short-to Income Short-to Income Short-to
Series Medium Series Medium Series Medium
Series Series Series
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES (before waivers/reimbursements)(1)
Expenses That are Deducted From Fund Assets (as a percentage of average net
assets)
Management Fee (2) 0.500 0.500 0.431 0.500 0.500 0.500
Distribution Fee 0.000 0.000 0.000 0.000 0.000 0.000
Shareholder Services Fee 0.150 0.150 0.122 0.131 0.150 0.150
Other Expenses (3) 2.611 2.611 0.052 0.057 2.696 2.696
Total Annual Fund Operating Expenses 3.261 3.261 0.605 0.688 3.346 3.346
1 Although not contractually obligated to do so, the adviser waived and reimbursed certain amounts. These are
shown below along with the net expenses of the Funds actually paid for the fiscal year ended June 30, 2000.
Waiver of Fund Expenses 2.766 2.766 0.000 0.000 2.851 2.851
Total Actual Annual Fund Operating
Expenses (after waivers/reimbursements) 0.495 0.495 0.605 0.688 0.495 0.495
2 The Adviser has voluntarily waived a portion of the management fee. The Adviser can terminate this voluntary
waiver at any time. The management fee paid by the Funds (after the voluntary waiver) for the year ended
June 30, 2000:
0.000 0.000 0.431 0.500 0.000 0.000
3 The Adviser voluntarily reimbursed certain other operating expenses of the Funds. Other expenses include but are
not limited to printing, postage and professional fees. The Adviser can terminate this voluntary waiver at any
time. The total other expense paid by the funds (after the voluntary reimbursement) for the year ended
June 30, 2000:
0.345 0.345 0.052 0.057 0.345 0.345
4 The annual fund operating expenses for the Alabama Tax-Free Short-to-Medium Series and the Mississippi Tax-Free
Free Short-to-Medium Series are estimates as the funds were not in operation Fiscal year 2000.
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
North North Tennessee Tennessee Intermediate
Carolina Carolina Tax-Free Tax-Free Government
Tax-Free Tax-Free Income Short-to Bond
Income Short-to Series Medium Series
Series Medium Series
Series
<S> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES (before waivers/reimbursements)(1)
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee (2) 0.500 0.500 0.500 0.500 0.200
Distribution Fee 0.000 0.000 0.000 0.000 0.000
Shareholder Services Fee 0.150 0.150 0.134 0.150 0.150
Other Expenses(3) 0.068 0.147 0.032 0.132 0.058
Total Annual Fund Operating Expenses 0.718 0.797 0.666 0.782 0.408
1 Although not contractually obligated to do so, the adviser waived and reimbursed certain amounts. These are shown below
along with the net expenses of the Funds actually paid for the fiscal year ended June 30, 2000.
Waiver of Fund Expenses 0.167 0.321 0.126 0.186 0.000
Total Actual Annual Fund Operating
Expenses (after waivers/reimbursements) 0.551 0.476 0.540 0.596 0.408
2 The Adviser has voluntarily waived a portion of the management fee. The Adviser can terminate this voluntary waiver at
any time. The management fee paid by the Funds (after the voluntary waiver) for the year ended June 30, 2000:
0.333 0.179 0.374 0.314 0.200
3 The Adviser voluntarily reimbursed certain other operating expenses of the Funds. Other expenses include but are not
limited to printing, postage and professional fees. The Adviser can terminate this voluntary waiver at any time. The
total other expense paid by the funds (after the voluntary reimbursement) for the year ended June 30, 2000:
0.068 0.147 0.032 0.132 0.058
</TABLE>
<PAGE> 24
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 may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Alabama Alabama Kentucky Kentucky Mississippi Mississippi
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Short-to Income Short-to Income Short-to
Series Medium Series Medium Series Medium
Series* Series Series*
<S> <C> <C> <C> <C> <C> <C>
1 year 329 342 62 70 337 342
3 years 1004 1043 194 220 1029 1043
5 years 1703 338 383 1744
10 years 3559 756 856 3636
</TABLE>
<TABLE>
<CAPTION>
North North Tennessee Tennessee Intermediate
Carolina Carolina Tax-Free Tax-Free Government
Tax-Free Tax-Free Income Short-to Bond
Income Short-to Series Medium Series
Series Medium Series
Series
<S> <C> <C> <C> <C> <C>
1 year 73 81 68 80 42
3 years 230 255 213 250 131
5 years 399 443 371 434 229
10 years 892 986 830 968 515
*Expenses are estimates, funds were not in operation as of June 30, 2000.
You would pay the same expenses assuming no redemption.
</TABLE>
<PAGE> 25
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 ELEVEN SERIES ARE BEING OFFERED FOR SALE:
Alabama Tax-Free Income Series
Alabama Tax-Free Short-to-Medium Series
Kentucky Tax-Free Income Series
Kentucky Tax-Free Short-to-Medium Series
Mississippi Tax-Free Income Series
Mississippi 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
Alabama, Kentucky, Mississippi, North Carolina, Tennessee 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
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
<PAGE> 26
monetary and economic conditions. Generally, issues of shorter maturity and/or
higher quality pay lower yields than issues of longer maturity and/or lower
quality. The market values of municipal securities vary depending upon available
yields both in the municipal securities markets and in the short-term money
markets. Therefore, the net asset value of our shares will change as interest
rates fluctuate, generally declining as interest rates rise and rising as
interest rates fall. The types of municipal securities and the general
characteristics of each type are described in the "Statement of Additional
Information".
The inherent risk associated with investment in municipal securities is the risk
of default. In addition, the net asset value of our shares may be impacted by
the general economic situation in the country and/or within the states of
Alabama, Kentucky, Mississippi, 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 that could uniquely affect
the ability of issuers to meet the debt obligations of the securities.
Alabama's economy relies in part on the textile, automobile and forest products
industries, all of which may be affected by cyclical changes. While average per
capita income of Alabama residents continues to improve, certain areas continue
to lag in economic development.
The Kentucky non-agricultural economy is diversified among the following:
services, wholesale and retail trade, manufacturing, and government. 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.
Mississippi's economy relies primarily on manufacturing and service industries,
with substantial growth in the gaming and tourism industries. In recent years,
while Mississippi's financial condition continues to improve, it currently ranks
last among the states in per capita income.
The 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: manufacturing; wholesale and retail trade; services; and government.
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 Alabama, Kentucky, Mississippi, North Carolina and Tennessee
are sufficiently diverse that an economic decline in a single segment of a
state's economy would not necessarily lead to the non-payment of debt service on
municipal bonds.
Alabama Tax-Free Income Series
This is a non-diversified fund where the nominal maturity will usually average
10 years or more, where a fairly level stream of income is important, though net
asset value per share can fluctuate considerably. The portfolio had a weighted
dollar average nominal effective maturity of 17.58 years and a weighted average
effective maturity of 11.81 years as of June 30, 2000. 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.
<PAGE> 27
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 dollar average nominal maturity of
16.51 years and a weighted average effective maturity of 9.98 years as of June
30, 2000.
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 4.17 years as of June 30, 2000. As a
non-diversified series, the Short-to-Medium Series may invest up to 50% of the
series' total assets in as few as two investments, with each of those
investments comprising up to 25% of the series' total assets. In this case, a
default would produce a more dramatic result as compared to a fully diversified
fund.
Mississippi Tax-Free Income Series
This is a non-diversified fund where the nominal maturity will usually average
10 years or more, where a fairly level stream of income is important, though net
asset value per share can fluctuate considerably. The portfolio had a weighted
dollar average nominal effective maturity of 17.60 years and a weighted average
effective maturity of 13.08 years as of June 30, 2000. 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 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
dollar average nominal effective maturity of 18.75 years and a weighted average
effective maturity of 17.58 years as of June 30, 2000. 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 4.07 years as of June 30, 2000. 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 dollar average nominal effective
maturity of 17.61 years and a weighted average effective maturity of 14.33 years
as of June 30, 2000.
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 3.83 years as of June 30, 2000. 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
<PAGE> 28
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 8.34 years as of June 30, 2000.
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 a recognized rating agency.
B) Notes rated at the time of purchase within the three highest grades
assigned by a recognized rating agency; and bonds and notes not rated by a
recognized rating agency within the grades specified above, but secured by
the full faith and credit of the United States government (e.g., refunded
or defeased bonds or notes secured by United States Treasury Bills or
Notes.)
C) No more than 20% of the value of our total assets in any of the municipal
bond series will be invested in securities which are not rated. The Trust
will not purchase securities which in the opinion of the Investment Adviser
would not have been rated in one of the grades specified above. In
addition, our Investment Adviser will make its own evaluation of each
security it selects for each portfolio and will continue to evaluate each
portfolio security so long as we hold it.
As an additional matter of fundamental policy, except as indicated below, the
only securities we will purchase for the municipal bond series are those
producing income exempt from both Federal and State income taxes in the states
where shares of the series are offered, though ad valorem taxes may be due in
some states. Nor will we purchase securities subject to Alternative Minimum Tax.
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. In the
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
<PAGE> 29
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> 30
Asset Composition
The weighted average ratings of the securities held by the Trust on June 30,
2000, 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
Alabama Tax-Free
Income Series 86.30% 4.62% 0.00% 0.00% 9.08%
Kentucky Tax-Free
Income Series 52.53 17.79 22.02 4.36 3.30
Kentucky Tax-Free
Short-to-Medium Series 50.71 34.16 11.37 .33 3.43
Mississippi Tax-Free
Income Series 82.54 4.37 8.74 0.00 4.35
North Carolina Tax-Free
Income Series 60.16 33.67 6.17 0.00 0.00
North Carolina Tax-Free
Short-to-Medium Series 50.61 30.38 18.50 .51 0.00
Tennessee Tax-Free
Income Series 41.86 27.74 24.07 6.33 0.00
Tennessee Tax-Free
Short-to-Medium Series 46.94 20.35 22.16 10.55 0.00
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:
Comparable To: Aaa/AAA Aa/AA A/A Baa/BBB
Alabama Tax-Free
Income Series 9.08%
Kentucky Tax-Free
Income Series .31% .21% 2.78
Kentucky Tax-Free
Short-to-Medium Series 3.43
Mississippi Tax-Free
Income Series 4.35
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
<PAGE> 31
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. *
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.
J. William Howerton, Judge (retired November 1996) KY Court of Appeals; Lifetime
Trustee Paducah Junior College; Vice Chairman Paducah McCracken Co. Joint Sewer
Agency; Self-Employed Mediator, Arbitrator and Special Judge.
William S. Patterson, President, CEO, Cumberland Surety Insurance Co.,
Lexington, KY.
*Thomas P. Dupree, Sr. 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
William T. Griggs II -0- None- No Pension None -0-
Vice President, or Retirement Plan
Assistant Secretary, Trustee
(since 1998)
Lucy A. Breathitt $14,000 None-No Pension None $14,000
Trustee (since 1996) or Retirement Plan
William A. Combs, Jr. $14,000 None - No Pension None $14,000
Trustee or Retirement Plan
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
J. William Howerton -0- None- No Pension None -0-
Trustee Or Retirement Plan
William S. Patterson $14,000 None - No Pension None $14,000
Trustee or Retirement Plan
</TABLE>
Investment Adviser and Advisory Agreements
Our investment activities are managed by Dupree & Company, Inc., P.O. Box 1149
Lexington, Kentucky 40588-1149. Dupree & Company was formed in 1962 to continue
a business founded in 1941. Dupree & Company, Inc. also serves as Transfer
Agent.
Dupree & Company, Inc., may at its sole cost and expense, enter into
sub-shareholder servicing agreements with commercial banks, investment advisers,
or other entities to provide assistance in maintaining books, accounts and
records of shareholders.
Dupree & Company, Inc. serves as the Investment Adviser for each of our eleven
series pursuant to separate Investment Advisory Agreements with each series. The
agreements for the Kentucky, North Carolina and Tennessee Series' are each dated
November 1, 1997. The agreements for the Alabama and Mississippi Series' are
dated November 1, 1999. Each agreement will continue in effect until October 31,
2001 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:
Range of Total Assets 100,000,001-
(in dollars) $0-100,000,000 $150,000,000 $150,000,001+
All Municipal Bond Funds .50 of 1% .45 of 1% .40 of 1%
Intermediate Government Bond Series .20 of 1% .20 of 1% .20 of 1%
Dupree & Company, Inc. has reserved the right to voluntarily waive management
fees or assume and pay other expenses of any series of the Trust at its sole
option.
In addition, the Trust has entered into a Transfer Agent/Shareholder Service
Agreement with Dupree & Company, Inc. The agreement provides for a fee computed
on the average daily net asset value at the annual rate of .15% on the first
$20,000,000 and .12% of all amount in excess of $20,000,000.
Indiana 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.
<PAGE> 33
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. A sales charge or commission does not reduce the
value of your investment in any of our series.
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 that does not clear, we may cancel your order and hold
you responsible for any loss that 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.
Purchases 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
<PAGE> 34
Our wire instructions are directed to Star Bank, Cincinnati, Ohio as follows:
Firstar Bank ABA #0420-0001-3
Alabama Tax-Free Income Series #821-602-844
Alabama Tax-Free Short-to-Medium Series #821-602-851
Kentucky Tax-Free Income Series #483-622-098
Kentucky Tax-Free Short-to-Medium Series #483-622-106
Mississippi Tax-Free Income Series #821-637-840
Mississippi Tax-Free Short-to-Medium Series #821-602-802
North Carolina Tax-Free Income Series #483-622-338
North Carolina Tax-Free Short-to-Medium Series #483-622-346
Tennessee Tax-Free Income Series #483-622-122
Tennessee Tax-Free Short-to-Medium Series #483-622-130
Intermediate Government Bond Series #483-622-148
If you are adding to an existing account please call us with your name and
account number.
Purchases 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 telephone redemption request or making
inquiries of information that 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 (859) 254-7741
Toll Free National Number (800) 866-0614
In North Carolina (800) 284-2562
<PAGE> 35
All accounts will automatically receive telephone redemption, exchange and
transfer privileges unless indicated otherwise on the initial application form.
We will mail or wire the money only to the address or bank account previously
filed with us. Changes to any redemption instructions must be made in writing
and signed by all owners. The telephone cannot be used to redeem shares for
which you hold certificates of beneficial interest or which were purchased by
mail within the past 30 days.
By Mail
You must send us a written request for redemption, signed by each registered
holder exactly as the shares are registered along with (if applicable):
* Any certificates of beneficial interest
* Documents required by Corporations, Executors, Administrators, Trustees
and Guardians.
By Check
Shareholders of 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
Short-to-Medium Series' $500.00 $25,000
$500.00 $25,000
$500.00 $25,000
Government Bond Series $500.00 none
CHECK WRITING CHARGES:
Share Redemption: NONE
Checks: NONE
Insufficient Funds: $19.00
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.
<PAGE> 36
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
If your account balance falls below $100 as a result of shareholder redemption
and not simply market valuation change, we may redeem your shares and close out
your account. We will give you notice no earlier than the 15th of the month
following the month in which your account falls below $100, and you will have 30
days from the date of the notice to bring the account up to $100 before we take
any action.
Redemption In Kind
The Trust does not reserve the right to redeem in kind.
Undeliverable Redemption Checks
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be considered void. The check will be canceled and the money
reinvested in the Fund.
Transfer and Exchange of Shares
You may transfer your shares to another owner. You may exchange shares between
series offered in your state of residence without sales charge at the next
determination of net asset value; however, the Trust reserves the right to
reject any exchange in excess of $50,000 and to modify or terminate the exchange
privilege at any time only upon sixty (60) days written notice. An exchange is
treated for federal tax purposes as a redemption and purchase of shares and may
result in the realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged. No representation is made as to the
deductibility of any such loss. The Transfer Agent will provide you with
information about the documents required.
Withdrawal Plan
You may withdraw fixed or variable amounts from your account at regular
intervals. Once begun, a withdrawal plan may be discontinued at any time without
penalty.
Inactive Accounts
<PAGE> 37
If your Account is inactive (i.e., you do not make any deposits or withdrawals)
and you have not otherwise communicated with us about your Account for the
period provided by law, we will be required to transfer the balance of your
Account as "abandoned property" to the appropriate state authority.
DIVIDENDS
Generally, we declare dividends separately for each series each business day.
The Alabama, Kentucky, Mississippi, North Carolina and Tennessee Income Series
pay such dividends as of the last business day of each quarter. The Alabama,
Kentucky, Mississippi, 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 dividends we pay our
shareholders of the Municipal Bond series will be exempt interest dividends that
will be excludable from gross income for federal (including alternative minimum
tax) 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
<PAGE> 38
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> 39
FINANCIAL HIGHLIGHTS
ALABAMA TAX-FREE INCOME SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance since inception. 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
---------------
For the
period
1/1/2000
---------------
to
6/30/2000(a)
---------------
NET ASSET VALUE, BEGINNING OF YEAR $10.00
---------------
Income From Investment Operations:
Net investment income 0.26
Net gains (losses) on securities
(both realized and unrealized) 0.31
---------------
Total from investment operations 0.57
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.26)
---------------
NET ASSET VALUE, END OF YEAR $10.31
===============
Total return(c) 5.79%
Net assets, end of year (in thousands): $222
Ratio of expenses to average net assets(b) 0.50%
Before expense reimbursement (b) 3.26%
Ratio of net investment income to
average net assets(b) 5.23%
After expenses reimbursement(b) 2.46%
Portfolio turnover 0.00%
(a) Commencement of operations January 1, 2000.
(b) Annualized for periods less than a year.
(c) Total return is not annualized.
<PAGE> 40
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,
------------------------------------------------------------------
2000 1999 1998 1997 1996 (a)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $7.47 $7.65 $7.47 $7.35 $7.29
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.38 0.37 0.39 0.40 0.40
Net gains (losses) on securities
(both realized and unrealized) (0.25) (0.18) 0.18 0.12 0.06
------------------------------------------------------------------
Total from investment operations 0.13 0.19 0.57 0.52 0.46
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- -- -- --
Distributions (from net investment
income) (0.38) (0.37) (0.39) (0.40) (0.40)
------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.22 $7.47 $7.65 $7.47 $7.35
==================================================================
Total return 1.78% 2.52% 7.77% 7.14% 6.38%
Net assets, end of year (in thousands): $416,957 $422,996 $373,153 $327,304 $295,029
Ratio of expenses to average net assets 0.61% 0.61% 0.62% 0.63% 0.62%
Ratio of net investment income to
average net assets 5.17% 4.88% 5.14% 5.32% 5.39%
Portfolio turnover 15.74% 10.69% 11.80% 6.64% 4.29%
(a) Audited by other auditors.
</TABLE>
<PAGE> 41
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.
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE
OUTSTANDING:
For the years ended June 30,
----------------------------------------
2000 1999 1998 1997 1996(a)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $5.20 $5.27 $5.22 $5.20 $5.18
-------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.21 0.21 0.21 0.22 0.21
Net gains ( losses) on securities
(both realized and unrealized) (0.11) (0.07) 0.05 0.02 0.02
-------------------------------------------------------------------
Total from investment operations 0.10 0.14 0.26 0.24 0.23
LESS DISTRIBUTIONS:
Distributions (from net investment
income) (0.21) (0.21) (0.21) (0.22) (0.21)
-------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $5.09 $5.20 $5.27 $5.22 $5.20
===================================================================
Total return 1.95% 2.58% 5.12% 4.59% 4.51%
Net assets, end of year (in thousands) $51,205 $58,630 $54,124 $53,829 $66,574
Ratio of expenses to average net assets 0.69% 0.72% 0.74% 0.72% 0.75%
Ratio of net investment income to
average net assets 4.06% 3.89% 4.05% 4.11% 4.04%
Portfolio turnover 30.57% 27.38% 20.98% 20.03% 57.80%
(a) Audited by other auditors.
</TABLE>
<PAGE> 42
MISSISSIPPI TAX-FREE INCOME SERIES
The financial highlights table is intended to help you understand the Fund's
financial performance since inception. 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:
For the period
1/1/2000
to 6/30/2000(a)
---------------
NET ASSET VALUE, BEGINNING OF YEAR $10.00
---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.27
Net gains (losses) on securities
(both realized and unrealized) 0.35
---------------
Total from investment operations 0.62
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.27)
---------------
Net asset value, end of year $10.35
===============
Total return (c) 6.24%
Net assets, end of year (in thousands): $238
Ratio of expenses to average net assets(b) 0.50%
Before expense reimbursement (b) 3.35%
Ratio of net investment income to
average net assets(b) 5.31%
After expenses reimbursement(b) 2.45%
Portfolio turnover 0.00%
(a) Commencement of operations January 1, 2000.
(b) Annualized for periods less than a year.
(c) Total return is not annualized.
<PAGE> 43
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.
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE
OUTSTANDING
For the years ended June 30,
----------------------------------------
2000 1999 1998 1997 1996(a)(c)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.61 $10.82 $10.33 $9.88 $10.00
-------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.51 0.50 0.53 0.54 0.32
Net gains (losses) on securities
(both realized and unrealized) (0.40) (0.20) 0.49 0.45 (0.12)
-------------------------------------------------------------------
Total from investment operations 0.11 0.30 1.02 0.99 0.20
LESS DISTRIBUTIONS:
Distributions (from capital gains) (0.01) (0.01) -- -- --
Distributions (from net investment income) (0.50) (0.50) (0.53) (0.54) (0.32)
-------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.21 $10.61 $10.82 $10.33 $9.88
===================================================================
Total return 1.07% 2.71% 9.99% 10.18% 3.23%
Net assets, end of year (in thousands) $21,660 $19,456 $9,911 $3,586 $1,063
Ratio of expenses to average net assets (b) 0.55% 0.45% 0.33% 0.25% 0.18%
Before expense reimbursement (b) 0.72% 0.77% 0.76% 0.81% 2.47%
Ratio of net investment income to average net assets (b) 4.76% 4.43% 4.47% 4.72% 0.98%
After expense reimbursement (b) 4.92% 4.74% 4.90% 5.29% 3.27%
Portfolio turnover 16.14% 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> 44
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.
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE
OUTSTANDING:
For the years ended June 30,
-------------------------------------------------
2000 1999 1998 1997 1996(a)(c)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.09 $10.24 $10.12 $9.99 $10.00
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.39 0.39 0.40 0.41 0.24
Net gains (losses) on securities
(both realized and unrealized) (0.15) (0.15) 0.12 0.13 (0.01)
------------------------------------------------------------------
Total from investment operations 0.24 0.24 0.52 0.54 0.23
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.39) (0.39) (0.40) (0.41) (0.24)
------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.94 $10.09 $10.24 $10.12 $ 9.99
==================================================================
Total return 2.47% 2.35% 5.20% 5.49% 3.79%
Net assets, end of year (in thousands) $4,246 $3,938 $2,194 $1,458 $1,159
Ratio of expenses to average net assets (b) 0.48% 0.44% 0.41% 0.23% 0.16%
Before expense reimbursement (b) 0.80% 0.78% 0.86% 0.82% 1.78%
Ratio of net investment income to average net assets (b) 3.62% 3.44% 3.44% 3.46% 0.85%
After expense reimbursement (b) 3.94% 3.78% 3.89% 4.06% 2.47%
Portfolio turnover 25.85% 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> 45
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.
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE
OUTSTANDING
For the year ended June 30,
---------------------------------------
2000 1999 1998 1997 1996 (a)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.77 $ 10.97 $ 10.53 $ 10.17 $10.05
-----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.53 0.54 0.54 0.54 0.54
Net gains (losses) on securities
(both realized and unrealized) (0.45) (0.19) 0.45 0.36 0.12
-----------------------------------------------------------------
Total from investment operations 0.08 0.35 0.99 0.90 0.66
LESS DISTRIBUTIONS:
Distributions (from capital gains) 0.00 (0.01) (0.01) -- --
Distributions (from net investment income) (0.53) (0.54) (0.54) (0.54) (0.54)
-----------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.32 $ 10.77 $ 10.97 $ 10.53 $10.17
=================================================================
Total return 0.84% 3.03% 9.57% 8.96% 6.65%
Net assets, end of year (in thousands) $40,524 $46,086 $29,172 $13,678 $8,056
Ratio of expenses to average net assets 0.54% 0.48% 0.44% 0.55% 0.54%
Before expense reimbursement (b) 0.67% 0.69% 0.74% 0.77% 0.90%
Ratio of net investment income to average net assets 4.97% 4.50% 4.64% 4.92% 4.91%
After expense reimbursement 5.09% 4.71% 4.84% 5.15% 5.27%
Portfolio turnover 8.80% 14.76% 12.62% 5.14% 9.13%
(a) Audited by other auditors.
</TABLE>
<PAGE> 46
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.
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE
OUTSTANDING
For the years ended June 30,
-------------------------------------------------------------------
2000 1999 1998 1997 1996(a)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.33 $10.44 $10.32 $10.25 $10.20
-------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.41 0.39 0.41 0.42 0.42
Net gains or losses on securities
(both realized and unrealized) (0.15) (0.11) 0.12 0.07 0.05
-------------------------------------------------------------------
Total from investment operations 0.26 0.28 0.53 0.49 0.47
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.41) (0.39) (0.41) (0.42) (0.42)
-------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.18 $10.33 $10.44 $10.32 $10.25
===================================================================
Total return 2.53% 2.67% 5.26% 4.83% 4.62%
Net assets, end of year (in thousands) $6,415 $5,819 $4,745 $2,993 $2,455
Ratio of expenses to average net assets 0.60% 0.56% 0.51% 0.47% 0.50%
Before expense reimbursement (b) 0.78% 0.73% 0.81% 0.85% 1.19%
Ratio of net investment income to average net assets 3.78% 3.52% 3.67% 3.67% 3.36%
After expense reimbursement 3.96% 3.69% 3.97% 4.04% 4.05%
Portfolio turnover 28.67% 81.81% 67.59% 24.49% 23.17%
(a) Audited by other auditors.
</TABLE>
<PAGE> 47
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.
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE
OUTSTANDING
For the years ended June 30,
--------------------------------------------------------------
2000 1999 1998 1997 1996(a)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 9.73 $ 10.14 $ 9.89 $ 9.85 $10.15
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.65 0.64 0.66 0.72 0.72
Net gains or losses on securities
(both realized and unrealized) (0.30) (0.41) 0.25 0.04 (0.30)
--------------------------------------------------------------
Total from investment operations 0.35 0.23 0.91 0.76 0.42
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.65) (0.64) (0.66) (0.72) (0.72)
--------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.43 $ 9.73 $10.14 $ 9.89 $ 9.85
==============================================================
Total return 3.76% 2.21% 9.47% 7.95% 4.15%
Net assets, end of year (in thousands) $10,167 $10,778 $9,596 $8,288 $7,765
Ratio of expenses to average net assets 0.41% 0.49% 0.53% 0.50% 0.40%
Ratio of net investment income to average net assets 6.83% 6.32% 6.57% 7.20% 6.89%
Portfolio turnover 33.35% 24.04% 23.49% 40.86% 33.89%
(a) Audited by other auditors.
</TABLE>
<PAGE> 48
HOW TO REACH US
DUPREE MUTUAL FUNDS
P.O. Box 1149
Lexington, KY 40588-1149
PHONE
(859) 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 45201-6118
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.
A statement containing additional information about the Trust, Dated November 1,
2000 (the `Statement of Additional Information'), has been filed with the
Securities and Exchange Commission and can be obtained, without charge, by
writing or calling us at the address or phone number listed above. The Statement
of Additional Information is hereby incorporated by reference into this
Prospectus.
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
electronic request at the following e-mail address: [email protected], or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009
DUPREE MUTUAL FUNDS
A No-Load Fund
Prospectus, November 1, 2000
<PAGE> 49
DUPREE MUTUAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION AND HISTORY....................................................... 1
INVESTMENT OBJECTIVES AND POLICIES.................................................... 1
Portfolio Turnover................................................................ 3
Investment Restrictions........................................................... 5
NON-FUNDAMENTAL RESTRICTIONS.......................................................... 8
INVESTMENT ADVISER AND OTHER SERVICES................................................. 8
(See "Management of the Trust" in Prospectus)
OFFICERS AND TRUSTEES................................................................. 10
(See "Management of the Trust" in Prospectus)
PORTFOLIO TRANSACTIONS................................................................ 12
SHARES OF BENEFICIAL INTEREST......................................................... 13
(See "Organization of the Trust" in Prospectus)
HOW TO PURCHASE SHARES................................................................ 13
(See "Buying Shares" in Prospectus)
HOW TO REDEEM SHARES.................................................................. 14
(See "Selling Shares" in Prospectus)
HOW WE COMPUTE OUR YIELDS............................................................. 14
TAX INFORMATION....................................................................... 19
(See "Dividends" and "Taxes" in Prospectus)
FINANCIAL STATEMENTS.................................................................. 23
NOTES TO FINANCIAL STATEMENTS......................................................... 62
REPORT OF INDEPENDENT AUDITORS........................................................ 70
</TABLE>
This Statement of Additional Information is not a Prospectus and should be read
in conjunction with the Trust's Prospectus dated November 1, 2000. A Prospectus
may be obtained, without charge, by calling or writing the Trust listed on the
back cover.
<PAGE> 50
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 eleven 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 eleven
series is to realize the highest level of income available, as determined by a
shareholder's state of residence, without undue risk to principal. Ten of the
eleven series we offer invest in professionally managed bond portfolios
consisting of municipal securities issued in a single state. These series (with
only minor exceptions) invest in municipal securities from Alabama, Kentucky,
Mississippi, North Carolina or Tennessee in order to provide interest income
exempt from federal income tax (including alternative minimum 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 that follows. As used in the
Prospectus and this Statement of Additional Information, with respect to any
matter requiring shareholder approval, whether it be shareholder approval within
an affected series or the shareholders of the Trust, the phrase "majority of our
shares" means the vote at a meeting of (i) 67% or more of the shares present or
represented, if the holders of more than 50% of the outstanding shares of the
affected series are present in person or represented by proxy, or (ii) more than
50% of the outstanding shares of the affected series, whichever is less.
