DUPREE MUTUAL FUNDS

December 31, 2002

SEMI ANNUAL REPORT

TO SHAREHOLDERS

ABOUT DUPREE MUTUAL FUNDS

In 1941, Dupree & Company, Inc., began business in Harlan, Kentucky as a small securities brokerage firm specializing in tax-exempt municipal bonds.

Over the years the firm, which in 1963 moved its offices to Lexington, Kentucky, grew to become a regional leader in public finance, helping to structure complex and innovative municipal bond financing for some of the largest public projects in the state of Kentucky.

In 1979, Dupree & Company began what is now Dupree Mutual Funds with the Kentucky Tax-Free Income Series and became the fund’s investment advisor. The fund was one of the first single-state municipal bond funds in the country, and the first mutual fund to invest solely in Kentucky municipal bonds. Since then, several new offerings have been added to the Dupree Mutual Funds family:

Kentucky Tax-Free Short-to-Medium Series in 1987;

Intermediate Government Bond Series in 1992;

Tennessee Tax-Free Income Series in 1993;

Tennessee Tax-Free Short-to-Medium Series in 1994;

North Carolina Tax-Free Income Series in 1995;

North Carolina Tax-Free Short-to-Medium Series in 1995;

Alabama Tax-Free Income Series in 2000, and

Mississippi Tax-Free Income Series in 2000.

Today, after more than 50 years in business, Dupree continues to be a pioneer in the industry. Our Kentucky, Tennessee, and Mississippi Series are currently the ONLY 100% “no-load” municipal bond funds available in those states. No-load means simply that shares of the funds are offered directly to investors with no front or back-end sales charges, as opposed to load funds which are sold through brokerage firms or other institutions.

At Dupree Mutual Funds, our goal is a simple one: to offer investors a high-quality, low-cost way to invest in municipal and government bonds while providing superior service to our shareholders. We encourage you to let us know how we’re doing.

TABLE OF CONTENTS

President’s letter	i
Financial Statements
Alabama Tax-Free Income Series	1
Kentucky Tax-Free Income Series	5
Kentucky Tax-Free Short-to-Medium Series	12
Mississippi Tax-Free Income Series	16
North Carolina Tax-Free Income Series	20
North Carolina Tax-Free Short-to-Medium Series	24
Tennessee Tax-Free Income Series	28
Tennessee Tax-Free Short-to-Medium Series	33
Intermediate Government Bond Series	37
Notes to Financial Statements	40

To the Shareholders of

Dupree Mutual Funds

ALABAMA TAX-FREE INCOME SERIES

KENTUCKY TAX-FREE INCOME SERIES

KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES

MISSISSIPPI TAX-FREE INCOME 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

July 1, 2002 – December 31, 2002

Investment Performance:

This last half of the calendar year was one of declining interest rates and rising municipal bond prices.

The Alabama Tax-Free Income Series began the period at a price of $11.04 per share with total assets of $2,190,955. At the period’s end its price per share was $11.60 and total assets were $4,360,435. There was no capital gains distribution during the period.

The Kentucky Tax-Free Income Series began the period at a price of $7.43 per share with total assets of $498,204,336. At the period’s end its price per share was $7.60 and total assets were $576,369,574. There was no capital gains distribution during the period.

The Kentucky Tax-Free Short-to-Medium Series began the period at $5.24 per share with total assets of $77,373,207. On December 31^st the price per share was $5.38 and total assets were $92,761,200. There was no capital gains distribution during the period.

The Mississippi Tax-Free Income Series began the period at a price of $10.85 per share with total assets of $1,454,331. At the period’s end its price per share was $11.37 and total assets were $2,336,805.

The North Carolina Tax-Free Income Series began the period at a price of $10.58 per share with total assets of $28,770,218. On December 31st the Income Series had assets of $35,041,693 and a price of $10.98. There was no capital gains distribution during the period.

The North Carolina Tax-Free Short-to-Medium Series began the period at $10.28 per share with total assets of $6,486,346. On December 31^st this series had assets of $10.67 and a price of $9,558,276. There was no capital gains distribution.

The Tennessee Tax-Free Income Series began the period at $10.82 with total assets of $48,527,218. On December 31^st price per share was $11.10 and total assets were $54,758,526. There was no capital gains distribution.

The Tennessee Tax-Free Short-to-Medium Series began the period at a price of $10.36 per share with total assets of $7,453,682. At year end price per share was $10.77 with total assets of $13,101,811. There was no capital gains distribution.

The Intermediate Government Bond Series began the period at $9.95 per share and ended December 31st at $10.30. Total assets at the beginning of the period were $11,783,217 and at the end of the period were $16,322,591. There was no capital gains distribution during the period.

Overview:

During this six month period the Federal Reserve lowered the Fed rate one more time by a full ½ of 1% in November. As a result, very short term interest rates have declined. The 90 day Treasury Bill had a yield of 1.70% at the beginning of the period and a yield of 1.20% at year end. The 30 year Treasury had a yield of 5.56% at the beginning of the period and a yield of 4.78% at the end; also a substantial decline.

The Dow Jones Industrials are down about 900 points in the six months and the S&P 500 is down about 100 points.

I am pleased to report that our Morningstar ratings continue to be among the very best for all our funds. At the period’s end five of our series were five star and four were four star.

The loyalty of shareholders has had much to do with our growth during this period. If you have questions or suggestions feel free to call us at (800) 866-0614 or, in Lexington, at 254-7741. In North Carolina you can also call Carolina Financial Group, Inc. at (800) 284-2562.

Yours truly,

Thomas P. Dupree, Sr.

President

DUPREE MUTUAL FUNDS—ALABAMA TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS Alabama Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#	Par Value	Market Value
INSURED MUNICIPAL REVENUE BONDS
54.24% of Net Assets
AL Housing Financial Authority Single Family Mortgage	5.050	10/01/2013	Aaa/NR	$15,000	$15,856
Alabama Private Colleges & University Facilities Authority	5.900	09/01/2016	Aaa/AAA*	10,000	11,072
Alabama State Docks Department Docks Facilities Revenue	5.500	10/01/2022	Aaa/AAA*	110,000	117,619
AL State Public School & College Authority Capital Improvem	4.250	11/01/2018	Aaa/AAA*	230,000	226,598
AL State University Revenue General Tuition & Fee—Series A	5.000	01/01/2019	Aaa/AAA*	50,000	52,530
Alabama Water Pollution Control Authority	5.500	08/15/2016	Aaa/AAA*	10,000	10,584
AL Water Pollution Control Authority Revolving Fund Loan	4.800	08/15/2018	Aaa/AAA*	350,000	51,983
Birmingham AL Airport Authority Airport Revenue	5.250	07/01/2020	Aaa/AAA*	10,000	10,263
Birmingham AL Special Care Facilities Financing	5.000	06/01/2020	Aaa/AAA*	100,000	102,948
Birmingham AL Multifamily Housing Revenue—Beaconview	5.600	07/01/2020	Aaa/AAA*	20,000	21,272
Blount County AL Water Authority Revenue	5.750	08/01/2019	Aaa/AAA*	125,000	138,168
Central Elmore AL Water & Sewer	5.000	07/01/2021	Aaa/AAA*	100,000	102,434
Colbert County Northwest AL Health Care Facility	5.750	06/01/2015	Aaa/AAA*	10,000	10,744
Colbert County-Northwest AL Healthcare Authority	5.750	06/01/2020	Aaa/AAA*	20,000	21,190
East AL Health Care Authority Facilities Revenue	5.250	09/01/2023	Aaa/AAA*	50,000	50,929
Fairhope AL Utilities Revenue Warrants	5.750	12/01/2021	Aaa/AAA*	25,000	26,866
Fort Payne AL Warrents	5.500	05/01/2016	Aaa/AAA*	10,000	10,831
Hoover AL Board of Education Capital Outlay Warrants	5.250	02/15/2026	Aaa/AAA*	35,000	36,238
Houston County AL Warrants	5.650	10/15/2015	Aaa/AAA*	25,000	28,098
Houston County AL Health Care—SE Alabama Medical Center	5.750	10/01/2022	Aaa/AAA*	20,000	20,413
Huntsville AL Health Care Authority Series A	5.000	06/01/2023	Aaa/AAA*	40,000	40,392
Huntsville AL Health Care Authority Series A	5.400	06/01/2022	Aaa/AAA*	50,000	52,737
Huntsville AL Public Building Authority Lease Revenue	5.125	10/01/2022	Aaa/AAA*	200,000	206,242
Huntsville AL Public Educational Building—A&M	5.600	06/01/2014	NR/A*	20,000	22,041
Huntsville AL Public Educational Building	6.050	06/01/2020	NR/A*	150,000	163,355
Jasper AL Waterworks & Sewer Board Water & Sewer Revenue	5.100	06/01/2018	Aaa/AAA*	30,000	31,841
Jasper AL Waterworks & Sewer Board Water & Sewer Revenue	5.200	06/01/2021	Aaa/AAA*	50,000	52,387
Jefferson County AL Board of Education School Reference	4.750	02/15/2018	Aaa/AAA*	150,000	153,819
Jefferson County AL Board of Education Capital Outlay	5.800	02/15/2020	AAA/AAA*	10,000	10,931
Jefferson County AL Sewer Revenue Capital Improvement	5.000	02/01/2021	Aaa/AAA*	30,000	30,904
Jefferson County AL Sewer Revenue Capital Improvement	5.000	02/01/2020	Aaa/AAA*	50,000	51,845
Lauderdale County & Florence AL Health Care Authority	5.250	07/01/2019	Aaa/AAA*	30,000	31,671
Lee County AL Warrants	5.500	02/01/2021	Aaa/AAA*	15,000	15,907
Limestone County AL Water Authority Water Revenue	5.250	12/01/2020	Aaa/AAA*	45,000	46,492
Linden AL Warrants	5.250	06/01/2023	NR/AA*	25,000	25,939
Mobile AL Limited Obligation Tax Warrants	5.500	02/15/2023	A1/NR	35,000	37,717
Montgomery AL Waterworks & Sanitary Sewer Board	5.000	09/01/2019	Aaa/AAA*	50,000	52,178
Nortwest AL Gas District Gas System Revenue	5.900	05/01/2020	Aaa/NR	35,000	38,694
Oxford AL Public Parks & Recreation Board Revenue	6.000	12/01/2021	NR/A*	115,000	125,097
Phenix City AL School Warrants	5.450	08/01/2016	Aaa/AAA*	10,000	11,137
Roanoke AL Warrants	4.450	05/01/2020	NR/AAA*	150,000	148,917
St Clair County Board of Education School Tax Anticipation	5.500	02/01/2016	Aaa/AAA*	10,000	10,949
Southeast AL Gas District System Revenue Series A	5.500	06/01/2020	Aaa/NR	10,000	10,914
Sylacauga AL Warrants	5.500	06/01/2025	Aaa/NR	25,000	26,605
Tuskegee AL Utilities Board Utilities Revenue	5.500	02/01/2022	Aaa/AAA*	70,000	74,018
University of Alabama Revenue—Birmingham	6.000	10/01/2020	Aaa/AAA*	25,000	28,230
University of Alabama University Revenue-Huntsville	5.750	12/01/2016	Aaa/AAA*	10,000	10,945
University AL University Revenue Hospital-Series A	5.400	09/01/2013	Aaa/AAA*	50,000	56,361
					2,634,896
GENERAL OBLIGATION BONDS
29.27% of Net Assets
Alabama State—Series A	5.000	06/01/2019	Aa3/AA*	30,000	31,089
Alabama State Series B	5.000	06/01/2021	Aa3/AA*	30,000	30,936
Alabama State—Series A	4.000	09/01/2016	Aa3/AA*	200,000	200,200
Alabama State—Series A	5.000	06/01/2020	Aa3/AA*	100,000	102,928
Alabama State—Series A	4.625	09/01/2022	Aa3/AA*	100,000	100,346
Alabama 21st Century Authority Tobacco Settlement Revenue	5.750	12/01/2020	Aa1/A*	50,000	52,176
Alabama 21st Century Authority Tobacco Settlement Revenue	5.850	12/01/2013	Aa1/A*	15,000	16,087
Birmingham AL Warrants	4.900	01/01/2018	Aa3/AA*	150,000	155,850

The accompanying notes are an integral part of the financial statements.

