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Letter to Shareholders: June 30, 2026

Dear Shareholder:

Despite experiencing a brief selloff in March and some volatility in May, municipal bonds performed relatively well during the first half of this year. Strong demand for tax-exempt bonds allowed the market to efficiently digest a higher-than-normal supply of bonds, while strong credit fundamentals continued to act as support for the market. The Bloomberg Municipal Bond Index provided a total return of 2.32% for the 6-month period ending June 30.

Kevin Warsh was sworn in as the new Chairman of the Federal Reserve (“Fed”) on May 22. Chair Warsh previously served as a member of the Fed Board of Governors from 2006-2011 and has pledged to change how the central bank conducts monetary policy. Among other things, he has voiced support for eliminating forward guidance (where the Fed essentially telegraphs what it expects to do next) and has also called for streamlining the Fed’s policy statement and communications.

The Fed’s first meeting with Chair Warsh at the helm was held on June 17, and the Fed left the fed funds target rate range unchanged at 3.50-3.75%. The decision to leave rates unchanged was unanimous. In keeping with his pledge, the Fed’s policy statement was much more concise. The statement acknowledged that economic activity is expanding at a solid pace and that inflation remains above the Fed’s 2 percent goal; it also tersely stated that the “Committee will deliver price stability.”

Broad-based municipal credit conditions remain strong. State and local balance sheets are healthy by historical standards, and budget reserve levels remain elevated. Despite some weakness in corporate income taxes, overall year-to-date tax collections in most states remain above original estimates. As we enter the summer months, the technical backdrop for municipal bonds remains favorable with geopolitical tensions easing, issuance slowing, and demand holding.

Notwithstanding the stable market-level outlook, some sectors are showing signs of financial strain. Health care and higher education are examples of sectors where we think extra caution is warranted. With levels of credit divergence rising in the current market, careful security selection is more important than ever.

One of the most important jobs we perform as risk managers and portfolio managers is to help investors navigate the credit landscape and other nuances and quirks of the municipal bond market. We’ve been doing this for over 45 years and, without trying to be self-congratulatory, we think we are pretty good at it.

Thank you for investing with us. I hope you enjoy your summer!

Sincerely,

Allen E. Grimes, III President

Letter to Shareholders: March 31, 2026

Dear Shareholder:

The municipal bond market got off to a solid start during the first two months of this year. Geopolitical shockwaves, caused by the Middle East conflict, then hit financial markets hard. The outbreak of the Iranian war led to a selloff in almost all asset classes, driven primarily by fears that surging crude oil prices pose a serious new inflation threat.

The selloff has been indiscriminate and has impacted equities, fixed-income, and even gold. U.S. Treasury and tax-exempt yields have surged (prices lower) to their highest levels in months. While haven assets, including municipal bonds, typically benefit from a “flight-to-safety” trade when geopolitical tensions spike, that hasn’t happened this time. Instead, significantly higher crude oil prices have rekindled inflation fears which have taken center stage. Fixed-income markets have responded by repricing to reflect the possibility of a “stagflation” scenario with high inflation, stagnant growth, and elevated unemployment.

The turmoil in the Middle East has managed to entirely flip the script for fixed-income investments. Prior to the outbreak of the conflict, the prevailing market view was that the Fed would cut interest rates twice this year; however, the consensus is now that the Fed will keep rates on hold for an extended period. Citing increasing levels of uncertainty, the Fed not surprisingly decided to leave the fed funds target rate unchanged at 3.50-3.75% at its March 18 meeting.

The macroeconomic impact and market fallout from the oil supply shock remain fluid and highly uncertain. It’s impossible to predict how things will unfold from here. If the conflict winds down in the short term, crude oil prices should quickly retreat, and inflation fears should quickly ease. Conversely, a prolonged conflict could cause higher energy prices to become entrenched. This would likely create ripple effects for the economy and cause Fed policy to remain restrictive for longer.

On a slightly more upbeat note, it’s important to note that this selloff has not been a credit-driven event. This means that, even though their underlying credit fundamentals have not deteriorated, high-quality municipal bonds have cheapened substantially. From our perspective as a municipal bond manager, we view this disconnect as an opportunity to buy attractive tax-free yields at discounted prices.

As always, we appreciate the trust that you have placed in us.

Sincerely,

Allen E. Grimes, Ill President

Letter to Shareholders: December 31, 2025

Dear Shareholder:

Municipal bonds weathered a volatile 2025 which was characterized by market fallout from tariffs, sizeable swings in tax-exempt yields, significantly higher new issue volume, record trading volumes, and shifting interest rate dynamics.