ALABAMA TAX-FREE INCOME SERIES
ALABAMA TAX-FREE SHORT-TO-MEDIUM SERIES
KENTUCKY TAX-FREE INCOME SERIES
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
MISSISSIPPI TAX-FREE INCOME SERIES
MISSISSIPPI 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 ten 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 (including alternative minimum 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 Alabama, Kentucky,
Mississippi, 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
that 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 Alabama
Tax-Free Income Series, the Alabama Tax-Free Short-to-Medium Series, Kentucky
Tax-Free Short-to-Medium Series, the Mississippi Tax-Free Income Series, the
Mississippi 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.
- 1 -
<PAGE> 51
At least 80% of the Alabama, Kentucky, Mississippi, North Carolina or Tennessee
municipal securities we purchase must have municipal bonds within the four
highest grades assigned by a recognized rating agency at the time of purchase;
or municipal notes rated at the time of purchase within the three highest grades
assigned by a recognized rating service or Alabama, Kentucky, Mississippi, 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.
No more than 20% of the value of our total assets in each of the Alabama Series,
the Kentucky Series, the Mississippi 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 the issuing rating service
as to the quality of the municipal securities they undertake to rate. As such,
the ratings represent broad guidelines rather than absolute standards of
quality. You should also bear in mind that rating agencies usually rate an issue
of municipal securities at the time it is first offered to the public, and that,
once issued, a rating is seldom updated unless and until the municipal issuer
makes a further offering of its securities. Our Investment Adviser will make its
own evaluation of each security it selects for our portfolios and will continue
to evaluate each portfolio security so long as we hold it.
RATINGS OF MUNICIPAL NOTES AND BONDS
Rating agencies denote quality ratings in descending alphabetic order with the
highest quality securities having a rating of three A's. Securities rated with
three A's are considered the best quality; two A's denote high quality with some
elements that would make long-term risks appear somewhat larger; and securities
issued denoted with A are regarded as a safe upper medium grade obligation.
Three B's or a combination of a B and two A's are considered medium grade
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over a great length of time.
Some rating agencies may denote ratings on notes in a numeric order with an one
being the best quality, two representing high quality with margins of protection
ample, although not so large as in the preceding group, and a three representing
favorable quality, with all security elements accounted for, but lacking the
undeniable strength of the preceding grades. Market access for refinancing, in
particular, is likely to be less well established.
MUNICIPAL SECURITIES
Municipal securities are obligations issued by the states, its political
subdivisions, and the districts, authorities, agencies and instrumentalities of
the state and its political subdivisions, the interest on which is exempt from
federal and state income taxes and in Tennessee the Hall tax.
Municipal bonds are issued for various public purposes, including the
construction of airports, highways, housing, hospitals, pollution abatement
facilities, schools, streets, water and sewer works, gas and electric utilities
and university buildings. Municipal issuers can issue bonds for the purposes of
refunding outstanding obligations, obtaining funds to finance other public
institutions and meeting general operating expenses. Industrial building revenue
bonds, which are considered municipal bonds if the interest paid thereon is
exempt from federal and state income taxes, are issued by or on behalf of public
authorities to finance construction of privately operated facilities, such as
manufacturing plants, housing, sports arenas and pollution control
installations. Our investments in industrial building revenue bonds are subject
to the restrictions set forth in Paragraph 10 of the "Investment Restrictions."
There are five general types of municipal bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, honor, credit and/or taxing
power for the payment of principal and interest. Revenue bonds are payable from
and secured by a particular revenue stream, such as lease rentals, utility usage
and connection charges, student registration or housing fees, bridge or highway
tolls, parking fees, sports event gate receipts, etc. Although municipal
authorities issue industrial building revenue bonds, revenues derived from a
lease rental contract with a non-governmental user secure them. 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).
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The assessments are similar to taxes and have a priority that is similar to a
tax lien. Refunded or defeased bonds are secured by an escrow fund, which
usually is invested in United States government securities and occasionally in
bank certificates of deposit or similar instruments. Housing bonds are usually
secured by mortgages that the issuer acquires and pledges for the payment of the
bonds. Local housing authorities sometimes issue bonds that are secured by
rentals from the operation of a housing project. Housing bonds may also have
additional security in the form of federal guarantees of the mortgages or
rentals constituting the primary security.
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 that are nominally issued in
the name of a public corporation that 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 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 that 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
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of the series will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to the series from the continuous sale of
its shares will likely be invested in portfolio instruments producing lower
yields than the balance of the series' portfolio, thereby reducing the current
yield of the series. In periods of rising interest rates, the opposite can be
true.
ALABAMA TAX-FREE INCOME SERIES
ALABAMA TAX-FREE SHORT-TO-MEDIUM SERIES
KENTUCKY TAX-FREE INCOME SERIES
KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
MISSISSIPPI TAX-FREE INCOME SERIES
MISSISSIPPI 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 Alabama, Kentucky, Mississippi, North Carolina or
Tennessee municipal securities for short-term profits. Securities will be
purchased and sold in response to our management's evaluation of the issuer's
ability to meet its debt obligations in the future. However, a security
purchased at any earlier date may be sold in anticipation of a market decline (a
rise in interest rates), and a security purchased in anticipation of a market
rise (a decline in interest rates) may be sold at any later date. In addition, a
security may be sold and another purchased when, in the opinion of our
management, a favorable yield spread exists between those particular issuers or
in different market sectors. Finally, in order to obtain an immediate yield on
the cash proceeds from the sale of our shares pending the selection and
availability of a more permanent investment, we may temporarily acquire Alabama,
Kentucky, Mississippi, 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, 2000 the portfolio turnover rate for the
Alabama Tax-Free Income Series was 0.00%. Commencement of operations was January
1, 2000; therefore the fund experienced stable turnover. We would expect fiscal
Year 2000-2001 to experience a higher portfolio turnover.
For the fiscal year ended June 30, 2000 the portfolio turnover rate for the
Kentucky Tax-Free Income Series was approximately 15.74%, as compared with a
rate of approximately 10.69% for the fiscal year ended June 30, 1999. Fiscal
1999-2000 was a year of relatively stable turnover. Since we expect declining
interest rates for the upcoming fiscal year 2000-2001 should reflect a similar
portfolio turnover.
For the fiscal year ended June 30, 2000, the portfolio turnover rate for the
Kentucky Tax-Free Short-to-Medium Series was approximately 30.57%, as compared
with a rate of approximately 27.38% for the fiscal year ended June 30, 1999.
Since we expect declining interest rates for the upcoming year fiscal 2000-2001
should reflect a similar portfolio turnover.
For the fiscal year ended June 30, 2000 the portfolio turnover rate for the
Mississippi Tax-Free Income Series was 0.00%. Commencement of operations was
January 1, 2000; therefore the fund experienced stable turnover. We would expect
fiscal Year 2000-2001 to experience a higher portfolio turnover.
For the fiscal year ended June 30, 2000, the portfolio turnover rate for the
North Carolina Tax-Free Income Series was approximately 16.14% as compared with
a rate of approximately 11.70% for the fiscal year ended June 30, 1999. Fiscal
1999-2000 was a year of growth. Since we expect declining interest rates for the
upcoming year fiscal 2000-2001 should reflect a similar portfolio turnover.
For the fiscal year ended June 30, 2000, the portfolio turnover rate for the
North Carolina Tax-Free Short-to-Medium
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Series was approximately 25.85% as compared with a rate of approximately 25.54%
for fiscal year ended June 30, 1999. Since we expect declining interest rates
for the upcoming year fiscal 2000-2001 should reflect a similar portfolio
turnover.
For the fiscal year ended June 30, 2000, the portfolio turnover rate for the
Tennessee Tax-Free Income Series was approximately 8.80% as compared with a rate
of approximately 14.76% for the fiscal year ended June 30, 1999. Fiscal
1999-2000 was a year of growth. Since we expect declining interest rates for the
upcoming year fiscal 2000-2001 should reflect a similar portfolio turnover.
For the fiscal year ended June 30, 2000, the portfolio turnover rate for the
Tennessee Tax-Free Short-to-Medium Series was approximately 28.67% as compared
with a rate of approximately 81.81% for fiscal year ended June 30, 1999. Since
we expect declining interest rates for the upcoming year fiscal 2000-2001 should
reflect a similar portfolio turnover.
INTERMEDIATE GOVERNMENT BOND SERIES
For the fiscal year ended June 30, 2000 the portfolio turnover rate was
approximately 33.35% as compared with a rate of approximately 24.04% for the
fiscal year ended June 30, 1999. Since we expect declining interest rates for
the upcoming year fiscal 2000-2001 should reflect a similar portfolio turnover.
INVESTMENT RESTRICTIONS
We have adopted certain investment restrictions that may not be changed without
the approval of the holders of a majority of the shares representing the
affected series. Under these restrictions, we may not take any of the following
actions with respect to each series:
KENTUCKY AND TENNESSEE TAX-FREE INCOME SERIES
1. With respect to 75% of the value of our total assets as of the close of
each fiscal quarter, purchase the securities of any single issuer
(except the United States government, its agencies and
instrumentalities), if, as a result, more than 5% of the value of our
total assets would be invested in securities of such issuer (including
repurchase agreements with any one bank). For this purpose, the states
of Kentucky and Tennessee, each political subdivision of each state,
and each district, authority, agency or instrumentality of each state
or any of either states' political subdivisions will be deemed to be a
separate issuer.
2. Borrow money, except from banks as a temporary measure for purposes of
meeting redemption requests and/or bond purchase commitments and then
only in an amount not exceeding 5% of the value of our total assets.
3. Pledge or hypothecate any of our assets, except as security for a
permissible temporary bank borrowing (see Restriction 2), and then only
in an amount not exceeding 15% of the value of our total assets.
4. Make loans, except through the purchase of portions of issues or
publicly distributed debt securities and entry into repurchase
agreements. We will not enter into a repurchase agreement maturing in
more than seven business days, if, as a result more than 10% of the
value of our net assets would be so invested.
5. Purchase securities subject to legal or contractual restrictions on
resale (except those imposed by repurchase agreements).
6. Underwrite the securities of other issuers, except to the extent that
our purchase of Kentucky and Tennessee municipal securities directly
from the issuer (either alone or as one of a group of bidders) may be
deemed to be an underwriting of such securities.
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.
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<PAGE> 55
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.
ALABAMA, KENTUCKY, MISSISSIPPI, 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 Alabama, Kentucky, Mississippi, 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 Alabama, Kentucky, Mississippi, 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 Alabama, Kentucky,
Mississippi, North Carolina and Tennessee municipal securities or other
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<PAGE> 56
securities secured by real estate or interest in real estate.
8. Purchase or sell commodities or commodity contracts.
9. Purchase equity securities or securities convertible into equity
securities.
10. Purchase any security, if, as a result as of the close of each fiscal
quarter more than 25% of the value of our total assets would be
invested in the securities of issuers having their principal business
activities in the same industry. This limitation would preclude us from
investing more than 25% of the value of our total assets in industrial
building revenue bonds issued to finance facilities for
non-governmental issuers in any one industry. However, the limitation
does not apply to any other municipal securities, to securities issued
or guaranteed by the United States government or any of its agencies or
instrumentalities.
11. Invest in companies for the purpose of exercising management or
control.
12. Invest in securities of other investment companies, except where such
investment results from a merger or consolidation with, or an
acquisition of assets of, another investment company.
13. Make short sales of securities.
14. Purchase securities on margin, except that we may obtain such short
term credit as may be necessary for the clearance of securities
purchases.
15. Write or invest in put or call options, or any combination thereof.
16. Issue senior securities.
INTERMEDIATE GOVERNMENT BOND SERIES
1. With respect to 50% of the value of our total assets as of the close of
each fiscal quarter, purchase the securities of any single issuer
(except the United States government, its agencies and
instrumentalities), if, as a result, more than 5% of the value of our
total assets would be invested in securities of such issuer (including
repurchase agreements with any one bank or brokerage firm).
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.
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<PAGE> 57
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
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 Trustees. William T. Griggs II is President of Dupree & Company, Inc.
and Vice President with us. Michelle M. Dragoo is Vice President, Secretary and
Treasurer of Dupree & Company, Inc. and also holds the same offices with us.
Alison L. Arnold is Assistant Vice President with us.
INVESTMENT ADVISORY AGREEMENTS
Dupree & Company, Inc. serves as the Investment Adviser for each of our eleven
series pursuant to separate Investment Advisory Agreements with each series. The
agreements for the Kentucky, North Carolina and Tennessee Series' are each dated
November 1, 1997. The agreements for the Alabama and Mississippi Series' are
dated November 1, 1999. Each agreement will continue in effect until October 31,
2001 and may be continued from year to year 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
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<PAGE> 58
Adviser. In 1997 the two Dupree firms reorganized and the parent firm, Dupree &
Company, Inc. once again became the Investment Adviser without any change in
personnel or services.
Pursuant to the Agreements, Dupree & Company, Inc. provides us with investment
supervisory services, office space and facilities, and corporate administration.
Specifically, the Dupree firm has undertaken to obtain and evaluate relevant
information regarding the economy, industries, businesses, municipal issuers,
securities markets and securities; to formulate a continuing program for the
management of our assets in a manner consistent with our investment objectives;
and to implement this program by selecting the securities to be purchased or
sold by us and placing orders for such purchases and sales. In addition, the
Dupree firm provides for our office needs, maintains our books and records,
assumes and pays all sales and promotional expenses incurred in the distribution
of our shares out of its own resources without reimbursement from the Trust,
staffs us with persons competent to perform all of our executive and
administrative functions, supervises and coordinates the activities of our
institutional and other agents (e.g., custodian, transfer agent, independent
accountants, outside legal counsel), and permits its officers and employees to
serve us as trustees and officers, all without additional cost to us. Dupree &
Company, Inc. may contract with commercial banks or other entities to assist in
the provision of shareholder services.
Under the Agreements for each of the series, neither Dupree & Company, Inc. nor
any of its directors, officers or employees performing executive or
administrative functions for us will be liable to us for any error of judgment,
mistake of law or other act or omission in connection with a matter to which the
Agreements relate, unless such error, mistake, act or omission involves willful
misfeasance, bad faith, gross negligence or reckless disregard of duty, or
otherwise constitutes a breach of fiduciary duty involving personal misconduct.
Under the terms of the Agreements for the Alabama, Kentucky, Mississippi, North
Carolina and Tennessee Series, we have agreed to pay to Dupree & Company, Inc.,
as compensation for all services rendered, facilities furnished and expenses
paid or assumed by it under the Agreements, a fee at the annual rate of .50 of
1% of the first $100,000,000 average daily net assets of each series determined
separately, .45 of 1% of the average daily net assets between $100,000,001 and
$150,000,000 of each series determined separately, and .40 of 1% of the average
daily net assets in excess of $150,000,001 of each series determined separately.
For the Government Bond Series, we have agreed to pay to Dupree & Company, Inc.,
as compensation for all services rendered, facilities furnished and expenses
paid or assumed by it under the Agreement, a fee at the annual rate of .2 of 1%.
The fees are payable to Dupree & Company, Inc. in monthly installments. Dupree &
Company, Inc. has reserved the right to voluntarily subsidize any series of the
Trust at its sole option. 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 that at the time was Dupree Investment
Advisers, Inc.:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
6-30-00 6-30-99 6-30-98
<S> <C> <C> <C>
Alabama Tax-Free Income Series
Fees $ 442 -0- -0-
Reimbursements 2,465 -0- -0-
Kentucky Tax-Free Income Series
Fees 1,811,557 $1,772,796 $1,529,994
Reimbursements -0- -0- -0-
Kentucky Tax-Free Short-to-Medium Series
Fees 278,951 297,805 268,875
Reimbursements -0- -0- -0-
Mississippi Tax-Free Income Series
Fees 431 -0- -0-
Reimbursements 2,461 -0- -0-
North Carolina Tax-Free Income Series
Fees 100,495 69,119 32,367
Reimbursements 33,574 42,430 27,686
North Carolina Tax-Free Short-to-Medium Series
Fees 21,772 13,989 8,143
reimbursements 13,930 9,519 7,346
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
6-30-00 6-30-99 6-30-98
<S> <C> <C> <C>
Tennessee Tax-Free Income Series
Fees 210,691 206,464 96,775
reimbursements 53,121 86,844 56,512
Tennessee Tax-Free Short-to-Medium Series
Fees 34,421 33,510 18,236
reimbursements 12,785 11,427 10,752
Intermediate Government Bond Series
Fees 21,535 21,315 17,633
Reimbursements -0- -0- -0-
</TABLE>
The Alabama Tax-Free Short-to-Medium Series and the Mississippi Tax-Free
Short-to-Medium Series had not commenced operations as of June 30, 2000.
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 .15% on
the first $20,000,000 and .12% on all amounts in excess of $20,000,000.
OFFICERS AND TRUSTEES
The following table sets forth information as to our officers and trustees:
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Office(s) With Us During the Past Five Years
---------------- ----------------- --------------------------
<S> <C> <C>
THOMAS P. DUPREE, SR.* President and Trustee Chairman of the Board of Dupree & Company,
125 South Mill Street Inc., President of Dupree Investment Advisers,
Lexington, KY 40507 Inc. Director, Studio Plus Hotels, Inc.
Age: 70
WILLIAM T. GRIGGS, II* Vice President President of Dupree & Company, Inc. and Dupree
125 South Mill Street Assistant Secretary and Trustee Investment Advisers, Inc.
Lexington, KY 40507
Age: 49
LUCY A. BREATHITT Trustee Alexander Farms, farming; Kentucky Horse Park
</TABLE>
- 10 -
<PAGE> 60
<TABLE>
<CAPTION>
<S> <C> <C>
1703 Fairway Drive Foundation Board; Kentucky Horse Park Museum
Lexington, KY 40502 Board, Kentucky State Nature Preserves
Age: 63 Commission
</TABLE>
<TABLE>
<CAPTION>
Principal Occupation
--------------------
Name and Address Office(s) With Us During the Past Five Years
---------------- ----------------- --------------------------
<S> <C> <C>
WILLIAM A. COMBS, JR. Trustee Secretary, Treasurer, Director, Dana Motor
111 Woodland Ave., #510 Cincinnati, Ohio; Secretary-Treasurer,
Lexington, KY 40502 Director Freedom Dodge, Lexington, KY;
Age: 60 Secretary, Treasurer, Director Ellerslie
Realty Inc., Lexington, KY; Partner, Forkland
Development Co., Lexington, KY; Partner,
Lexland, Lexington, KY.; Director, First
Security Bank, Lexington, KY
J. WILLIAM HOWERTON Trustee Judge (retired November 1996) KY Court of
3954 Primrose Place Appeals; Lifetime Trustee Paducah Junior
Paducah, KY 42001 College; Vice Chairman Paducah McCraken Co.
Age: 68 Joint Sewer Agency; Self-Employed Mediator,
Arbitrator and Special Judge.
WILLIAM S. PATTERSON Trustee President, CEO, Cumberland Surety Co.,
367 West Short Street Lexington, KY, President, Patterson & Co.,
Lexington, KY 40507 Frankfort, KY, (real estate development,
Age: 68 thoroughbred horse breeding, farming)
MICHELLE M. DRAGOO Vice President, Secretary and Vice President of Dupree & Company, Inc. and
125 South Mill Street Treasurer Dupree Investment Advisers, Inc.
Vine Center, Suite 100
Lexington, KY 40507
Age: 39
ALISON L. ARNOLD Assistant Vice President Assistant Vice President of Dupree & Company,
125 South Mill Street Inc. and Dupree Investment Advisers, Inc.
Vine Center, Suite 100
Lexington, KY 40507
Age: 40
</TABLE>
- Thomas P. Dupree, Sr. 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 8, 2000 shares of the Trust were owned by our officers and
trustees as shown below.
<TABLE>
<CAPTION>
Thomas P. William T. Non-Interested Trustees
Dupree, Sr. Griggs II and other officers as a group
<S> <C> <C> <C>
KENTUCKY INCOME SERIES
Number of Shares Outstanding 282,807.348 481.054 2,886,441.817
Percentage of Shares Outstanding .480% .000 4.9%
KENTUCKY SHORT-TO-MEDIUM SERIES
Number of Shares Outstanding 110,754.008 271.920 341,284.719
Percentage of Shares Outstanding 1.170% .003% 3.6%
INTERMEDIATE GOVERNMENT BOND SERIES
Number of Shares Outstanding 11.135 22.270
Percentage of Shares Outstanding .000% .000%
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
Thomas P. William T. Non-Interested Trustees
Dupree, Sr. Griggs II and other officers as a group
<S> <C> <C> <C>
ALABAMA INCOME SERIES
Number of Shares Outstanding 4428.943
Percentage of Shares Outstanding 11.34%
</TABLE>
Neither Thomas P. Dupree, Sr. nor William T. Griggs II receives any remuneration
from us.
Each non-interested Trustee, except J. William Howerton who was not then a
trustee, received compensation in the amount of $14,000 for their services to
us for the fiscal year ended June 30, 2000. 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, 2001.
PORTFOLIO TRANSACTIONS
Ordinarily, portfolio securities for each series are purchased from underwriters
at prices that include underwriting fees or from primary market makers acting as
principals and selling to us at net prices. In either case, we would not pay any
brokerage commission. Transactions placed with dealers serving as primary market
makers are executed at prices within the spread between the bid and asked prices
for the securities.
Decisions with respect to the purchase and sale of our portfolio securities,
including the allocation of principal business and portfolio brokerage, are made
by our Investment Adviser, Dupree & Company, Inc. Our Investment Adviser has
discretionary authority to implement these decisions by placing orders for the
purchase or sale of securities for our account with underwriters, dealers or
brokers selected by it for that purpose. However, Dupree & Company, Inc. will
not deal with us as principal, or as our agent, in purchasing and selling
securities for our accounts. Purchases and sales of securities for the Trust's
portfolios, as well as allocation of brokerage, are reviewed quarterly by the
Trust's Board of Trustees. Dupree & Company, Inc. on behalf of the Trust has
from time to time executed trades through Paine Webber, Inc., in which Thomas P.
Dupree, Jr. acted as the broker. Each of these trades is either an exclusive
offering or the high bid on bonds for sale. Each is reviewed by the board on an
individual basis.
Dupree & Company, Inc. has advised us that, in placing orders for the purchase
and sale of our portfolios transactions, it will seek execution at the most
favorable prices through responsible brokers, in agency transactions, at
competitive commission rates. Our investment adviser has also advised us that,
in selecting brokers to execute our portfolio transactions, it will give
consideration to such factors as the price of the security, the rate of
commission, if any, the size and difficulty of the order, the reliability,
integrity, financial conditions and general execution and operating capabilities
of competing brokers, and the brokerage and research services which they provide
to our investment adviser.
Dupree & Company, Inc. has further advised us that it does not presently intend
to award brokerage on our portfolios to brokers who charge higher commissions
because of research services they provide. However, under our Investment
Advisory Agreements with it, we have authorized the investment adviser to adopt
a brokerage allocation policy embodying the concepts of Section 28(e) of the
Securities Exchange Act of 1934. Under such a policy, a broker furnishing
research services could be paid a higher commission than the commission that
would be paid to another broker which either does not furnish research services
or furnishes research services deemed to be of lesser value, if such higher
commission is deemed to be reasonable in relation to the value of the brokerage
and research services provided by the broker charging it, either in terms of
that particular transaction or in terms of the overall responsibilities of the
investment advisor with respect to the accounts as to which it exercises
investment discretion. Research services furnished by a broker can include
evaluation of the market prices of securities in the Trust's portfolios,
evaluation of potential additions to the Trust's portfolios and credit analysis
of particular issuers of securities.
Whether and to what extent net prices or commissions charged by brokers selected
by Dupree & Company, Inc. reflect an element of value for research services
cannot presently be determined. To the extent that research services of value
are provided by brokers with or through which the investment adviser places our
portfolio transactions, the investment adviser may be relieved of expenses it
might otherwise bear. Research services furnished by brokers could be useful and
of value to the investment adviser in serving its other clients as well as us;
but, on the other hand, research services obtained by the investment adviser as
a result of placing portfolio brokerage of its other clients could be useful and
of value to it in
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<PAGE> 62
serving us.
It is not the practice of Dupree & Company, Inc. to allocate principal business
or portfolio brokerage on the basis of share sales. However, brokers effecting
purchases of our shares for their customers may participate in principal
transactions of brokerage allocated as described in the preceding paragraphs.
The Dupree firm has advised us that, when it purchases 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 eleven series as described in the Prospectus: Alabama Tax-Free Income Series,
Alabama Tax-Free Short-to-Medium Series, Kentucky Tax-Free Income Series,
Kentucky Tax-Free Short-to-Medium Series, Mississippi Tax-Free Income Series,
Mississippi 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 8, 2000, Charles E. Wright, Jr. owned 37.22% of the outstanding
shares of Alabama Tax-Free Income Series, Dupree & Company, Inc. owned 11.34%,
Harold R. Miller owned 11.22%, Jacqueline W. Whitesides owned 9.97%, James P.
Walker owned 6.20% and Robert O. Rausch owned 5.10%. As of that date, no person
was known to beneficially own 5% or more of our outstanding shares of the
Kentucky Tax-Free Income Series, the North Carolina Income Series or the North
Carolina Tax-Free Short-to-Medium Series. As of that date Cebantco owned 6.07%
of the outstanding shares of the Kentucky Tax-Free Short-to-Medium Series. As of
that date Roy B. Fulton owned 19.04% of the outstanding shares of the
Mississippi Tax-Free Income Series, Hilliard Lyons Inc owned 18.57%, Bobby J.
Raines owned 15.61%, Leahmon P. McElveen, Jr. owned 9.98%, Thomas E. Drake owned
9.73%, Clifton B. and Dorothy M. Marlin owned 6.36% and John D. Burk owned
5.51%. As of that date Memphis Commerce Square owned 14.61% of the outstanding
shares of the Tennessee Tax-Free Income Series. As of that date Memphis Commerce
Square owned 10.20% of the outstanding shares of the Tennessee Tax-Free
Short-to-Medium Series, National Financial Services Corporation owned 5.96%, and
Gail S. Mays owned 5.50%. Shield Ayres Foundation owned 7.99% of the outstanding
shares of the Intermediate Government Bond Series.
HOW TO PURCHASE SHARES
Shares of our Trust that are offered for sale are offered directly by the Trust.
Since we do not charge any sales commissions, every dollar you invest in us is
applied to the purchase of our shares.
The price of your shares will be their net asset value per share, as calculated
in the first determination of net asset value after your order has become
effective. Your order will be priced and executed at the net asset value next
determined after the order is received. There is no sales charge or load.
If you purchase shares through an investment representative, that party is
responsible for transmitting orders in accord with contractual arrangements
between the Trust and your representative. There may be different cut-off times
for purchase and sale requests. Consult your investment representative for
specific information.
If you invest through a third party (rather than directly with the Trust), the
third party may charge you fees different from
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<PAGE> 63
than those described here. Banks, brokers, 401(k) plans, financial advisers and
financial supermarkets may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. Consult a representative
of your plan or financial institution if in doubt. All such transactions through
third parties depend upon your contractual relations with the third party and
whether the Trust has an arrangement with the third party.
The Prospectus describes the procedures to be utilized by an investor desiring
to purchase our shares.
DETERMINATION OF NET ASSET VALUE
We compute the net asset value of the shares of each series separately at the
close of trading on the New York Stock Exchange each day the Exchange is open
for trading, by dividing the value of the assets of each series, minus its
liabilities, by the total number of shares of each series that 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 Alabama, Kentucky, Mississippi, 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, of each year 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
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<PAGE> 64
Income Series and the Short-to-Medium Series and the Intermediate Government
Bond Series for the periods indicated.
<TABLE>
<CAPTION>
Expressed as a Percentage
Based on a Hypothetical
$1,000 investment
Alabama Kentucky Kentucky Mississippi North North
Tax-Free Tax-Free Tax-Free Tax-Free Carolina Carolina
Income Income Short-to- Income Tax-Free Tax-Free
Series Series Medium Series Income Short-to-
Series Series Medium
Series
Period Average Annual Total Return
<S> <C> <C> <C> <C> <C> <C>
One year ended 5.79%(1) 1.78% 1.95% 6.24%(1) 1.07% 2.47%
June 30, 2000
Five years ended 5.08% 3.74% 5.54%(2) 3.86%(2)
June 30, 2000
Ten years ended 6.44% 4.61%
June 30, 2000
</TABLE>
<TABLE>
<CAPTION>
Expressed as a Percentage Based
on a Hypothetical $1000
investment
Tennessee Tennessee Intermediate
Tax-Free Tax-Free Government
Income Short-to- Bond
Series Medium Series
Series
Period Average Annual Total Return
<S> <C> <C> <C>
One year ended 0.84% 2.53% 3.76%
June 30, 2000
Five years ended 5.76 3.98% 5.48%
June 30, 2000
Ten years ended 5.72%(3) 4.40%(4) 6.09%(5)
June 30, 2000
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
Redeemable Value
Based on a Hypothetical $1000
Investment at the end of the period
Alabama Kentucky Kentucky Mississippi North North
Tax-Free Tax-Free Tax-Free Tax-Free Carolina Carolina
Income Income Short-to- Income Tax-Free Tax-Free
Series Series Medium Series Income Short-to-
Series Series Medium
Series
Period
<S> <C> <C> <C> <C> <C> <C>
One year ended $1,058(1) $1,018 $1,019 $1,063(1) $1,010 $1,025
June 30, 2000
Five years ended $1,283 $1,202 $1,283(2) $1,191(2)
June 30, 2000
Ten years ended $1,881 $1,835
June 30, 2000
</TABLE>
<TABLE>
<CAPTION>
Redeemable Value
Based on a Hypothetical $1000
Investment at the end of the period
Tennessee Tennessee Intermediate
Tax-Free Tax-Free Government
Income Short-to- Bond
Series Medium Series
Series
Period
<S> <C> <C> <C>
One year ended $1,008 $1,025 $1,037
June 30, 2000
Five years ended $1,324 $1,276(3) $1,024
June 30, 2000
Ten years ended $1,446(4) $1,604(5)
June 30, 2000
</TABLE>
(1) since inception 1/1/2000
(2) since inception 11/16/95
(3) since inception 12/20/93
(4) since inception 11/1/94
(5) since inception 7/14/92
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<PAGE> 66
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 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, 2000 for the Alabama Tax-Free Income Series was
5.03%. The tax-equivalent yield for Alabama residents for the same period (based
on a tax rate of 28%) for the Alabama Income Series was 7.51%.The yield for the
30-day period ending June 30, 2000 for the Kentucky Tax-Free Income Series was
4.42% and for the Kentucky Short-to-Medium Series was 3.31%. The tax-equivalent
yield for Kentucky residents for the same period (based on a tax rate of 28%)
for the Kentucky Income Series was 6.78% and for the Kentucky Short-to-Medium
Series was 5.14%. The yield for the 30-day period ending June 30, 2000 for the
Mississippi Tax-Free Income Series was 4.98%. The tax-equivalent yield for
Mississippi residents for the same period (based on a tax rate of 28%) for the
Mississippi Income Series was 7.44%.The yield for the 30-day period ending June
30, 2000 for the North Carolina Income Series was 4.89% and for the North
Carolina Short-to-Medium Series was 3.47%. The tax-equivalent yield for North
Carolina residents for the same period (based on a tax rate of 28%) was 7.30%
and for the North Carolina Short-to-Medium Series was 5.18%. The yield for the
30-day period ending June 30, 2000 for the Tennessee Tax-Free Income Series was
4.87% and for the Tennessee Tax-Free Short-to-Medium Series was 3.72%. The
tax-equivalent yield for Tennessee residents for the same period (based on a tax
rate of 28%) for the Tennessee Income Series was 7.20% and for the Tennessee
Tax-Free Short-to-Medium Series was 5.50%. The yield for the 30-day period
ending June 30, 2000 for the Intermediate Government Bond Series was 6.86%.