1

DUPREE MUTUAL FUNDS—ALABAMA TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS Alabama Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#	Par Value	Market Value
INSURED MUNICIPAL REVENUE BONDS
54.24% Of Net Assets
Birmingham AL Referral Warrants—Series A	5.250	05/01/2018	Aa3/AA*	$300,000	$324,876
Madison AL Warrants—Series C	5.000	09/01/2018	Aaa/AAA*	250,000	261,978
					1,276,465
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
2.91% of Net Assets
Mobile AL Spring Hill College Educational Building	5.100	09/01/2019	Aa3/NR	120,000	127,033
					127,033
HOSPITAL AND HEALTHCARE REVENUE BONDS
2.77% of Net Assets
Blount County AL Health Care Authority Tax Anticipation War	5.750	02/15/2019	BBB+	25,000	26,153
Mobile AL Second Medical Clinic Board Revenue Franklin	5.050	03/01/2018	Aa3/NR	50,000	51,972
Montgomery AL Baptist Medical Center Special Care	5.375	09/01/2022	Aaa/AAA*	30,000	31,302
Oneonta Eastern Health System	7.750	07/01/2021	A3/BBB*	10,000	11,362
					120,789
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
2.66% of Net Assets
Auburn AL Industrial Development Board Facilities Revenue	5.800	11/01/2011	NR/BBB*	75,000	87,834
Auburn AL Industrial Development Board Facilities Revenue	6.200	11/01/2020	NR/BBB*	25,000	28,366
					116,200
PREREFUNDED BONDS
.92% of Net Assets
Helena AL Utilities Board Water & Sewer Revenue	5.750	09/01/2025	Aaa/AAA*	25,000	28,428
Montevallo AL American	6.000	06/01/2013	NR	10,000	11,675
					40,103
MUNICIPAL UTILITY REVENUE BONDS
.73% of Net Assets
Birmingham AL Water & Sewer Revenue Warrants—Series A	5.125	01/01/2017	Aa3/AA-*	20,000	21,224
Douglas AL Water & Fire Protection Authority Water Revenue	5.600	06/01/2015	NR	10,000	10,459
					31,683
STATE AND LOCAL MORTGAGE REVENUE BONDS
.61% of Net Assets
Alabama Housing Financial Authority Single Family Housing	6.000	04/01/2016	Aaa/NR	25,000	26,381
					26,381
PUBLIC FACILITIES REVENUE BONDS
.51% of Net Assets
Hoover AL Warrants—Series A	5.650	01/01/2014	Aa3/AA-*	10,000	11,270
Rockford AL Public Building Authority Building Revenue	5.750	09/01/2015	NR	10,000	10,969
					22,239
LEASE REVENUE BONDS
.48% of Net Assets
Mountain Brook AL City Board Education Capital Outlay	5.200	02/15/2021	Aa2/NR	20,000	20,821
					20,821
Total Investments (cost $4,249,051)(a) 95.10 % of Net Assets					$4,416,611

* 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	$	173,491
Unrealized depreciation		(5,931	)
Net unrealized appreciation	$	167,560

The accompanying notes are an integral part of the financial statements.

2

DUPREE MUTUAL FUNDS—ALABAMA TAX-FREE INCOME SERIES

UNAUDITED

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2002

ASSETS:
Investments in securities, at value (Cost: $4,249,051)			$	4,416,611
Interest receivable				55,673
Receivable from Advisor				1,533
Pre-paid expenses				1,152
Total assets				4,474,969
LIABILITIES:
Cash Overdraft	$	65,187
Payable for:
Distributions		46,749
Transfer agent		2,688
Total liabilities				114,624
NET ASSETS:
Capital				4,195,545
Net accumulated realized loss on investment transactions				(2,760	)
Net unrealized appreciation in value of investments				167,650
Net assets at value			$	4,360,435
NET ASSET VALUE, offering price and redemption price per share     ($4,360,345 –:– 375,949 shares outstanding)			$	11.60

STATEMENT OF OPERATIONS

For the six month period ended December 31, 2002

Net investment income:
Interest income	$	86,983
Expenses:
Management fee		8,961
Transfer agent		2,688
Professional fees		957
Trustee fees		173
Other expenses		2,677
Total expenses		15,456
Expenses reimbursed by Investment Advisor		(9,542	)
Net investment income		81,069
Realized and unrealized gain on investments
Net realized gain		1,250
Net increase in unrealized appreciation		91,138
Net realized and unrealized gain on investments		92,388
Net increase in net assets resulting from operations	$	173,457

The accompanying notes are an integral part of the financial statements.

3

DUPREE MUTUAL FUNDS—ALABAMA TAX-FREE INCOME SERIES

UNAUDITED

STATEMENT OF CHANGES IN NET ASSETS

For the six month period ended December 31, 2002 and the year ended June 30, 2002

	Six months 12/31/2002			Year ended 06/30/2002
Increase in net assets:
Operations:
Net investment income	$	81,069		$	102,687
Net realized loss on investments		1,250			(2,757	)
Net increase in unrealized appreciation		91,138			39,373
Net increase in net assets resulting from operations		173,457			139,303
Distributions to shareholders from net investment income		(81,069	)		(102,687	)
Net fund share transactions		1,863,921			1,070,536
Total increase		1,956,309			1,107,152
Net assets:
Beginning of year		2,404,036			1,296,884
End of period	$	4,360,345		$	2,404,036

FINANCIAL HIGHLIGHTS

Selected data for a share outstanding:

	Six months 12/31/02			For the years ended June 30,						The period 1/1/2000 to 6/30/2000 (a)
				2002			2001
Net asset value, beginning of period	$	11.22		$	10.99		$	10.31		$	10.00
Income from investment operations:
Net investment income		0.26			0.56			0.56			0.26
Net gains/(losses) on securities, both realized and unrealized		0.38			0.23			0.68			0.31
Total from investment operations		0.64			0.79			1.24			0.57
Less distributions:
Distributions from net investment income		(0.26	)		(0.56	)		(0.56	)		(0.26	)
Net asset value, end of period	$	11.60		$	11.22		$	10.99		$	10.31
Total return (c)		5.78	%		7.32	%		12.33	%		5.79	%(c)
Net assets, end of period (in thousands):	$	4,360		$	2,404		$	1,297		$	222
Ratio of expenses to average net assets		0.17	%		0.28	%		0.21	%		0.50	%(b)
Before expense reimbursement		0.44	%		0.81	%		1.01	%		3.26	%(b)
Ratio of net investment income to average net assets		2.01	%		4.47	%		4.47	%		2.46	%(b)
After expenses reimbursement		2.28	%		4.99	%		5.27	%		5.23	%(b)
Portfolio turnover		1.58	%		18.15	%		15.28	%		0.00	%

(a) Commencement of Operations January 1, 2000

(b) Annualized

(c) Total return is not annualized.

The accompanying notes are an integral part of the financial statements.