During the first half of the year, longer-end tax-exempt yields moved higher as firmer inflation readings and a resilient economy kept the Federal Reserve (“Fed’) on hold. However, during the second half of the year, momentum shifted, and tax-exempt yields declined significantly as labor market conditions softened and the Fed resumed its easing cycle. Despite the choppy nature of the market, investment grade municipal bonds posted solid returns with the Bloomberg Municipal Bond Index providing a total return of 4.25% for the 12-month period ending December 31, 2025.

The Fed cut the federal funds target rate range 25 basis points at its December 10 meeting to 3.50-3.75%, noting that downside risks to employment had risen. The Fed’s job is particularly tricky right now given its dual mandate of price stability and maximum employment. With inflation still above the Fed’s 2% target rate and recent signs of labor market weakness, there’s an inherent tension between the hawks (focused primarily on inflation) and the doves (focused primarily on employment) that sit on the Federal Open Market Committee (“FOMC”). However, as Fed Chair Powell noted in his post-meeting remarks, the disagreement among FOMC members is not whether to hike or cut, but rather when the next rate cut should occur. The Fed’s next meeting is on January 28.

We have been busy repositioning our investment portfolios to take advantage of the higher yields that are currently available in the market. Among other things, this entails selling lower coupon, lower yielding bonds and replacing them with higher coupon, higher yielding bonds. Over time, the net effect of this will be to increase the distribution yields of our funds.

Many of the trends and forces that impacted the municipal bond market this year are likely to continue in 2026. Most market participants expect that supply will remain elevated and that demand will continue to be robust, especially as investors look for new places to lock in higher yields when cash interest rates decline further. Continued strong demand, stable credit conditions, and additional rate cuts should all act to support the municipal bond market in 2026.

As always, we appreciate the trust that you have placed in us. Happy New Year!

Sincerely,

Allen E. Grimes, Ill President

Letter to Shareholders: September 30, 2025

Dear Shareholder:

After a flat performance during the first half of the year, the municipal bond market finally jumped into gear in September with municipal bonds staging an impressive rally. September’s strong performance was driven primarily by expectations that the Federal Reserve would resume cutting interest rates and by higher-than-normal flows into the municipal bond asset class as investors rebalanced investment portfolios. For the 9-month period ending September 30, the Bloomberg Municipal Bond Index provided a total return of 2.64%.

At its September 17 meeting, the Federal Reserve (“Fed”) cut the fed funds target rate by a quarter point to a range of 4% to 4.25%. This represents the first rate cut since December, and it also marks a 125 total basis point reduction in rates since the Fed began its easing cycle in September of 2024. The Fed’s long pause was due to inflation concerns arising from tariffs imposed in February and April.

The Fed’s statement noted that downside risks to employment have risen and near-term risks to inflation are tilted to the upside. Recent economic data, along with substantial revisions to previous figures, point to a sharp slowdown in job growth. In the Fed’s press conference, Chair Powell emphasized that “two-sided risks mean that there is no risk-free path.” Two-sided risks is a fancy way of saying the Fed is worried about “stagflation,” which is a combination of slow growth, high unemployment, and rising prices. As expected, Chair Powell reiterated that Fed policy decisions would remain data dependent. The Fed’s revised dot plot suggests two more quarter point rate cuts this year; an additional quarter point cut in 2026; and, one more quarter point cut in 2027. If these rate cuts happen, the fed funds rate range will end up at 3.0-3.25%.

While tax-exempt yields have already fallen (bond prices up) in response to shifting rate expectations and a softening labor market, the Fed’s most recent pivot sets the stage for a more sustained period of declining yields. With this in mind and with tax-exempt yields still at very attractive levels by historical standards, we think the current market offers an attractive entry point for investors. Municipal bonds typically outperform in a declining rate environment while also offering the potential for capital appreciation. Elevated levels of tax-exempt bond issuance that existed during the first half of this year are expected to decline during the year’s last quarter. This potentially creates a favorable supply and demand dynamic that should act as a tailwind for municipal bonds for the remainder of this year.

With stock market indices reaching record highs and with additional Fed rate cuts possibly on the way, we think there is a good chance that the recent uptick in asset reallocation will pick up some more steam. It’s hard to believe, but there is currently $7.7 trillion parked in short-term money market accounts! Some of this money will inevitably be reallocated into longer duration, high quality fixed-income assets. While we admit we may be biased, we are convinced that investment grade municipal bonds, with their attractive tax-exempt status, strong credit fundamentals, and inherent diversification benefits, would be a logical landing spot for a portion of these assets.