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, 2000 for the Alabama Tax-Free Income Series was
5.15%. The tax-equivalent yield for Alabama residents for the same period (based
on a tax rate of 28%) for the Alabama Income Series was 7.69%The yield for the
30-day period ending June 30, 2000 for the Kentucky Tax-Free Income Series was
5.23% and for the Kentucky Short-to-Medium Series was 4.54%. The tax-equivalent
yield for Kentucky residents for the same period (based on a tax rate of 28%)
for the Kentucky Income Series was 7.98% and for the Kentucky Short-to-Medium
Series was 6.96%. The yield for the 30-day period ending June 30, 2000 for the
Mississippi Tax-Free Income Series was 5.18%. The tax-equivalent yield for
Mississippi residents for the same period (based on a tax rate of 28%) for the
Mississippi Income Series was 7.74%. The yield for the 30-day period ending June
30, 2000 for the North Carolina Income Series was 4.95% and for the North
Carolina Short-to-Medium Series was 3.84%. The tax-equivalent yield for North
Carolina residents for the same period (based on a tax rate of 28%) was 7.39%
and for the North Carolina Short-to-Medium Series was 5.73%. The yield for the
30-day period ending June 30, 2000 for the Tennessee Tax-Free Income Series was
5.13% and for the Tennessee Tax-Free Short-to-Medium Series was 4.21%. The
tax-equivalent yield for Tennessee residents for the same period (based on a tax
rate of 28%) for the Tennessee Income Series was 7.58% and for the Tennessee
Tax-Free Short-to-Medium Series was 6.22%. The yield for the 30-day period
ending June 30, 2000 for the Intermediate Government Bond Series was 7.00%.
For the Alabama, Kentucky, Mississippi, North Carolina and Tennessee Income
Series, Alabama, Kentucky, Mississippi,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.
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<PAGE> 67
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 that 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, for the North Carolina
Short-to-Medium Series since their inception November 16, 1995, for the Alabama
Tax-Free Income Series and the Mississippi Tax-Free Inome Series since their
inception January 1,2000. The Investment Adviser may waive management fees and
assume or pay other operating expenses. The Investment Adviser may terminate fee
waivers or reimbursements at any time.
In order to keep shareholders and prospective investors informed about our
historic and current yields, the make-up of our portfolios, and other meaningful
investment information, we (i) send reports to our shareholders on a semi-annual
and annual basis, (ii) provide such information in our sales literature, and
(iii) maintain a toll-free telephone through which such information may be
obtained.
Total return, yield and tax equivalent yield figures are based on the series'
historical performance and are not intended to indicate future performance. The
series' total return, yield and tax equivalent yield will vary depending on
market conditions; this is reflective of the securities comprising the series'
portfolio, the series' operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Trust may fluctuate and an investors' shares, when redeemed,
may be worth more or less than their original cost.
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<PAGE> 68
TAX INFORMATION
FEDERAL TAX INFORMATION
We have qualified as a "regulated investment company" under the Internal Revenue
Code and intend to continue to do so. By qualifying as a regulated investment
company we are relieved of federal and state income taxes on all net income and
all net realized capital gains, if any, that we distribute to shareholders. In
order to qualify for this treatment, we must (i) derive at least 90% of our
gross income from dividends, interest and gains from the sale or other
disposition of securities, (ii) derive less than 30% of our gross income from
the sale or other disposition of securities held less than three months, (iii)
meet certain diversification tests as to our investments in securities, and (iv)
distribute to shareholders at least 90% of our net tax exempt and net taxable
income earned in any year.
Distribution of net short-term capital gains we may realize from the sale of
municipal or other securities will be taxable to the shareholders as ordinary
income. Distribution of net long-term capital gains, if any, will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholder
has held the shares in respect of which the distributions are paid. The tax
effect of dividends (whether taxable or exempt) on our shareholders is the same
whether such dividends are in the form of cash or additional shares.
The net asset value at which our shares are purchased may include undistributed
income or capital gains or unrealized appreciation in the value of securities
held in our investment portfolio. To the extent that such income or gains, or
any capital gains realized from such appreciation, are subsequently distributed
to the holder of such shares, the distributed amounts, although a return of his
investment, may be taxable to him as set forth above.
The Internal Revenue Code prohibits investors from deducting for federal income
tax purposes interest paid on loans made or continued for the purpose of
purchasing or carrying shares of a mutual fund, such as the Alabama,Kentucky,
Mississippi, 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 that discourages a regulated
investment company from deferring its shareholders' taxes by delaying
distributions of dividend income to shareholders. Under the provision, a 4%
non-deductible federal excise tax is levied on undistributed fund income unless
the fund distributes at least a) 98% of calendar year ordinary income during the
calendar year; b) 98% of capital gain net income earned in the year ending
October 31 by December 31; and c) 100% of any undistributed capital gain net
income from the prior October 31 measurement period and 100% of any
undistributed ordinary income from the prior December 31 measurement period.
CAPITAL GAINS
Long-term capital gain distributions to a corporation will be taxed at the
regular corporate tax rate. Net long-term capital gain distributions to
individuals will be taxed at the applicable individual tax rate.
EXEMPT INTEREST DIVIDENDS
Under the present tax law, if the stock of a regulated investment company
acquired after March 28, 1985 is held for six months or less, any loss on the
sale or exchange of that stock would be disallowed to the extent the taxpayer
received exempt interest dividends with respect to that stock. Further, the six
month requirement would be shortened under
- 19 -
<PAGE> 69
Treasury Department regulations to a period not less than the greater of 31 days
or the period between regular dividend distributions, if the regulated
investment company regularly distributes at least 90% of its net tax-exempt
interest.
TAX EXEMPT BONDS
Under laws in effect as of the date of this Prospectus, interest on obligations
of states, territories, possessions of the U.S., the District of Columbia and
political subsidiaries of these governmental entities is generally exempt from
state taxation in the state of issuance. Interest on non-governmental purpose
bonds, such as industrial development bonds, issued by qualified government
units may be taxable unless the bonds are issued to finance certain specified
exempt activities, are used for development of industrial park sites, or are
exempt small issues. Furthermore, bonds issued for activities for
non-governmental persons are referred to collectively as "non-essential" bonds.
Interest on non-essential bonds may be taxable unless a specific exception is
provided. For example, interest on exempt facility bonds, small issue bonds,
mortgage subsidy bonds and qualified student loan bonds, is non-taxable.
Stricter volume limitations will apply to certain issuers and aggregate volume
limitations would apply to all non-essential bonds issued in each state.
Tax-exempt interest on non-essential function bonds will be treated as an
alternative minimum tax preference item for corporate and individual taxpayers.
The Trust does not intend to purchase "non-essential purpose" bonds for the
Income Series or the Short-to-Medium Series.
INCOME SERIES AND SHORT-TO-MEDIUM SERIES
As a regulated investment company, we are qualified to pay "exempt interest
dividends", provided that at least 50% of our total assets are invested in
municipal securities at the close of each quarter of our taxable year.
Ordinarily, the dividends we pay from net income earned on our investments in
Alabama, Kentucky, Mississippi, 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.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
ALABAMA TAX INFORMATION
Insofar as the dividends we pay from the Alabama Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Alabama income tax purposes.
All other dividends and distributions, as well as any earnings we receive from
taxable investments and any capital gains we realize from any investments, will
have the same general consequences to shareholders for Alabama income tax
purposes as they have for federal income tax purposes. This means that dividends
paid by the Income Series and the Short-to-Medium Series will ordinarily be
excludable from gross income for Alabama income tax purposes.
No representation is made as to the tax implications of a Alabama corporation or
other entity.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
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
- 20 -
<PAGE> 70
Trust may be exempt from Kentucky income taxes. All other dividends and
distributions, as well as any earnings we receive from taxable investments and
any capital gains we realize from any investments, will have the same general
consequences to shareholders for Kentucky income tax purposes as they have for
federal income tax purposes. This means that dividends paid by the Income Series
and the Short-to-Medium Series will ordinarily be excludable from gross income
for Kentucky income tax purposes.
Shareholders of the Income Series, and the Short-to-Medium Series are not
subject to Kentucky ad valorem taxes on their shares. For individual Kentucky
residents who own shares of the Intermediate Government Bond Series, a portion
of the shares of that series are subject to Kentucky ad valorem tax. The
Kentucky municipal securities in our portfolios are also exempt from Kentucky ad
valorem taxes and from the Kentucky Corporation License Tax.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
MISSISSIPPI TAX INFORMATION
Insofar as the dividends we pay from the Mississippi Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Mississippi income tax
purposes. All other dividends and distributions, as well as any earnings we
receive from taxable investments and any capital gains we realize from any
investments, will have the same general consequences to shareholders for
Mississippi income tax purposes as they have for federal income tax purposes.
This means that dividends paid by the Income Series and the Short-to-Medium
Series will ordinarily be excludable from gross income for Mississippi income
tax purposes.
No representation is made as to the tax implications of a Mississippi
corporation or other entity.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
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.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
TENNESSEE TAX INFORMATION
Insofar as the dividends we pay from the Tennessee Series qualify as "exempt
interest dividends" for federal income tax purposes, they will also be
excludable from the shareholder's gross income for Tennessee Hall income tax
purposes. All other dividends and distributions, as well as any earnings we
receive from taxable investments and any capital gains we realize from any
investments, will have the same general consequences to shareholders for
Tennessee Hall income tax purposes as they have for federal income tax purposes.
This means that dividends paid by the Tennessee Series will ordinarily be
excludable from gross income for Tennessee Hall individual income tax purposes.
Individual shareholders of the Tennessee Series are not subject to Tennessee ad
valorem taxes on their shares or on the dividends and distributions they receive
from us.
- 21 -
<PAGE> 71
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.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
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.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
INDIANA TAX INFORMATION
Insofar as the dividends it pays qualify as "exempt interest dividends" for
federal income tax purposes, they will also be excludable from the shareholder's
gross income for Indiana income tax purposes. 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.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
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.
Please consult your tax advisor for more details on how these funds may affect
your state tax liability.
- 22 -
<PAGE> 72
DUPREE MUTUAL FUNDS - ALABAMA TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
ALABAMA MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
----------------------------------------------------------------------------------------------------------------------------------
INSURED MUNICIPAL REVENUE BONDS
86.07% OF NET ASSETS
<S> <C> <C> <C> <C> <C>
AL Private Colleges & University Facilities Authority Revenue 5.900 09/01/2016 Aaa/AAA* $ 10,000 $ 10,233
Alabama Water Pollution Control Authority 5.500 08/15/2016 Aaa/AAA* 10,000 9,936
Colbert County Northwest AL Health Care Facility 5.750 06/01/2015 Aaa/AAA* 10,000 10,171
DCH Health Care Authority AL Health Care Facility 5.500 06/01/2013 Aaa/AAA* 10,000 10,080
Houston County AL Warrants 5.650 10/15/2015 Aaa/AAA* 25,000 25,289
Houston County AL Health Care - SE Alabama Medical Center 5.750 10/01/2022 Aaa/AAA* 10,000 9,974
Jefferson County AL Board of Education Capital Outlay 5.800 02/15/2020 AAA/AAA* 10,000 10,026
Lee County AL Warrants 5.500 02/01/2021 Aaa/AAA* 15,000 14,532
Northwest AL Gas District Gas System Revenue 5.900 05/01/2020 Aaa 35,000 35,597
St Clair County Board of Education School Tax Anticipation 5.500 02/01/2016 Aaa/AAA* 10,000 9,937
Southeast AL Gas District System Revenue Series A 5.500 06/01/2020 Aaa 10,000 9,659
University of Alabama Revenue - Birmingham 6.000 10/01/2020 Aaa/AAA* 25,000 25,351
University of Alabama University Revenue 5.750 12/01/2016 Aaa/AAA* 10,000 10,173
-----------------
190,959
PUBLIC FACILITIES REVENUE BONDS
9.13% OF NET ASSETS
Hoover AL Wts - Series A 5.650 01/01/2014 Aa3/AA-* 10,000 10,223
Rockford AL Public Building Authority Building Revenue 5.750 09/01/2015 NR 10,000 10,030
-----------------
20,252
MUNICIPAL UTILITY REVENUE BONDS
4.53% OF NET ASSETS
Douglas AL Water & Fire Protection Authority Water Revenue 5.600 06/01/2015 NR 10,000 10,060
-----------------
10,060
-----------------
Total Investments (cost $215,210)(a) - 99.73% of Net Assets $ 221,271
=================
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 6,061
Unrealized depreciation -
-----------------
Net unrealized appreciation $ 6,061
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 73
DUPREE MUTUAL FUNDS - ALABAMA TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $215,210) $ 221,271
Interest receivable 3,363
Receivable from Advisor 2,023
-----------------------
Total assets 226,657
LIABILITIES:
Payable for:
Distributions $ 2,832
Transfer agent 133
Other fees 1,828
-------------------
Total liabilities $ 4,793
-----------------------
NET ASSETS:
Capital 215,803
Net unrealized appreciation in value of investments 6,061
-----------------------
Net assets at value $ 221,864
=======================
NET ASSET VALUE, offering price and redemption price per share
($221,864 / 21,516 shares outstanding) $ 10.31
=======================
-------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
Net investment income:
Interest income $ 5,095
-----------------------
Expenses:
Investment advisory fees 442
Transfer agent 133
Professional fees 1,710
Trustee fees 6
Printing 400
Registration fees 164
Other expenses 54
-----------------------
Total expenses 2,909
Expenses reimbursed by Investment Advisor (2,465)
-----------------------
Net investment income 4,651
-----------------------
Net realized and unrealized gain on investments 6,061
-----------------------
Net increase in net assets resulting from operations $ 10,712
=======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 74
DUPREE MUTUAL FUNDS - ALABAMA TAX-FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
FOR THE PERIOD 1/1/2000
TO 6/30/2000
-----------------------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 4,651
Net increase in unrealized appreciation 6,061
-----------------------
Net increase in net assets resulting from operations 10,712
Distributions to shareholders from net investment income (4,651)
Net fund share transactions 215,803
-----------------------
Total increase 221,864
Net assets:
Beginning of year -
End of year 221,864
-----------------------
$ 221,864
=======================
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 75
DUPREE MUTUAL FUNDS - ALABAMA TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
---------------------------
For the period 1/1/2000
---------------------------
to 6/30/2000(a)
--------------
NET ASSET VALUE, BEGINNING OF YEAR $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.26
Net gains (losses) on securities
(both realized and unrealized) 0.31
-------
Total from investment operations 0.57
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.26)
-------
NET ASSET VALUE, END OF YEAR $ 10.31
=======
Total return(c) 5.79%
Net assets, end of year (in thousands): $ 222
Ratio of expenses to average net assets(b) 0.50%
Ratio of net investment income to
average net assets(b) 5.23%
After expenses reimbursement(b) 2.46%
Portfolio turnover 0.00%
(a) Commencement of operations January 1, 2000
(b) Annualized for periods less than a year
(c) Total return is not annualized
<PAGE> 76
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
47.04% OF NET ASSETS
Danville KY Multi-City Lease Revenue-Shelbyville 6.550 07/01/2006 Aaa/AAA* $ 495,000 $ 521,037
Danville KY Multi-City Lease Revenue 6.875 12/01/2010 Aaa/AAA* 400,000 424,852
Daviess County KY Hospital Revenue 6.250 08/01/2012 Aaa/AAA* 3,000,000 3,139,560
Daviess County Ky Hospital Revenue 6.250 08/01/2022 Aaa/AAA* 1,000,000 1,017,550
Floyd County KY Hospital Revenue-Low Highland Hospital 7.500 08/01/2010 AAA* 1,255,000 1,296,779
Greater KY Housing Assistance Corporation 5.350 07/01/2022 Aaa/AAA* 1,000,000 939,730
Greater KY Housing-Tug Fork Apartments 5.600 01/01/2007 Aaa/AAA* 290,000 293,405
Greater KY Housing-Tug Fork Apartments 6.350 01/01/2022 Aaa/AAA* 2,105,000 2,127,524
Greater KY Housing Assistance Corporation 6.050 07/01/2022 Aaa/AAA* 1,435,000 1,450,555
Greater KY Housing Assistance Corporation 6.100 01/01/2024 Aaa/AAA* 4,000,000 4,065,640
Greater Ky Housing Assistance Corporation 6.200 02/01/2025 AAA* 8,735,000 8,823,486
Hopkins County KY Hospital Revenue-Trover Clinic Foundation 6.625 11/15/2011 Aaa/AAA* 2,000,000 2,093,540
Jefferson County KY Health Facilities Alliant Health Service 5.125 10/01/2017 Aaa/AAA* 6,700,000 6,258,805
Jefferson County KY Health Facilities-Alliant Health System 5.125 10/01/2027 Aaa/AAA* 500,000 448,985
Jefferson County KY Health Facilities Jewish Hospital 5.700 01/01/2021 Aaa/AAA* 8,000,000 7,923,680
Jefferson County KY Health Facilities University Medical 5.500 07/01/2017 Aaa/AAA* 6,000,000 5,889,600
Jefferson County KY Health Facilities-Jewish Hospital 6.500 05/01/2015 Aaa/AAA* 6,380,000 6,688,282
Jefferson County Ky School District Finance Corporation 5.250 01/01/2016 Aaa/AAA* 1,000,000 967,050
Jefferson County KY Health Services - Alliant Health 5.125 10/01/2018 Aaa/AAA* 28,000,000 26,397,560
Jefferson County KY Capital Projects Corporation Revenue 5.600 04/01/2014 AAA/Aaa* 1,000,000 1,014,330
Jefferson County KY Capital Projects Corporation Revenue 5.375 06/01/2018 Aaa/AAA* 1,500,000 1,455,450
Jefferson County KY Hospital Revenue 6.436 10/01/2014 Aaa/AAA* 1,500,000 1,581,270
Jefferson County KY Multi Family Revenue 5.000 08/20/2018 AAA* 385,000 349,888
KY Area Development Districts Financing Trailer Lease Program 6.150 12/01/2022 AA* 1,020,000 1,046,316
Kentucky Counties 1987 Single Family Mortgage Revenue 8.625 09/01/2015 AAA* 10,000 10,100
Kentucky Economic Development Finance Authority Medical Center 5.000 02/01/2018 Aaa/AAA* 1,000,000 897,220
Kentucky Development Finance Authority-Ashland Hospital 6.125 02/01/2012 Aaa/AAA* 4,000,000 4,191,040
Kentucky Economic Development Finance Authority-Ashland Hospital 5.000 02/01/2028 Aaa/AAA* 1,000,000 871,950
Kentucky Development Finance Authority-St Clair Medical 5.875 09/01/2013 Aaa 2,000,000 2,052,260
Kentucky Development Finance Authority-St Elizabeth Hospital 5.900 12/01/2015 AAA/Aaa* 2,500,000 2,562,825
Kentucky Development Finance Authority-St Claire Medical 5.625 09/01/2021 AAA* 2,500,000 2,443,850
Kentucky Development Finance Authority-Methodist Hospital 5.625 02/01/2017 AAA* 6,500,000 6,475,365
Kentucky Economic Development Authority-South Central Nursing 6.000 07/01/2011 Aaa/AAA* 3,650,000 3,860,934
Kentucky Economic Development Finance Authority-Baptist Hospital 5.000 08/15/2015 Aaa/AAA* 5,250,000 5,034,488
Kentucky Housing Corporation 5.950 07/01/2017 Aaa/AAA* 1,500,000 1,524,855
Kentucky Housing Corporation 5.400 07/01/2014 Aaa/AAA* 3,000,000 2,942,280
Kentucky Housing Corporation 7.125 01/01/2010 Aaa/AAA* 3,935,000 4,109,596
Kentucky Housing Corporation 7.250 01/01/2017 Aaa/AAA* 330,000 345,045
Kentucky Housing Corporation 6.600 07/01/2011 Aaa/AAA* 285,000 299,923
Kentucky Housing Corporation 6.600 07/01/2011 Aaa/AAA* 4,500,000 4,735,620
Kentucky Housing Corporation 6.625 07/01/2014 Aaa/AAA* 1,000,000 1,052,830
Kentucky Housing Corporation 6.600 01/01/2011 Aaa/AAA* 620,000 655,526
Kentucky Housing Corporation 5.800 01/01/2019 Aaa/AAA* 6,755,000 6,772,360
Kentucky Housing Corporation 6.500 07/01/2017 Aaa/AAA* 5,615,000 5,997,550
Kentucky Housing Corporation 5.700 07/01/2017 Aaa/AAA* 500,000 501,510
Kentucky Housing Corporation 6.400 01/01/2017 Aaa/AAA* 10,955,000 11,689,095
Kentucky Housing Corporation 5.500 01/01/2015 Aaa/AAA* 1,000,000 995,060
Kentucky State Property & Building Commission Project #64 5.500 05/01/2017 Aaa/AAA* 8,000,000 7,930,000
Kentucky State Turnpike Authority Resource Recovery Revenue 6.000 07/01/2009 Aaa/AAA* 740,000 745,550
Lexington Fayette Urban County Government KY Sewer System 6.350 07/01/2007 Aaa/AAA* 400,000 419,844
Lexington Fayette Urban County Government KY Sewer System 6.375 07/01/2010 AAA/Aaa* 2,900,000 3,037,808
Lexington Fayette Urban County Government KY Sewer System 6.375 07/01/2012 AAA/Aaa* 2,500,000 2,618,800
Lexington Fayette Urban County Government Public Facilities 5.125 10/01/2015 Aaa/AAA* 1,770,000 1,698,386
Lexington Fayette Urban County Government Public Facilities 5.125 10/01/2018 Aaa/AAA* 2,135,000 1,994,325
Lexington Fayette Urban County Government Public Facilities 5.125 10/01/2019 Aaa/AAA* 2,415,000 2,240,396
Lexington-Fayette Urban County KY Government Project Revenue 5.000 11/01/2018 Aaa 1,000,000 921,990
Louisville & Jefferson County KY Metropolitan Sewer District 5.300 05/15/2019 Aaa/AAA* 4,000,000 3,838,520
Louisville KY Parking Authority-River City First Mortgage 5.000 12/01/2017 Aaa/AAA* 1,000,000 930,590
McCreary County Courthouse & Public Square Corporation Revenue 5.400 09/01/2020 AAA 1,550,000 1,509,034
Pike County KY Mortgage Revenue-Phelps Regional Health 5.350 09/20/2012 AAA* 280,000 281,798
Radcliff KY Mortgage Revenue-Lincoln Trail Care 5.650 01/20/2019 AAA* 3,110,000 3,145,019
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 77
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shelbyville KY Certificate of Participation 5.150 07/01/2018 Aaa $ 4,165,000 $ 3,843,087
University of Kentucky Consolidated Educational Buildings 5.750 05/01/2015 AAA/Aaa* 1,850,000 1,889,627
Warren County Ky Hospital Revenue 5.000 04/01/2017 Aaa/AAA* 1,000,000 917,910
Warren County KY Hospital Facility Revenue 5.000 04/01/2016 AAA/Aaa* 1,000,000 925,800
Boyle County KY Hospital Revenue-Ephraim McDowell Regional 5.800 04/01/2014 Aaa/AAA* 1,000,000 1,020,450
------------
196,145,085
PUBLIC CORPORATION REVENUE BONDS
15.03% OF NET ASSETS
Boone County KY Public Property 6.250 12/15/2012 A1 960,000 1,006,234
Calloway County Public Property Corporation-Courthouse 5.625 03/01/2018 A 1,000,000 994,930
Campbell County KY Public Property 6.250 12/01/2015 A 810,000 840,885
Danville Ky Multi-City Lease Revenue 5.000 09/01/2011 NR 545,000 523,314
Danville KY Multi-City Lease Revenue-Campbellsville 7.000 04/01/2002 NR 165,000 169,125
Danville KY Multi-City Lease Revenue-Owensboro Museum 7.050 08/01/2011 A 440,000 464,024
Danville KY Multi-City Lease Revenue Housing Authority 6.500 02/01/2012 A1 1,170,000 1,230,302
Danville KY Multi-City Lease Revenue Paducah Public Property 7.200 06/01/2011 A 500,000 522,895
Jeffersontown KY Certificate of Participation 6.500 09/01/2009 A 1,400,000 1,497,538
Jeffersontown KY Certificate of Participation 5.750 11/01/2015 A 1,095,000 1,120,360
Kenton County KY Public Property Corporation Revenue 5.700 12/01/2015 A 1,305,000 1,311,186
Kenton County KY Public Property Corporation Revenue 5.700 12/01/2016 A 1,380,000 1,383,229
Kenton County KY Public Properties Corporation-Courthouse Facility 5.000 03/01/2020 A1 2,000,000 1,826,700
Kentucky League of Cities-Middlesboro Series 6.200 08/01/2017 A-* 555,000 578,732
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.100 03/01/2008 Aa 1,500,000 1,570,380
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.150 03/01/2013 Aa 17,860,000 18,720,138
Mt. Sterling KY Lease Revenue-Kentucky League of Cities 6.200 03/01/2018 Aa 6,500,000 6,738,615
Oldham County KY Public Facilities Construction Corporation 5.250 06/01/2017 A-* 1,060,000 1,013,021
Pendleton County KY Multi-County Lease Revenue 6.500 03/01/2019 A* 16,000,000 16,785,600
Richmond KY Public Recreation Corporation Revenue 7.250 10/01/2011 NR 290,000 303,079
Shelbyville KY Certificates of Participation Revenue Refunding 5.350 10/01/2013 NR 1,295,000 1,236,880
Shelbyville KY Certificate of Participation Revenue Refunding 5.450 10/01/2017 NR 1,130,000 1,051,024
Union County KY Public Property Corporation 6.125 09/01/2015 NR 700,000 719,390
Woodford County KY Public Property Corporation Revenue 5.600 11/01/2017 A 1,065,000 1,060,229
------------
62,667,810
COUNTY GENERAL OBLIGATION AND SCHOOL BONDS
8.39% OF NET ASSETS
Boone County KY School District Finance Corporation 6.000 02/01/2018 Aa3 1,000,000 1,028,000
Boone County KY School District Finance Corporation 5.700 05/01/2018 Aa3 2,500,000 2,503,200
Boone County Ky School District Finance Corporation 5.500 09/01/2019 Aa3 1,860,000 1,818,913
Boone County KY School District Finance Corporation 5.750 02/01/2020 Aa3 1,200,000 1,208,004
Bullitt County KY School District Finance Corporation 6.000 08/01/2014 Aa3 1,100,000 1,153,955
Clark County KY School District Finance Corporation 6.000 05/01/2012 Aa3 320,000 331,997
Estill County KY School District Finance Corporation 5.875 08/01/2016 A 1,780,000 1,840,734
Floyd County KY School District Finance Corporation 6.000 06/01/2014 Aa3 1,000,000 1,042,170
Greenup County KY School District Finance Corporation 6.100 09/01/2014 Aa3 1,105,000 1,154,073
Hardin County KY General Obligation 5.125 06/01/2019 A2 2,255,000 2,093,632
Hardin County KY School District Finance Corporation 6.000 07/01/2016 Aa3 1,025,000 1,066,554
Harlan KY Independent School District Finance Corporation 6.000 05/01/2015 Aa3 275,000 288,206
Hopkins County KY School District Finance Corporation 6.200 06/01/2015 Aa3 2,500,000 2,633,825
Jefferson County Ky Improvement 6.000 04/01/2020 Aa2/AA* 1,985,000 2,037,761
Jefferson County KY College Project Bellarmine College 5.250 05/01/2019 Baa2 2,000,000 1,857,480
Jessamine County KY School District Finance Corporation 6.125 06/01/2015 Aa3 1,000,000 1,053,450
Laurel County KY School District Finance Corporation 5.600 03/01/2017 Aa3 1,000,000 1,007,580
Laurel County School District School Building Revenue 5.750 06/01/2020 Aa3 1,250,000 1,236,775
Letcher County KY School District Finance Corporation 6.700 10/01/2014 Aa3 1,490,000 1,615,339
McLean County KY School District Finance Corporation 6.000 06/01/2014 NR 1,405,000 1,470,866
Pendleton County KY School District Finance Corporation 5.125 06/01/2019 Aa3 1,140,000 1,073,458
Pike County KY School District Finance Corporation 6.200 08/01/2010 Aa3 305,000 319,006
Pike County KY School District Finance Corporation 6.200 08/01/2011 Aa3 325,000 339,924
Powell County KY School District Finance Corporation 5.900 08/01/2016 Aa3 1,185,000 1,229,046
Scott County KY School District Finance Corporation 5.900 06/01/2016 Aa3 3,450,000 3,567,473
------------
34,971,420
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE> 78
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HOSPITAL AND HEALTHCARE REVENUE BONDS
8.33% OF NET ASSETS