4

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS Kentucky Municipal Bond—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
INSURED MUNICIPAL REVENUE BONDS
40.40% of Net Assets
Bardstown KY Combined Utilities Revenue	5.000	12/01/2017	Aaa/AAA	*	$	1,290,000	$	1,367,232
Bardstown KY Combined Utilities Revenue	5.000	12/01/2018	Aaa/A2	*		1,510,000		1,585,817
Boone County KY Water—Florence	5.000	12/01/2015	Aaa/AAA	*		1,000,000		1,083,720
Boone-Florence KY Water Supply System Revenue	5.000	12/01/2017	Aaa/A2	*		1,805,000		1,918,047
Boone-Florence KY Water Supply System Revenue	5.000	12/01/2018	Aaa/A2	*		1,900,000		2,000,111
Boone-Florence County KY Water Supply System Revenue	5.000	12/01/2020	Aaa/AAA	*		2,100,000		2,182,341
Boyle County KY Hospital Revenue-Ephraim McDowell Regional	5.800	04/01/2014	Aaa/AAA	*		1,000,000		1,049,630
Cambell & Kenton Counties Sanitation District Number 1	5.000	08/01/2017	Aaa/AAA	*		1,000,000		1,060,110
Carrollton & Henderson KY Public Energy Authority Gas Revenue	5.000	01/01/2007	Aaa/AAA	*		1,000,000		1,093,400
Fayette County KY School District Finance Corporation	5.250	04/01/2021	Aaa/AAA	*		2,285,000		2,406,356
Greater KY Housing Assistance Corporation	5.350	07/01/2022	Aaa/AAA	*		890,000		890,356
Greater KY Housing-Tug Fork Apartments	5.600	01/01/2007	Aaa/AAA	*		165,000		165,297
Greater KY Housing-Tug Fork Apartments	6.350	01/01/2022	Aaa/AAA	*		2,105,000		2,104,979
Greater KY Housing Assistance Corporation-Chenowith Woods	6.100	01/01/2024	Aaa/AAA	*		3,615,000		3,615,000
Greater Ky Housing Assistance Corporation-Northside Apts	6.200	02/01/2025	nr/AAA			8,735,000		8,744,871
Greater KY Housing Assistance Corporation Mortgage Revenue	5.450	05/20/2027	Aaa/NR			1,245,000		1,336,943
Jefferson County KY Health Facilities-Jewish Hospital	5.650	01/01/2017	Aaa/AAA	*		3,450,000		3,734,729
Jefferson County KY Health Facilities Jewish Hospital	5.700	01/01/2021	Aaa/AAA	*		4,520,000		4,824,784
Jefferson County KY Health Facilities University Medical	5.500	07/01/2017	Aaa/AAA	*		8,675,000		9,241,738
Jefferson County KY School District Finance Corporation	5.125	11/01/2016	Aaa/AAA	*		1,000,000		1,052,110
Jefferson County Ky School District Finance Corporation	5.250	01/01/2016	Aaa/AAA	*		1,000,000		1,053,390
Jefferson County Ky School District Finance Corporation	5.250	01/01/2019	Aaa/AAA	*		2,000,000		2,088,340
Jefferson County KY Health Facilities-Alliant Health System	5.125	10/01/2017	Aaa/AAA	*		2,940,000		3,136,216
Jefferson County KY Capital Projects Corporation Revenue	5.375	06/01/2018	Aaa/AAA	*		1,500,000		1,598,415
Jefferson County KY Hospital Revenue	6.436	10/01/2014	Aaa/AAA	*		1,500,000		1,529,985
Kentucky Economic Development Finance Authority-Ashland Hospital	6.125	02/01/2012	Aaa/AAA	*		4,000,000		4,093,880
Kentucky Economic Development Finance Authority-Ashland Hospital	5.000	02/01/2018	Aaa/AAA	*		1,500,000		1,562,535
Kentucky Development Finance Authority-St Claire Medical	5.875	09/01/2013	Aaa			2,000,000		2,123,980
Kentucky Development Finance Authority-St Claire Medical	5.625	09/01/2021	NR/AAA			2,500,000		2,604,900
Kentucky Development Finance Authority-St Elizabeth Hospital	5.900	12/01/2015	AAA/Aaa			2,500,000		2,637,875
Kentucky Development Finance Authority-Methodist Hospital	5.625	02/01/2017	NR/AAA			6,500,000		6,986,720
Kentucky Development Finance Authority-Appalachian Regional	5.850	10/01/2017	A/A			1,000,000		1,061,050
Kentucky Development Authority-South Central Nursing	6.000	07/01/2011	Aaa/AAA	*		3,225,000		3,761,866
Kentucky Development Finance Authority-Baptist Hospital	5.000	08/15/2015	Aaa/AAA	*		3,250,000		3,360,825
Kentucky Housing Corporation	4.750	07/01/2017	Aaa/AAA	*		1,335,000		1,371,659
Kentucky Housing Corporation	5.950	07/01/2017	Aaa/AAA	*		1,500,000		1,577,355
Kentucky Housing Corporation	5.400	07/01/2014	Aaa/AAA	*		4,700,000		4,881,091
Kentucky Housing Corporation	5.800	01/01/2019	Aaa/AAA	*		6,755,000		6,922,592
Kentucky Housing Corporation	6.500	07/01/2017	Aaa/AAA	*		3,935,000		4,111,288
Kentucky Housing Corporation	5.700	07/01/2017	Aaa/AAA	*		500,000		523,540
Kentucky Housing Corporation	6.400	01/01/2017	Aaa/AAA	*		7,120,000		7,503,768
Kentucky Housing Corporation	5.500	01/01/2015	Aaa/AAA	*		1,000,000		1,059,400
Kentucky State Property & Building Commission Project #64	5.500	05/01/2017	Aaa/AAA	*		8,000,000		8,685,920
KY State Property & Buildings Commission #73	5.000	11/01/2021	Aaa/AAA	*		1,000,000		1,033,690
KY State Property & Buildings Project #72	5.375	10/01/2016	Aaa/AAA	*		5,000,000		5,503,000
KY State Property and Buildings Commission Revenue #72	5.000	10/01/2020	Aaa/AAA	*		11,305,000		11,692,762
Kentucky State Property & Building #74	5.000	02/01/2020	Aaa/AAA	*		4,000,000		4,147,600
KY State Property & Buildings #74	5.000	02/01/2022	Aaa/AAA	*		3,000,000		3,059,100
KY State Property & Buildings Commission #74	5.000	02/01/2019	Aaa/AAA	*		3,000,000		3,128,880
Kentucky State Property & Buildings #73	5.500	11/01/2017	Aaa/AAA	*		1,000,000		1,112,300
Kentucky State Property & Building #73	5.000	11/01/2019	Aaa/AAA	*		1,360,000		1,423,376
Kentucky State Property & Buildings Commission #73	5.000	11/01/2020	Aaa/AAA	*		3,255,000		3,372,473
KY State Turnpike Authority Economic Development Road Revenue	5.150	07/01/2019	Aaa/AAA	*		1,000,000		1,053,430
KY Turnpike Economic Development	5.500	07/01/2010	Aaa/AAA	*		5,000,000		5,697,050
Lexington Fayette Urban County Government Public Facilities	5.125	10/01/2015	Aaa/AAA	*		1,770,000		1,900,113
Lexington Fayette Urban County Government Public Facilities	5.125	10/01/2017	Aaa/AAA	*		1,830,000		1,944,595
Lexington Fayette Urban County Government Public Facilities	5.125	10/01/2018	Aaa/AAA	*		2,135,000		2,249,906
Lexington Fayette Urban County Government Public Facilities	5.125	10/01/2019	Aaa/AAA	*		2,415,000		2,520,680

The accompanying notes are an integral part of the financial statements.

5

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS Kentucky Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
Louisville & Jefferson County KY Metropolitan Sewer District	5.300	05/15/2019	Aaa/AAA	*	$	6,500,000	$	6,654,505
Louisville & Jefferson County KY Metropolitan Sewer District	5.500	05/15/2021	Aaa/AAA	*		1,000,000		1,026,010
Louisville & Jefferson County KY Metropolitan Sewer District	5.000	05/15/2019	Aaa/AAA	*		2,500,000		2,604,125
Louisville & Jefferson County KY Regional Airport Authority	5.500	07/01/2017	Aaa/AAA	*		2,655,000		2,918,217
Louisville KY G.O. Series A	5.000	10/01/2020	Aaa/AAA	*		7,165,000		7,433,258
Louisville KY Parking Authority-River City First Mortgage	5.000	12/01/2017	Aaa/AAA	*		1,000,000		1,048,430
Madison County School District Finance Corporation	4.500	04/01/2016	Aaa/AAA	*		695,000		712,180
McCracken County School District Finance Corporation	4.650	07/01/2019	Aaa/AAA	*		1,655,000		1,679,130
McCracken County KY School District Finance Corporation	4.700	07/01/2020	Aaa/AAA	*		1,725,000		1,744,769
McCracken County School District Finance Corportion	5.000	07/01/2022	Aaa/AAA	*		4,000,000		4,100,320
McCreary County Courthouse & Public Square Corporation Revenue	5.400	09/01/2020	AAA			1,550,000		1,668,343
Northern KY University Certificate of Participation	4.900	12/01/2021	Aaa			2,725,000		2,774,186
Northern KY University Certificate of Participation	5.000	12/01/2024	Aaa			2,000,000		2,026,440
Northern KY Water District Revenue Series A	5.000	02/01/2020	Aaa/A2	*		3,080,000		3,184,381
Northern KY Water District Reveneu	5.000	02/01/2021	Aaa/AAA	*		2,635,000		2,708,490
Pike County KY Mortgage Revenue-Phelps Regional Health	5.350	09/20/2012	NR/AAA	*		240,000		263,222
Radcliff KY Mortgage Revenue-Lincoln Trail Care	5.650	01/20/2019	NR/AAA	*		3,110,000		3,287,457
Shelbyville KY Certificate of Participation	5.150	07/01/2018	Aaa			4,165,000		4,400,822
University of Kentucky Consolidated Educational Buildings	5.750	05/01/2015	AAA/Aaa	*		1,850,000		1,991,692
University of Kentucky Consolidated Education	5.000	05/01/2015	Aaa/AAA	*		1,305,000		1,396,572
Warren County Ky Hospital Facility Revenue	4.625	04/01/2012	Aaa/AAA	*		1,500,000		1,592,715
Warren County KY Hospital Facility Revenue	5.000	04/01/2016	AAA/Aaa	*		1,000,000		1,054,990
Warren County Ky Hospital Facility Revenue	5.000	04/01/2017	Aaa/AAA	*		1,000,000		1,047,240
								232,850,606
LEASE REVENUE BONDS
19.69% of Net Assets
Boone County Ky School District Finance Corporation	5.500	09/01/2019	Aa3			1,860,000		2,005,433
Boone County KY School District Finance Corporation	5.750	02/01/2020	Aa3/NR			1,200,000		1,321,824
Boone County KY School District Finance Corporation	5.000	08/01/2019	Aa3/NR			1,040,000		1,093,612
Boone County KY School District Finance Corporation	5.000	02/01/2022	Aa3			3,000,000		3,087,390
Bullitt County KY School District Finance Corporation	6.000	08/01/2014	Aa3			1,100,000		1,171,071
Bullitt County KY School District Finance Corporation	5.000	07/01/2021	Aa3			1,000,000		1,033,010
Christian County KY Public Courthouse Lease Revenue	5.125	08/01/2017	Aa3/NR			1,090,000		1,161,504
Christian County KY Public Courthouse Lease Revenue	5.125	08/01/2018	Aa3			1,145,000		1,213,826
Covington Independent School District Finance Corporation	5.250	06/02/2019	Aa3			1,225,000		1,296,099
Estill County KY School District Finance Corporation	5.875	08/01/2016	Aa3			1,780,000		1,951,307
Fayette County KY School District Financial Corporation	5.375	01/01/2017	AA3/AA	*		1,300,000		1,391,156
Floyd County KY School District Finance Corporation	6.000	06/01/2014	Aa3			1,000,000		1,060,300
Green County Ky School District Finance Corporation	5.000	04/01/2021	Aa3			1,085,000		1,118,277
Greenup County KY School District Finance Corporation	6.100	09/01/2014	Aa3			1,105,000		1,178,250
Greenup County School District Finance Corporation	4.650	03/01/2021	Aa3			1,650,000		1,655,990
Hardin County KY School District Finance Corporation	6.000	07/01/2016	Aa3			1,025,000		1,129,735
Harlan KY Independent School District Finance Corporation	6.000	05/01/2015	Aa3			275,000		297,143
Hopkins County KY School District Finance Corporation	5.125	06/01/2019	Aa3/NR			4,120,000		4,347,671
Jessamine County KY School District Finance Corporation	5.375	01/01/2017	Aa3/A+	*		1,500,000		1,598,475
Kenton County KY School District Finance Corporation	5.375	03/01/2017	A+			4,300,000		4,600,914
KY Area Development Districts Financing Trailer Lease Program	6.150	12/01/2022	NR/AA	*		1,020,000		1,128,436
KY Area Development Districts Lease City of Ewing	5.700	06/01/2015	NR/AA	*		1,500,000		1,661,040
KY Area Development Districts Lease City of Ewing	5.600	06/01/2022	AA			1,055,000		1,135,676
KY Area Development Districts Financing Trust Lease	5.350	12/01/2022	NR/AA	*		2,560,000		2,693,274
Kentucky Area Development Districts Financing Lease Program	5.400	12/01/2021	AA			710,000		757,307
Kentucky Area Development Districts Financing Lease	5.400	12/01/2021	AA			1,095,000		1,173,325
KY Interlocal Transportation Equipment Lease Revenue	6.000	12/01/2020	A+			400,000		408,380
Kentucky Infrastructure Authority	5.750	08/01/2013	Aa3/A	*		900,000		929,358
Kentucky Infrastructure Authority	5.750	08/01/2018	Aa3/A	*		1,500,000		1,551,945
Kentucky Infrastructure Authority	6.375	08/01/2014	Aa3/A	*		700,000		765,541
Kentucky Infrastructure Authority Series A	5.000	06/01/2019	Aa3/AA	*		1,000,000		1,037,510
Kentucky Infrastructure Authority	5.375	02/01/2018	Aa3/A	*		2,000,000		2,041,840
Kentucky Infrasturcture Authority	5.000	06/01/2017	Aa3/A	*		1,035,000		1,085,529
KY State Property & Buildings Commission Revenue #67	5.375	09/01/2019	Aa3/AA	*		3,475,000		3,702,543
Kentucky State Property & Building #68	5.250	10/01/2018	Aa3/A+	*		1,500,000		1,602,285
Kentucky State Property & Building #68	5.000	10/01/2019	Aa3/AA	*		5,500,000		5,706,580

The accompanying notes are an integral part of the financial statements.