Thank you for investing with us. We appreciate your business.

Sincerely,

Allen E. Grimes, Ill President

Letter to Shareholders: June 30, 2025

Dear Shareholder:

It’s the halfway point of the year, and the municipal bond market has had to contend with a laundry list of challenges. Among those challenges are rising interest rates, inflation, tariff-induced uncertainty and volatility, escalating geopolitical conflicts, concerns about the growing US deficit, tax reform, a Fed that has adopted a wait-and-see approach on future interest rate cuts, elevated levels of supply, and the loss of the last “AAA” credit rating for US Treasuries. Despite all of this, municipal bonds finished the first six months of this year nearly flat, with the Bloomberg Municipal Bond Index providing a total return of -0.35%.

The Fed reaffirmed its wait-and-see policy stance at its meeting in mid-June, leaving the fed funds target rate unchanged at 4-1/4 to 4-1/2 percent. In support of its decision, the Fed cited the strong economy, concerns that tariffs might raise costs for consumers and producers, and the possibility that oil prices could spike because of the Middle East conflict. The Fed’s median forecast still calls for two interest rate cuts in 2025. In the meantime, the Trump administration is waging a public relations pressure campaign to try to persuade Chair Powell to cut interest rates now; but, the Fed has been content to hold rates steady until there is further clarity on the economic impacts of tariffs and ongoing geopolitical uncertainty.

Most market participants expect that the outlook for the municipal bond market will improve during the second half of this year. While volatility may remain elevated, supply and demand dynamics are set to improve during the summer months, which typically experience a higher number of bond maturities and increased reinvestment activity. As the municipal bond market transitions from a net positive to a net negative supply (new issue supply minus redemptions), bond prices should rise. On the demand side of the equation, higher yields have helped bring retail and institutional buyers back into the municipal bond market. From a credit quality perspective, upgrades continue to exceed downgrades.

We are taking advantage of the higher yield environment which currently offers very attractive valuations. We have been busy selling some of our lower yielding, lower coupon bonds that we purchased when rates were close to zero and replacing them with higher yielding, higher coupon bonds. Over time, this will have the effect of increasing the distribution yields of our funds. As we always do, we are being extra careful with our securities selection, primarily buying essential service bonds and avoiding riskier sectors.

I wanted to take this opportunity to welcome Story Miller as a new member of the Dupree team. Story recently graduated from the University of Kentucky with degrees in finance and economics. We are pleased to be working with Story, and I am confident that you will enjoy getting to know him over the coming years.

Thank you for investing with us. I hope you enjoy your summer!

Sincerely,

Allen E. Grimes, Ill President

Information Statement – April 25, 2025

Letter to Shareholders: March 31, 2025

Dear Shareholder:

Financial markets bounced around like a ping pong ball during the first quarter. The volatility was pronounced and impacted virtually every asset class, including U.S. Treasuries and investment grade municipal bonds, which are typically seen as safe haven assets. Among other things, a narrowly averted government shutdown, on-again off-again tariffs, federal job layoffs, pending tax reform, and continued geopolitical uncertainty led to a general risk-off sentiment. For the 3-month period ending March 31, the Bloomberg Municipal Bond Index provided a total return of -0.22%.

At its mid-March meeting, the Federal Reserve (“Fed”) left the fed funds target range unchanged at 4.25%-4.50%. The Fed observed that the economy continues to expand at a solid pace but also that “uncertainty around the economic outlook has increased.” This represented a change from prior Fed statement language which noted that “risks to the outlook were roughly in balance.” The Fed cut its median GDP forecast from 2.1% to 1.7% for this year and also revised its near-term inflation forecast upwards from 2.5% to 2.8%. The Fed made it clear that it expects heightened uncertainty and slower economic growth this year, as well as a “transitory” increase in prices (most likely due to tariffs). The Fed’s revised forecast raises the question of whether a “stagflation” scenario might take hold where a combination of slower growth, higher unemployment, and rising prices hampers the economy.

In addition to policy uncertainty, a higher than normal level of municipal bond issuance during the first quarter also negatively impacted municipal bonds. Issuance during the first quarter was significantly above the trailing 3-year average. Many states and municipalities have increased their bond issuance in anticipation of reduced federal aid. Demand for tax-exempt bonds declined slightly, which was likely due to increased uncertainty. The resulting supply/demand imbalance led to lower municipal bond prices.