Christian County KY Hospital Revenue-Jennie Stuart Medical 5.800 07/01/2011 A-* $ 270,000 $ 274,836
Christian County KY Hospital Revenue-Jennie Stuart Medical 6.000 07/01/2017 A-* 4,000,000 4,030,280
Christian County KY Hospital Revenue-Jennie Stuart Medical 6.000 07/01/2013 A-* 2,870,000 2,952,541
Jefferson County KY Health Facilities Jewish Hospital 5.700 01/01/2011 A1/AA-* 1,200,000 1,234,992
Jefferson County KY Medical Center Services Revenue 7.300 05/01/2009 A 400,000 414,440
Kentucky Development Finance Authority-Catholic Health 5.000 12/01/2027 Aa2/AA* 10,000,000 8,614,500
Kentucky Development Finance Association-Green River 6.000 11/01/2010 Aa3 1,000,000 1,052,780
KY Economic Development Financial Authority Catholic Health 5.972 12/01/2015 Aa3/AA-* 2,000,000 2,042,020
KY Economic Development Finance Authority-Appalachian Regional 5.875 10/01/2022 BBB* 3,500,000 2,744,105
Kentucky Economic Development Finance Authority-Catholic Health 5.000 12/01/2018 Aa2/AA* 6,950,000 6,340,068
Ky Economic Development Finance Authority Hospital-Appalachian Regional 5.850 10/01/2017 BBB* 1,000,000 866,820
Madison County Ky Industrial Building Revenue - McCready Manor 5.500 06/01/2020 AA* 1,785,000 1,755,226
Pike County KY Mortgage Revenue Phelps Regional Health 5.650 09/20/2027 AAA 2,435,000 2,408,069
-----------
34,730,677
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
7.74% OF NET ASSETS
Ashland KY Pollution Control Revenue-Ashland Oil Project 6.650 08/01/2009 Baa1 8,835,000 9,243,354
Campbellsville KY Industrial Revenue-Campbellsville College 6.950 03/01/2015 NR 1,150,000 1,227,407
Campbellsville KY Industrial Revenue-Campbellsville College 6.000 03/01/2017 NR 1,920,000 1,948,205
Carroll County KY Collateralized Pollution Control Revenue 6.250 02/01/2018 Aa2/AA-* 1,000,000 1,040,690
Jefferson County KY Pollution Control Revenue-E I DuPont 6.300 07/01/2012 Aa3/AA* 3,500,000 3,731,140
Jefferson County KY Pollution Control-Louisville Gas 5.625 08/15/2019 Aa2/AA* 9,150,000 8,873,304
Kentucky League of Cities-Ashland Series 6.250 08/01/2017 A- 1,550,000 1,619,084
Meade County KY Pollution Control Revenue-Olin Corporation 6.000 07/01/2007 NR 575,000 578,019
Mercer County KY Collateralized Pollution Control Revenue 6.250 02/01/2018 Aa2/AA-* 2,500,000 2,589,675
Middlesboro KY Industrial Building Revenue-Fern Lake Project 6.200 12/01/2002 NR 365,000 373,329
Muhlenberg County KY Collateralized Pollution Control Revenue 6.250 02/01/2018 Aa2/AA* 1,000,000 1,036,490
-----------
32,260,696
STATE GENERAL OBLIGATION AND AGENCY BONDS
4.05% OF NET ASSETS
Kentucky Higher Education Student Loan 9.250 06/01/2001 Aa/Aa-* 180,000 188,269
Kentucky Infrastructure Authority 5.750 08/01/2013 Aa3/A* 900,000 918,198
Kentucky Infrastructure Authority 5.750 08/01/2018 Aa3/A* 1,500,000 1,507,770
Kentucky Infrastructure Authority 6.375 08/01/2014 Aa3/A* 700,000 744,821
Kentucky Infrastructure Authority 5.375 02/01/2018 Aa3/A* 2,000,000 1,936,920
Kentucky Infrasturcture Authority 5.000 06/01/2017 Aa3/A* 1,035,000 955,895
Kentucky State Property & Buildings Commission Project #59 5.700 11/01/2014 Aa3/A* 1,000,000 1,012,460
KY State Property & Building Revenue Project #65 5.950 02/01/2017 Aa3/A+* 1,000,000 1,035,380
Kentucky State Property & Building Commission Project #63 5.100 11/01/2018 Aa3/A* 2,000,000 1,875,240
KY State Property & Buildings Revenue Project #65 6.000 02/01/2018 Aa3/A+* 1,000,000 1,030,800
Kentucky State Property & Buildings Commission Project #54 6.000 09/01/2012 Aa3/A+* 1,210,000 1,261,824
Kentucky State Property & Buildings Commission Project #59 5.625 11/01/2015 Aa3/A* 1,000,000 1,004,980
Kentucky State Property & Buildings Commission Project #40 6.875 11/01/2007 Aa3/A* 3,250,000 3,418,675
-----------
16,891,232
PREREFUNDED BONDS
2.55% OF NET ASSETS
Danville KY Multi-City Lease Revenue-Shelbyville 6.700 07/01/2011 Aaa/AAA* 2,500,000 2,641,050
Danville KY Multi-City Lease Revenue-Mt Sterling 7.375 06/01/2007 NR 240,000 249,077
Danville KY Multi-City Lease Revenue-Mt Sterling 7.500 06/01/2011 NR 205,000 212,755
Elsmere KY Industrial Development Revenue-Courtaulds plc 6.750 04/01/2010 NR 2,000,000 2,195,700
Erlanger KY Public Property Revenue-Fire Protection 7.400 11/01/2008 BBB+* 75,000 78,174
Erlanger KY Public Property Revenue-Fire Protection 7.400 11/01/2009 BBB+* 100,000 104,232
Jefferson County KY Hospital Revenue 6.436 10/01/2014 Aaa/AAA* 2,500,000 2,635,450
Kentucky Infrastructure Authority 6.000 08/01/2011 Aaa/AAA* 90,000 92,890
Martin County KY Public Property Corporation Revenue 7.250 09/01/2010 NR 150,000 156,302
Martin County KY Public Property Corporation Revenue 7.250 09/01/2011 NR 160,000 166,722
Owensboro KY Water Revenue 6.250 09/15/2009 Aaa/AAA* 800,000 830,584
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 79
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richmond KY Public Recreation Corporation Revenue 6.750 08/01/2013 NR $ 575,000 $ 617,740
Shelbyville KY Public Property Recreational Corporation 6.900 10/01/2012 NR 400,000 426,476
Wurtland KY Sewer System Revenue 7.700 10/01/2004 A+* 200,000 207,974
------------
10,615,125
STATE AND LOCAL MORTGAGE REVENUE BONDS
2.12% OF NET ASSETS
Florence KY Housing Facility Revenue 6.300 08/15/2019 A/A* 2,615,000 2,616,831
Floyd County KY Public Property Revenue-Justice Center 6.125 09/01/2018 A 1,240,000 1,296,048
Kentucky Housing Corporation 7.400 01/01/2010 Aaa/AAA* 2,290,000 2,335,983
Kentucky Housing Corporation 7.550 01/01/2016 Aaa/AAA* 1,955,000 1,998,714
Louisville Housing Assistance Mortgage Corp Rivertown Project 5.100 07/01/2024 Aa2 655,000 589,723
-----------
8,837,298
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
1.80% OF NET ASSETS
Georgetown College Project Series A 6.000 11/15/2016 A 1,000,000 1,029,850
Georgetown College Project Series A 6.250 11/15/2020 A 4,000,000 4,054,920
Kentucky Housing Corporation Revenue Series E 4.750 07/01/2017 Aaa/AAA* 1,335,000 1,196,721
University of Louisville Health & Education 6.000 11/01/2013 A2 1,180,000 1,222,091
------------
7,503,581
MUNICIPAL UTILITY REVENUE BONDS
1.28% OF NET ASSETS
Cynthiana KY Waterworks & Sewer Revenue 6.400 01/01/2007 BBB-* 575,000 604,296
Danville KY Multi-City Lease Revenue-Ashland Utilities 6.750 04/01/2012 BBB+* 915,000 966,597
Danville KY Multi-City Lease Revenue-Hopkinsville 6.875 06/01/2012 Baa1 2,170,000 2,479,377
Franklin KY Water & Sewer Revenue Refunding 6.200 12/01/2011 Baa 1,000,000 1,042,630
Pendleton County KY Multi-County Lease Revenue 7.450 03/01/2004 AA* 245,000 253,604
------------
5,346,504
LOCAL GENERAL OBLIGATION AND SCHOOL BONDS
.86% OF NET ASSETS
Covington Independent School District Finance Corporation 5.250 06/02/2019 Aa3 1,225,000 1,167,070
Junction City KY College Revenue-Center College Project 5.875 04/01/2017 A2 1,000,000 1,024,280
KY Interlocal Transportation Equipment Lease Revenue 6.000 12/01/2020 A 400,000 411,732
Richmond KY Court Facilities Corporation Revenue 5.250 02/01/2019 A3 1,035,000 987,690
------------
3,590,772
Total Investments (cost $413,013,050)(a) - 99.19% of Net Assets $413,560,200
============
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 9,450,125
Unrealized depreciation (8,902,975)
---------------
Net unrealized appreciation $ 547,150
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE> 80
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $413,013,050) $ 413,560,200
Cash 127,884
Interest receivable 7,756,734
Receivable for investments sold 1,005,000
-----------------------
Total assets 422,449,818
LIABILITIES:
Payable for:
Distributions $ 5,190,058
Fund shares redeemed 24,191
Management fee 146,875
Transfer agent 41,474
Other fees 89,775
-------------------
Total liabilities 5,492,373
-----------------------
NET ASSETS:
Capital 419,482,317
Net accumulated realized losses on investment transactions (3,072,022)
Net unrealized appreciation in value of investments 547,150
-----------------------
Net assets at value $ 416,957,445
=======================
NET ASSET VALUE, offering price and redemption price per share
($416,957,445 / 57,761,324 shares outstanding) $ 7.22
=======================
-------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000
NET INVESTMENT INCOME:
Interest income $ 24,280,129
-----------------------
Expenses:
Investment advisory fees 1,811,557
Transfer agent 511,881
Professional fees 82,453
Trustee fees 42,032
Other expenses 95,219
-----------------------
Total expenses 2,543,142
-----------------------
Net investment income 21,736,987
-----------------------
Realized and unrealized gain on investments
Net realized loss (2,940,650)
Net decrease in unrealized appreciation (11,813,030)
-----------------------
Net realized and unrealized loss on investments (14,753,680)
-----------------------
Net increase in net assets resulting from operations $ 6,983,307
=======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE> 81
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income
Net realized gain (loss) on investments $ 21,736,987 $ 20,084,548
Net decrease in unrealized appreciation (2,940,650) 1,281,160
(11,813,030) (11,896,917)
----------------------------------------------------
Net increase in net assets resulting from operations
Distributions to shareholders from net investment income 6,983,307 9,468,791
Net fund share transactions (21,736,987) (20,084,548)
8,715,183 60,459,091
----------------------------------------------------
Total increase (decrease)
(6,038,497) 49,843,334
Net assets:
Beginning of year
End of year 422,995,942 373,152,608
----------------------------------------------------
$ 416,957,445 $ 422,995,942
====================================================
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE> 82
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years ended June 30,
-----------------------------------------------------------------
2000 1999 1998 1997 1996 (a)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $7.47 $7.65 $7.47 $7.35 $7.29
-----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.38 0.37 0.39 0.40 0.40
Net gains (losses) on securities
(both realized and unrealized) (0.25) (0.18) 0.18 0.12 0.06
-----------------------------------------------------------------
Total from investment operations 0.13 0.19 0.57 0.52 0.46
LESS DISTRIBUTIONS:
Distributions (from capital gains) -- -- -- -- --
Distributions (from net investment income) (0.38) (0.37) (0.39) (0.40) (0.40)
-----------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.22 $7.47 $7.65 $7.47 $7.35
=================================================================
Total return 1.78% 2.52% 7.77% 7.14% 6.38%
Net assets, end of year (in thousands): $416,957 $422,996 $373,153 $327,304 $295,029
Ratio of expenses to average net assets 0.61% 0.61% 0.62% 0.63% 0.62%
Ratio of net investment income to
average net assets 5.17% 4.88% 5.14% 5.32% 5.39%
Portfolio turnover 15.74% 10.69% 11.80% 6.64% 4.29%
(a) Audited by other auditors.
</TABLE>
<PAGE> 83
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
31.34% OF NET ASSETS
Carrolton & Henderson KY Public Building Authority Gas Revenue 4.500 01/01/2003 Aaa/AAA* $ 620,000 $ 619,126
Greater KY Housing Assistance Corporation Mortgage Revenue 6.250 01/01/2005 Aaa/AAA* 620,000 631,011
Jefferson County KY Capital Project Corporation Lease Revenue 5.500 04/01/2005 Aaa/AAA* 365,000 375,242
KY Economic Development Finance Authority Baptist Health System 4.750 08/15/2005 Aaa/AAA* 4,000,000 3,951,480
Kentucky Economic Development Finance Authority Ashland Hospital 5.000 02/01/2005 Aaa/AAA* 500,000 500,785
KY Turnpike Authority Economic Development Road Revenue 5.500 07/01/2007 Aaa/AAA* 3,000,000 3,093,060
Lexington-Fayette Urban County Government Ky Alumni Association 5.000 11/01/2009 Aaa 1,360,000 1,355,893
Louisville & Jefferson County Metro Sewer District Revenue 5.000 05/15/2006 Aaa/AAA* 2,505,000 2,509,158
Louisville & Jefferson County Airport Authority System Revenue 5.600 07/01/2013 Aaa/AAA* 2,000,000 2,022,540
Northern KY University Certificate of Participation Housing Facilities 4.500 12/01/2004 Aaa/AAA* 1,000,000 991,280
----------
16,049,575
PUBLIC FACILITIES REVENUE BONDS
15.65% OF NET ASSETS
Jeffersontown KY Certificates of Participation 4.450 11/01/2000 A 555,000 556,093
Mt Sterling KY Lease Revenue KY League of Cities Series:A 5.625 03/01/2003 Aa 6,150,000 6,303,074
Shelbyville Certificates of Participation Refinancing 4.900 10/01/2007 NR 1,205,000 1,156,800
----------
8,015,967
STATE MORTGAGE REVENUE BONDS
14.11% OF NET ASSETS
KY Housing Corporation Housing Revenue 4.850 07/01/2004 Aaa/AAA* 1,700,000 1,693,897
KY Housing Corporation Housing Revenue 5.150 07/01/2007 Aaa/AAA* 3,225,000 3,247,994
KY Housing Corporation Housing Revenue 5.300 01/01/2004 Aaa/AAA* 2,250,000 2,280,803
----------
7,222,694
HOSPITAL AND HEALTHCARE REVENUE BONDS
12.13% OF NET ASSETS
Christian County KY Hospital Jennie Stuart Medical Center 5.250 07/01/2003 A-* 200,000 200,620
KY Development Finance Authority-Sisters of Charity 6.000 11/01/2000 A1/A+* 1,000,000 1,007,780
KY Economic Development Finance Authority Catholic Health 5.500 12/01/2010 Aa3/AA-* 2,100,000 2,143,302
Kentucky Economic Development Finance Authority Catholic Health 5.500 12/01/2005 Aa2/AA* 1,000,000 1,022,950
KY Economic Development Finance Authority Catholic Health 5.500 12/01/2006 Aa2/AA* 1,790,000 1,835,573
----------
6,210,225
RENTALS/MUNICIPAL LEASE BONDS
6.96% OF NET ASSETS
KY Asset Liability Community General Fund Project Notes 4.000 03/01/2003 A2/A+* 1,000,000 979,140
Pendleton County KY Multi-Lease Revenue 7.550 03/01/2010 AA-* 2,500,000 2,586,450
----------
3,565,590
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
5.44% OF NET ASSETS
Murray State University Revenue Series G, Second Series 5.600 05/01/2006 A3/A* 1,000,000 1,022,830
University of KY Consolidated Education Building Series:N 5.900 05/01/2003 A1/AA-* 725,000 747,018
University of Louisville KY Consolidated Education Building 5.200 05/01/2004 A1/AA-* 1,000,000 1,013,790
----------
2,783,638
PREREFUNDED BONDS
5.23% OF NET ASSETS
Danville KY Multi-City Lease Revenue Hopkinsville 6.200 06/01/2001 Baa1 165,000 167,581
Owensboro KY Electric Light & Power Revenue 10.500 01/01/2004 AAA* 2,270,000 2,510,620
----------
2,678,201
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE> 84
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
KENTUCKY MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATE GENERAL OBLIGATION AND AGENCY BONDS
3.93% OF NET ASSETS
KY State Property & Building Community Revenue Project#55 4.700 09/01/2004 A2/A+* $2,030,000 $ 2,014,734
-----------------
2,014,734
LOCAL GENERAL OBLIGATION AND SCHOOL BONDS
2.37% OF NET ASSETS
KY Interlocal School Transportation Association Equipment L 4.800 03/01/2003 Aa3 500,000 500,960
KY Interlocal School Transportation Association Equipment L 4.900 03/01/2004 Aa3 500,000 502,295
Kentucky Interlocal Transportation Equipment Lease 4.750 12/01/2000 Aa/AA* 3,000 3,010
KY Interlocal Transportation Equipment Lease 4.550 12/01/2000 AA* 89,000 89,000
KY Interlocal Transportation Equipment Lease 4.500 12/01/2000 AA-* 204,000 205,224
-----------------
1,300,489
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
1.15% OF NET ASSETS
Meade County KY Pollution Control Revenue-Olin Corporation 6.000 07/01/2007 NR 580,000 589,118
-----------------
589,118
COUNTY GENERAL OBLIGATION AND SCHOOL BONDS
.99% OF NET ASSETS
Kenton County KY School District Finance Corporation 5.200 03/01/2005 Aa3/AA* 500,000 507,200
-----------------
507,200
Total Investments (cost $50,934,082)(a) - 99.47% of Net Assets $ 50,937,431
=================
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 170,057
Unrealized depreciation (166,708)
-----------------
Net unrealized appreciation $ 3,349
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE> 85
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investment in securities, at value (Cost: $50,934,082) $ 50,937,431
Interest receivable 960,041
Receivable for investments sold 668,918
-----------------------
Total assets 52,566,390
LIABILITIES:
Cash overdraft $ 780,019
Payable for:
Distributions 190,321
Fund shares redeemed 353,574
Management fee 21,485
Transfer agent 5,647
Other fees 9,849
------------------
Total liabilities 1,360,895
-----------------------
NET ASSETS:
Capital 52,233,613
Net accumulated realized losses on investment transactions (1,031,467)
Net unrealized appreciation in value of investments 3,349
-----------------------
Net assets at value $ 51,205,495
=======================
NET ASSET VALUE, offering price and redemption price per share
($51,205,495 / 10,051,447 shares outstanding) $ 5.09
=======================
-----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
Net investment income:
Interest income $ 2,644,436
-----------------------
Expenses:
Investment advisory fees 278,951
Transfer agent 72,965
Professional fees 7,663
Trustee fees 5,614
Other expenses 18,256
-----------------------
Total expenses 383,449
-----------------------
Net investment income 2,260,987
-----------------------
Realized and unrealized gain/loss on investments
Net realized loss (415,775)
Net decrease in unrealized appreciation (689,681)
-----------------------
Net realized and unrealized loss on investments (1,105,456)
-----------------------
Net increase in net assets resulting from operations $ 1,155,531
=======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE> 86
DUPREE MUTUAL FUNDS - KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 2,260,987 $ 2,317,228
Net realized gain (loss) on investments (415,775) 69,983
Net increase (decrease) in unrealized appreciation (689,681) (948,824)
---------------------------------------------
Net increase in net assets resulting from operations 1,155,531 1,438,387
Distributions to shareholders from net investment income (2,260,987) (2,317,228)
Net fund share transactions (6,318,760) 5,384,908
---------------------------------------------
Total increase (decrease) (7,424,216) 4,506,067
Net assets:
Beginning of year 58,629,711 54,123,644
---------------------------------------------
End of year $ 51,205,495 $ 58,629,711
=============================================
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE> 87
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,
------------------------------------------------------------------
2000 1999 1998 1997 1996(a)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 5.20 $ 5.27 $ 5.22 $ 5.20 $ 5.18
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.21 0.21 0.21 0.22 0.21
Net gains ( losses) on securities
(both realized and unrealized) (0.11) (0.07) 0.05 0.02 0.02
------------------------------------------------------------------
Total from investment operations 0.10 0.14 0.26 0.24 0.23
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.21) (0.21) (0.21) (0.22) (0.21)
------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 5.09 $ 5.20 $ 5.27 $ 5.22 $ 5.20
==================================================================
Total return 1.95% 2.58% 5.12% 4.59% 4.51%
Net assets, end of year (in thousands) $51,205 $58,630 $54,124 $53,829 $66,574
Ratio of expenses to average net assets 0.69% 0.72% 0.74% 0.72% 0.75%
Ratio of net investment income to
average net assets 4.06% 3.89% 4.05% 4.11% 4.04%
Portfolio turnover 30.57% 27.38% 20.98% 20.03% 57.80%
(a) Audited by other auditors.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 88
DUPREE MUTUAL FUNDS - MISSISSIPPI TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
MISSISSIPPI MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
69.11% OF NET ASSETS
Region IV Financial Corporation MS Greentree Apts - Series A 5.550 08/01/2010 Aa2* $ 10,000 $ 10,007
Gautier Mississippi Utilities District 6.375 03/01/2019 Aaa/AAA* 10,000 10,216
Hinds County MS Revenue Refunding-MS Methodist Hospital 5.600 05/01/2012 Aaa/AAA* 5,000 5,132
MS Business Financial Corporation Pollution Control Revenue 5.500 02/01/2026 Aaa/AAA* 10,000 9,525
MS Development BK Special Obligation Flowood Revenue Project 5.625 11/01/2019 Aaa/AAA* 10,000 9,912
MS Development BK Special Obligation Natchez Convention Center 5.800 07/01/2019 Aaa/AAA* 25,000 25,325
MS Development BK Special Obligation Gulfport Combined Water 5.500 07/01/2015 Aaa/AAA* 10,000 9,970
MS Development Bank Special Obligation Desoto County 5.900 07/01/2021 AAA* 5,000 5,004
MS Hospital Equipment & Facilities Singing River Hospital 5.500 03/01/2023 Aaa/AAA* 15,000 14,254
MS Development BK Special Obligation Culkin Water District 5.800 07/01/2018 Aaa/AAA* 25,000 25,297
Tupelo MS Public School District 5.375 11/01/2015 Aaa/AAA* 20,000 19,660
University MS Educational Building - Stadium A 5.500 12/01/2017 Aaa/AAA* 5,000 4,939
Walnut Grove Correctional Authority Certificates of Participation 6.000 11/01/2019 Aaa/AAA* 15,000 15,446
---------------
164,688
MUNICIPAL UTILITY REVENUE BONDS
10.13% OF NET ASSETS
Harrison County MS Wastewater Management District 5.000 02/01/2015 AAA/Aaa* 15,000 14,254
MS Development Bank Special Obligation-Bay St Louis 5.375 07/01/2014 A* 10,000 9,889
---------------
24,142
COUNTY GENERAL OBLIGATION BONDS
8.46% OF NET ASSETS
MS Development BK Special Obligation Adams County Juvenile 5.900 07/01/2017 A* 10,000 10,182
Richland MS Tax Increment 5.600 06/01/2013 NR 10,000 9,972
---------------
20,154
PUBLIC FACILITIES REVENUE BONDS
4.26% OF NET ASSETS
Mississippi Development Bank Special Obligation - Southaven 6.200 03/01/2020 A* 10,000 10,153
---------------
10,153
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE> 89
DUPREE MUTUAL FUNDS - MISSISSIPPI TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
MISSISSIPPI MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOCAL GENERAL OBLIGATION BONDS
4.25% OF NET ASSETS
Biloxi MS Tax Increment - Limited Obligation - Series A 5.900 10/01/2019 A* 10,000 10,127
---------------
10,127
Total Investments (cost $222,405)(a) - 96.20% of Net Assets $ 229,264
===============
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 6,859
Unrealized depreciation -
---------------
Net unrealized appreciation $ 6,859
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE> 90
DUPREE MUTUAL FUNDS - MISSISSIPPI TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $222,405) $ 229,264
Cash 16,000
Interest receivable 5,622
Receivable from Advisor 2,030
-----------------------
Total assets 252,916
LIABILITIES:
Payable for:
Investment purchased $ 9,963
Distributions 2,680
Transfer agent 129
Other fees 1,833
-------------------
Total liabilities $ 14,605
-----------------------
NET ASSETS:
Capital 231,452
Net unrealized appreciation in value of investments 6,859
-----------------------
Net assets at value $ 238,311
=======================
NET ASSET VALUE, offering price and redemption price per share
($238,311 / 23,034 shares outstanding) $ 10.35
=======================
-------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
Net investment income:
Interest income $ 5,005
-----------------------
Expenses:
Investment advisory fees 431
Transfer agent 129
Professional fees 1,709
Trustee fees 6
Printing 400
Registration fees 163
Other expenses 53
-----------------------
Total expenses 2,891
Expenses reimbursed by Investment Advisor (2,461)
-----------------------
Net investment income 4,575
-----------------------
Net realized and unrealized gain on investments 6,859
-----------------------
Net increase in net assets resulting from operations $ 11,434
=======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE> 91
DUPREE MUTUAL FUNDS - MISSISSIPPI TAX-FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
FOR THE PERIOD 1/1/2000
TO 6/30/2000
-----------------------
<S> <C>
Increase in net assets:
Operations:
Net investment income $ 4,575
Net realized gain (loss) on investments -
Net increase in unrealized appreciation 6,859
-----------------------
Net increase in net assets resulting from operations 11,434
Distributions to shareholders from net investment income (4,575)
Net fund share transactions 231,452
-----------------------
Total increase 238,311
Net assets:
Beginning of year -
End of year 238,311
-----------------------
$ 238,311
=======================
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE> 92
DUPREE MUTUAL FUNDS - MISSISSIPPI TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
For the period 1/1/2000
to 6/30/2000(a)
--------------
NET ASSET VALUE, BEGINNING OF YEAR $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.27
Net gains (losses) on securities
(both realized and unrealized) 0.35
-------
Total from investment operations 0.62
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.27)
-------
NET ASSET VALUE, END OF YEAR $ 10.35
=======
Total return (c) 6.24%
Net assets, end of year (in thousands): $ 238
Ratio of expenses to average net assets(b) 0.50%
Ratio of net investment income to
average net assets(b) 5.31%
After expenses reimbursement(b) 2.45%
Portfolio turnover 0.00%
(a) Commencement of operations January 1, 2000
(b) Annualized for periods less than a year
(c) Total return is not annualized
<PAGE> 93
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
45.02% OF NET ASSETS
Catawba County NC Catawba Memorial Hospital Revenue 5.000 10/01/2017 Aaa/AAA* $ 500,000 $ 461,835
Craven NC Regional Medical Authority Health Care Facilities 5.625 10/01/2017 Aaa/AAA* 10,000 9,917
Cumberland County NC Civic Center Project Certificates of Participation 5.000 12/01/2018 Aaa/AAA* 500,000 464,690
Cumberland County NC Detention Center & Mental Health Revenue 5.500 06/01/2019 Aaa/AAA* 1,000,000 980,370
Dare County NC Utility System Revenue 5.250 06/01/2018 Aaa/AAA* 250,000 238,268
Elizabeth City NC Housing Development Mortgage Revenue 6.125 04/01/2023 Aa 140,000 142,185
Fayetteville NC Public Works Community Revenue 5.100 03/01/2015 Aaa/AAA* 400,000 380,520
Gaston County NC Public Facilities Project Certificates of Participation 5.250 12/01/2016 Aaa/AAA* 850,000 833,468
Gastonia NC Combined Utilities Systems Revenue 5.625 05/01/2019 Aaa/AAA* 500,000 497,370
Greenville NC Housing Development Corp Series A 5.800 07/01/2024 Aaa/AAA* 40,000 39,795
New Hanover County NC Certificates of Participation 5.000 12/01/2017 Aaa/AAA* 250,000 232,910
New Hanover County NC Hospital Revenue 5.750 10/01/2026 Aaa/AAA* 100,000 97,999
New Hanover County NC Hospital Revenue 5.000 10/01/2019 Aaa/AAA* 1,110,000 1,020,989
NC Central University Housing System Revenue 5.800 11/01/2018 Aaa/AAA* 50,000 50,921
NC Central University Housing System Revenue 5.800 11/01/2020 Aaa/AAA* 60,000 60,785
NC Eastern Municipal Power Agency Power System Refunding 5.375 01/01/2024 Aaa/AAA* 1,000,000 940,950
NC Eastern Municipal Power Agency Power System Revenue 5.700 01/01/2015 Aaa/AAA* 345,000 348,702
NC Eastern Municipal Power Agency Power System Revenue 5.750 01/01/2019 Aaa/AAA* 100,000 100,255
NC Medical Care Community Hospital Revenue-High Point 5.000 10/01/2019 Aaa/AAA* 500,000 458,265
NC Medical Care Community Hospital Revenue-St Joseph 5.100 10/01/2014 AAA/Aaa* 5,000 4,700
NC Medical Care Community Hospital Revenue-Stanly Hospital 5.375 10/01/2014 Aaa/AAA* 50,000 49,823
NC Medical Care Community Hospital Revenue-Wilson Memorial 5.625 11/01/2018 Aaa/AAA* 80,000 78,958
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.750 01/01/2020 Aaa/AAA* 50,000 50,000
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.500 01/01/2014 Aaa/AAA* 250,000 252,853
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.125 01/01/2017 Aaa/AAA* 550,000 514,784
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.000 01/01/2015 Aaa/AAA* 5,000 4,738
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.125 01/01/2017 Aaa/AAA* 500,000 471,550
Pitt County NC Public Facilities Certificates of Participation 5.850 04/01/2017 Aaa/AAA* 100,000 102,396
Randolph County NC Certificates of Participation 5.750 06/01/2022 Aaa/AAA* 500,000 498,120
Union County NC Enterprise System Revenue 5.500 06/01/2021 AAA/Aaa* 245,000 236,721
University of NC at Wilmington Dorm & Dining System Revenue 5.400 01/01/2018 Aaa/AAA* 120,000 117,344
Winston Salem NC State University Revenue Student Services 5.400 06/01/2012 Aaa/AAA* 10,000 10,103
--------------
9,752,282
HOSPITAL AND HEALTHCARE REVENUE BONDS
25.30% OF NET ASSETS
Charlotte-Mecklenburg NC Health Care System 5.750 01/15/2021 Aa3/AA* 250,000 242,955
Charlotte-Mecklenburg NC Health Care System 5.875 01/15/2026 Aa3/AA* 50,000 50,074
Cumberland County NC Hospital Facilities Revenue 5.250 10/01/2019 A3/A-* 1,000,000 916,010
NC Medical Care Community Hospital Revenue-Baptist Hospital 6.375 06/01/2014 Aa3/AA* 45,000 47,113
NC Medical Care Community Hospital Revenue-Baptist Hospital 6.000 06/01/2022 Aa/AA* 45,000 45,199
NC Medical Care Community Hospital Revenue-Carolina Medicorp 5.500 05/01/2015 Aa3/AA* 70,000 69,434
NC Medical Care Community Hospital Revenue-Duke University Hospital 5.000 06/01/2018 Aa3/AA* 300,000 273,456
NC Medical Care Community Hospital Revenue-Duke University Hospital 5.250 06/01/2017 Aa3/AA* 900,000 856,359
NC Medical Care Community Hospital Revenue-Duke University Hospital 5.250 06/01/2021 Aa3/AA* 150,000 139,725
NC Medical Care Community Hospital Revenue-Gaston Memorial 5.500 02/15/2019 A2/A+* 150,000 141,966