6

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS Kentucky Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#	Par Value		Market Value
KY State Property & Building Commission #73	5.500	11/01/2013	Aa3/AA-*	$	1,500,000	$	1,706,625
Laurel County KY School District Finance Corporation	5.600	03/01/2017	Aa3		1,000,000		1,084,180
Laurel County School District School Building Revenue	5.750	06/01/2020	Aa3		1,250,000		1,374,688
Martin County KY School District Finance Corporation	5.375	09/01/2020	Aa3		1,100,000		1,160,049
Oldham County KY School District Finance Corporation	5.000	12/01/2021	Aa3		2,090,000		2,159,221
Pendleton County KY Multi-County Lease Revenue	6.500	03/01/2019	A*		34,500,000		35,340,075
Pendleton County KY School District Finance Corporation	5.125	06/01/2019	Aa3		1,140,000		1,202,962
Pike County School District Finance Corporation	5.000	09/01/2016	Aa3/NR		1,850,000		1,967,013
Pike County KY School District Finance Corporation	5.100	09/01/2020	Aa3/NR		1,000,000		1,042,940
Powell County KY School District Finance Corporation	5.900	08/01/2016	Aa3		1,185,000		1,284,896
Richmond KY Court Facilities Corporation Revenue	5.250	02/01/2019	AA		1,035,000		1,085,405
Scott County School District	5.000	03/01/2021	Aa3/NR		1,240,000		1,280,660
Trigg County School District Finance Corporation	4.600	04/01/2018	Aa3/NR		1,700,000		1,725,551
							113,507,819
HOSPITAL AND HEALTHCARE REVENUE BONDS
8.24% of Net Assets
Christian County KY Hospital Revenue-Jennie Stuart Medical	5.800	07/01/2011	A-*		270,000		296,198
Christian County KY Hospital Revenue-Jennie Stuart Medical	6.000	07/01/2017	A-*		5,000,000		5,267,600
Christian County KY Hospital Revenue-Jennie Stuart Medical	6.000	07/01/2013	A-*		2,870,000		3,069,637
Crittenden County Heathcare Facilities	6.300	01/01/2016	NR		2,095,000		2,225,833
Jefferson County KY Health Facilities Jewish Hospital	5.700	01/01/2011	A1/AA-*		1,200,000		1,324,332
Kentucky Economic Development Finance Authority Catholic	5.500	09/01/2014	Aa3/AA-*		1,375,000		1,502,600
Kentucky Development Finance Authority Green River	6.000	11/01/2010	Aa3		1,000,000		1,110,610
Kentucky Development Financial Authority Catholic Health	5.750	12/01/2015	AA/Aa2*		2,000,000		2,162,560
Kentucky Development Finance Authority-Appalachian Regional	5.850	10/01/2017	BB		1,000,000		880,900
Kentucky Development Finance Authority-Appalachian Regional	5.875	10/01/2022	BB		1,000,000		838,310
Kentucky Development Finance Authority-Catholic Health	5.000	12/01/2018	AA/Aa2*		6,950,000		7,026,937
Kentucky Economic Development Finance Authority Revenue	5.250	09/01/2021	Aa2/AA*		2,000,000		2,040,300
Kentucky Economic Development Finance Authority-Norton Health	6.125	10/01/2010	A-		7,000,000		7,408,030
Kentucky Economic Development Finance Authority-Norton Health	6.250	10/01/2012	A-		6,500,000		6,806,735
Kentucky Economic Development Finance Authority—Catholic Health	5.125	10/01/2021	A1/AA-*		1,000,000		1,034,610
Madison County Ky Industrial Building Revenue—McCready Manor	5.500	06/01/2020	AA*		1,785,000		1,916,501
Pike County KY Mortgage Revenue Phelps Regional Health	5.650	09/20/2027	NR/AAA*		2,435,000		2,594,298
							47,505,990
PUBLIC FACILITIES REVENUE BONDS
7.69% of Net Assets
Boone County KY Public Property Corporation—Judicial Facilities	5.125	09/01/2022	Aa3		1,750,000		1,820,875
Calloway County Public Property Corporation-Courthouse	5.625	03/01/2018	A		1,000,000		1,071,100
Danville Ky Multi-City Lease Revenue-Mt Sterling	5.000	09/01/2011	NR		545,000		579,744
Danville KY Multi-City Lease Revenue Paducah Public Property	7.200	06/01/2011	NR		500,000		509,665
Florence KY Public Property Corporation Revenue	5.250	03/01/2017	A/NR		1,060,000		1,113,466
Kenton County KY Public Property Corporation Revenue	5.700	12/01/2015	A2		1,305,000		1,409,609
Kenton County KY Public Property Corporation Revenue	5.700	12/01/2016	A2		1,380,000		1,484,356
Kentucky League of Cities-Middlesboro Series	6.200	08/01/2017	A-*		555,000		587,395
Kentucky State Property & Building Commission Project #63	5.100	11/01/2018	Aa3/AA-*		2,000,000		2,093,740
KY State Property & Buildings Community Revenues #67	5.125	09/01/2018	Aa3/AA-*		1,000,000		1,053,330
Mt. Sterling KY Lease Revenue-Kentucky League of Cities	6.100	03/01/2008	Aa		1,500,000		1,540,365
Mt. Sterling KY Lease Revenue-Kentucky League of Cities	6.150	03/01/2013	Aa		17,860,000		18,343,649
Mt. Sterling KY Lease Revenue-Kentucky League of Cities	6.200	03/01/2018	Aa		9,500,000		9,758,020
Oldham County KY Public Facilities Construction Corporation	5.250	06/01/2017	NR/A*		1,060,000		1,129,133
Union County KY Public Property Corporation	6.125	09/01/2015	NR		700,000		736,316
Woodford County KY Public Property Corporation Revenue	5.600	11/01/2017	A2		1,065,000		1,105,374
							44,336,137
ESCROWED TO MATURITY BONDS
7.53% of Net Assets
Danville KY Multi-City Lease Revenue-Hopkinsville	6.875	06/01/2012	Baa1		2,170,000		2,741,166
Jefferson County KY Health Facilities Services—Alliant Health	5.125	10/01/2018	Aaa/AAA*		33,000,000		35,379,300
Jefferson County KY Health Facilities Alliant Health Services	5.125	10/01/2017	Aaa/AAA*		4,980,000		5,258,880
							43,379,346

The accompanying notes are an integral part of the financial statements.

7

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE INCOME SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
Kentucky Municipal Bonds—100%
December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#	Par Value		Market Value
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
4.74% of Net Assets
Ashland KY Pollution Control Revenue-Ashland Oil Project	6.650	08/01/2009	Baa2	$	8,835,000	$	9,012,230
Campbellsville KY Industrial Revenue-Campbellsville College	6.950	03/01/2015	NR/NR		1,150,000		1,203,809
Campbellsville KY Industrial Revenue-Campbellsville College	6.000	03/01/2017	NR		1,920,000		2,035,642
Jefferson County KY Pollution Control Revenue-E I DuPont	6.300	07/01/2012	Aa3/AA*		3,500,000		3,647,735
Jefferson County KY Pollution Control-Louisville Gas	5.625	08/15/2019	A1/A*		9,150,000		9,317,537
Kentucky League of Cities-Ashland Series	6.250	08/01/2017	A-		1,550,000		1,646,364
Meade County KY Pollution Control Revenue-Olin Corporation	6.000	07/01/2007	NR		445,000		460,588
							27,323,904
PREREFUNDED BONDS
3.94% of Net Assets
Boone County KY School District Finance Corporation	6.000	02/01/2018	Aa3		1,000,000		1,024,020
Boone County KY School District Finance Corporation	5.700	05/01/2018	Aa3		2,500,000		2,587,750
Elsmere KY Industrial Development Revenue-Courtaulds plc	6.750	04/01/2010	NR		2,000,000		2,220,680
Floyd County KY Public Property Revenue-Justice Center	6.125	09/01/2018	A+		1,240,000		1,416,539
Jefferson County KY Health Facilities-Jewish Hospital	6.500	05/01/2015	Aaa/AAA*		6,380,000		6,616,443
Jefferson County Ky Improvement	6.000	04/01/2020	Aa2/AA*		1,985,000		2,305,994
Jefferson County KY Capital Projects Corporation Revenue	5.600	04/01/2014	AAA/Aaa*		1,000,000		1,126,350
Jessamine County KY School District Finance Corporation	6.125	06/01/2015	Aaa/AAA*		1,000,000		1,086,530
Junction City KY College Revenue-Center College Project	5.875	04/01/2017	A2/NR		1,000,000		1,158,520
Letcher County KY School District Finance Corporation	6.700	10/01/2014	Aa3		1,490,000		1,652,589
McLean County KY School District Finance Corporation	6.000	06/01/2014	Aa3		1,405,000		1,523,287
							22,718,702
GENERAL OBLIGATION BONDS
2.27% of Net Assets
Bowling Green Ky General Obligation	5.300	06/01/2018	Aa3/NR		1,000,000		1,071,500
Hardin County KY General Obligation	5.125	06/01/2019	A1		2,255,000		2,348,357
Jefferson County Series A	4.900	12/01/2018	Aa2/AA*		1,605,000		1,675,492
Kentucky State Property & Buildings Commission Project #62	4.625	09/01/2013	Aa3/AA-*		2,750,000		2,902,103
Lexington Fayette Urban County Government Detention Center	4.750	05/01/2018	Aa2/AA+*		3,120,000		3,215,066
Louisville KY General Obligation	5.000	11/01/2019	Aa3/AA-*		1,775,000		1,861,833
							13,074,351
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
1.54% of Net Assets
Georgetown College Project Series A	6.000	11/15/2016	A		1,000,000		1,113,930
Georgetown College Project Series A	6.250	11/15/2020	A		4,000,000		4,414,840
Jefferson County KY College Project Bellarmine College	5.250	05/01/2019	Baa2		2,000,000		2,061,180
University of Louisville Health & Education	6.000	11/01/2013	A1		1,180,000		1,258,069
							8,848,019
CERTIFICATES OF PARTICIPATION BONDS
.90% of Net Assets
Jeffersontown KY Certificate of Participation	6.500	09/01/2009	A3		1,400,000		1,510,432
Jeffersontown KY Certificate of Participation	5.750	11/01/2015	A3		1,095,000		1,179,589
Shelbyville KY Certificates of Participation	5.350	10/01/2013	NR		1,295,000		1,324,552
Shelbyville KY Certificates of Participation	5.450	10/01/2017	NR		1,130,000		1,154,227
							5,168,800
STATE AND LOCAL MORTGAGE REVENUE BONDS
.81% of Net Assets
Florence KY Housing Facility Revenue	6.300	08/15/2019	A/A		2,615,000		2,931,598
KY State Property & Buildings Community Revenue Project #67	5.125	09/01/2016	Aa3/AA-*		1,000,000		1,066,110
Louisville Housing Assistance Mortgage Corp Rivertown Project	5.100	07/01/2024	Aa2/NR		655,000		656,323
							4,654,031

The accompanying notes are an integral part of the financial statements.