Credit quality in the municipal bond market continued to hold up well; however, some riskier sectors such as senior living, charter schools, small private colleges, and smaller rural hospitals are facing increasing challenges. We routinely avoid buying (with a few exceptions) in these sectors, so we have little to no exposure to these riskier bonds. The credit quality of all of our investment portfolios remains very strong.

On a housekeeping note, we have a number of shareholders who still receive dividend and redemption checks via the U.S. Postal Service. Recently, we have experienced a marked increase in the delivery time for mail sent to shareholders. Accordingly, I want to remind you of the available account option to link your Dupree Mutual Funds account directly to your bank account. Once linked, it allows us to send dividend and redemption proceeds quickly (funds usually arrive the next business day) and securely via the ACH system to your bank without incurring any charges. We can also pull funds directly from your bank account if you would like to purchase additional fund shares. Please call us if you would like to learn more about this convenient account feature.

As always, we appreciate your business. Thank you for investing with us.

Sincerely,

Allen E. Grimes, Ill President

Letter to Shareholders: December 31, 2024

Dear Shareholder:

The municipal bond market experienced another tough year in 2024 with the Bloomberg Municipal Bond Index providing a 1.05% total return. Performance during the third quarter of the year was the bright spot with municipal bonds staging a strong rally in anticipation of the Fed’s first interest rate cut (50 bps) in September. However, the positive performance was short-lived and largely offset by an unexpected spike in bond yields (prices down) in December. The end result was a very modest positive total return for the year.

At its mid-December meeting, the Fed cut the fed funds rate by a quarter point to 4.25% – 4.50%. The Fed’s economic forecasts were mostly unchanged with one notable exception: its inflation outlook. Reflecting its view that taming inflation will take longer than expected, the Fed revised its 2025 inflation forecast upwards from 2.2% to 2.5%. The Fed also updated its dot plot and now expects only two interest rate cuts next year, rather than the four it had previously predicted. The Fed’s more cautious rhetoric and stance caught the bond market by surprise, and the market quickly responded with a sharp increase in yields and a corresponding drop in bond prices.

Although total returns finished almost flat for the year, the municipal bond market performed relatively efficiently in 2024. Total tax-exempt issuance in 2024 came in at just over $500 billion, which is close to a record. The surge in supply was fueled by a combination of dwindling pandemic aid, slowing tax collections, and rising infrastructure costs. The good news is that demand for tax-exempt bonds held up well with new bond deals frequently oversubscribed. We have been staying busy taking advantage of higher absolute yields by selling some of our lower yielding bonds and replacing them with higher coupon bonds, which over time will help increase the distribution yields of our funds.

While there are lots of variables and unknowns that could impact financial markets in the coming year, we believe the municipal bond market is well positioned to turn in a solid performance in 2025. The inflation outlook is definitely a wildcard (particularly with a new incoming administration), but inflation will eventually subside which should permit the Fed to further ease rates. While we don’t believe the fed funds rate will return to a near-zero level, we are confident that rates will eventually drop further. All other things being equal, this should act as a support for bond prices next year.

Tax legislation is certain to be a priority in the new year. With the election now over, it seems clear that many provisions of the TCJA will be extended. Now the hard and messy work begins to figure out how to pay for it!

As always, we appreciate the confidence that you have placed in us. Happy New Year!

Sincerely,

Allen E. Grimes, Ill President

Letter to Shareholders: September 30, 2024

Dear Shareholder:

The long wait is finally over! For over a year the Fed maintained the fed funds target range at 5.25-5.50% which was up from near zero in early 2022 when the Fed’s current tightening cycle started. At its September meeting, the Fed pivoted and announced its first interest rate cut (a half point or 50 basis points) in four years. The size of the rate cut surprised many—it indicates that the Fed is shifting its focus from inflation to employment, which has shown signs of weakening. The Fed seems convinced that inflation will continue to decline slowly to desired levels, but the Fed is also signaling a concern that the economy may no longer be growing fast enough to support maximum employment. A sizeable rate cut to jump-start monetary policy easing, likely followed by smaller rate cuts is one way to address these concerns.

The Fed also lowered its forward fed funds target range rate projections. The dot plot median shows two more quarter-point cuts this year, four cuts next year, and two cuts in 2026. The new median projection sees the fed funds target rate ending 2025 in the range of 3.25-3.50%. The Fed’s Summary of Economic Projections forecasts 2.0% growth in real GDP for the next two years and core PCE inflation returning to its 2.0% target level in 2026. The unemployment rate is projected to peak at 4.4%.