NC Medical Care Community Hospital Revenue-Pitt County 5.000 12/01/2018 Aa3/AA-* 500,000 456,120
NC Medical Care Community Hospital Revenue-Presbyterian 5.500 10/01/2014 Aa/AA+* 35,000 34,622
NC Medical Care Community Hospital Revenue-Presbyterian 5.500 10/01/2020 Aa3/AA* 1,100,000 1,060,862
NC Medical Care Community Hospital Revenue-Rex Hospital 5.000 06/01/2017 Aaa/AAA* 500,000 466,930
University of NC at Chapel Hill Hospital Revenue 6.000 02/15/2024 Aa/AA* 100,000 104,340
University of NC at Chapel Hill Hospital Revenue 5.250 02/15/2019 Aa3/AA* 105,000 98,810
University of NC at Chapel Hill Hospital Revenue 5.250 02/15/2017 Aaa/AAA* 500,000 474,970
--------------
5,478,945
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE> 94
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS - 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COUNTY GENERAL OBLIGATION BONDS
8.51% OF NET ASSETS
Forsyth County NC Certificates of Participation 5.000 10/01/2018 Aa2/AA* $ 400,000 $ 370,160
Pitt County NC Certificates of Participation School Facilities 5.500 04/01/2020 Aaa/AAA* 500,000 492,260
Union County NC General Obligation Series B 5.400 03/01/2017 Aaa/AAA* 1,000,000 981,610
--------------
1,844,030
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
5.40% OF NET ASSETS
NC Educational Facilities Finance Agency St Augustines 5.250 10/01/2018 AA* 600,000 585,504
NC Educational Facilities Finance Agency St Augustines 5.250 10/01/2028 AA* 630,000 583,720
--------------
1,169,224
MUNICIPAL UTILITY REVENUE BONDS
5.21% OF NET ASSETS
Charlotte NC Water & Sewer System Revenue 5.250 12/01/2021 Aa/AA* 715,000 671,249
Greenville NC Enterprise System Revenue 6.000 09/01/2010 A1/A+* 100,000 104,866
NC Eastern Municipal Power Agency Power System Revenue 5.500 01/01/2017 Aaa/AAA* 150,000 147,605
Orange NC Water and Sewer Revenue Bond 5.200 07/01/2016 Aa2/AA* 210,000 205,538
--------------
1,129,257
PUBLIC FACILITIES REVENUE BONDS
3.89% OF NET ASSETS
Charlotte NC Certificate of Participation Law Project B 5.375 06/01/2013 Aa1/AA* 100,000 100,573
Charlotte NC Certificate Participation Convention Facility 5.500 12/01/2020 Aa2/AA+* 700,000 680,729
Shelby NC Combined Enterprise System Revenue 5.625 05/01/2014 A/A-* 20,000 19,951
Shelby NC Combined Enterprise System Revenue 5.625 05/01/2014 A/A-* 40,000 40,323
--------------
841,576
PREREFUNDED BONDS
3.27% OF NET ASSETS
Catawba County NC Catawba Memorial Hospital Revenue 6.000 10/01/2017 Aaa/AAA* 100,000 104,958
Cumberland County NC Hospital Facilities Revenue 6.000 10/01/2021 AAA/Aaa* 90,000 92,182
Forsyth County NC General Obligation Public Improvement 5.600 08/01/2009 Aa1/AAA* 5,000 5,160
Greensboro NC Coliseum Complex Improvement Project Series A 5.700 12/01/2010 A1/AA* 55,000 58,237
Monroe NC Combined Enterprise System Revenue 6.000 03/01/2019 A/A* 100,000 105,805
NC Eastern Municipal Power Agency Power System Revenue 6.000 01/01/2026 AAA/BBB* 15,000 15,725
Pitt County NC Memorial Hospital Revenue 5.500 12/01/2015 Aaa/AAA* 325,000 326,160
--------------
708,227
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE> 95
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS - 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATE AND LOCAL MORTGAGE REVENUE BONDS
2.87% OF NET ASSETS
Lenoir NC Housing Authority Mortgage Revenue 5.700 08/20/2024 AAA* $ 100,000 $ 98,192
NC Housing Finance Agency Single Family Revenue Series Y 6.300 09/01/2015 Aaa/AA* 140,000 146,226
NC Housing Finance Agency Single Family Revenue Series II 6.200 03/01/2016 Aa2/AA* 85,000 87,231
NC Housing Finance Agency Single Family Revenue Series KK 5.875 09/01/2017 Aa2/AA+* 90,000 91,126
NC Housing Finance Agency Home Ownership Revenue 5.125 07/01/2013 Aa2/AA* 100,000 97,090
Vance County NC Housing Mortgage Revenue Henderson Project 6.150 03/01/2022 Aa2 100,000 101,278
--------------
621,143
Total Investments (cost $22,334,519)(a) - 99.47% of Net Assets $ 21,544,685
==============
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 102,355
Unrealized depreciation (892,189)
--------------
Net unrealized depreciation $ (789,834)
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE> 96
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost $22,334,519) $ 21,544,685
Cash 109,527
Interest receivable 299,865
Receivable from Advisor 2,937
----------------------
Total assets 21,957,014
LIABILITIES:
Payable for:
Distributions $ 252,679
Fund shares redeemed 31,734
Management fee 8,867
Transfer agent 2,620
Other fees 935
-----------------
Total liabilities 296,835
----------------------
NET ASSETS:
Capital 22,568,456
Net accumulated realized loss on investment transactions (118,443)
Net unrealized depreciation in value of investments (789,834)
----------------------
Net assets at value $ 21,660,179
======================
NET ASSET VALUE, offering price and redemption price per share
($21,660,179 / 2,121,326 shares outstanding) $ 10.21
======================
---------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
Net investment income:
Interest income $ 1,097,454
----------------------
Expenses:
Investment advisory fees 100,495
Transfer agent 30,070
Professional fees 4,806
Trustee fees 1,978
Other expenses 6,767
----------------------
Total expenses 144,116
Expenses reimbursed by Investment Advisor (33,574)
----------------------
Net investment income 986,912
----------------------
Realized and unrealized loss on investments
Net realized loss (118,443)
Net decrease in unrealized appreciation (584,892)
----------------------
Net realized and unrealized loss on investments (703,335)
----------------------
Net increase in net assets resulting from operations $ 283,577
======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE> 97
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 986,912 $ 631,271
Net realized gain (loss) on investments (118,443) 49,547
Net decrease in unrealized appreciation (584,892) (528,565)
----------------------------------------------
Net increase in net assets resulting from operations 283,577 152,253
Distributions to shareholders from:
Net capital gains (30,111) (6,826)
Net investment income (986,912) (631,271)
Net fund share transactions 2,937,281 10,030,995
----------------------------------------------
Total increase 2,203,835 9,545,151
Net assets:
Beginning of year 19,456,344 9,911,193
----------------------------------------------
End of year $ 21,660,179 $ 19,456,344
==============================================
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE> 98
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
<TABLE>
<CAPTION>
For the years or period ended June 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996(a)(c)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.61 $10.82 $10.33 $9.88 $10.00
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.51 0.50 0.53 0.54 0.32
Net gains (losses) on securities
(both realized and unrealized) (0.40) (0.20) 0.49 0.45 (0.12)
------------------------------------------------------------------
Total from investment operations 0.11 0.30 1.02 0.99 0.20
LESS DISTRIBUTIONS:
Distributions (from capital gains) (0.01) (0.01) -- -- --
Distributions (from net investment income) (0.50) (0.50) (0.53) (0.54) (0.32)
------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.21 $10.61 $10.82 $10.33 $9.88
==================================================================
Total return 1.07% 2.71% 9.99% 10.18% 3.23%
Net assets, end of year (in thousands) $21,660 $19,456 $9,911 $3,586 $1,063
Ratio of expenses to average net assets (b) 0.55% 0.45% 0.33% 0.25% 0.18%
Ratio of net investment income to average net assets (b) 4.76% 4.43% 4.47% 4.72% 0.98%
After expense reimbursement (b) 4.92% 4.74% 4.90% 5.29% 3.27%
Portfolio turnover 16.14% 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> 99
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HOSPITAL AND HEALTHCARE REVENUE BONDS
32.78% OF NET ASSETS
Charlotte-Mecklenburg Hospital Authority NC Health Care System 5.400 01/15/2007 Aa3/AA* $200,000 $ 203,186
Charlotte-Mecklenberg Hospital Authority NC Health Care System 6.000 01/01/2003 Aa/AA* 150,000 154,340
Cumberland County NC Hospital Facility Revenue 4.100 10/01/2003 A3/A-* 175,000 168,233
Cumberland County NC Hospital Facility Revenue 4.500 10/01/2007 A3/A-* 200,000 190,686
NC Community Health Care Facility Duke Hospital 4.100 06/01/2005 Aa3/AA* 100,000 96,536
NC Medical Care Community Health Care Facility Duke University 4.500 06/01/2007 Aa3/AA* 200,000 191,942
North Carolina Medical Care Community Hospital-Scotland Memorial 5.375 10/01/2011 AA* 60,000 60,326
NC Medical Care Community Hospital-Baptist Hospital 5.400 06/01/2001 Aa/AA-* 10,000 10,132
NC Medical Care Community Hospital-Presbyterian Health 5.000 10/01/2002 Aa3/AA* 40,000 40,310
NC Medical Care Community Hospital-Presbyterian Health 5.350 10/01/2001 Aa/AA* 25,000 25,404
NC Medical Care Community Hospital Gaston Memorial 5.250 02/15/2007 A2/A+* 50,000 50,442
North Carolina Medical Care Community Hospital - Southeastern 5.000 06/01/2003 A/A* 200,000 200,474
-----------------
1,392,010
INSURED MUNICIPAL BONDS
31.05% OF NET ASSETS
Asheville NC Certificates of Participation Series B 4.300 06/01/2002 Aaa/AAA* 25,000 24,913
Catawba County NC Hospital Revenue Catawba Memorial Hospital 4.000 10/01/2003 Aaa 110,000 107,372
Coastal Regulation Solid Waste Management Authority NC 4.250 06/01/2005 Aaa/AAA* 125,000 121,641
Elizabeth City NC Housing Mortgage Corp Virginia Dare Apartments 6.500 01/01/2005 Aaa/AAA* 120,000 126,409
Johnston County NC Finance Corporation School & Museum Project 4.650 08/01/2008 Aaa/AAA* 200,000 194,732
New Hanover County NC Regional Medical Center Hospital Revenue 4.250 10/01/2009 Aaa/AAA* 100,000 93,996
NC Medical Care Community Hospital-High Point Health System 4.400 10/01/2003 Aaa/AAA* 50,000 49,505
NC Municipal Power Agency No.1 Catawba Electric 5.500 01/01/2001 Aaa/AAA* 70,000 70,590
NC Municipal Power Agency No. 1 Catawba Electric Revenue 5.100 01/01/2007 Aaa/AAA* 125,000 127,984
NC Medical Care Community Hospital Wilson Memorial Hospital 4.900 11/01/2007 Aaa/AAA* 75,000 74,675
Pitt County NC Certificates Of Participation 5.500 04/01/2002 Aaa/AAA* 70,000 71,446
Wilkes County NC Refinancing 5.250 06/01/2006 Aaa/AAA* 250,000 255,338
-----------------
1,318,600
PREREFUNDED BONDS
9.51% OF NET ASSETS
Charlotte NC Water & Sewer General Obligation 6.200 06/01/2016 Aaa/AAA* 100,000 104,811
Charlotte NC General Obligation 6.900 10/01/2006 Aaa/AAA* 25,000 25,691
Charlotte NC Certificates of Participation Convention Center 6.750 12/01/2021 Aaa/AAA* 200,000 210,888
Franklin County NC Certificates of Participation Jail & School 6.000 06/01/2002 Aaa/AAA* 15,000 15,501
Pitt County NC Revenue-Pitt County Memorial Hospital 6.900 12/01/2021 Aaa/AA-* 5,000 5,293
Polk County NC General Obligation 6.700 05/01/2011 Aaa/AAA* 40,000 41,701
-----------------
403,885
LOCAL GENERAL OBLIGATION BONDS
6.63% OF NET ASSETS
Asheville NC Certificates of Participation Series:A 4.600 06/01/2005 A1/A* 50,000 49,479
Charlotte NC Certificates of Participation Equipment Acquisition 4.350 09/01/2000 AA* 70,000 70,080
Durham NC Certificates of Participation 5.100 06/01/2005 Aa3/AA* 100,000 101,296
Forsyth County NC Refunding General Obligation 4.600 03/01/2001 Aa1/AAA* 15,000 15,095
Rocky Mount NC General Obligation 6.100 05/01/2001 A/A+* 25,000 25,451
Surf City NC Refunding General Obligation 5.400 03/01/2001 BBB-* 20,000 20,202
-----------------
281,601
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE> 100
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
NORTH CAROLINA MUNICIPAL BONDS - 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATE GENERAL OBLIGATION BONDS
5.89% OF NET ASSETS
NC State General Obligation 5.000 06/01/2003 Aaa/AAA* $50,000 $ 50,661
North Carolina State General Obligation Series A 4.750 04/01/2006 Aaa/AAA* 200,000 199,586
-----------------
250,247
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
3.54% OF NET ASSETS
NC Education Facility Finance Agency (St Augustine College) 4.450 10/01/2002 AA* 100,000 99,972
University of NC Utility System Revenue 4.900 08/01/2003 Aa2/AA* 50,000 50,497
-----------------
150,469
MUNICIPAL UTILITY REVENUE BONDS
2.35% OF NET ASSETS
Buncombe County NC Water & Sewer Revenue 6.100 07/01/2001 A/A+* 25,000 25,538
Orange County NC Water & Sewer Authority Revenue Refunding 4.250 07/01/2001 Aa/AA* 5,000 5,007
Winston-Salem NC Water & Sewer Revenue Refunding 4.300 06/01/2003 Aa2/AA* 70,000 69,336
-----------------
99,881
COUNTY GENERAL OBLIGATION BONDS
1.20% OF NET ASSETS
Caldwell County NC General Obligation 6.000 02/01/2005 A1/A* 50,000 51,031
-----------------
51,031
STATE MORTGAGE REVENUE BONDS
.71% OF NET ASSETS
NC Housing Finance Agency Single Family 4.750 03/01/2002 Aa/AA* 30,000 30,166
-----------------
30,166
Total Investments (cost $4,039,659)(a) - 93.68% of Net Assets $ 3,977,890
=================
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 1,001
Unrealized depreciation (62,770)
-----------------
Net unrealized depreciation $ (61,769)
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE> 101
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities,at value (Cost: $4,039,659) $ 3,977,890
Cash 222,884
Receivable from investments sold 15,000
Interest receivable 50,105
--------------------
Total assets 4,265,879
LIABILITIES:
Payable for:
Distributions $ 13,313
Fund shares redeemed 529
Management fee 620
Transfer agent 522
Other fees 4,544
--------------
Total liabilities 19,528
--------------------
NET ASSETS:
Capital 4,340,458
Net accumulated realized losses on investment transactions (32,338)
Net unrealized depreciation in value of investments (61,769)
--------------------
Net assets at value $ 4,246,351
====================
NET ASSET VALUE, offering price and redemption price per share
($4,246,351 / 427,272 shares outstanding) $ 9.94
====================
-----------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
Net investment income:
Interest income $ 192,028
--------------------
Expenses:
Investment advisory fees 21,772
Transfer agent 6,532
Professional fees 2,088
Trustee fees 430
Other expenses 3,879
--------------------
Total expenses 34,701
Expenses reimbursed by Investment Advisor (13,930)
--------------------
Net investment income 171,257
--------------------
Realized and unrealized loss on investments
Net realized loss (27,157)
Net increase in unrealized depreciation (39,253)
--------------------
Net realized and unrealized loss on investments (66,410)
--------------------
Net increase in net assets resulting from operations $ 104,847
====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE> 102
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 171,257 $ 105,607
Net realized loss on investments (27,157) (1,920)
Net decrease in unrealized appreciation (39,253) (56,088)
------------------------------------------
Net increase in net assets resulting from operations 104,847 47,599
Distributions to shareholders from net investment income (171,257) (105,607)
Net fund share transactions 374,660 1,802,142
------------------------------------------
Total increase 308,250 1,744,134
Net assets:
Beginning of year 3,938,101 2,193,967
------------------------------------------
End of year $ 4,246,351 $ 3,938,101
==========================================
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE> 103
DUPREE MUTUAL FUNDS - NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding:
<TABLE>
<CAPTION>
For the years or period ended June 30,
-----------------------------------------------------------------
2000 1999 1998 1997 1996(a)(c)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.09 $10.24 $10.12 $9.99 $10.00
-----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.39 0.39 0.40 0.41 0.24
Net gains (losses) on securities
(both realized and unrealized) (0.15) (0.15) 0.12 0.13 (0.01)
-----------------------------------------------------------------
Total from investment operations 0.24 0.24 0.52 0.54 0.23
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.39) (0.39) (0.40) (0.41) (0.24)
-----------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.94 $10.09 $10.24 $10.12 $9.99
=================================================================
Total return 2.47% 2.35% 5.20% 5.49% 3.79%
Net assets, end of year (in thousands) $4,246 $3,938 $2,194 $1,458 $1,159
Ratio of expenses to average net assets (b) 0.48% 0.44% 0.41% 0.23% 0.16%
Ratio of net investment income to average net assets (b) 3.62% 3.44% 3.44% 3.46% 0.85%
After expense reimbursement (b) 3.94% 3.78% 3.89% 4.06% 2.47%
Portfolio turnover 25.85% 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> 104
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
27.09% OF NET ASSETS
Bristol TN Health & Educational Facilities Bristol Memorial Hospital 5.250 09/01/2021 Aaa/AAA* $ 400,000 $ 374,732
Chattanooga/Hamilton County TN Hospital Revenue Erlanger 5.625 10/01/2018 Aaa/AAA* 30,000 29,576
Clarksville TN Water Sewer & Gas Refunding & Improvement 6.250 02/01/2018 Aaa/AAA* 200,000 205,726
Clarksville TN Water Sewer & Gas Revenue 5.650 02/01/2017 Aaa 200,000 200,528
Franklin TN Industrial Development Board Landings Apartment 5.550 10/01/2008 Aaa/AAA* 50,000 51,666
Franklin TN Industrial Development Board Landings Apartment 5.900 10/01/2016 Aaa/AAA* 800,000 812,960
Gatlinburg TN Public Building Authority Convention Center 6.900 12/01/2012 Aaa/AAA* 90,000 94,712
Greater Tennessee Housing Assistance Refunding 7.250 07/01/2024 Aaa/AAA* 5,000 5,270
Jackson TN Hospital Revenue Refunding & Improvement 5.625 04/01/2015 Aaa/AAA* 310,000 310,918
Knox County/Chapman TN Utility District Water & Sewer 6.000 01/01/2014 Aaa/AAA* 40,000 41,533
Knox County TN Health Educational & Housing Facilities Baptist 5.500 04/15/2017 AAA* 1,315,000 1,292,264
Knox County TN Health Educational & Housing Facilities Ft Sanders 5.650 01/01/2008 Aaa/AAA* 20,000 20,317
Knox County TN Health Educational & Housing Facilities Ft Sanders 6.250 01/01/2013 Aaa/AAA* 10,000 10,718
Knox County TN Health Educational & Housing Facilities Ft Sanders 5.250 01/01/2023 Aaa/AAA* 400,000 373,016
Knox County TN Health Educational & Housing Facilities Mercy 5.875 09/01/2015 Aaa/AAA* 15,000 15,501
Knox County TN Health Educational & Housing Facilities Mercy 6.000 09/01/2019 Aaa/AAA* 100,000 101,899
Knox County TN Utility District Water & Sewer 5.625 12/01/2019 Aaa 400,000 396,944
Knoxville TN Development Corp Housing Revenue Morningside 6.100 07/20/2020 AAA* 500,000 514,390
Lawrence County TN Public Improvements General Obligation 6.300 03/01/2008 Aaa/AAA* 50,000 52,580
Memphis Shelby County TN Airport Revenue Refunding 5.650 09/01/2015 Aaa/AAA* 55,000 55,312
Metropolitan Nashville & Davidson County TN Stadium Project 5.750 07/01/2014 Aaa/AAA* 100,000 102,642
Metropolitan Nashville & Davidson County TN Stadium Project 5.875 07/01/2021 Aaa/AAA* 350,000 350,550
Metropolitan Nashville & Davidson County TN Airport Series C 6.625 07/01/2007 Aaa/AAA* 30,000 31,246
Metropolitan Nashville & Davison County TN Airport Series C 6.600 07/01/2015 Aaa/AAA* 120,000 125,101
North Anderson TN Utility District Waterworks Revenue 5.600 01/01/2015 Aaa/AAA* 100,000 101,084
Oak Ridge TN Industrial Development Board Gardens Refunding Revenue 5.250 08/20/2018 Aaa 655,000 628,328
Sevier County TN Public Buildings Authority Solid Waste Facility 5.600 09/01/2015 Aaa/AAA* 100,000 100,521
Shelby County TN Health Educational & Housing Heritage Place 6.900 07/01/2014 Aaa/AAA* 150,000 162,992
Shelby County TN Health Educational & Housing Methodist 5.300 08/01/2015 Aaa/AAA* 760,000 753,730
Shelby County TN Health Educational & Housing Methodist 5.375 04/01/2013 Aaa/AAA* 690,000 682,727
Shelby County TN Health Educational & Housing Methodist 5.000 04/01/2018 Aaa/AAA* 1,000,000 922,380
Sullivan County TN Health Educational & Housing Holston 5.750 02/15/2013 Aaa/AAA* 130,000 131,620
TN Housing Development Agency Homeownership Program 5.900 07/01/2017 Aaa/AAA* 35,000 35,286
TN Housing Development Agency Mortgage Finance Program 5.900 07/01/2018 Aaa/AAA* 95,000 95,611
TN Housing Development Agency Mortgage Finance Program 5.850 07/01/2013 Aaa/AAA* 100,000 101,556
TN Housing Development Agency Mortgage Finance Program 6.200 07/01/2018 Aaa/AAA* 755,000 777,424
TN Local Development Authority Student Loan Program 5.125 03/01/2022 Aaa/AAA* 1,000,000 914,940
---------------
10,978,300
HOSPITAL AND HEALTHCARE REVENUE BONDS
18.61% OF NET ASSETS
Anderson County TN Health & Educational Facilities Revenue 5.650 07/01/2007 A1 155,000 156,659
Chattanooga TN Health Educational & Housing Revenue 5.000 12/01/2018 Aa2/AA* 1,000,000 917,550
Knox County TN Health Educational & Housing Facilities University 5.750 04/01/2019 Baa1 1,000,000 928,460
Metropolitan Nashville & Davidson County TN Modal 5.500 05/01/2023 AA* 1,715,000 1,656,484
Metropolitan Nashville & Davidson County TN Open Arms 5.100 08/01/2016 AA* 1,000,000 945,350
Metropolitan Nashville & Davidson County TN Open Arms 5.100 08/01/2019 AA* 1,660,000 1,516,111
Montgomery County TN Health Educational & Housing Hospital 5.375 01/01/2018 Baa/BBB* 1,500,000 1,336,620
Sumner County TN Health Educational & Housing Sumner Health 7.500 11/01/2014 A-* 75,000 83,152
---------------
7,540,386
STATE AND LOCAL MORTGAGE REVENUE
13.99% OF NET ASSETS
Knoxville TN Development Corp Housing Revenue Clinton Tower 6.650 10/15/2010 A* 285,000 298,352
Memphis TN Health Education & Housing Board Riverdale Plaza 6.350 07/20/2028 AAA* 300,000 308,157
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE> 105
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Memphis TN Health Education & Housing Board River Trace II 6.250 10/01/2013 Aaa* $ 50,000 $ 52,091
Metropolitan Nashville & Davidson County TN Dandridge Tower 6.375 01/01/2011 A* 200,000 211,646
Metropolitan Nashville & Davidson County TN Hermitage Apts 5.900 02/01/2019 A* 395,000 394,092
Murfreesboro TN Housing Authority Westbrooks Towers Project 5.875 01/15/2010 A* 310,000 315,354
Shelby County TN Health Educational & Housing Corners Apts 6.000 01/01/2017 A 250,000 252,150
Shelby County TN Health Educational & Housing Four Stones 5.350 01/01/2019 A* 2,000,000 1,868,580
Shelby County TN Health Educational & Housing Harbour Apts 6.000 04/15/2018 A* 125,000 125,734
Shelby County TN Health Educational & Housing Harbour Apts 6.000 04/15/2024 A* 50,000 50,127
Shelby County TN Health Educational & Housing Harbour Apts 5.750 04/15/2011 A* 100,000 100,794
Shelby County TN Health Educational & Housing Windsor Apts 6.750 10/01/2017 AA 355,000 376,197
TN Housing Development Agency Homeownership Program 6.700 07/01/2012 Aa2/AA* 85,000 88,780
TN Housing Development Agency Homeownership Program 5.850 01/01/2011 Aa2/AA* 200,000 207,758
TN Housing Development Agency Mortgage Finance Program 5.700 01/01/2008 A1/A+* 100,000 101,299
TN Housing Development Agency Mortgage Finance Program 5.850 07/01/2013 A1/A+* 125,000 126,891
TN Housing Development Agency Mortgage Finance Program 5.900 07/01/2018 A1/A+* 785,000 790,048
---------------
5,668,049
COUNTY GENERAL OBLIGATION AND SCHOOL BONDS
13.44% OF NET ASSETS
Marion County TN General Obligation 6.000 04/01/2018 Aaa 950,000 976,572
Metropolitan Nashville & Davidson County TN General Obligation 5.125 05/15/2025 Aa2/AA* 500,000 457,035
Metropolitan Nashville & Davidson County TN Limited Obligation 7.000 09/01/2011 A1*/A 180,000 188,640
Putnam County TN School Building Revenue Bond 5.500 04/01/2019 Aaa/A2* 1,000,000 971,440
Shelby County TN General Obligation 5.625 04/01/2014 Aa3/AA+* 60,000 60,418
Shelby County TN Health Educational & Housing Cameron Kirby 5.900 07/01/2018 A* 2,300,000 2,297,470
Shelby County TN Health Educational & Housing Cameron Kirby 6.000 07/01/2028 A* 500,000 496,645
---------------
5,448,220
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
6.67% OF NET ASSETS
Metropolitan Nashville & Davidson County TN Belmont University 6.300 12/01/2014 Baa3 10,000 10,422
Metropolitan Nashville & Davidson County TN McKendree 5.125 01/01/2020 AA* 2,700,000 2,474,037
Metropolitan Nashville & Davidson County TN Vanderbilt 6.500 05/01/2016 Aa3/AA* 80,000 82,900
Metropolitan Nashville & Davidson County TN Vanderbilt 6.000 10/01/2016 Aa3/AA* 130,000 133,960
---------------
2,701,319
STATE GENERAL OBLIGATION BONDS
6.66% OF NET ASSETS
Hamilton County TN Multi-Family Housing Revenue 6.700 03/01/2021 A* 450,000 478,580
Knoxville TN Development Corp Housing Revenue Clinton Tower 6.600 10/15/2007 A* 350,000 368,904
Metropolitan Nashville & Davidson County TN General Obligation 5.125 11/15/2019 Aa2/AA* 1,000,000 927,480
Shelby County TN General Obligation Refunding 5.875 03/01/2007 Aa2/AA+* 15,000 15,362
TN Local Development Authority Student Loan Program 5.750 03/01/2011 A2/AA-* 200,000 203,498
Wilson County TN General Obligation Refunding 5.100 05/01/2016 AAA* 745,000 706,163
---------------
2,699,986
PREREFUNDED BONDS
4.75% OF NET ASSETS
Chattanooga TN General Obligation 6.000 08/01/2011 A1/AA-* 110,000 115,408
Franklin TN Industrial Development Board Sussex Downs LTD 6.250 06/01/2007 AAA 30,000 32,351
Jackson TN Water & Sewer Revenue 7.200 07/01/2012 Aaa/AAA* 10,000 10,391
Knoxville TN Gas System Revenue Refunding & Improvement 5.900 03/01/2012 A1/AA* 25,000 25,831
Lauderdale County TN General Obligation 6.000 04/01/2013 Aaa/AAA* 20,000 20,955
Marshall County TN General Obligation 5.600 06/01/2014 A* 5,000 5,169
Memphis TN General Obligation Improvement 5.500 10/01/2010 Aa/AA* 20,000 20,559
Memphis TN Health Education & Housing Board Hunters Trace 6.250 06/01/2013 Aa/AAA* 55,000 55,559
Memphis TN Water Revenue 6.000 01/01/2012 Aa/AA* 140,000 146,451
Metropolitan Nashville & Davidson County TN Electric System 6.000 05/15/2012 Aa/AA* 30,000 31,439
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE> 106
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Metropolitan Nashville & Davidson County TN Water & Sewer 6.500 12/01/2014 Aaa/AAA* $ 60,000 $ 65,853
Milan TN Special School District 6.750 04/01/2013 Aaa/AAA* 60,000 65,123
Shelby County TN General Obligation Public Improvment Series A 6.000 03/01/2013 Aa/AA+* 30,000 31,120
Shelby County TN General Obligation Bond Prerefunded 5.875 03/01/2007 AA+ 35,000 36,014
Shelby County TN General Obligation Bond Prerefunded 5.625 04/01/2014 AA+ 20,000 20,843
Shelby County TN School Building Revenue 5.875 03/01/2012 Aa/AA+* 150,000 155,301
Shelby County TN School Building Revenue 6.000 03/01/2013 Aa/AA+* 35,000 36,347
Shelby County TN School Building Revenue 5.800 04/01/2019 Aa/AA+* 100,000 104,932
Shelby County TN School Building Revenue 5.900 03/01/2012 Aa/AA+* 10,000 10,366
Shelby County TN School Building Revenue 5.900 03/01/2016 Aa/AA+* 50,000 51,828
Shelby County TN School Building Revenue 5.950 03/01/2017 Aa/AA+* 100,000 103,735
Shelby County TN School Building Revenue 5.950 03/01/2019 Aa/AA+* 40,000 41,494
TN Local Development Auth Cmnty Provider Pooled Loan Program 6.250 10/01/2009 A-* 30,000 32,167
TN Local Development Auth Cmnty Provider Pooled Loan Program 6.450 10/01/2014 A-* 40,000 43,194
TN Local Development Auth Cmnty Provider Pooled Loan Program 7.000 10/01/2011 A-* 5,000 5,359
Tennessee School Building Authority Revenue 6.250 05/01/2017 A1/AA* 35,000 36,657
Tipton County TN General Obligation High School 6.650 04/01/2014 Aaa/AAA* 30,000 31,738
Williamson County TN Rural School Building Revenue 5.800 03/01/2012 Aa 100,000 104,828
Williamson County TN General Obligation 5.600 09/01/2010 Aa 45,000 47,021
Wilson County TN Certificates of Participation 6.125 06/30/2010 A 410,000 436,802
---------------
1,924,834
LOCAL GENERAL OBLIGATION BONDS
3.59% OF NET ASSETS
Cleveland TN Public Improvement General Obligation 5.125 06/01/2018 Aaa/AAA* 835,000 778,830
Collierville TN General Obligation Improvement 5.900 05/01/2012 A1 30,000 31,104
Johnson City TN General Obligation 5.500 05/01/2020 Aaa/AAA* 300,000 296,055
Metropolitan Nashville & Davidson County TN General Obligation 5.625 05/15/2017 Aa/AA* 250,000 247,700
Metropolitan Nashville & Davidson County TN General Obligation 5.875 05/15/2026 Aa/AA* 100,000 100,023
---------------
1,453,712
MUNICIPAL UTILITY REVENUE BONDS
3.19% OF NET ASSETS
Knoxville TN Gas System Revenue 5.400 03/01/2015 Aa3/AA* 100,000 98,796
Knoxville TN Waste Water System Revenue 5.100 04/01/2018 Aa3/AA* 435,000 405,133
Memphis TN Sanitary Sewer System Revenue 5.750 10/01/2014 Aa/AA* 100,000 101,615
Metropolitan Nashville & Davidson County TN Electric System 5.625 05/15/2014 Aa/AA* 500,000 505,505
Metropolitan Nashville & Davidson County TN Water & Sewer 5.500 01/01/2016 A1/A* 185,000 182,723
---------------
1,293,772
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
1.24% OF NET ASSETS
Chattanooga TN Industrial Development Board F L Haney Co 7.200 08/15/2010 AAA* 20,000 23,288
Chattanooga TN Industrial Development Board F L Haney Co 7.200 02/15/2009 AAA* 25,000 28,927
Chattanooga TN Industrial Development Board F L Haney Co 7.200 08/15/2009 AAA* 25,000 29,108
Chattanooga TN Industrial Development Board F L Haney Co 7.200 02/15/2010 AAA* 100,000 115,809
Cookeville TN Industrial Development Board General Hospital 5.625 10/01/2016 A* 200,000 201,356