8

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE INCOME SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
Kentucky Municipal Bonds—100%
December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#	Par Value		Market Value
MUNICIPAL UTILITY REVENUE BONDS
.48% of Net Assets
Cynthiana KY Waterworks & Sewer Revenue	6.400	01/01/2007	BBB-	$	575,000	$	586,500
Danville KY Multi-City Lease Revenue-Ashland Utilities	6.750	04/01/2012	BBB+*		915,000		933,291
KY Rural Water Financial Corporation Public Project Revenue	5.375	02/01/2020	NR/AA*		1,140,000		1,229,684
							2,749,475
Total Investments (cost $541,356,309)(a)—98.22 % of Net Assets						$	566,117,178

* 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	$	25,468,559
Unrealized depreciation		(707,690	)
Net unrealized appreciation	$	24,760,869

The accompanying notes are an integral part of the financial statements.

9

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE INCOME SERIES

UNAUDITED

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2002

ASSETS:
Investment in securities, at value (Cost: $541,356,309)			$	566,117,178
Cash				6,454,557
Interest receivable				9,513,493
Receivable for investments sold				1,572,800
Total assets				583,658,028
LIABILITIES:
Payable for:
Distributions	$	6,280,263
Fund shares redeemed		646,628
Management fee		202,371
Transfer agent		58,974
Accrued expenses		100,218
Total liabilities				7,288,454
NET ASSETS:
Net assets consist of:
Capital			$	554,476,264
Net accumulated realized losses on investment transactions				(2,867,559	)
Net unrealized appreciation in value of investments				24,760,869
Net assets at value			$	576,369,574
NET ASSET VALUE, offering price and redemption price per share ($576,369,574/75,854,243 shares outstanding)			$	7.60
STATEMENT OF OPERATIONS
For the six months ended December 31, 2002
Net investment income:
Interest income			$	14,523,422
Expenses:
Investment advisory fees				1,187,097
Transfer agent				343,207
Professional fees				43,971
Trustee fees				29,137
Other expenses				53,187
Total expenses				1,656,599
Net investment income				12,866,823
Realized and unrealized gain on investments
Net realized gain				305,948
Net increase in unrealized appreciation				8,554,690
Net realized and unrealized gain on investments				8,860,638
Net increase in net assets resulting from operations			$	21,727,461

The accompanying notes are an integral part of the financial statements.

10

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE INCOME SERIES

UNAUDITED

STATEMENTS OF CHANGES IN NET ASSETS

For the year ended June 30, 2002 and the six months ended December 31, 2002

	Six Months 12/31/02			One Year 2002
Increase in net assets:
Operations:
Net investment income	$	12,866,823		$	24,363,659
Net realized gain on investments		305,948			722
Net increase in unrealized appreciation		8,554,690			4,051,486
Net increase in net assets resulting from operations		21,727,461			28,415,867
Distributions to shareholders		(12,866,823	)		(24,363,659	)
Net fund share transactions		32,152,515			64,068,511
Total increase		41,013,153			68,120,719
Net assets:
Beginning of year		535,356,421			467,235,702
End of period	$	576,369,574		$	535,356,421

FINANCIAL HIGHLIGHTS

Selected data for a share outstanding:

	Six months			For the years ended June 30,
	12/31/2002			2002			2001			2000			1999
Net asset value, beginning of year	$	7.48		$	7.41		$	7.22		$	7.47		$	7.65
Income from investment operations:
Net investment income		0.17			0.36			0.37			0.38			0.37
Net gains/(losses) on securities, both realized and unrealized		0.12			0.07			0.19			(0.25	)		(0.18	)
Total from investment operations		0.29			0.43			0.56			0.13			0.19
Less distributions:
Distributions from net investment income		(0.17	)		(0.36	)		(0.37	)		(0.38	)		(0.37	)
Net asset value, end of period	$	7.60		$	7.48		$	7.41		$	7.22		$	7.47
Total return		3.95	%		5.93	%		7.94	%		1.78	%		2.52	%
Net assets, end of period (in thousands)	$	576,370		$	535,360		$	467,236		$	416,957		$	422,996
Ratio of expenses to average net assets		0.30	%		0.59	%		0.60	%		0.61	%		0.61	%
Ratio of net investment income to average net assets		2.29	%		4.84	%		5.05	%		5.17	%		4.88	%
Portfolio turnover		5.05	%		9.99	%		9.06	%		15.74	%		10.69	%

The accompanying notes are an integral part of the financial statements.

11

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
Kentucky Municipal Bonds—100%
December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
INSURED MUNICIPAL REVENUE BONDS
46.90% of Net Assets
KY Economic Development Finance Authority Baptist Health System	4.750	08/15/2005	Aaa/AAA	*	$	4,000,000	$	4,250,080
Carrollton & Henderson Ky Public Energy Authority Gas Revenue	5.000	01/01/2009	Aaa/AAA	*		3,650,000		4,035,440
KY Housing Corporation Housing Revenue	5.150	07/01/2007	Aaa/AAA	*		3,225,000		3,391,475
KY Turnpike Authority Economic Development Road Revenue	5.500	07/01/2007	Aaa/AAA	*		3,000,000		3,382,140
Louisville & Jefferson County Metro Sewer District Revenue	5.000	05/15/2006	Aaa/AAA	*		2,505,000		2,582,304
KY Housing Corporation Housing Revenue	5.300	01/01/2004	Aaa/AAA	*		2,250,000		2,317,028
KY Property & Building Commission Project #73 Series D	5.500	08/01/2007	Aaa/AAA	*		2,000,000		2,258,260
Louisville & Jefferson County Airport Authority System Revenue	5.600	07/01/2013	Aaa/AAA	*		2,000,000		2,068,580
KY State Property & Building Commission Project #69-Series B	5.000	08/01/2009	Aaa/AAA	*		1,620,000		1,795,867
KY Housing Corporation Housing Revenue	4.850	07/01/2004	Aaa/AAA	*		1,700,000		1,758,956
Northern KY University Certificates of Participation	5.000	12/01/2007	Aaa/AAA	*		1,190,000		1,327,386
KY State Property & Building Commission Project #69 Series D	5.500	08/01/2008	Aaa/AAA	*		1,140,000		1,294,253
Kentucky State Property & Building Commission Project #74	5.375	02/01/2009	Aaa/AAA	*		1,000,000		1,129,950
KY Economic Development Finance Authority Appalachian Hospital	5.700	10/01/2010	NR/A	*		1,000,000		1,097,960
KY Economic Development Finance Authority Appalachian Hospital	5.500	10/01/2007	A/A	*		1,000,000		1,094,550
Northern KY Water Services District Water District Revenue	4.750	02/01/2011	Aaa/NR			1,025,000		1,091,523
Carrollton & Henderson KY Public Energy Authority Gas Revenue	5.000	01/01/2006	Aaa/AAA	*		1,000,000		1,084,800
Northern KY University Certificate of Participation Housing Facilities	4.500	12/01/2004	Aaa/AAA	*		1,000,000		1,054,900
Kentucky State Property & Building Community Project #65	5.750	02/01/2009	Aaa/AAA	*		750,000		861,188
Jefferson County KY School District Finance Corporation S:A	5.000	01/01/2009	Aaa/AAA	*		750,000		829,200
Carrollton & Henderson KY Public Energy Authority Gas Revenue	4.200	01/01/2006	Aaa/AAA	*		750,000		796,230
University Of Kentucky Consolidated Education Building	4.600	05/01/2011	Aaa/AAA	*		650,000		673,348
Jefferson County KY School District Finance Corporation S:A	4.900	01/01/2008	Aaa/AAA	*		550,000		602,734
Kentucky Economic Development Finance Authority Ashland Hopital	5.000	02/01/2005	Aaa/AAA	*		500,000		532,775
Boone-Florence Water Supply System Revenue	4.300	12/01/2011	Aaa/AAA	*		505,000		532,139
Eastern KY University Consolidated Education Building	4.300	05/01/2009	Aaa/AAA	*		500,000		531,580
Jefferson County KY Capital Project Corporation Lease Revenue	5.500	04/01/2005	Aaa/AAA	*		365,000		395,561
Marion County Ky Alliant Health System Revenue	4.200	10/01/2007	Aaa/AAA	*		325,000		349,739
Jefferson County KY Health Facility University Medical Center	5.000	07/01/2008	Aaa/AAA	*		300,000		330,369
Greater KY Housing Assistance Corporation Mortgage Revenue	6.250	01/01/2005	Aaa/AAA	*		55,000		55,111
								43,505,424
LEASE REVENUE BONDS
16.78% of Net Assets
Ky Property & Building Commission Project #67	5.500	09/01/2007	Aa3/AA-	*		2,065,000		2,333,264
KY Infractructure Authority Series A	5.000	06/01/2010	Aa3/AA-	*		2,000,000		2,205,400
KY Property & Building Commission Project #73	5.250	11/01/2009	Aa3/AA-	*		1,790,000		2,026,441
KY State Property & Building Commission Project #55	4.700	09/01/2004	Aa3/AA-	*		1,730,000		1,803,300
KY Area Development District Financing City of Ewing	5.100	06/01/2010	NR/AA	*		1,300,000		1,437,020
KY State Property & Building Commission Road Fund Proj #73	3.700	11/01/2008	Aa3/AA-	*		1,000,000		1,043,160
KY Infrastructure Authority Government Agency Program S:K	4.000	08/01/2010	NR/A-	*		1,000,000		1,037,070
KY State Property & Building Community Revenue Project #60	5.500	10/01/2008	Aa3/AA-	*		500,000		567,520
Kentucky Asset/Liability Community General Fund Project Notes	5.000	02/01/2007	Aa3/AA-	*		500,000		549,040
Kenton County KY School District Finance Corporation	5.200	03/01/2005	Aa3/AA	*		500,000		538,615
Jefferson County Ky School District Finance Corporation S:B	4.400	02/01/2008	Aa3/AA-	*		500,000		535,930
KY Interlocal School Transportation Equipment Lease	4.900	03/01/2004	Aa3/NR			500,000		515,450
KY Interlocal School Transportation Equipment Lease	4.800	03/01/2003	Aa3/NR			500,000		503,060
KY Infrastructure Authority Revolving Fund Program Ser:L	5.000	06/01/2006	Aa3/AA-	*		415,000		454,471
Kentucky State Property & Building Commission Project #71	5.500	08/01/2008	Aa3/AA-	*		10,000		11,326
								15,561,067
HOSPITAL AND HEALTHCARE REVENUE BONDS
7.40% of Net Assets
KY Economic Development Finance Authority Catholic Health	5.500	12/01/2010	Aa3/AA-	*		2,100,000		2,403,240
KY Economic Development Finance Authority Catholic Health	5.500	12/01/2006	Aa2/AA	*		1,790,000		2,002,616
KY Economic Development Finance Authority Catholic Health	4.500	10/01/2011	A1/AA-	*		1,000,000		1,062,350
KY Economic Development Finance Authority Norton Health	6.125	10/01/2010	KY-INCO			1,000,000		1,058,290
KY Economic Development Finance Authority Catholic Health	4.250	10/01/2009	A1/AA-	*		255,000		270,649
Christian County KY Hospital Jennie Stuart Medical Center	5.250	07/01/2003	NR/A-	*		70,000		70,890
								6,868,036

The accompanying notes are an integral part of the financial statements.