What are the implications of the Fed’s policy pivot for fixed-income investors? The short answer: it’s great news. Although economic conditions can change quickly, it seems the economy may be heading for a soft landing (as opposed to a recession). Economic growth appears to be moderating, while inflation continues to subside. Historically, municipal bonds have performed well in a slow growth, benign inflation environment. On the other hand, if economic conditions deteriorate and we end up with a hard landing, high quality bonds have also typically performed quite well during these periods. One market commentator summed up the current situation pretty well when he said, “Bonds are back and doing what they are supposed to do.”

U.S. money market funds recently reached a record high of $6.3 trillion. The start of the Fed’s easing cycle has already lessened the appeal of holding cash or cash equivalents. In the coming months, most market participants believe that there will be a sizeable rotation from cash to high quality fixed-income assets as investors extend duration in an attempt to lock in attractive yields. With the rate cutting cycle still in its early stages, we think it’s an ideal time to consider investing in high quality tax-exempt municipal bonds that offer a reliable and predictable stream of tax-free income and the potential for capital appreciation. Additionally, municipal bonds offer excellent portfolio diversification benefits that are frequently overlooked.

Thank you for investing with Dupree Mutual Funds. As always, we appreciate your business.

Sincerely,

Allen E. Grimes, Ill President

Letter to Shareholders: June 30, 2024

Dear Shareholder:

The municipal bond market turned in a mostly flat performance during the first half of this year with the Bloomberg Municipal Bond Index providing a total return of -0.40%. Higher rates led to a decline in bond prices; however, the price declines were offset by the “carry” or income stream generated by tax-free municipal bonds.

Bond issuance in the first half of 2024 is close to 35% above the five-year average. The surge in supply coincided with relatively subdued demand as many investors seem content to hold cash until there is further clarity on the timing of the Fed’s future interest rate cuts. Bond issuance is expected to stay elevated for the foreseeable future.

In addition to supply and demand, two other issues are likely to have an outsized impact on the municipal bond market in the second half of this year: (1) potential interest rate cuts by the Fed and (2) the 2024 presidential election.

The Fed last met on June 12 and opted to keep the fed funds target rate range unchanged at 5.25% to 5.50%. The Fed reiterated its “higher for longer” message and modified its forecast, signaling that there will likely be only one rate cut in 2024. The Fed’s updated forecast now predicts that there will be as many as four rate cuts in 2025.

When the Fed finally pivots and begins its easing cycle, we expect that the yield curve will transition from its current inverted shape to a more upward-sloping trajectory as short term yields decline faster than long term yields. Historically, tax-exempt bonds have outperformed similar-duration taxable bonds (i.e., Treasuries) in declining rate environments. With inflation gradually receding and rate cuts around the corner, the stage is set for municipal bonds to outperform.

U.S. presidential elections typically have little impact on municipal bond returns. According to data compiled by Bloomberg Intelligence, going back to 1980, municipal bonds posted losses for the fourth quarter in only 2 of 11 election years (1980 and 2008). But, as we all know, elections have consequences. The main consequence for the municipal bond market this election cycle will be the effect on individual income tax rates, as select provisions of the Tax Cuts & Jobs Act (TCJA) will sunset at the end of 2025.

The Congressional Budget Office (CBO) just released its latest fiscal update, and it contains some sobering numbers and projections. For example, the CBO’s projected deficit for this fiscal year will hit 7% of Gross Domestic Product. By late 2034, the federal debt will top $50 trillion, and the federal government is then projected to spend more than 40% of all individual income tax revenue on debt service.

Given the current state of this country’s fiscal affairs and the projected trajectory of the federal deficit, the political party that prevails in the upcoming election will be faced with making some tough decisions with respect to future tax policy. Regardless of who wins, one thing seems pretty clear: there is almost no chance that individual tax rates will be lowered. Especially for investors in the highest tax brackets, the value of the municipal bond tax-exemption has never been more important.

The U.S. Securities & Exchange Commission recently adopted rule and form amendments that require mutual funds to transmit “concise and visually engaging” annual and semi-annual reports to shareholders that highlight key information about their fund investments. As such, our new “tailored shareholder reports” will have a fresh look. The rule requires that tailored shareholder reports be sent directly to investors, but this material will also be posted on our website.

As always, we appreciate the confidence that you have placed in us.

Sincerely,

Allen E. Grimes, Ill President