Maury County TN Pollution Control Revenue Saturn Corp Project 6.500 09/01/2024 A2/A* 100,000 104,101
---------------
502,589
RENTALS/MUNICIPAL LEASE BONDS
.72% OF NET ASSETS
Memphis Shelby County TN Airport Special Facilities Revenue 7.875 09/01/2009 Baa/BBB* 120,000 127,613
Memphis Shelby County TN Airport Revenue Refunding FedX 6.750 09/01/2012 Baa/BBB* 155,000 162,203
289,816
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE> 107
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Investments (cost $41,685,427)(a) - 99.94% of Net Assets $ 40,500,980
===============
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 337,302
Unrealized depreciation (1,521,749)
---------------
Net unrealized depreciation $(1,184,447)
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE> 108
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $41,685,427) $ 40,500,980
Interest receivable 815,135
Receivable from Advisor 4,978
Receivable for fees 1,791
----------------------
Total assets 41,322,884
LIABILITIES:
Cash overdraft $ 323,119
Payable for:
Distributions 447,989
Fund shares redeemed 6,387
Management fee 16,610
Transfer agent 4,478
------------------
Total liabilities 798,583
----------------------
NET ASSETS:
Net assets consist of:
Capital $ 42,388,978
Net accumulated capital gain distributions in excess of realized gains
on investment transactions (680,230)
Net unrealized depreciation in value of investments (1,184,447)
----------------------
Net assets at value $ 40,524,301
======================
NET ASSET VALUE, offering price and redemption price per share
($40,524,301 / 3,928,337 shares outstanding) $ 10.32
======================
------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
Net investment income:
Interest income $ 2,372,711
----------------------
Expenses:
Investment advisory fees 210,691
Transfer agent 56,566
Professional fees 5,811
Trustee fees 4,266
Other expenses 3,237
----------------------
Total expenses 280,571
Expenses reimbursed by Investment Advisor (53,121)
----------------------
Net investment income 2,145,261
----------------------
Realized and unrealized gain on investments
Net realized loss (571,354)
Net decrease in unrealized appreciation (1,339,328)
----------------------
Net realized and unrealized gain on investments (1,910,682)
----------------------
Net increase in net assets resulting from operations $ 234,579
======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE> 109
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 2,145,261 $ 1,944,839
Net realized loss on investments (571,354) (57,095)
Net decrease in unrealized appreciation (1,339,328) (1,016,125)
-------------------------------------------
Net increase in net assets resulting from operations 234,579 871,619
Distributions to shareholders from:
Net capital gains (6,450) (45,331)
Net investment income (2,145,261) (1,944,839)
Net fund share transactions (3,644,942) 18,032,867
-------------------------------------------
Total increase (decrease) (5,562,074) 16,914,316
Net assets:
Beginning of year 46,086,375 29,172,059
-------------------------------------------
End of year $ 40,524,301 $ 46,086,375
===========================================
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE> 110
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE INCOME SERIES
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
For the years ended June 30,
-----------------------------------------------------------------
2000 1999 1998 1997 1996 (a)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.77 $10.97 $10.53 $10.17 $10.05
-----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.53 0.54 0.54 0.54 0.54
Net gains (losses) on securities
(both realized and unrealized) (0.45) (0.19) 0.45 0.36 0.12
-----------------------------------------------------------------
Total from investment operations 0.08 0.35 0.99 0.90 0.66
LESS DISTRIBUTIONS:
Distributions (from capital gains) 0.00 (0.01) (0.01) -- --
Distributions (from net investment income) (0.53) (0.54) (0.54) (0.54) (0.54)
-----------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.32 $10.77 $10.97 $10.53 $10.17
=================================================================
Total return 0.84% 3.03% 9.57% 8.96% 6.65%
Net assets, end of year (in thousands) $40,524 $46,086 $29,172 $13,678 $8,056
Ratio of expenses to average net assets 0.54% 0.48% 0.44% 0.55% 0.54%
Ratio of net investment income to average net assets 4.97% 4.50% 4.64% 4.92% 4.91%
After expense reimbursement 5.09% 4.71% 4.84% 5.15% 5.27%
Portfolio turnover 8.80% 14.76% 12.62% 5.14% 9.13%
(a) Audited by other auditors.
</TABLE>
<PAGE> 111
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSURED MUNICIPAL REVENUE BONDS
35.06% OF NET ASSETS
Bristol TN Health & Education Facility-Memphis Hospital 6.300 09/01/2000 Aaa/AAA* $ 50,000 $ 50,221
Chattanooga-Hamilton TN Hospital Authority-Erlanger Medical 5.100 10/01/2001 Aaa/AAA* 10,000 10,108
Chattanooga-Hamilton TN Hospital Authority-Erlanger Medical 5.125 10/01/2002 Aaa/AAA* 50,000 50,520
Hamilton County TN Industrial Development Lease Revenue 5.500 09/01/2002 Aaa/AAA* 100,000 101,913
Knox County Utility District Water & Sewer Revenue 5.250 12/01/2006 Aaa/AAA* 220,000 223,511
LaFollette TN Electric System Revenue 5.500 03/01/2001 Aaa 165,000 166,794
Lenoir City TN Electric System Revenue 4.450 06/01/2005 Aaa 250,000 245,125
Metropolitan Nashville & Davidson Counties TN Stadium Project 5.000 07/01/2003 Aaa/AAA* 110,000 110,883
Metropolitan Nashville Airport Revenue 6.200 07/01/2002 Aaa/AAA* 25,000 25,584
Metropolitan Nashville Airport Authority TN Airport 5.000 07/01/2004 Aaa/AAA* 200,000 201,874
Monroe County TN Rural School Refinancing General Obligation 4.500 06/01/2008 Aaa 210,000 202,661
Montgomery County TN General Obligation 5.250 05/01/2007 Aaa 400,000 406,396
TN Energy Acquisition Corporation Gas Revenue Ser:A 4.750 09/01/2002 Aaa/AAA* 250,000 249,728
Unicoi County TN General Obligation Unlimited 5.400 04/01/2010 Aaa/AAA* 200,000 203,786
-------------
2,249,103
HOSPITAL AND HEALTHCARE REVENUE BONDS
22.57% OF NET ASSETS
Chattanooga TN Catholic Health Initiatives Series A 5.500 12/01/2006 Aa2/AA* 400,000 409,524
Jackson TN Hospital Refunding & Improvement Revenue 4.800 04/01/2002 A1/A+* 60,000 60,256
Knox County TN Health Education & Housing Facility Board 4.600 04/01/2002 Baa 300,000 298,236
Knox County Tn Health Education & Housing Facilities Board 4.750 04/01/2004 Baa1 400,000 388,204
Metropolitan Government Nashville & Davidson Counties TN 4.300 08/01/2004 AA* 300,000 291,771
-------------
1,447,991
COUNTY GENERAL OBLIGATION BONDS
15.37% OF NET ASSETS
Cheatham County TN General Obligation 4.350 04/01/2004 A3 200,000 196,726
Madison County TN School General Obligation 6.000 04/01/2001 A1 10,000 10,163
Maury County TN General Obligation Bond 4.500 06/01/2001 A1 75,000 75,165
Metropolitan Government Nashville & Davidson County TN GO 4.600 11/15/2001 Aa/AA* 50,000 50,223
Metropolitan Government Nashville & Davidson County TN 6.500 09/01/2000 A1/A* 50,000 50,226
Rutherford County TN General Obligation 4.750 04/01/2001 Aa/AA* 100,000 100,625
Rutherford County TN Capital Outlay Notes General Obligation 4.700 04/01/2002 Aa/AA-* 45,000 45,298
Shelby County Tn Public Improvement General Obligation 5.625 06/01/2004 Aa3/AA+* 250,000 257,638
Shelby County Mutli-Family Housing Cameron Kibry-A General Obligation 4.700 07/01/2002 A* 200,000 199,734
-------------
985,796
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
7.54% OF NET ASSETS
Metro Government Nashville/Davidson County TN Multi-Family 4.800 01/01/2001 AAA* 50,000 50,224
Metropolitan Government of Nashville & Davidson Counties 4.500 10/01/2003 Aa3/AA* 100,000 99,247
Shelby County TN Multi-Family Housing Memphis Series A 5.000 01/01/2009 A* 240,000 232,886
TN Housing Development Agency Mortgage Finance 5.300 01/01/2003 A1/A+* 100,000 101,189
-------------
483,546
PREREFUNDED BONDS
5.19% OF NET ASSETS
Bristol TN Health & Education Facility-Memorial Hospital 7.000 09/01/2021 Aaa/AAA* 100,000 104,044
Johnson City TN Health & Education Revenue 6.750 07/01/2006 Aaa/AAA* 20,000 20,948
Memphis TN General Obligation 5.600 08/01/2012 Aaa/AAA* 100,000 102,451
Metropolitan Nashville TN Airport Improvement Revenue 7.750 07/01/2006 Aaa/AAA* 100,000 105,705
-------------
333,148
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE> 112
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
TENNESSEE MUNICIPAL BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PUBLIC FACILITIES REVENUE BONDS
4.09% OF NET ASSETS
Hardeman County TN Correctional Facility Revenue 7.000 08/01/2005 A* 240,000 $ 262,546
-------------
262,546
ESCROWED TO MATURITY BONDS
3.82% OF NET ASSETS
Knox County TN 1st Utility District Water Revenue 6.000 12/01/2001 Aaa 100,000 102,242
Metro Government Nashville/Davidson County TN Meharry Med 7.875 12/01/2004 AAA* 130,000 143,000
-------------
245,242
STATE MORTGAGE REVENUE BONDS
3.09% OF NET ASSETS
TN Housing Development Mortgage Agency Series A 5.500 01/01/2005 A1/A+* 195,000 197,946
-------------
197,946
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
2.27% OF NET ASSETS
Bristol TN Industrial Development Board Revenue 4.800 03/01/2001 AA* 70,000 70,381
Chattanooga TN Industrial Development-F.L.Haney Corporation 6.700 08/15/2000 AAA* 25,000 25,096
Franklin TN Industrial Development Multi-Family Housing 4.650 10/01/2000 Aaa/AAA* 50,000 50,140
-------------
145,616
STATE GENERAL OBLIGATION BONDS
1.59% OF NET ASSETS
TN State General Obligation 5.000 03/01/2003 Aaa/AA+* 100,000 102,070
-------------
102,070
LOCAL GENERAL OBLIGATION BONDS
.86% OF NET ASSETS
Chattanooga TN Refunding General Obligation 5.000 11/01/2000 A1/AA-* 30,000 30,118
Kingsport TN Water Refunding General Obligation 5.300 08/01/2000 A1/A+* 25,000 25,034
-------------
55,152
Total Investments (cost $6,557,218)(a) - 101.44% of Net Assets $6,508,157
=============
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 8,397
Unrealized depreciation (57,458)
-------------
Net unrealized depreciation $ (49,061)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE> 113
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $6,557,218) $ 6,508,157
Receivable from investments sold 51,000
Interest receivable 96,639
----------------------
Total assets 6,655,796
LIABILITIES:
Cash overdraft $ 211,840
Payable for:
Distributions 22,193
Management fee 1,693
Transfer agent 793
Other fees 3,797
------------------
Total liabilities 240,316
----------------------
NET ASSETS:
Capital 6,521,107
Net accumulated realized losses on investment transactions (56,566)
Net unrealized depreciation in value of investments (49,061)
----------------------
Net assets at value $ 6,415,480
======================
NET ASSET VALUE, offering price and redemption price per share
($6,415,480 / 630,148 shares outstanding) $ 10.18
======================
-----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
Net investment income:
Interest income $ 313,019
----------------------
Expenses:
Investment advisory fees 34,421
Transfer agent 10,326
Professional fees 2,434
Trustee fees 681
Registration fees 3,327
Other expenses 2,511
----------------------
Total expenses 53,700
Expenses reimbursed by Investment Advisor (12,785)
----------------------
Net investment income 272,104
----------------------
Realized and unrealized loss on investments
Net realized loss (36,947)
Net decrease in unrealized appreciation (56,166)
----------------------
Net realized and unrealized loss on investments (93,113)
----------------------
Net increase in net assets resulting from operations $ 178,991
======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE> 114
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 272,104 $ 247,211
Net realized loss on investments (36,947) (14,486)
Net decrease in unrealized appreciation (56,166) (69,288)
------------------------------------------
Net increase in net assets resulting from operations 178,991 163,437
Dividends to shareholders from net investment income (272,104) (247,211)
Net fund share transactions 689,854 1,157,488
------------------------------------------
Total increase 596,741 1,073,714
Net assets:
Beginning of year 5,818,739 4,745,025
------------------------------------------
End of year $ 6,415,480 $ 5,818,739
==========================================
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
58
<PAGE> 115
DUPREE MUTUAL FUNDS - TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
<TABLE>
<CAPTION>
For the years ended June 30,
-----------------------------------------------------------------
2000 1999 1998 1997 1996(a)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $10.33 $10.44 $10.32 $10.25 $10.20
-----------------------------------------------------------------
Income From Investment Operations:
Net investment income 0.41 0.39 0.41 0.42 0.42
Net gains or losses on securities
(both realized and unrealized) (0.15) (0.11) 0.12 0.07 0.05
-----------------------------------------------------------------
Total from investment operations 0.26 0.28 0.53 0.49 0.47
Less Distributions:
Distributions (from net investment income) (0.41) (0.39) (0.41) (0.42) (0.42)
-----------------------------------------------------------------
Net Asset Value, end of year $10.18 $10.33 $10.44 $10.32 $10.25
=================================================================
Total return 2.53% 2.67% 5.26% 4.83% 4.62%
Net assets, end of year (in thousands) $6,415 $5,819 $4,745 $2,993 $2,455
Ratio of expenses to average net assets 0.60% 0.56% 0.51% 0.47% 0.50%
Ratio of net investment income to average net assets 3.78% 3.52% 3.67% 3.67% 3.36%
After expense reimbursement 3.96% 3.69% 3.97% 4.04% 4.05%
Portfolio turnover 28.67% 81.81% 67.59% 24.49% 23.17%
(a) Audited by other auditors.
</TABLE>
<PAGE> 116
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
SCHEDULE OF PORTFOLIO INVESTMENTS
GOVERNMENT SECURITIES AND AGENCIES BONDS -- 100%
JUNE 30, 2000
<TABLE>
<CAPTION>
MATURITY
BOND DESCRIPTION COUPON DATE RATING# PAR VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FEDERAL HOME LOAN BANK
46.35% OF NET ASSETS
Medium Term Note 7.500 10/05/2009 Aaa/AAA* $1,000,000 $ 971,935
Medium Term Note 7.000 08/15/2014 Aaa/AAA* 500,000 493,295
Medium Term Note 8.000 10/06/2014 Aaa/AAA* 1,040,000 1,010,639
Medium Term Note 7.560 09/01/2004 Aaa/AAA* 150,000 152,721
Medium Term Note 8.170 12/16/2004 Aaa/AAA* 2,000,000 2,084,366
--------------------
4,712,955
FEDERAL NATIONAL MORTGAGE ASSOCIATION
41.13% OF NET ASSETS
Medium Term Note 6.950 11/13/2006 AAA/AAA* 1,105,000 1,071,272
Medium Term Note 7.170 06/26/2007 Aaa/AAA* 1,000,000 972,080
Medium Term Note 6.470 03/13/2008 Aaa/AAA* 250,000 238,730
Medium Term Note 7.280 05/23/2007 Aaa/AAA* 1,000,000 979,568
Medium Term Note 6.160 03/02/2009 Aaa/AAA* 1,000,000 920,185
--------------------
4,181,836
STUDENT LOAN MARKETING ASSOCIATION
9.97% OF NET ASSETS
Medium Term Note 7.300 08/01/2012 Aaa/AAA* 1,000,000 1,013,627
--------------------
1,013,627
FEDERAL HOME LOAN MORTGAGE CORPORATION
2.40% OF NET ASSETS
Medium Term Note 7.225 11/08/2006 Aaa/AAA* 250,000 244,127
--------------------
244,127
Total Investments (cost $10,330,299)(a) - 99.85% of Net Assets $ 10,152,544
====================
* Standard and Poor's Corporation
All other ratings by Moody's Investors Service, Inc.
NR Not Rated
# 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 $ 82,453
Unrealized depreciation (260,208)
--------------------
Net unrealized depreciation $ (177,755)
====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
59
<PAGE> 117
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Cost: $10,330,299) $ 10,152,544
Interest receivable 138,905
-----------------------
Total assets 10,291,449
LIABILITIES:
Cash overdraft $ 59,830
Payable for:
Distributions 57,045
Management fee 1,674
Transfer agent 1,255
Other fees 4,353
--------------------
Total liabilities 124,157
-----------------------
NET ASSETS:
Capital 11,345,433
Net accumulated realized losses on investment transactions (1,000,386)
Net unrealized depreciation in value of investments (177,755)
-----------------------
Net assets at value $ 10,167,292
=======================
NET ASSET VALUE, offering price and redemption price per share
($10,167,292 / 1,077,955 shares outstanding) $ 9.43
=======================
----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
Net investment income:
Interest income $ 779,107
-----------------------
Expenses:
Investment advisory fees 21,535
Transfer agent 16,151
Professional fees 2,723
Trustee fees 1,083
Other expenses 2,431
-----------------------
Total expenses 43,923
-----------------------
Net investment income 735,184
-----------------------
Realized and unrealized gain on investments
Net realized loss (248,412)
Net increase in unrealized depreciation (106,164)
-----------------------
Net realized and unrealized loss on investments (354,576)
-----------------------
Net increase in net assets resulting from operations $ 380,608
=======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE> 118
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 735,184 $ 671,312
Net realized gain (loss) on investments (248,412) 23,592
Net decrease in unrealized appreciation (106,164) (498,462)
----------------------------------------
Net increase in net assets resulting from operations 380,608 196,442
Distributions to shareholders from net investment income (735,184) (671,312)
Net fund share transactions (256,329) 1,656,961
----------------------------------------
Total increase (decrease) (610,905) 1,182,091
Net assets:
Beginning of year 10,778,197 9,596,106
----------------------------------------
End of year $ 10,167,292 $ 10,778,197
========================================
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE> 119
DUPREE MUTUAL FUNDS - INTERMEDIATE GOVERNMENT BOND SERIES
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
For the years ended June 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996(a)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.73 $10.14 $9.89 $9.85 $10.15
-------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.65 0.64 0.66 0.72 0.72
Net gains or losses on securities
(both realized and unrealized) (0.30) (0.41) 0.25 0.04 (0.30)
-------------------------------------------------------------
Total from investment operations 0.35 0.23 0.91 0.76 0.42
LESS DISTRIBUTIONS:
Distributions (from net investment income) (0.65) (0.64) (0.66) (0.72) (0.72)
-------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.43 $9.73 $10.14 $9.89 $9.85
=============================================================
Total return 3.76% 2.21% 9.47% 7.95% 4.15%
Net assets, end of year (in thousands) $10,167 $10,778 $9,596 $8,288 $7,765
Ratio of expenses to average net assets 0.41% 0.49% 0.53% 0.50% 0.40%
Ratio of net investment income to average net assets 6.83% 6.32% 6.57% 7.20% 6.89%
Portfolio turnover 33.35% 24.04% 23.49% 40.86% 33.89%
(a) Audited by other auditors.
</TABLE>
<PAGE> 120
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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 nine series:
the Alabama Tax-Free Income Series, a non-diversified portfolio,
the Kentucky Tax-Free Income Series, a diversified portfolio,
the Kentucky Tax-Free Short-to-Medium Series, a non-diversified
portfolio,
the Mississippi Tax-Free Income 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 eight state tax-free funds is to maintain
100% of their investments in Alabama, Kentucky, Mississippi, North
Carolina or Tennessee municipal securities.
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.
62
<PAGE> 121
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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, 2000. 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 Alabama Tax-Free Income Series, and
the Kentucky Tax-Free Income Series, and
the Mississippi 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 seven individuals, four of whom are
not "interested persons" of the Trust as defined in the Investment
Company Act of 1940. Three 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.
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:
63
<PAGE> 122
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES,
CONTINUED:
<TABLE>
<CAPTION>
RANGE OF NET ASSETS $100,000,001-
$0-$100,000,000 $150,000,000 $150,000,001+
<S> <C> <C> <C>
Alabama Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Kentucky Tax-Free Income Series .50 of 1% .45 of 1% .40 of 1%
Kentucky Tax-Free Short-to-Medium Series .50 of 1% .45 of 1% .40 of 1%
Mississippi Tax-Free Income 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, 2000 investment advisory fees for:
the Alabama Tax-Free Income Series totaled $442; however, Dupree &
Company, Inc. voluntarily refunded fees and reimbursed expenses totaling
$2,465 in accordance with the investment advisory agreement,
the Mississippi Tax-Free Income Series totaled $431; however, Dupree &
Company, Inc. voluntarily refunded fees and reimbursed expenses totaling
$2,461 in accordance with the investment advisory agreement,
the North Carolina Tax-Free Income Series totaled $100,495; however,
Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses
totaling $33,574 in accordance with the investment advisory agreement,
the North Carolina Tax-Free Short-to-Medium Series totaled $21,772;
however, Dupree & Company, Inc. voluntarily refunded fees and reimbursed
expenses totaling $13,930 in accordance with the investment advisory
agreement,
the Tennessee Tax-Free Income Series totaled $210,691; however, Dupree &
Company, Inc. voluntarily refunded fees and reimbursed expenses totaling
$53,121 in accordance with the investment advisory agreement,
the Tennessee Tax-Free Short-to-Medium Series totaled $34,421; however,
Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses
totaling $12,785 in accordance with the investment advisory agreement,
and
In addition, each Fund has entered into a shareholder service agreement
with Dupree & Company, Inc., the Funds' Transfer Agent. 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 of average net assets and
.12% of all amounts in excess of $20,000,000 of average net assets.
64
<PAGE> 123
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
3. PURCHASES AND SALES OF SECURITIES
During the period, the cost of purchases and the proceeds from sales of
securities for each Series were as follows:
<TABLE>
<CAPTION>
Purchases Sales/Calls
--------- -----------
<S> <C> <C>
Alabama Tax-Free Income Series $ 215,183 $ 0
Kentucky Tax-Free Income Series 70,729,343 65,877,319
Kentucky Tax-Free Short-to-Medium Series 16,732,365 22,804,306
Mississippi Tax-Free Income Series 222,350 0
North Carolina Tax-Free Income Series 6,329,204 3,234,274
North Carolina Tax-Free Short-to-Medium Series 1,298,369 1,101,344
Tennessee Tax-Free Income Series 3,695,516 6,589,503
Tennessee Tax-Free Short-to-Medium Series 2,951,065 1,931,098
Intermediate Government Bond Series 3,579,517 3,933,500
</TABLE>
4. CAPITAL SHARES
At June 30, 2000, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
ALABAMA TAX-FREE INCOME SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 37,521 $ 378,504 0 $ 0
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 168 1,710 0 0
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (16,173) (164,411) 0 0
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE 21,516 $215,803 0 $0
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
KENTUCKY TAX-FREE INCOME SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 9,059,536 $65,847,552 12,037,741 $ 92,522,784
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 1,722,788 12,625,387 1,497,738 11,537,082
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (9,627,903) (69,757,756) (5,684,458) (43,600,775)
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE 1,154,421 $8,715,183 7,851,021 $60,459,091
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
KENTUCKY TAX-FREE
SHORT-TO-MEDIUM SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 5,370,435 $27,545,060 6,072,689 $ 32,118,854
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 313,257 1,608,716 320,987 1,698,602
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (6,915,284) (35,472,536) (5,379,335) (28,432,548)
-----------------------------------------------------------------------------------------------------------------------
NET DECREASE (1,231,592) ($6,318,760) 1,014,341 $5,384,908
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE> 124
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
4. CAPITAL SHARES, CONTINUED:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
MISSISSIPPI TAX-FREE
INCOME SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 33,399 $ 335,828 0 $0
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 179 1,827 0 0
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (10,544) (106,203) 0 0
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE 23,034 $231,452 0 $0
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA TAX-FREE
INCOME SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-------------------------------------------------- --------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 817,085 $ 8,330,950 1,056,498 $ 11,551,644
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 64,143 663,502 35,760 391,836
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
CAPITAL GAINS 2,342 23,908 533 5,859
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (595,732) (6,081,079) (175,335) (1,918,344)
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE 287,838 $2,937,281 917,456 $10,030,995
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA TAX-FREE
SHORT-TO-MEDIUM SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 415,570 $ 4,161,326 308,018 $ 3,155,669
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 15,153 151,679 8,750 89,774
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (393,607) (3,938,345) (140,946) (1,443,301)
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE 37,116 $374,660 175,822 $1,802,142
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
TENNESSEE TAX-FREE INCOME SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 1,196,422 $ 12,435,654 2,393,811 $ 26,549,094
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 105,725 1,109,946 69,683 773,724
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
CAPITAL GAINS 483 5,010 3,050 33,982
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (1,653,436) (17,195,552) (846,081) (9,323,933)
-----------------------------------------------------------------------------------------------------------------------
NET DECREASE (350,806) ($3,644,942) 1,620,463 $18,032,867
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 125
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
4. CAPITAL SHARES, CONTINUED:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
TENNESSEE TAX-FREE
SHORT-TO-MEDIUM SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 787,419 $ 8,068,503 744,695 $ 7,803,486
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 18,524 189,807 15,072 157,957
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (738,944) (7,568,456) (650,969) (6,803,955)
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE 66,999 $689,854 108,798 $1,157,488
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND
SERIES YEAR ENDED JUNE 30, 2000 YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD 187,444 $ 1,786,093 382,007 $ 3,884,292
-----------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR REINVESTMENT FROM
NET INVESTMENT INCOME 50,182 476,716 42,147 428,535
-----------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED (267,689) (2,519,138) (262,548) (2,655,866)
-----------------------------------------------------------------------------------------------------------------------
NET DECREASE (30,063) ($256,329) 161,606 $1,656,961
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE> 126
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
5. FEDERAL INCOME TAXES
At June 30, 2000 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 carry forwards which are available to offset future capital
gains, if any. The capital loss carry forwards expire as follows:
<TABLE>
<CAPTION>
KY NC TN
KY Tax-Free NC Tax-Free TN Tax-Free Intermediate
Tax-Free Short-to Tax-Free Short-to Tax-Free Short-to Government
Income Medium Income Medium Income Medium Bond
Series Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C> <C>
2003 $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 ---
2007 --- --- --- --- --- --- ---
2008 686,889 135,232 95,859 6,858 276,976 21,890 209,853
---------------------------------------------------------------------------------------------
Net accumulated
realized losses $818,261 $750,924 $95,859 $10,113 $276,976 $27,023 $961,827
==============================================================================================
</TABLE>
The amount of long-term capital gains paid for the fiscal year ended June
30, 2000 were as follows:
Tennessee Tax-Free Income Series $ 122
North Carolina Tax-Free Income Series $ 30,111
For the year ended June 30, 2000, all of the distributions made from net
investment income of the Dupree municipal bond funds are tax-exempt for
federal income tax purposes.