12

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
Kentucky Municipal Bonds—100%
December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
PUBLIC FACILITIES REVENUE BONDS
6.68% of Net Assets
Mt Sterling KY Lease Revenue KY League of Cities Series:A	5.625	03/01/2003	Aa/NR		$	6,150,000	$	6,195,756
								6,195,756
MUNICIPAL UTILITY REVENUE BONDS
3.86% of Net Assets
Lexington-Fayette Urban County Government Ky Sewer System B	5.000	07/01/2007	Aa3/AA	*		1,290,000		1,424,134
Louisville KY Waterworks Board Water System Revenue Bonds	4.500	11/15/2010	Aa1/AA	*		1,000,000		1,078,960
Louisville KY Waterworks Board Water System Revenue Refunding	4.250	11/15/2007	Aa1/AA	*		1,000,000		1,078,830
								3,581,924
GENERAL OBLIGATION BONDS
3.24% of Net Assets
Jefferson Co General Obligation	5.500	08/15/2010	Aa2/AA	*		2,635,000		3,007,510
								3,007,510
ESCROWED TO MATURITY BONDS
2.69% of Net Assets
Jefferson County KY Capital Projects Corporation Revenue	6.375	12/01/2007	NR			1,500,000		1,762,740
Kentucky State Property & Building Commission Project #71	5.500	08/01/2008	Aaa/AAA	*		440,000		502,709
Owensboro KY Electric Light & Power Revenue	10.500	01/01/2004	AAA	*		220,000		231,480
								2,496,928
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
2.22% of Net Assets
University Of Louisville KY Consolidated Education Building	5.200	05/01/2004	A1/AA-	*		1,000,000		1,031,920
Murray State University Revenue Series G Second Series	5.600	05/01/2006	A3/A	*		1,000,000		1,031,250
								2,063,170
PREREFUNDED BONDS
2.22% of Net Assets
Ky State Property & Building Commission Revenue Project #59	5.600	11/01/2007	Aa3/AA	*		1,550,000		1,745,099
KY State Property & Building Commission Project #55	4.700	09/01/2004	Aaa/AAA	*		300,000		313,083
								2,058,182
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
2.15% of Net Assets
Ashland KY Pollution Control Revenue Ashland Oil Project	6.650	08/01/2009	Baa2/NR			1,500,000		1,530,090
Meade County KY Pollution Control Revenue-Olin Corporation	6.000	07/01/2007	NR			450,000		465,764
								1,995,854
CERTIFICATES OF PARTICIPATION BONDS
.88% of Net Assets
Shelbyville Certificates of Participation Refinancing	4.900	10/01/2007	NR			810,000		815,087
								815,087
							$	88,148,937

Total Investments (cost $84,608,951)(a)—95.03% of Net Assets

* 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	$	3,664,113
Unrealized depreciation		(124,127	)
Net unrealized appreciation	$	3,539,986

The accompanying notes are an integral part of the financial statements.

13

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES

UNAUDITED

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2002

ASSETS:
Investment in securities, at value (Cost: $84,608,951)			$	88,148,937
Cash				2,608,055
Receivable for investments sold				945,000
Broker receivable				9,360
Interest receivable				1,402,688
Total assets				93,114,040
LIABILITIES:
Payable for:
Distributions	$	296,217
Fund shares redeemed		1,500
Investment advisor		38,320
Transfer agent		9,739
Other fees		7,065
Total liabilities				352,841
NET ASSETS:
Capital				90,318,607
Net accumulated realized losses on investment transactions				(1,097,393	)
Net unrealized appreciation in value of investments				3,539,986
Net assets at value			$	92,761,200
NET ASSET VALUE, offering price and redemption price per share ($92,761,199/ 17,236,359 shares outstanding)			$	5.38
STATEMENT OF OPERATIONS
For the year ended December 31, 2002
Net investment income:
Interest income			$	1,862,854
Expenses:
Investment advisory fees				217,920
Transfer agent				55,326
Professional fees				5,174
Trustee fees				4,448
Other expenses				17,088
Total expenses				299,956
Net investment income				1,562,898
Realized and unrealized gain on investments
Net realized gain				9,661
Net increase in unrealized appreciation				1,259,286
Net realized and unrealized gain on investments				1,268,947
Net increase in net assets resulting from operations			$	2,831,845

The accompanying notes are an integral part of the financial statements.

14

DUPREE MUTUAL FUNDS—KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES

UNAUDITED

STATEMENTS OF CHANGES IN NET ASSETS

For the year ended June 30, 2002 and the six months ended December 31, 2002

	Six Months 12/31/02			One Year 2002
Increase in net assets:
Operations:
Net investment income	$	1,562,898		$	2,759,916
Net realized gain on investments		9,661			(10,008	)
Net increase in unrealized appreciation		1,259,286			942,118
Net increase in net assets resulting from operations		2,831,845			3,692,026
Distributions to shareholders from net investment income		(1,562,898	)		(2,759,916	)
Net fund share transactions		11,410,048			23,595,447
Total increase		12,678,995			24,527,557
Net assets:
Beginning of year		80,082,205			55,554,648
End of year	$	92,761,200		$	80,082,205

FINANCIAL HIGHLIGHTS

Selected data for a share outstanding:

	6 months			For the years ended June 30,
	12/31/2002			2002			2001			2000			1999
Net Asset Value, beginning of year	$	5.30		$	5.22		$	5.09		$	5.20		$	5.27
Income From Investment Operations:
Net investment income		0.10			0.20			0.23			0.21			0.21
Net gains/losses on securities
(both realized and unrealized)		0.08			0.08			0.13			(0.11	)		(0.07	)
Total from investment operations		0.18			0.28			0.36			0.10			0.14
Less Distributions:
Distributions (from net investment income)		(0.10	)		(0.20	)		(0.23	)		(0.21	)		(0.21	)
Net asset value, end of period	$	5.38		$	5.30		$	5.22		$	5.09		$	5.20
Total return		3.36	%		5.50	%		7.18	%		1.95	%		2.58	%
Net assets, end of period (in thousands)	$	92,761		$	80,082		$	55,555		$	51,205		$	58,630
Ratio of expenses to average net assets		0.35	%		0.69	%		0.70	%		0.69	%		0.72	%
Ratio of net investment income to average net assets		1.81	%		3.82	%		4.42	%		4.06	%		3.89	%
Portfolio turnover		5.92	%		8.04	%		22.40	%		30.57	%		27.38	%

The accompanying notes are an integral part of the financial statements.

15

UNAUDITED

DUPREE MUTUAL FUNDS—MISSISSIPPI TAX-FREE INCOME SERIES

SCHEDULE OF PORTFOLIO INVESTMENTS

Mississippi Municipal Bonds —   100%

December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
INSURED MUNICIPAL REVENUE BONDS
75.07% of Net Assets
De Soto County MS School District	4.500	04/04/2016	Aaa/NR		$	30,000	$	30,868
Gautier MS Utility District Utility System Revenue	5.125	03/01/2018	Aaa/NR			75,000		79,817
Hinds County MS Revenue Refunding-MS Methodist Hospital	5.600	05/01/2012	Aaa/AAA	*		30,000		33,872
Jackson MS Public School District Limited Tax Notes	5.375	10/01/2020	Aaa/NR			20,000		21,281
Jackson MS Water & Sewer System Revenue	5.250	09/01/2020	Aaa/AAA	*		50,000		52,312
Madison County MS School District—Series A	5.250	09/01/2020	Aaa/AAA	*		25,000		26,171
Medical Center Educational Building Corporation MS Revenue	5.500	12/01/2023	NR/AAA	*		20,000		21,890
MS Business Financial Corporation Pollution Control Revenue	5.500	02/01/2026	Aaa/AAA	*		10,000		10,012
MS Development Bank Special Obligation Horn Lake	5.000	10/01/2020	NR/AAA	*		50,000		51,862
MS Development Bank Special Obligation Multi-Purpose	5.000	07/01/2021	NR/AAA	*		50,000		51,217
MS Development Bank Special Obligation Gulfport Water Sewer	5.625	07/01/2024	Aaa/AAA	*		105,000		114,430
MS Development Bank Special Obligation Rankin County	5.400	07/01/2014	Aaa/AAA	*		10,000		11,105
MS Development Bank Special Obligation Desoto County	5.000	11/01/2022	Aaa/AAA	*		25,000		25,330
MS Development Bank Special Obligation Meridian Community	5.500	07/01/2016	NR/AAA	*		30,000		32,463
MS Development Bank Special Obligation Desoto County	5.900	07/01/2021	AAA			5,000		5,565
MS Development—Madison County Road & Bridge Project	5.250	06/01/2023	Aaa/NR			50,000		52,285
MS Development Bank Special Obligation Madison County	5.250	06/01/2024	Aaa/NR			50,000		52,117
Ms Development BK Special Obligation Culkin Water District	5.800	07/01/2018	Aaa/AAA	*		25,000		27,419
MS Development Bank Special Obligation Combination	5.000	07/01/2018	Aaa/AAA	*		100,000		106,561
MS Development BK Special Obligation Flowood Revenue Project	5.625	11/01/2019	Aaa/AAA	*		10,000		10,780
MS Development BK Special Obligation Natchez Convention Center	5.800	07/01/2019	Aaa/AAA	*		25,000		28,691
MS Development BK Special Obligation Gulfport Combined Water	5.500	07/01/2015	Aaa/AAA	*		10,000		11,313
MS Development Bank Special Obligation Wastewater	5.375	02/01/2021	Aaa/AAA	*		100,000		107,109
MS Development Bank Special Obligation Lee County School	4.500	09/01/2021	Aaa/NR			100,000		98,136
MS Hospital Equipment & Facilities Singing River Hospital	5.500	03/01/2023	Aaa/AAA	*		120,000		122,765
MS Hospital Equipment and Facilities Forrest County	5.500	01/01/2024	Aaa/AAA	*		45,000		47,583
MS State University Educational Building Corporate Revenue	5.500	08/01/2014	Aaa/NR			75,000		84,671
Natchez MS Water & Sewer System Revenue	5.700	08/01/2017	Aaa/AAA	*		150,000		162,870
Olive Branch MS Water & Sewer Revenue	4.500	03/01/2014	Aaa/NR			30,000		31,395
Southern MS Education Building Corporation Revenue MS	5.100	03/01/2020	Aaa/AAA	*		70,000		73,121
Southern MS University Educational Building Corporation	5.750	03/01/2021	Aaa/NR			10,000		11,023
Stone County MS School District	4.000	06/01/2016	Aaa/AAA	*		100,000		98,162
Tupelo MS Public School District	5.375	11/01/2015	Aaa/AAA	*		20,000		21,579
University MS Educational Building—Stadium A	5.500	12/01/2017	Aaa/AAA	*		5,000		5,410
Walnut Grove Correctional Authority Certificates of Partcipation	6.000	11/01/2019	Aaa/AAA	*		15,000		17,269
Winston County MS Urban Renewal Revenue	5.150	12/01/2017	NR/AAA	*		15,000		15,742
								1,754,194
GENERAL OBLIGATION BONDS
15.09% of Net Assets
Biloxi MS Tax Increment—LTD Obligation—Series A	5.900	10/01/2019	NR/A	*		35,000		37,402
Hinds County MS School District	4.750	03/01/2015	NR			50,000		52,029
Horn Lake Special Assessment Improvement Bonds-Desoto	5.400	04/15/2020	NR/A-	*		25,000		25,916
Jackson MS Redevelopment Authority Urban Renewal Revenue	5.600	11/01/2021	A2/NR			20,000		21,261
MS Development BK Special Obligation Adams County Juvenile	5.900	07/01/2017	nr/A			10,000		11,060
Mississippi State	5.100	11/15/2012	Aa3/AA	*		10,000		11,140
MS State Capital Improvements	5.000	11/01/2018	NR/AA	*		125,000		130,805
MS State Capital Improvements	5.000	11/01/2020	NR/AA	*		50,000		52,062
Richland MS Tax Increment	5.600	06/01/2013	NR			10,000		10,939
								352,614
MUNICIPAL UTILITY REVENUE BONDS
2.69% of Net Assets
MS Development Bank Special Obligation Okolona Electric	5.350	07/01/2021	NR/A	*		50,000		52,078
MS Development Bank Special Obligation-Bay St Louis	5.375	07/01/2014	NR/A	*		10,000		10,723
								62,801
ESCROWED TO MATURITY BONDS
2.51% of Net Assets
Harrison County MS Wastewater Management District	5.000	02/01/2015	AAA/Aaa	*		25,000		27,247
MS Gulf Coast Regional Wastewater Treatment Facilities	7.000	07/01/2012	NR			25,000		31,443
								58,690
PUBLIC FACILITIES REVENUE BONDS