Capital losses incurred after October 31 ("Post-October" losses) within the
taxable year are deemed to arise on the first business day of the Funds' next
taxable year. The Funds incurred and will elect to defer net capital losses
during fiscal 2000 as follows:
<TABLE>
<CAPTION>
KY Tax-Free KY Tax-Free NC Tax-Free NC Tax-Free TN Tax- TN Tax-Free Intermediate
Income Series Short-to-Medium Income Short-to-Medium Free Short-to-Medium Government
Series Series Series Income Series Bond Series
Series
<S> <C> <C> <C> <C> <C> <C>
$2,253,761 $280,543 $22,584 $22,225 $403,254 $29,543 $38,559
</TABLE>
To the extent that these carryover losses are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
shareholders.
68
<PAGE> 127
DUPREE MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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 (9.50% at June 30, 2000).
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 2000.
69
<PAGE> 128
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
Alabama Tax-Free Income Series, Kentucky Tax-Free Income Series, Kentucky
Tax-Free Short-to-Medium Series, Mississippi Tax-Free 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, 2000, the
related statements of operations for the period then ended, the statements of
changes in net assets and the financial highlights for the periods indicated
therein. 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 auditing standards generally accepted
in the United States. 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, 2000, by correspondence with the
custodian and broker. 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 series comprising Dupree Mutual Funds at June 30, 2000, the
results of their operations for the period then ended, the changes in their net
assets and their financial highlights for each of the indicated periods, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Cincinnati, Ohio
August 1, 2000
<PAGE> 129
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 10th day of October, 2000.
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. 41 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
s/ Thomas P. Dupree, Sr. President (Principal Executive Officer) 10-10-00
------------------------- and Trustee --------
s/ Michelle M. Dragoo Vice President, Secretary, and Treasurer 10-10-00
------------------------- --------
s/ William T. Griggs II Vice President, Assistant Secretary and 10-10-00
------------------------- Trustee --------
s/ William A. Combs, Jr. Trustee 10-10-00
------------------------- --------
Trustee
------------------------- --------
J. William Howerton
s/ William S. Patterson Trustee 10-10-00
------------------------- --------
s/ Lucy A. Breathitt Trustee
------------------------- --------
<PAGE> 130
DUPREE MUTUAL FUNDS
POST-EFFECTIVE ADMENTMENT NO. 41
PART C of Form N-1A
(A) The Declaration of Trust, including previous amendments is incorporated
by reference from Post Effective Amendment No. 39 and 40.
(B) Bylaws is incorporated by reference from Post Effective Amendment No.
39
(C) The Certificates of Beneficial Interest are incorporated by reference
from Post effective amendments 39 and 40
(D) The Investment Advisory Contracts are incorporated by reference from
Post effective amendments 39 and 40
(E) NA
(F) NA
(G) Custodian Agreement is incorporated by reference from Post Effective
Amendments 39 and 40
(H) Transfer Agent Agreement is incorporated by reference from Post
Effective Amendments 39
(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
(O) NA
(P) Code of Ethics for the investment advisor and the fund are included
herein
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. William T. Griggs, II
is President of Dupree & Company, Inc. and Vice President and Assistant
Secretary for the Registrant. Michelle M. Dragoo is Vice President,
Secretary, Treasurer of Dupree & Company, Inc. and the Registrant.
Item 27. Principal Underwriters
Inapplicable
Item 28. Location of Accounts and Records
Registrant's Transfer Agent and Dividend Disbursing Agent is Dupree &
Company, Inc., 125 South Mill Street, Vine Center, Lexington, Kentucky
40507
Item 29. Management Services
Described in parts A and B
Item 30. Undertakings
None
<PAGE> 131
DUPREE MUTUAL FUNDS
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO 41
TO
FORM N-1A REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
AND
INVESTMENT COMPANY ACT OF 1940
<PAGE> 132
DARSIE & ELSTE
ATTORNEYS AT LAW
P.O. Box 22219
LEXINGTON, KENTUCKY 40522
(859) 873 3766
GAY M. ELSTE JOHN C. DARSIE, JR.
(1936-1994)
October 10, 2000
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. 41 to the Registration
Statement filed under the Securities Act of 1933 (File No. 2-64233) and
Amendment No. 42 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 eleven series, known as Alabama Tax-Free Income
Series, Alabama Short-to-Medium Series, Kentucky Tax-Free Income Series,
Kentucky Tax-Free Short to Medium Series, Intermediate Government Bond Series,
Mississippi Tax-Free Income Series, Mississippi 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, 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 41, Amendment 42.
Yours very truly,
DARSIE & ELSTE
By________________________
GME:bh
<PAGE> 133
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. 41 to the Registration Statement (Form N-1A No.
2-64233) of Dupree Mutual Funds and to the use of our report dated August 1,
2000, incorporated therein.
ERNST & YOUNG LLP
Cincinnati, Ohio
October 6, 2000
<PAGE> 134
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, 2000, the yield for the Kentucky Tax-Free Income Series was 4.42%
and was calculated as follows:
<TABLE>
<S> <C>
YIELD=
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $1,726,867.76.
b = Expenses accrued for the period: $206,328.76
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 57,675,904.688
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $7.22
</TABLE>
1
<PAGE> 135
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, 2000, the yield for the Kentucky Tax-Free Income Series was 5.23%
and was calculated as follows:
<TABLE>
<S> <C>
YIELD=
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $1,785,640.56
b = Expenses accrued for the period: $206,328.76
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 57,675,904.688
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $7.22.
</TABLE>
2
<PAGE> 136
EXHIBIT 16
The average annual total return for the Kentucky Tax-Free Income Series for the
one-year period ended June 30, 2000, was 1.78% and was calculated as follows:
<TABLE>
<S> <C>
P(1 + T) to the power of 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: $1,017.47
</TABLE>
The average annual total return for the Kentucky Tax-Free Income Series for the
period July 1, 1995 to June 30, 2000, was 5.08% and for the period July 1, 1990
to June 30, 2000, was 6.44%. 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 ($7.47) equals initial number of shares
(133.869 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 133.869 plus
incremental number of shares of 7.055 equals 140.924 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(140.924 shares x $7.22 = $1,017.47)
3
<PAGE> 137
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, 2000
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
---- -------- ----- ------
<S> <C> <C> <C>
06/30/99 7.47
09/30/99 .0940892 7.35 1.713
12/31/99 .09450131 7.24 3.483
03/31/00 .09346145 7.26 5.252
06/30/00 .09360798 7.22 7.055
</TABLE>
4
<PAGE> 138
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, 2000, the tax equivalent yield for the Kentucky Tax-Free Income Series
was 6.78% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 4.42%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
5
<PAGE> 139
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, 2000, the tax equivalent yield for the Kentucky Tax-Free Income Series
was 7.98% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 5.23%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
1
<PAGE> 140
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, 2000, the yield for the Kentucky Tax-Free Short-to-Medium Series was
3.31% and was calculated as follows:
<TABLE>
<S> <C>
YIELD =
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $172,474.99
b = Expenses accrued for the period: $29,354.00
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 10,268,263.805
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $5.09
</TABLE>
1
<PAGE> 141
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, 2000, the yield for the Kentucky Tax-Free Short-to-Medium Series was
4.54% and was calculated as follows:
<TABLE>
<S> <C>
YIELD =
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $191,427.14
b = Expenses accrued for the period: $29,354.00
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 10,268,263.805
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $5.09
</TABLE>
2
<PAGE> 142
EXHIBIT 16
The average annual total return for the Kentucky Tax-Free Short-to-Medium Series
for the one-year period ended June 30, 2000, was 1.95% and was calculated as
follows:
<TABLE>
<S> <C>
P(1 + T) to the power of 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: $1019.45
</TABLE>
The average annual total return for the Kentucky Tax-Free Short-to-Medium Series
for the period July 1, 1995 to June 30, 2000, was 3.74% and for the period July
1, 1990 to June 30, 2000 was 4.61% 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 ($5.20) equals initial number of shares
(192.308 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 192.308 plus
incremental number of shares of 7.977 equals 200.285 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(200.285 shares x $5.09 = $1,019.45)
3
<PAGE> 143
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, 2000 was
as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
---- -------- ----- ------
<S> <C> <C> <C>
06/30/99 5.20
07/31/99 .01755785 5.19 .650580
08/31/99 .01740323 5.17 1.300115
09/30/99 .01640997 5.15 1.917027
10/31/99 .01754534 5.14 2.580012
11/30/99 .01704465 5.14 3.226275
12/31/99 .01756743 5.13 3.895871
01/31/00 .01721084 5.10 4.557994
02/29/00 .01598286 5.11 5.173743
03/31/00 .01749294 5.11 5.849777
04/30/00 .01744498 5.10 6.527591
05/31/00 .01833003 5.07 7.246458
06/30/00 .01865317 5.09 7.977758
</TABLE>
4
<PAGE> 144
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, 2000, the tax equivalent yield for the Kentucky Tax-Free
Short-to-Medium Series was 5.14% (based on a tax rate of 28%) and was calculated
as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 3.31%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
5
<PAGE> 145
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, 2000, the tax equivalent yield for the Kentucky Tax-Free
Short-to-Medium Series was 6.96% (based on a tax rate of 28%) and was calculated
as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 4.54%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
1
<PAGE> 146
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, 2000, the yield for the Tennessee Tax-Free Income Series was 4.87%
and was calculated as follows:
<TABLE>
<S> <C>
YIELD =
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $181,275.13
b = Expenses accrued for the period: $17,938.97
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 3,940,947.632
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $10.32.
</TABLE>
1
<PAGE> 147
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, 2000, the yield for the Tennessee Tax-Free Income Series was 5.13%
and was calculated as follows:
<TABLE>
<S> <C>
YIELD =
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $171,450.12
b = Expenses accrued for the period: $17,938.97
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 3,940,947.632
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $10.32.
</TABLE>
2
<PAGE> 148
EXHIBIT 16
The average annual total return for the Tennessee Tax-Free Income Series for the
one year period ended June 30, 2000, was 0.84% and was calculated as follows:
P(1 + T) to the power of n = ERV
<TABLE>
<S> <C>
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: $1,008.13
</TABLE>
The average annualized total return for the Tennessee Tax-Free Income Series for
the period June 30, 1995 to June 30, 2000 was 5.76% and for the period December
15, 1993 to June 30, 2000, was 5.72%. 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 period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($10.77) equals initial number of shares
(92.851 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 92.851 plus
incremental number of shares of 4.836 equals 97.687 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(97.687 shares x $10.32 = $1,008.13)
3
<PAGE> 149
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, 2000
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
---- -------- ----- ------
<S> <C> <C> <C>
06/30/99 10.77
09/30/99 .133241 10.53 1.174877
12/31/99 .134808 10.32 2.512161
03/31/00 .131965 10.38 3.724542
06/30/00 .130774 10.32 4.948334
</TABLE>
4
<PAGE> 150
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, 2000, the tax equivalent yield for the Tennessee Tax-Free Income
Series was 7.20% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 4.87%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
5
<PAGE> 151
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, 2000, the tax equivalent yield for the Tennessee Tax-Free Income
Series was 7.58% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 5.13%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
1
<PAGE> 152
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, 2000, the yield for the Tennessee Tax-Free Short-to-Medium Series
was 3.72% and was calculated as follows:
<TABLE>
<S> <C>
YIELD:
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $23,002.55
b = Expenses accrued for the period: $3,173.76
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 632,846.879
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $10.18.
</TABLE>
1
<PAGE> 153
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, 2000, the yield for the Tennessee Tax-Free Short-to-Medium Series
was 4.21% and was calculated as follows:
<TABLE>
<S> <C>
YIELD:
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $22,198.88
b = Expenses accrued for the period: $3,173.76
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 632,846.879
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $10.18.
</TABLE>
2
<PAGE> 154
EXHIBIT 16
The average annual total return for the Tennessee Tax-Free Short-to-Medium
Series for the one year period ended June 30, 2000, was 2.53% and was calculated
as follows:
P(1 + T) to the power of n = ERV
<TABLE>
<S> <C>
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: $1025.30
</TABLE>
The average annualized total return for the Tennessee Tax-Free Short-to-Medium
Series for the period June 30, 1995 to June 30, 2000 was 3.98% and for the
period November 1, 1994 to June 30, 2000, was 4.40%. 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 period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($10.33) equals initial number of shares
(96.805 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 96.805 plus
incremental number of shares of 3.912 equals 100.717 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(100.717 shares x $10.18 = $1,025.30)
3
<PAGE> 155
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, 2000
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
---- -------- ----- ------
<S> <C> <C> <C>
06/30/99 10.33
07/31/99 .03415126 10.31 .320662
08/31/99 .03246340 10.28 .627378
09/30/99 .03188332 10.27 .929860
10/31/99 .03354398 10.24 1.250019
11/30/99 .03237948 10.23 1.560379
12/31/99 .03280380 10.23 1.875801
01/31/00 .03492831 10.20 2.213720
02/28/00 .03299203 10.22 2.533372
03/31/00 .03525895 10.29 2.873759
04/30/00 .03520396 10.23 3.216780
05/31/00 .03538887 10.13 3.566204
06/30/00 .03507851 10.18 3.912067
</TABLE>
4
<PAGE> 156
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, 2000, the tax equivalent yield for the Tennessee Tax-Free
Short-to-Medium Series was 5.50% (based on a tax rate of 28%) and was calculated
as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 3.72%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
5
<PAGE> 157
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, 2000, the tax equivalent yield for the Tennessee Tax-Free
Short-to-Medium Series was 6.22% (based on a tax rate of 28%) and was calculated
as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 4.21%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
1
<PAGE> 158
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, 2000, the yield for the Intermediate Government Bond Series was
6.86% and was calculated as follows:
<TABLE>
<S> <C>
YIELD =
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $60,957.14
b = Expenses accrued for the period: $3,129.64
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 1,088,405.505
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $9.43
</TABLE>
1
<PAGE> 159
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, 2000, the yield for the Intermediate Government Bond Series was
7.00% and was calculated as follows:
<TABLE>
<S> <C>
YIELD =
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $58,688.80
b = Expenses accrued for the period: $3,129.64
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends:1,088,405.505
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $9.43
</TABLE>
2
<PAGE> 160
EXHIBIT 16
The average annual total return for the Intermediate Government Bond Series for
the one-year period ended June 30, 2000, was 3.76% and was calculated as
follows:
P(1 + T) to the power of n = ERV
<TABLE>
<CAPTION>
<S> <C>
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: $1,037.62.
</TABLE>
The average annual total return for the Intermediate Government Bond Series for
the period July 1, 1995 to June 30, 2000 was 5.48% and for the period July 14,
1992 to June 30, 2000 was 6.09%. 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 ($9.73) equals initial number of shares
(102.775 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 102.775 plus
incremental number of shares of 7.259 equals 110.034 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(110.034 shares x $9.43 = $1,037.62)
3
<PAGE> 161
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, 2000 was
as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
---- -------- ----- ------
<S> <C> <C> <C>
06/30/99 9.73
07/31/99 .05360506 9.63 .572093
08/31/99 .05240162 9.58 1.133906
09/30/99 .05045248 9.65 1.680669
10/31/99 .05514018 9.60 2.280638
11/30/99 .05396233 9.55 2.874255
12/31/99 .05466531 9.42 3.487349
01/31/00 .05443165 9.34 4.106624
02/28/00 .05288545 9.36 4.710521
03/31/00 .05703720 9.41 5.362027
04/30/00 .05346057 9.34 5.980984
05/31/00 .05555126 9.26 56.63342
06/30/00 .05392583 9.43 7.259073
</TABLE>
4
<PAGE> 162
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, 2000, the tax equivalent yield for the Intermediate Government Bond
Series was 6.86% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
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: 6.86%.
</TABLE>
5
<PAGE> 163
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, 2000, the tax equivalent yield for the Intermediate Government Bond
Series was 7.00% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
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: 7.00%.
</TABLE>
6
<PAGE> 164
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, 2000, the yield for the North Carolina Tax-Free Income Series was
4.89% and was calculated as follows:
<TABLE>
<S> <C>
YIELD:
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $97,454.33
b = Expenses accrued for the period: $9,753.42
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 2,127,667.691
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $10.21.
</TABLE>
1
<PAGE> 165
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, 2000, the yield for the North Carolina Tax-Free Income Series was
4.95% and was calculated as follows:
<TABLE>
<S> <C>
YIELD:
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $87,785.87
b = Expenses accrued for the period: $9,753.42
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 2,127,667.691
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $10.21.
</TABLE>
2
<PAGE> 166
EXHIBIT 16
The average annual total return for the North Carolina Tax-Free Income Series
for the one-year period ended June 30, 2000, was 1.07% and was calculated as
follows:
<TABLE>
<S> <C>
P(1 + T) to the power of 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: $1,010.33
</TABLE>
The average annual total return for the North Carolina Tax-Free Income Series
for the period November 16, 1995 to June 30, 2000 was 5.54%. 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 ($10.61) equals initial number of shares
(94.251 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 94.251 plus
incremental number of shares of 4.704 equals 98.955 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(98.955 shares x $10.21 = $1,010.33)
3
<PAGE> 167
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, 2000 was
as follows:
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
---- -------- ----- ------
06/30/99 10.61
09/30/99 .124698 10.35 1.135546
12/31/99 .128782 10.21 2.393932
03/31/00 .124673 10.25 3.569992
06/30/00 .124258 10.21 4.760490
4
<PAGE> 168
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, 2000, the tax equivalent yield for the North Carolina Tax-Free
Income Series was 7.30% (based on a tax rate of 28%) and was calculated as
follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 4.89%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
5
<PAGE> 169
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, 2000, the tax equivalent yield for the North Carolina Tax-Free
Income Series was 7.39% (based on a tax rate of 28%) and was calculated as
follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 4.95%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
1
<PAGE> 170
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, 2000, the yield for the North Carolina Tax-Free Short-to-Medium
Series was 3.47% and was calculated as follows:
<TABLE>
<S> <C>
YIELD:
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest
earned during the 30-day period ended was $13,837.55
b = Expenses accrued for the period: $1,670.84
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends: 426,265..345
d = The maximum offering price per share on the last
day of the period, June 30, 2000: $ 9.94.
</TABLE>
2
<PAGE> 171
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, 2000, the yield for the North Carolina Tax-Free Short-to-Medium
Series was 3.84% and was calculated as follows:
<TABLE>
<S> <C>
YIELD:
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned
during the 30-day period ended was $13,381.66
b = Expenses accrued for the period: $1,670.84
c = The average daily number of shares outstanding
during the period that were entitled to receive dividends: 426,265.345
d = The maximum offering price per share on
the last day of the period, June 30, 2000: $9.94.
</TABLE>
3
<PAGE> 172
EXHIBIT 16
The average annual total return for the North Carolina Short-to-Medium Series
for the one-year period ended June 30, 2000, was 2.47% and was calculated as
follows:
<TABLE>
<S> <C>
P(1 + T) to the power of 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: $1,024.74
</TABLE>
The average annual total return for the North Carolina Short-to-Medium Series
for the period November 16, 1995 to June 30, 2000 was 3.86%. 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 ($10.09) equals initial number of shares
(99.108 shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 99.108 plus
incremental number of shares of 3.985 equals 103.093 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(103.093 shares x $9.94 = $1,024.74)
4
<PAGE> 173
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, 2000 was
as follows:
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
---- -------- ----- ------
06/30/99 10.09
07/31/99 .031438 10.08 .301993
08/31/99 .030715 10.04 .623108
09/30/99 .032431 10.02 .950956
10/31/99 .032939 9.98 1.290830
11/30/99 .032532 9.98 1.618103
12/31/99 .032409 10.00 1.944545
01/31/00 .034699 9.95 2.296952
02/28/00 .032519 9.98 2.627369
03/31/00 .032863 10.05 2.960045
04/30/00 .034356 10.00 3.310706
05/31/00 .033991 9.96 3.660242
06/30/00 .031397 9.94 3.984845
5
<PAGE> 174
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, 2000, the tax equivalent yield for the North Carolina Tax-Free
Short-to-Medium Series was 5.18% (based on a tax rate of 28%) and was calculated
as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 3.47%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
6
<PAGE> 175
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, 2000, the tax equivalent yield for the North Carolina Tax-Free
Short-to-Medium Series was 5.73% (based on a tax rate of 28%) and was calculated
as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 3.84%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
7
<PAGE> 176
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, 2000, the yield for the Alabama Tax-Free Income Series was 5.03% and
was calculated as follows:
<TABLE>
<S> <C>
YIELD=
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $1,023.19.
b = Expenses accrued for the period: $91.70
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 21,792.828
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $10.31
</TABLE>
8
<PAGE> 177
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, 2000, the yield for the Alabama Tax-Free Income Series was 5.15% and
was calculated as follows:
<TABLE>
<S> <C>
YIELD=
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the 30-day
period ended was $946.30
b = Expenses accrued for the period: $91.70
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends: 21,792.828
d = The maximum offering price per share on the last day of the period,
June 30, 2000: $10.31
</TABLE>
9
<PAGE> 178
EXHIBIT 16
The average annual total return for the Alabama Tax-Free Income Series for the
six-month period ended June 30, 2000, was 5.79% and was calculated as follows:
P(1 + T) to the power of n = ERV
<TABLE>
<S> <C>
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 six-month period: $1,057.88
</TABLE>
The average annual total return for the Alabama Tax-Free Income Series for the
period January 1, 2000 to June 30, 2000, was 5.79%. The average annual total
return for this period 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 ($10.00) equals initial number of shares (100
shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 100 plus
incremental number of shares of 2.607 equals 102.607 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(102.607 shares x $10.31 = $1,057.88)
10
<PAGE> 179
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 six-month period ending June 30, 2000
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
------------ ---------- ------------ ------------
<S> <C> <C> <C>
01/01/00 10.00
03/31/00 .12902671 10.18 1.293403
06/30/00 .13155931 10.31 2.606922
</TABLE>
11
<PAGE> 180
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, 2000, the tax equivalent yield for the Alabama Tax-Free Income Series
was 7.51% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 5.03%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
12
<PAGE> 181
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, 2000, the tax equivalent yield for the Alabama Tax-Free Income Series
was 7.69% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 5.15%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
1
<PAGE> 182
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, 2000, the yield for the Mississippi Tax-Free Income Series was 4.98%
and was calculated as follows:
<TABLE>
<S> <C>
YIELD =
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the
30-day period ended was $967.48.
b = Expenses accrued for the period: $87.64
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends: 20,697.523
d = The maximum offering price per share on the last day of the
period, June 30, 2000: $10.35
</TABLE>
1
<PAGE> 183
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, 2000, the yield for the Mississippi Tax-Free Income Series was 5.18%
and was calculated as follows:
<TABLE>
<S> <C>
YIELD =
2[ ((a-b divided by cd) +1) to the 6th power - 1 ]
Where: a = Interest earned during the period. Interest earned during the
30-day period ended was $914.00
b = Expenses accrued for the period: $87.64
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends: 20,697.523
d = The maximum offering price per share on the last day of the
period, June 30, 2000: $10.35
</TABLE>
2
<PAGE> 184
EXHIBIT 16
The average annual total return for the Mississippi Tax-Free Income Series for
the one-year period ended June 30, 2000, was 6.24 was calculated as follows:
<TABLE>
<S> <C>
P(1 + T) to the power of 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 six-month period: $1,062.44
</TABLE>
The average annual total return for the Mississippi Tax-Free Income Series for
the period January 1, 2000 to June 30, 2000, was 6.24%. The average annual total
return for this period 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 six-month period was calculated as follows:
Step 1 - Initial investment ($1,000) divided by beginning Net Asset
Value per share ($10.00) equals initial number of shares (100
shares).
Step 2 - Convert initial shares to ending shares assuming timely
reinvested distributions. Initial shares of 100 plus
incremental number of shares of 2.652 equals 102.652 ending
shares.
Step 3 - Determine value of ending shares. Number of ending shares
times ending Net Asset Value per share equals ending value.
(102.652 shares x $10.35 = $1,062.44)
3
<PAGE> 185
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 six-month period ending June 30, 2000
was as follows:
<TABLE>
<CAPTION>
Payable Total Cumulative
Reinvestment Quarterly Reinvestment Incremental
Date Dividend Price Shares
---- -------- ----- ------
<S> <C> <C> <C>
01/01/00 10.00
03/31/00 .13181654 10.17 1.3224195
06/30/00 .13320037 10.35 2.6515036
</TABLE>
4
<PAGE> 186
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, 2000, the tax equivalent yield for the Mississippi Tax-Free Income
Series was 7.44% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 4.98%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
5
<PAGE> 187
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, 2000, the tax equivalent yield for the Mississippi Tax-Free Income
Series was 7.74% (based on a tax rate of 28%) and was calculated as follows:
<TABLE>
<S> <C>
Tax Equivalent Yield =
[A divided by (1 - B) ] + C
Where: A = The part of the series yield that is tax-exempt: 5.18%
B = Stated tax rate: 28%
C = That part of the series yield that is not tax-exempt: 0.
</TABLE>
1
<PAGE> 188
CODE OF ETHICS
DUPREE MUTUAL FUNDS
I. PURPOSE
This Code of Ethics is adopted this 7th day of March 2000, pursuant to
the requirements of the Securities and Exchange Commission Regulation 270.17j-1.
It is intended to implement the requirement of Section 17j of the Investment
Advisors Act of 1940. 15 USC 80a-17j.
The purpose of the Act and this Code is to prevent and prohibit any act
to defraud the Dupree Mutual Funds, (hereinafter called the "Trust") which
currently consists of seven series:
Alabama Tax-Free Income Series
Alabama Tax-Free Short-to-Medium Series
Kentucky Tax-Free Income Series
Kentucky Tax-Free Short-to-Medium Series
Mississippi Tax-Free Income Series
Mississippi 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
but also will include any series which may be added in the future, and to guard
against potential conflict of interest by access persons and investment advisors
of the Trust.
II. APPLICATION
This Code shall apply to access persons of the Trust as defined below.
The Trust will require that its investment advisor adopt a code of ethics which
complies with SEC Regulation Section 270-17j.
III. DEFINITIONS
A. An access person means:
<PAGE> 189
Any trustee, officer, general partner, or advisory person of
the Trust.
B. An advisory person means:
a) Any employee of the Trust or its investment advisor
who in connection with his or her regular duties
makes, participates in, or obtains information
regarding the purchase or sale of a security by the
Trust, or whose functions relate to the making of any
recommendations with respect to such purchases or
sales; and
b) Any natural person in a control relationship to the
Trust who obtains information concerning
recommendations made to the Trust with regard to the
purchase or sale of a security.
C. Control means the power to exercise a controlling influence
over the management or policies of a company, unless such
power is solely the result of an official position with such
company. The definitions and presumptions contained in 15 USC
80-2a shall apply in determinations of "control".
D. Purchase or sale includes the writing of options to buy or
sell a security.
E. Security does not include securities issued by the Government
of the United States, bankers acceptances, bank certificates
of deposit, commercial paper and shares of a registered
open-end investment company.
F. Security held or to be acquired means any security as defined
in this rule which , within the most recent 15 days, (i) is or
has been held by the Trust, or (ii) is being or has been
considered by the Trust or its investment advisor for purchase
by the Trust.
IV. CONDUCT PROHIBITED:
-2-
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A. It shall be a violation of this Code of Ethics of the Trust
for any access person in connection with the purchase or
sales, directly or indirectly, by such person of a security
held or to be acquired by the Trust:
1) to employ any device, scheme or artifice to defraud
the Trust.
2) to make to the Trust any untrue statement of a
material fact or to omit to state a material fact
necessary in order to make the statements made, in
light of the circumstances under which they are made,
not misleading.
3) to engage in any act, practice or course of business
which operates or would operate as a fraud or deceit
upon the Trust; or
4) to engage in any manipulative practice with respect
to the Trust.
B. Prior approval of any transaction by the Board of Trustees
shall be an indication that the transaction was undertaken in
good faith and without any intent to defraud the Trust or its
shareholders.
V. PROCEDURES FOR ENFORCEMENT
A. Any person holding securities in the Trust who believes a
violation of this Code of Ethics has been or is about to be
committed shall be provided an opportunity to present such
facts in his or her possession to the Board of Trustees.
B. The complaint shall be sworn and such documents shall be
submitted to the Board of Trustees.
C. One or more members of the Board of Trustees, except those who
are themselves access persons or advisory persons, shall be
designated as a board of inquiry to a) determine the facts of
the complaint; b) investigate the merits of the complaint; and
c) issue findings of fact regarding the occurrence or
non-occurrence of any violation.
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D. In the event of a finding by the board of inquiry of a
violation of this Code of Ethics, the full Board of Trustees
except those access persons or advisory persons who are found
to be in violation, shall have the power to
1) immediately terminate any investment advisory
contract by any investment advisor in violation of
this code;
2) require immediate filing of the required reports(s);
3) require immediate divestiture of any security
acquired as a result of insider information and the
transfer to the Trust of any profits acquired
thereby; or any loss incurred to be held as a
liability by the person responsible for the
violation;
4) require the return to the Trust of any profits
acquired as a result of any sale made to it in
violation of this Code of Ethics;
5) require the termination of employment for cause of
any access person found to be in violation of this
Code;
6) Initiate any legal proceedings necessary to redress
the violation discovered.
VI. REPORTS REQUIRED:
A. Every access person (except as provided in VI D below) must
report to the Trust with regard to transactions in any
indirect obligations of the United States Government and any
tax-exempt security of Alabama, Kentucky, Mississippi, North
Carolina, Tennessee, but also will include any additional
states in which series may be added in the future, or their
political subdivisions in which that person has or acquires
direct or indirect beneficial interest in the security. Such
report may contain a statement that the report shall not be
construed as an admission that he or she has any direct or
indirect beneficial ownership in the security to which the
report relates.
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B. This report shall be filed with the Board of Trustees of the
Trust no later than 10 days after the end of the calendar
quarter in which the transaction to which the reports relates
occurs. The report shall contain:
1) The name of the access person
2) The date of the transaction
3) The title and number of shares
4) The principal amount of each security involved
5) The nature of the transaction, i.e. purchase or sale
or any other type of acquisition or disposition
6) The price at which the transaction was effected
7) The name of the broker, dealer, or bank through which
such transaction was affected.
D. The report shall not be required if:
1) The person does not have any direct or indirect
influence over the account; or
2) The person is not an "interested person" of a
registered investment company within the meaning of
15 USC 80a 2(a) (19) and would be required to make
the report solely by reason of being a trustee of the
Trust. If, however, such trustee knew or in the
ordinary course of fulfilling the responsibilities of
a trustee, should have known that during the 15 day
period immediately before or after the date of the
transaction by the trustee the security is or was
purchased or sold by the Trust or was considered for
purchase or sale by the Trust or its investment
advisor this exception shall not apply, and a report
shall be filed.
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3) The principal underwriter as to which such person is
an access person (i) is not an affiliated person to
the Trust or any investment advisor of the Trust and
(ii) has no officers, trustee or general partners of
the Trust or its investment advisor; or
4) A report made to an investment advisor would
duplicate other information recorded pursuant to
Rules 204-2 (a) or 204 (2) (a) (13) of the Investment
Advisors Act of 1940.
VII. LISTING OF ACCESS PERSON; NOTICE REQUIRED
The Trust shall identify and require its investment advisor to identify
to it all access persons who are required to make the reports required
in Section VI. Such persons shall be informed by letter of their duty
to make such reports, the date and place of such filing, and shall be
provided with appropriate forms for the report.
VIII. RECORDS MAINTAINED
A. The Trust will maintain the following records at its offices:
1) A copy of this Code of Ethics or any succeeding code.
2) A record of any violation of this Code and any action
taken as a result of such violation.
3) A copy of each report made pursuant to Section III
above.
4) A list of all persons who are, or within the past
five years have been, required to make such reports.
B. These records shall be maintained for a period of five years.
C. These records shall be kept in an easily accessible place and
shall be available to the Securities and Exchange Commission
or its representative at reasonable times for inspection and
examination.
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IX. Each member of the Board of Trustees shall acknowledge this Code of
Ethics and his or her duties hereunder. This acknowledgment shall be
made in writing at the time of adoption and thereafter upon election or
re-election to the Board of Trustees of the Trust.
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WRITTEN SUPERVISORY PROCEDURES
OF
DUPREE & COMPANY, INC.
June 15, 2000 Revision
National Association of Securities Dealers, Inc.
Rules of Fair Practice
Article III Sections 15, 21 and 27
The office of supervisory jurisdiction (OSJ) of Dupree & Company, Inc.
is located at 125 South Mill Street, Lexington, Kentucky 40507, its only office.
Our Chairman, Thomas P. Dupree, Sr., serves as financial and operations
principal as well as general securities principal, both capacities being
registered with the NASD. Mr. Dupree reviews our supervisory practices and
procedures to assure compliance with applicable rules and regulations of the
NASD. All employees of Dupree & Company, Inc. are under the direct supervision
of Mr. Dupree.
Frederic L. Dupree, Jr., registered general securities principal, has
been designated to carry out supervisory obligations in our municipal
securities, financial advisory and investment advisory businesses.
William T. Griggs II, our President, is a registered general securities
principal as well as a financial and operations principal and serves as our
compliance and financial officer.
After an annual review of our businesses to detect and prevent any
possible violations of applicable laws, regulations and rules, an annual meeting
with each employee will be conducted to ensure understanding and compliance with
our procedures.
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PRINCIPAL DESIGNATION
Thomas P. Dupree, Sr. is the municipal principal responsible for the
preparation and maintenance of the firm's books and records.
ACCEPTANCE OF NEW ACCOUNTS
The acceptance of all new customer accounts must be evidenced by the
signatures of Thomas P. Dupree, Sr. or William T. Griggs II, principals, and
that of the registered representative on the permanent customer account record.
The customer record must include complete name and address, telephone number,
occupation, employer's name and address, social security number and if the
customer is a United States citizen and of the age of majority. Suitability
information is to be listed on the reverse of the customer record.
TRANSACTION REVIEW
All transactions of registered representatives must be reviewed by
either Thomas P. Dupree, Sr. or William T. Griggs II. Review and endorsement is
evidenced by a principal's initials on the daily blotter and trade tickets.
CORRESPONDENCE REVIEW
All correspondence between our employees and the public must be
approved by either Thomas P. Dupree, Sr. or William T. Griggs II before
distribution is made. Approval is evidenced by the principal's initials on the
file copy of the letter or the read file containing the copy. All correspondence
is to be reviewed by the principals monthly.
CUSTOMER ACCOUNT REVIEW
Customer accounts are to be reviewed by either Thomas P. Dupree, Sr. or
William T. Griggs II before statements are mailed to the customer. This is
intended to detect irregularities and/or abuses and to correct obvious
bookkeeping errors which may have occurred in the preceding period.
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POLICY AND PROCEDURE FOR ADVERTISING
It is the policy of Dupree & Company, Inc. to have each item of
advertising and sales literature approved either by Thomas P. Dupree, Sr. or
William T. Griggs II either by signature or initial prior to its use. A file of
all advertisements and sales literature is to be kept for a period of three
years.
COLD-CALLING PROCEDURE
No cold calls may be made before 8 a.m. or after 9 p.m. and the use of
automatic telephone dialing systems, pre-recorded or artificial voice messages
and the use of facsimile (fax) machines is prohibited. The person making a cold
call must provide the called party with his name, the name of Dupree & Company,
Inc., our telephone number and address. If a called party requests that no
further cold calls be made to them their name must be added to the Do Not Call
List. The Do Not Call List must be perused before any calls are made.
COMPLAINTS
A permanent file of all written and electronic customer complaints is
to be maintained by the firm. The file shall contain a record of all written and
electronic complaints of customers, and persons acting on behalf of customers,
and what action, if any, has been taken in connection with such complaint. The
firm shall deliver a copy of the investor brochure to a customer promptly on
receipt of a complaint by the customer. No employee is permitted to access the
firms E-mail from any location other than the OSJ. When a complaint is received
electronically it is to be printed in triplicate. A copy is to be filed in the
read file, a copy given to either Thomas P. Dupree, Sr. or William T. Griggs II
and a copy filed in the firm's permanent customer compliant file. The customer's
complaint will be filed on NASD's Customer Complaint System Software on a
quarterly basis.
INVESTIGATION OF EMPLOYEES
Prior to employment by the firm, each prospective employee will be
investigated to determine his good character, business repute, qualifications
and experience. This investigation may be accomplished by discreet inquiry,
commercial agency reports or similar means. Prospective employees must complete
form U-4 and, if employed, be fingerprinted. The form U-4 must
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contain a record of the persons contacted while conducting a background check on
the prospective employee.
CONTINUING EDUCATION
The firm has adopted a Firm Element Training Plan and has done a needs
analysis. Registered representatives are required to participate in the
continuing education program. A Supervisory Guideline is included in the Firm
Element Training Plan and is incorporated by reference in its entirety the same
as if written herein.
POLICY FOR INDIVIDUAL BROKERAGE ACCOUNTS
It is the policy of Dupree & Company, Inc. to require its officers,
directors and employees to notify it, in writing, when opening an account or
placing an initial order with another broker/dealer and to notify the executing
broker/dealer, in writing, of the fact he is employed by a member of the NASD.
Every transaction in a security must be reported by the employee or by duplicate
confirmation to the firm's compliance officer within 10 days of the execution of
the trade. Dupree also requires a file of the duplicate confirmations be
maintained. Employees' trading activities are to be reviewed monthly by an
officer of the firm as evidenced by the officer's initials on the confirmations.
Any questionable trades are to be reported to the President who will discuss
them with the employee. All municipal bond trading must be pre-cleared by the
President.
PROCEDURES FOR POSSESSION AND CONTROL OF SECURITIES
Dupree & Company, Inc. operates pursuant to the exemptive provision of
paragraph (k)(2)(i) of SEC rule 15c3-3, the Customer Protection Rule. All
customer funds and transactions are to be processed through the "Special Reserve
Bank Account for the Exclusive Benefits of Customers of Dupree & Company, Inc."
Dupree will hold customer funds or securities only overnight, if
necessary, to process them and will promptly forward all customer funds and
securities on so as not to hold or safekeep them.
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PROCEDURES FOR SECURITIES BOUGHT AND SOLD
Securities received: Log receipt of securities in the Receipt and
Deliver Blotter. Certificate numbers are written on the confirmation copies and
filed.
Securities delivered: Log distribution of securities in the Receipt and
Deliver Blotter. Certificate numbers are written on the confirmation copies and
filed. The delivery ticket copy is stapled to the security and the receipt copy
is attached to a postage paid return envelope. Securities are shipped certified
mail, return receipt requested.
All securities processed by a clearing service company are to be
accounted for by that company in compliance with the rules for possession and
control and so certified to our satisfaction.
The Receipt and Deliver Blotter must be sufficiently itemized and, if
necessary, footnoted to enable any person not directly involved in processing
receipt and delivery of the security to be able to trace the movement of the
securities and to determine their location at any point in time. All entries are
to be made the same day as the actual occurrence or no later than 10:00 a.m. of
the following day.
Any clearing corporation or bank where we have a brokers clearance
account must maintain two loan accounts, one for our inventory and one to
segregate customers unpaid securities. It is the responsibility of the person
maintaining records concerning possession and control of securities to keep a
log of verbal instructions to the lending institution to segregate customers'
unpaid securities into the loan account and that person is to verify that the
lending institution has done so. In most cases customers' securities will be
received into the segregated account initially. Care must be taken to move
securities from the inventory account to the segregated account immediately
after inventory positions are sold to customers. In the case of a bank which has
a separate note for each transaction, such bank is to be instructed (in writing
if required by the bank) that a particular note is segregated. Under no
circumstances can inventory securities and securities sold to a customer be
commingled under one note or in one loan account. Clearing corporation printouts
are to be checked daily to verify that securities are properly segregated and
that their records match ours.
Customers' fully paid securities are to be in our possession or
control, or be reduced to our possession or control within one day after the
customer has paid for same. Possession is limited to Lexington, Kentucky.
Control includes any clearing corporation, at transfer, fails to receive less
that 30 days, or in the
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ordinary course of shipment between Lexington, the customer and the above. If
any customers' securities are not in possession or control, a principal of the
firm must be notified immediately on receipt of the customers' payment.
Customers' securities which are collateral for a loan are to be
released from the loan immediately upon receipt of the customer's payment, i.e.,
the loan must be paid off. It is contrary to firm policy to allow any fully paid
customers' securities to remain as collateral for a loan. If the securities are
collateral for a loan at an institution not in Lexington, funds to pay off the
loan are to be promptly wired to that institution. If the customers' payment is
treated by the bank as uncollected funds, payment of the loan may be delayed
until the customers' checks have been collected, i.e., until Dupree & Company,
Inc. has use of the funds. None of the above applies to securities drafted
against payment.
PROCEDURES FOR BOOKKEEPING COMPLIANCE
Inspect tickets to insure the capacity checked agrees with the other
information on the ticket, particularly that "as agent" capacity is for a
transaction where:
buy and sell occur on the same day at the same price,
we are agent on both sides, and
our compensation (if any) is a commission not a concession.
If the ticket fails to agree with any one of these three criteria, it
is probably not "as agent" or if it is supposed to be "as agent" it is
incorrect. Return questionable tickets to the registered representative.
Tickets must be entered into the computer no later 5:30 p.m. Eastern
Time. Trades completed after 5 p.m. Eastern Time will have the next day's date
as their "trade date".
Tickets must show date and time and tickets to or from inventory must
be so marked as contra party.
The computer generated full position report is to be printed every
Friday after the days work has been posted. An individual position report is run
each day there is a change in that position.
The securities blotter is run every day there are transactions
settling. Individual days can be discarded and a whole month printed at the end
of each
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month. A principal of the firm must review and sign each day's trades.
Customer/dealer ledgers are printed as needed. A total print is made
annually for our permanent records.
A print of the transfer blotter is made monthly.
The securities received and delivered blotter is posted on the day of
occurrence. See procedures for possession and control.
Maintain and post to a moneys borrowed blotter, posting as needed.
Transaction/movement date posting for each invoice is to be done daily
as the movements occur. These dates are; date paid, received/delivered, to/from
transfer, drafted out and customer safekeeping. All computer prints rely on the
timely and correct posting of dates.
The reserve computation is to be made monthly unless a month-end
financial statement shows A.I. greater than 8 times net capital. If this occurs
the calculation is made weekly. Deposits and withdrawals must coincide with the
calculation date. No withdrawal shall be made without a concurrent calculation.
Required deposits must be made no later than the morning after the calculation.
Every effort should be made to close the general ledger three days
after the end of the month.
PROCEDURES FOR LOST AND STOLEN SECURITIES PROGRAM
The purpose of Section 17(f)(1) of the Securities Exchange Act of 1934,
as amended, is to reduce the trafficking in illicit securities by making
available information that identifies lost, stolen and counterfeit securities.
All institutions who have any contact with securities certificates must
participate by reporting the discovery of the theft or loss of any certificates
using form X-17-f-1-A and by inquiring with respect to every certificate which
comes into their possession unless:
the certificate is received directly from the issuer at the bond
closing;
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the certificate is received from another reporting institution or from
a Federal Reserve Bank;
the certificate is received from your customer (defined as any person
with whom you have at least one prior securities related transaction)
and the certificate is registered in his name or nominee or the
certificate was previously sold to him as is verified by internal
records;
the aggregate value of the transaction involving the certificate is
$10,000 or less (face value for bonds, market value for stocks), or
the certificate is received directly from a drop which is affiliated
with a reporting institution for the purposes of receiving or
delivering certificates on behalf of a reporting institution.
Reports of lost or stolen securities are to made on SEC Form X-17-f-1A
and mailed to Securities Information Center, P. O. Box 421, Wellesley Hills, MA
02181 and to the transfer agent. Copies of the report are to be kept on file for
3 years.
Inquiries are made by calling the Securities Information Center at
(617) 235-4570. You will be asked to provide our FINS number and ACCESS CODE,
which are 000828/25Y. Next you will be asked the CUSIP number and certificate
numbers for each of the certificates you wish to inquire about. You can inquire
as many times as you want, in one call or many.
Once a month, we will receive written confirmations of our inquiries,
which must be kept on file for 3 years.
If the securities inquired about have been reported lost or stolen, we
will be told at the time of inquiry, and told what steps to follow.
PROCEDURE FOR CURRENCY & FOREIGN TRANSACTIONS
It is the policy of Dupree & Company, Inc. not to accept cash. However
should a cash transaction be authorized by Thomas P. Dupree, Sr. or William T.
Griggs II a report of each deposit, withdrawal, exchange or any other
transaction involving currency in excess of $10,000.00 shall be made on the date
of such transaction to the Commissioner of Internal Revenue. Currency
transactions, regardless of amount, will be recorded in a two part receipt book.
The original copy will be given to the customer while the duplicate will be
retained by Dupree & Company as a part of its bookkeeping records.
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A report of each transaction with foreign: persons, financial agencies,
checks, drafts, currency and/or securities shall be made on the date of such
transaction to the Commissioner of Internal Revenue.
Copies of the above mentioned reports shall be kept for at least five
years.
POLICY AND PROCEDURE FOR GIFTS AND GRATUITIES
Dupree & Company, Inc., or any wholly owned subsidiary, forbids any
officer, director or employee from accepting any cash compensation, concession,
fee or commission from anyone other than Dupree. Annual non-cash gifts with
market values of $100 or less, per person, such as Christmas candy are
permissible.
POLICY AND PROCEDURE FOR DATA CONFIDENTIALITY AND SECURITY
Dupree & Company, Inc.'s proprietary data and operational programs are
maintained on the computer network system. All data files are copied nightly on
a tape backup system with copies rotated and maintained off-site.
All employees agree and understand that all company related files must
be maintained on network directories in order to be backed-up nightly for
security purposes. No personal files should be kept by employees on network
drives in order to utilize the most efficient use of the network system drive
space and tape backup.
Personal files, extremely sensitive company files, if any, must be
stored on the "C" drive of the individual employee's CPU or on a floppy
diskette. Any files kept on an individual CPU are subject to the failure of that
CPU and thus should also be copied for backup purposes on a regular basis to a
floppy diskette. Any company sensitive files or data files from secondary
software which reside on individual CPU's are the responsibility of those
employees who maintain such CPU's. Relevant employees must secure a backup of
vulnerable files and safely house the backup files for security purposes.
Employees understand and accept responsibility for maintaining
confidentiality and security of company data files.
Dupree & Company, Inc. maintains login ID's for each employee
workstation with network passwords. Propriety software also requires login ID's
and password access.
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All employees agree and understand that computer system access is
protected by multi-level login ID's and password safeguards.
Network login ID's will require the following settings: unique
passwords, five character minimum password length, 45 day password change
interval and one maximum connection. Intruder detection settings are set as:
three incorrect login attempts, one day bad login count retention and 14 day
period of account lockout.
Employees agree and understand all workstations will be logged out at
the end of each business day to prevent system access after business hours.
During the course of the business day terminals must be set to a screen saver
deactivation which activates after a maximum of 30 minutes of inactivity. This
screen saver also must utilize the password feature to reactivate access to the
terminal desktop. This password should be randomly changed by the employee
periodically to protect unauthorized access.
Login ID's and passwords are required on the company's bond accounting
and transfer agent (shareholder services) software that similarly mirrors, as
closely as possible, the criteria of network access as noted above.
All operational data files maintained by other that proprietary
software can also be assigned passwords if the files are unusually sensitive in
nature. Spreadsheet, word processing, database, ect., software all have
individual file password protection features. Employees understand these
features are available and can be used as and when security warrants. Employees
assume responsibility not to lose or forget passwords used on such files, if
lost or forgotten such files cannot be recovered and will not be able to be
opened.
Employees understand and accept responsibility to maintain all login
ID's, system, program and file passwords in such a manner that inhibits
unauthorized access. If employees maintain login ID's and passwords in a written
list, such list must be kept in such a manner that inhibits its identification
and use in order to prevent unauthorized access.
Employees agree and understand that data and password security and
confidentiality must be maintained by, but not limited to, the measures as
outlined above. Employees are required by any and all additional means to
minimize any potential risk which could result in unauthorized access to data
and programs which could lead to the accidental or intentional destruction or
disclosure of company data and information.
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POLICY AND PROCEDURE FOR INSIDER TRADING
Dupree & Company, Inc., or any wholly owned subsidiary, forbids any
officer, director or employee from trading, either personally or on behalf of
others, including mutual funds and private accounts managed by Dupree, on
material nonpublic information or communicating material nonpublic information
to others in violation of the law. This conduct is frequently referred to as
"insider trading". Dupree's policy applies to every officer, director and
employee and extends to activities within and outside their duties at Dupree.
Every officer, director and employee must read and retain this policy statement.
Any questions regarding Dupree's policy and procedures should be referred to
Dupree's president.
The term "insider trading" is not defined in the federal securities
laws, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communications of material nonpublic to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
trading by any insider, while in possession of material nonpublic
information, or
trading by a non-insider, while in possession of material nonpublic
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated, or
communicating material nonpublic information to others.
The elements of insider trading and the penalties for such unlawful
conduct are discussed below. If, after reviewing this policy statement, you have
any questions you should contact Dupree's president.
Who is an insider? The concept of "insider" is broad. It includes
officers, directors and employees of a company or of a state or political
subdivision (government entity). In addition, a person can be a "temporary
insider" if he or she enters into a special confidential relationship in the
conduct of a company's or a government entity's affairs and as a result is given
access to information solely for the company's or government entity's purposes.
A temporary insider can include, among others, a company's or a government
entity's: attorneys, accountants, consultants, bank lending officers, and the
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employees of such organizations. In addition, Dupree may become a temporary
insider of a company it advises or for which it performs other services.
According to the Supreme Court, the company or government entity must expect the
outsider to keep the disclosed nonpublic information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
What is material information? Trading on inside information is not a
basis for liability unless the information is material. "Material information"
generally is defined as information for which there is a substantial likelihood
that a reasonable investor would consider it important in making his or her
investment decisions, or information that is reasonably certain to have a
substantial effect on the price of a company's or a government entity's
securities. Information that officers, directors and employees should consider
material includes, but is not limited to: dividend changes, earnings estimates,
changes in previously released earnings estimates, significant merger or
acquisition proposals or agreements, major litigation, liquidation problems,
extraordinary management developments, possibilities of refunding or defeasement
and plans to issue significant amounts of parity bonds or bond anticipation
notes.
Material information does not have to relate to a company's business.
For example, in CARPENTER V. U. S., 108 U.S. 316 (1987), the Supreme Court
considered as material certain information about the contents of a forthcoming
newspaper column that was expected to affect the market price of a security. In
that case, a WALL STREET JOURNAL reporter was found criminally liable for
disclosing to others the dates that reports on various companies would appear in
the Journal and whether those reports would be favorable or not.
What is nonpublic information? Information is nonpublic until it has
been effectively communicated to the market place. One must be able to point to
some fact to show that the information is generally public. For example,
information found in a report filed with the SEC, or published by Dow Jones,
REUTERS ECONOMIC SERVICES, THE WALL STREET JOURNAL or other publications of
general circulation would be considered public, or in the case of local
municipal bond issues, information appearing in any local publication, or
otherwise generally known to the public of that governmental entity.
The following procedures have been established to aid the officers,
directors and employees of Dupree in avoiding insider trading, and to aid Dupree
in preventing, detecting and imposing sanctions against insider trading. Every
officer, director and employee of Dupree must follow these procedures or risk
serious sanctions, including dismissal, substantial personal
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liability and criminal penalties. If you have any questions about these
procedures you should consult the president of the firm.
Before trading for yourself or others, including investment companies
or private accounts managed by Dupree, in the securities of a company about
which you may have potential inside information, ask yourself the following
questions:
Is the information material? Is this information that an investor would
consider important in making his or her investment decisions? Is this
information that would substantially affect the market price of the
securities if generally disclosed?
Is the information nonpublic? To whom has this information been
provided? Has the information been effectively communicated to the
marketplace by being published in REUTERS, THE WALL STREET JOURNAL or
other publications of general circulation?
If, after consideration of the above, you believe that the information
is material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should take the following steps.
Report the matter immediately to the president.
Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by Dupree.
Do not communicate the information inside or outside Dupree, other than
to the president.
After the president has reviewed the issue, you will be instructed to
continue the prohibitions against trading and communication, or you
will be allowed to trade and communicate the information.
All officers, directors and employees of Dupree shall submit to the
President of this firm a report of every securities transaction in which they,
their families (including the spouse, minor children and adults living in the
same household as the officer, director or employee), and trusts of which they
are trustee or in which they have a beneficial interest have participated within
ten days after such transaction. The report shall include the name of the
security, date of the transaction, quantity, price and broker-dealer through
which the transaction was effected. This requirement may be satisfied by
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sending duplicate confirmations of such trades to the president of Dupree.
Information in your possession that you identify as material and
nonpublic may not be communicated to anyone, including persons within Dupree,
except as provided in the above paragraph. In addition, care should be taken so
that such information is secure. For example, files containing material
nonpublic information should be sealed; access to computer files containing
material nonpublic information should be restricted.
If, after consideration of the items set forth above doubt remains as
to whether information is material or nonpublic, or if there is any unresolved
question as to the applicability or interpretation of the foregoing procedures,
or as to the propriety of any action, it must be discussed with the president of
Dupree before trading or communicating the information to anyone.
POLICY AND PROCEDURE RELATING TO PRIVATE SECURITIES TRANSACTIONS
No officer or employee of the firm can engage in transactions in
private securities in any capacity without the prior written approval of the
President. Officers and employees are required to seek said approval if they
desire to participate in private securities transactions and to refrain from
such activities if approval is denied, as will likely be the case. If approval
is obtained, full and continuing disclosure to the firm of all aspects of the
transactions is required. Concealment of such activities is a serious offense
and can result in dismissal.
POLICY AND PROCEDURE RELATING TO INITIAL PUBLIC OFFERINGS
Officers or employees of the firm may not directly or indirectly
acquire securities in a "hot issue" of an initial public offering or in a
limited offering. Officers or employees wishing to acquire shares of a "stalled"
initial public offering are prohibited from obtaining such shares without the
prior written approval of the President. Such approval would be granted only
after extensive research. If approval is obtained, detailed records including
reasons for such approval, shall be maintained for five years.
OUTSIDE BUSINESS ACTIVITIES
Outside business activities, such as "moonlighting" or ownership in a
non-securities business or firm, are to be reported to the President. The
President can decide that an outside activity is detrimental to the
representative's performance or to the firm and direct the representative to
cease.
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POLICY AND PROCEDURE FOR POLITICAL CONTRIBUTIONS
It is the policy of Dupree & Company, Inc. not to make contributions to
any political campaign, political action committee, person or entity seeking
election to a public office, neither directly, through its officers and
employees nor a political action committee.
Officers and employees are permitted to make a political contribution
of as much as $250 per election to candidates that the officer or employee can
vote for. All other, or larger, political contributions are prohibited.
Officers and employees are required, quarterly, to list, in writing on
a form satisfactory to the firm, any and all political contributions they have
made during the quarter to candidates for state or local office, or to
candidates for Federal office who are elected officials of state or local
government at the time. Failure to correctly report such contributions on a
timely basis is a serious breach of duty. Any discovery, after the fact, of a
political contribution that was not reported can be grounds for dismissal. Such
reporting forms shall be maintained on file and reviewed quarterly by the
compliance officer, as evidenced by his or her signature and date on the form.
PROCEDURES REGARDING M.S.R.B. RULES G-37 AND G-38
Each quarter the firm shall report to the M.S.R.B. on form G-37/G-38 by
registered or certified mail; (1) all financial advisory agreements arrived at
by a method other than competitive bid, (2) all reportable political
contributions and, (3) the names of any persons used by the firm to obtain or
retain municipal securities business (a "consultant"). Information needed for
this report is to be obtained from the political contribution forms signed by
individuals. The municipal securities principal responsible for compliance with
MSRB Rule G-37 will maintain and preserve a schedule showing, by client name,
the dates on which negotiated financial advisory contracts are mailed to clients
and executed by the clients. In addition, a calendar will be maintained showing
the dates on which bond issues are sold and the corresponding settlement dates
of the bond issues. These two records will be used to prepare the quarterly
reports. Copies of the schedule and the calendar will be reviewed quarterly by a
compliance officer and compared to the Rule G-37 report. Said schedules and
calendars will be initialed by the compliance officer.
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REPORTING REQUIREMENTS UNDER N.A.S.D. RULE 3070
The firm will comply with the reporting requirements of Rule 3070,
incorporated into these Supervisory Procedures by reference in its entirety as
if written here in full.
In general, paragraph (a) of Rule 3070 requires that the firm promptly
report to the N.A.S.D. whenever an associated person has violated or been
accused of violating securities law and regulations, has been sued or has
settled a suit alleging such violations, is the subject of disciplinary action
by the firm or any securities regulatory agency resulting in suspension or
termination, and other similar occurrences.
Every person associated with the firm is required to report to the
President any occurrence described in Rule 3070 (a) and the firm shall report
such occurrences to the N.A.S.D. within 10 days of when the firm knew or should
have known of the occurrence.
The firm shall report customer complaints to the N.A.S.D. within 15
days after the end of any quarter in which complaints were received. (See
"Complaint File" above).
ACKNOWLEDGMENT
I have read and understand the foregoing procedures and will comply in
all respects with such procedures.
/s/Thomas P. Dupree, Sr Date
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/s/William T. Griggs II Date
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/s/Fred L Dupree, Jr. Date
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/s/Michelle M Dragoo Date
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/s/Dorine D. Kelly Date
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/s/Alison L. Arnold Date
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/s/Peggy Brooks Date
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/s/Vincent Harrison Date
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/s/Joyce Davis Date
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/s/Danielle Ellison Date
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/s/Logan Foster Date
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/s/Terry Schlernitzauer Date
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/s/Gina Blackater Date
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/s/Lamar Grimes Date
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