The accompanying notes are an integral part of the financial statements.

16

UNAUDITED

DUPREE MUTUAL FUNDS—MISSISSIPPI TAX-FREE INCOME SERIES

SCHEDULE OF PORTFOLIO INVESTMENTS

Mississippi Municipal Bonds—100%

December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
2.21% of Net Assets
Mississippi Development Bank Special Obligation—Southaven	6.200	03/01/2020	NR/A	*		10,000		10,778
Vicksburg Warren MS School District	4.700	02/01/2017	NR/AA	*		40,000		40,960
								51,738
CERTIFICATES OF PARTICIPATION BONDS
1.78% of Net Assets
Monroe County MS Certificates of Participation Jail Project	5.050	04/01/2020	Aaa/NR			40,000		41,554
								41,554
STATE AND LOCAL MORTGAGE REVENUE BONDS
.46% of Net Assets
MS Home Corporation Single Family Revenue Mortgage Series A	5.350	12/01/2014	Aaa/NR		$	10,000	$	10,744
								10,744
Total Investments (cost $2,221,860)(a)—99.81% of Net Assets							$	2,332,334

* 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	$	111,108
Unrealized depreciation		(632	)
Net unrealized appreciation	$	110,475

The accompanying notes are an integral part of the financial statements.

17

DUPREE MUTUAL FUNDS—MISSISSIPPI TAX-FREE INCOME SERIES
				UNAUDITED
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2002
ASSETS:
Investments in securities, at value (Cost: $2,221,860)			$	2,332,334
Interest receivable				40,149
Receivable from Advisor				3,694
Pre-paid expenses				1,900
Total assets				2,378,078
LIABILITIES:
Cash Overdraft	$	10,971
Payable for:
Distributions		26,687
Transfer agent		3,616
Total liabilities				41,274
NET ASSETS:
Capital				2,226,330
Net unrealized appreciation in value of investments				110,475
Net assets at value			$	2,336,805
NET ASSET VALUE, offering price and redemption price per share ($2,336,805 / 205,462 shares outstanding)
			$	11.37
STATEMENT OF OPERATIONS
For the six month period ended December 31, 2002
Net investment income:
Interest income			$	53,226
Expenses:
Investment advisory fees				5,479
Transfer agent				1,644
Professional fees				884
Trustee fees				110
Other expenses				1,780
Total expenses				9,897
Expenses reimbursed by Investment Advisor				(6,281	)
Net investment income				49,610
Realized and unrealized gain/(loss) on investments
Capital Gain payable
Net increased in unrealized appreciation				(91	)
				65,863
Net realized and unrealized gain on investments				65,772
Net increase in net assets resulting from operations			$	115,382

The accompanying notes are an integral part of the financial statements.

18

DUPREE MUTUAL FUNDS—MISSISSIPPI TAX-FREE INCOME SERIES	UNAUDITED
STATEMENTS OF CHANGES IN NET ASSETS
For the six month period ended December 31, 2002 and the year ended June 30, 2002

	Six months 12/31/02			One year 2002
Increase in net assets:
Operations:
Net investment income	$	49,610		$	64,095
Net realized gain		(91	)		91
Net increase in unrealized appreciation		65,863			22,145
Net increase in net assets resulting from operations		115,382			86,331
Distributions to shareholders from net investment income		(49,610	)		(64,095	)
Net fund share transactions		442,444			990,233
Total increase		508,216			1,012,469
Net assets:
Beginning of year		1,828,589			816,120
End of period	$	2,336,805		$	1,828,589

FINANCIAL HIGHLIGHTS

Selected data for a share outstanding:

	Six months 12/31/2002			For the years ended June 30,						For the period 1/1/2000 to 6/30/2000(a)
				2002			2001
Net Asset Value, beginning of period	$	11.00		$	10.83		$	10.35		$	10.00
Income From Investment Operations:
Net investment income		0.28			0.54			0.55			0.27
Net gains (losses) on securities (both realized and unrealized)		0.37			0.17			0.48			0.35
Total from investment operations		0.65			0.71			1.03			0.62
Less Distributions:
Distributions (from net investment income)		(0.28	)		(0.54	)		(0.55	)		(0.27	)
Net asset value, end of period	$	11.37		$	11.00		$	10.83		$	10.35
Total return		5.75	%		6.67	%		10.19	%		6.24	%(c)
Net assets, end of period (in thousands):	$	2,337		$	1,829		$	816		$	238
Ratio of expenses to average net assets		0.17	%		0.27	%		0.21	%		0.50	%(b)
Before expense reimbursement		0.46	%		0.87	%		1.13	%		3.35	%(b)
Ratio of net investment income to average net assets		1.99	%		4.28	%		4.26	%		5.31	%(b)
After expenses reimbursement		2.28	%		4.87	%		5.18	%		2.45	%(b)
Portfolio turnover		1.86	%		3.40	%		0.00	%		0.00	%

(a) Commencement of operations January 1, 2000.

(b) Annualized

(c) Total return is not annualized

The accompanying notes are an integral part of the financial statements.

19

DUPREE MUTUAL FUNDS—NORTH CAROLINA TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS North Carolina Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
INSURED MUNICIPAL BONDS
58.69% of Net Assets
Catawba County NC Catawba Memorial Hospital Revenue	5.000	10/01/2017	Aaa/AAA	*	$	500,000	$	528,250
Craven NC Regional Medical Authority Health Care Facilities	5.625	10/01/2017	Aaa/AAA	*		10,000		10,366
Cumberland County NC Certificates of Participation Civic Center	5.000	12/01/2018	Aaa/AAA	*		500,000		531,135
Cumberland County NC Hospital Facilities Revenue	5.250	10/01/2019	Aa/AA	*		1,000,000		1,045,220
Dare County NC Utility System Revenue	5.250	06/01/2018	Aaa/AAA	*		250,000		271,023
Dare County NC Certificates of Participation	5.125	06/01/2018	Aaa/AAA	*		500,000		540,870
Elizabeth City NC Housing Developement Mortgage Revenue	6.125	04/01/2023	Aa/NR			140,000		146,082
Fayetteville NC Public Works Community Revenue	5.100	03/01/2015	Aaa/AAA	*		400,000		425,968
Gaston County NC Certificates of Participation Public Facilities	5.250	12/01/2016	Aaa/AAA	*		850,000		911,676
Gastonia NC Combined Utilities Systems Revenue	5.625	05/01/2019	Aaa/AAA	*		500,000		554,905
Greenville NC Housing Developement Corporation Series A	5.800	07/01/2024	Aaa/AAA	*		35,000		35,783
Harnett County NC Certificate of Participation	5.000	12/01/2018	Aaa/AAA	*		1,000,000		1,067,630
Lenoir NC Housing Authority Mortgage Revenue	5.700	08/20/2024	NR/AAA	*		100,000		104,192
New Hanover County NC Certificates of Participation	5.000	12/01/2017	Aaa/AAA	*		250,000		264,968
New Hanover County NC Hospital Revenue	5.750	10/01/2026	Aaa/AAA	*		100,000		108,375
New Hanover County NC Hospital Revenue	5.000	10/01/2019	Aaa/AAA	*		1,110,000		1,158,707
New Hanover County NC Certificates of Participation	5.000	12/01/2022	Aaa/AAA	*		1,000,000		1,042,710
NC Educational Facilities Finance Agency St Augustines	5.250	10/01/2018	NR/AA	*		600,000		632,736
NC Educational Facilities Finance Agency St Augustines	5.250	10/01/2028	NR/AA	*		630,000		643,614
NC Eastern Municipal Power Agency Power System Revenue	5.500	01/01/2017	Aaa/AAA	*		150,000		149,999
NC Eastern Municipal Power Agency Power System Revenue	5.750	01/01/2019	Aaa/AAA	*		100,000		99,999
NC Eastern Municipal Power Agency Power System Revenue	5.700	01/01/2015	Aaa/AAA	*		345,000		382,667
NC Eastern Municipal Power Agency Power System Refunding	5.375	01/01/2024	Aaa/AAA	*		1,000,000		1,052,290
NC Central University Housing System Revenue	5.800	11/01/2018	Aaa/AAA	*		50,000		54,794
NC Central University Housing System Revenue	5.800	11/01/2020	Aaa/AAA	*		60,000		65,300
North Carolina Public Improvement	5.250	03/01/2016	Aaa/AAA	*		1,000,000		1,098,330
NC Medical Care Community Hospital Revenue—High Point	5.000	10/01/2019	Aaa/AAA	*		500,000		521,645
NC Medial Care Community Hospital Northeast Medical Center	4.600	11/01/2020	Aaa/AAA	*		350,000		350,529
NC Medical Care Community Hospital Revenue—Rex Hospital	5.000	06/01/2017	Aaa/AAA	*		500,000		527,650
NC Medical Care Community Hospital Revenue—St Joseph	5.100	10/01/2014	Aaa/AAA	*		5,000		5,496
NC Medical Care Community Hospital Revenue—Stanly Hospital	5.375	10/01/2014	Aaa/AAA	*		50,000		53,978
NC Medical Care Community Hospital Revenue—Wilson Memorial	5.625	11/01/2018	Aaa/AAA	*		80,000		87,198
NC Municipal Power Agency No 1 Catawba Electric Revenue	5.000	01/01/2015	Aaa/AAA	*		5,000		5,100
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	5.125	01/01/2017	Aaa/AAA	*		500,000		527,285
NC Municipal Power Agency No 1 Catawba Electric Revenue	5.125	01/01/2017	Aaa/AAA	*		700,000		743,715
Pitt County NC Certificates of Participation Public Facilities	5.850	04/01/2017	Aaa/AAA	*		100,000		112,620
Pitt County NC Certificates of Participation School Facilities	5.500	04/01/2020	Aaa/AAA	*		500,000		545,565
Raleigh Durham NC Airport Authority	5.250	11/01/2018	Aaa/NR			1,000,000		1,073,130
Raleigh/Durham NC Airport Revenue	5.000	11/01/2020	Aaa/NR			1,000,000		1,040,020
Randolph County NC Certificates of Participation	5.750	06/01/2022	Aaa/AAA	*		500,000		555,945
Union County NC Enterprise System Revenue	5.500	06/01/2021	AAA/Aaa	*		245,000		262,363
University of NC at Chapel Hill Hospital Revenue	5.250	02/15/2017	Aaa/AAA	*		500,000		533,610
University of NC at Wilmington Dorm & Dining System Revenue	5.400	01/01/2018	Aaa/AAA	*		120,000		129,593
Wilson Combined Enterprise System	4.700	12/01/2022	Aaa/AAA	*		500,000		502,340
University of NC at Winston-Salem Student Services Revenue	5.400	06/01/2012	Aaa/AAA	*		10,000		10,805
								20,566,173
HOSPITAL AND HEALTHCARE REVENUE BONDS
17.14% of Net Assets
Charlotte/Mecklenburg NC Hospital Authority Revenue	5.750	01/15/2021	Aa3/AA	*		250,000		260,285
Charlotte/Mecklenburg NC Hospital Authority Revenue	5.875	01/15/2026	Aa3/AA	*		50,000		52,175
Charlotte/Mecklenburg NC Hospital Authority Revenue	5.000	01/15/2017	Aa3/AA	*		750,000		765,645
Cumberland County NC Hospital Facilities Revenue	5.250	10/01/2019	A3/A-	*		1,000,000		1,012,510
NC Medical Care Community Hospital Revenue—Carolina Medicorp	5.500	05/01/2015	Aa3/AA	*		70,000		70,909
NC Medical Care Community Hospital Revenue—Duke University Hospital	5.250	06/01/2017	Aa3/AA	*		900,000		917,694
NC Medical Care Community Hospital Revenue—Duke University Hospital	5.250	06/01/2021	Aa3/AA	*		150,000		152,144

The accompanying notes are an integral part of the financial statements.

20

DUPREE MUTUAL FUNDS—NORTH CAROLINA TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS North Carolina Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating #		Par Value		Market Value
NC Medical Care Community Hospital Revenue—Gaston Memorial	5.500	02/15/2019	A1/A+	*	$	150,000	$	153,819
NC Medical Care Community Hospital Revenue—Pitt County	5.250	12/01/2013	Aa3/AA	*		800,000		850,256
NC Medical Care Community Hospital Revenue—Pitt County	5.000	12/01/2018	Aa3/AA-			500,000		508,475
NC Medical Care Community Hospital Revenue—Presbyterian	5.500	10/01/2014	A1/AA-	*		35,000		36,188
NC Medical Care Community Hospital Revenue—Presbyterian	5.500	10/01/2020	A1/AA-	*		1,100,000		1,118,106
University of NC at Chapel Hill Hospital Revenue	5.250	02/15/2019	A1/AA-	*		105,000		106,688
								6,004,894
CERTIFICATES OF PARTICIPATION BONDS
7.13% of Net Assets
Cabarrus County NC Certificates of Participation	5.000	04/01/2021	Aa3/AA-	*		650,000		674,239
Charlotte NC Certificates of Participation Law Project	5.375	06/01/2013	Aa1/AA	*		100,000		103,008
Charlotte NC Certificates of Participation Convention Facilities	5.500	12/01/2020	Aa2/AA+	*		700,000		763,784
Forsyth County NC Certificates of Participation	5.000	10/01/2018	Aa1/AA+	*		400,000		420,576
Forsyth County NC Certificates of Participation	5.125	10/01/2017	Aa1/AA+	*		500,000		538,155
								2,499,762
STATE AND LOCAL MORTGAGE REVENUE BONDS
5.06% of Net Assets
NC Housing Finance Agency Single Family Revenue Series Y	6.300	09/01/2015	Aa/AA	*		105,000		111,272
NC Housing Finance Agency Single Family Revenue Series II	6.200	03/01/2016	Aa2/AA	*		65,000		68,895
NC Housing Finance Agency Single Family Revenue Series KK	5.875	09/01/2017	Aa2/AA+	*		85,000		89,367
NC Housing Finance Agency Home Ownership Revenue	5.125	07/01/2013	Aa2/AA	*		100,000		105,195
Raleigh NC Housing Authority Multifamily Cedar Point Apts	5.800	11/01/2019	B			2,000,000		1,299,000
Vance County NC Housing Mortgage Revenue Henderson Project	6.150	03/01/2022	Aa2			100,000		100,913
								1,774,642
MUNICIPAL UTILITY REVENUE BONDS
5.05% of Net Assets
Charlotte NC Storm Water Revenue Refunding Bond	5.250	06/01/2019	Aa1/AA+	*		520,000		562,016
Orange NC Water & Sewer Authority Revenue Bond	5.200	07/01/2016	Aa/AA	*		145,000		149,295
Winston-Salem NC Water & Sewer System Revenue	5.125	06/01/2020	Aa2/AAA	*		1,000,000		1,056,940
								1,768,251
GENERAL OBLIGATION BONDS
3.03% of Net Assets
Cary NC General Obligation Bond	5.000	03/01/2019	Aaa/AAA	*		1,000,000		1,060,420
								1,060,420
PUBLIC FACILITIES REVENUE BONDS
2.24% of Net Assets
Cary NC Combined Enterprise System Revenue	5.000	12/01/2022	Aa/AA	*		700,000		721,812
Shelby NC Combined Enterprise System Revenue	5.625	05/01/2014	Baa1/A-	*		20,000		21,007
Shelby NC Combined Enterprise System Revenue	5.625	05/01/2014	Baa1/A-	*		40,000		43,037
								785,856
PREREFUNDED BONDS
1.75% of Net Assets
Greensboro NC Coliseum Complex Improvement	5.700	12/01/2010	A1/AA	*		55,000		63,374
Greenville NC Enterprise System Revenue	6.000	09/01/2010	A1/A+	*		100,000		109,503
NC Eastern Municipal Power Agency Power System	6.000	01/01/2026	AAA/BBB	*		15,000		18,025
Orange NC Water & Sewer Revenue Bond Prerefunded	5.200	07/01/2016	Aa1/AA	*		65,000		67,608
Pitt County NC Memorial Hospital Revenue	5.500	12/01/2015	Aaa/AAA	*		325,000		355,108
								613,618
Total Investments (cost $33,979,136)(a)—100.09% of Net Assets							$	35,073,616

* 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	$	1,729,778
Unrealized depreciation		(635,301	)
Net unrealized appreciation	$	1,094,477

The accompanying notes are an integral part of the financial statements.

21

DUPREE MUTUAL FUNDS—NORTH CAROLINA TAX-FREE INCOME SERIES

UNAUDITED

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2002

ASSETS:
Investments in securities, at value (Cost $33,979,136)			$	35,073,613
Broker receivable				54,901
Receivable for instruments sold				5,105
Interest receivable				389,710
Pre-paid expenses				2,718
Total assets				35,526,047
LIABILITIES:
Cash Overdraft	$	69,907
Payable for:
Distributions		386,056
Fund shares redeemed		9,684
Management fee		14,655
Transfer agent		4,050
Total liabilities				484,352
NET ASSETS:
Net assets consist of:
Capital			$	34,041,315
Net accumulated realized losses on investment transactions				(94,099	)
Net unrealized apppreciation in value of investments				1,094,477
Net assets at value			$	35,041,693
NET ASSET VALUE, offering price and redemption price per share ($35,041,693/3,192,830 shares outstanding)
			$	10.98
STATEMENT OF OPERATIONS
For the six months ended December 31, 2002
Net investment income:
Interest income			$	888,154
Expenses:
Investment advisory fees				87,122
Transfer agent				23,934
Professional fees				2,640
Trustee fees				1,795
Other expenses				6,753
Total expenses				122,244
Expenses reimbursed by Investment Advisor				(7,767	)
Net investment income				773,677
Realized and unrealized gain on investments
Net realized gain				49,976
Net increase in unrealized appreciation				897,522
Net realized and unrealized gain on investments				947,498
Net increase in net assets resulting from operations			$	1,721,175

The accompanying notes are an integral part of the financial statements.

22

DUPREE MUTUAL FUNDS—NORTH CAROLINA TAX-FREE INCOME SERIES UNAUDITED

STATEMENTS OF CHANGES IN NET ASSETS

For the year ended June 30, 2002 and the six months ended December 31, 2002

	Six Months 12/31/2002			One Year 2002
Increase in net assets:
Operations:
Net investment income	$	773,677		$	1,357,245
Net realized gain/(loss) on investments		49,976			(13,907	)
Net increase in unrealized appreciation		897,522			133,337
Net increase in net assets resulting from operations		1,721,175			1,476,675
Distributions to shareholders from:
Net investment income		(773,677	)		(1,357,245	)
Net fund share transactions		1,509,598			6,519,767
Total increase		2,457,096			6,639,197
Net assets:
Beginning of year		32,584,597			25,945,400
End of period	$	35,041,693		$	32,584,597

FINANCIAL HIGHLIGHTS

Selected data for a share outstanding:	Six months			For the years ended June 30,
	12/31/2002			2002			2001			2000			1999
Net asset value, beginning of year	$	10.68		$	10.63		$	10.21		$	10.61		$	10.82
Income from investment operations:
Net investment income		0.24			0.49			0.50			0.51			0.50
Net gains/(losses) on securities,
both realized and unrealized		0.30			0.05			0.42			(0.40	)		(0.20	)
Total from investment operations		0.54			0.54			0.92			0.11			0.30
Less distributions:
Distributions from capital gains		0.00			0.00			0.00			(0.01	)		(0.01	)
Distributions from net investment income		(0.24	)		(0.49	)		(0.50	)		(0.51	)		(0.50	)
Net asset value, end of period	$	10.98		$	10.68		$	10.63		$	10.21		$	10.61
Total return		5.13	%		5.00	%		9.09	%		1.07	%		2.71	%
Net assets, end of period (in thousands)	$	35,042		$	32,585		$	25,945		$	21,660		$	19,456
Ratio of expenses to average net assets		0.33	%		0.57	%		0.55	%		0.55	%		0.45	%
Before expense reimbursement		0.34	%		0.71	%		0.71	%		0.72	%		0.77	%
Ratio of net investment income to
average net assets		2.23	%		4.46	%		4.55	%		4.76	%		4.43	%
After expense reimbursement		2.24	%		4.60	%		4.71	%		4.92	%		4.74	%
Portfolio turnover		4.85	%		6.60	%		19.71	%		16.14	%		11.70	%

The accompanying notes are an integral part of the financial statements.

23

DUPREE MUTUAL FUNDS—NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
North Carolina Municipal Bonds—100% December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#		ParValue		Market Value
INSURED MUNICIPAL BONDS
36.90% of Net Assets
Asheville NC Certificates of Participation Series:A	4.600	06/01/2005	Aaa/AAA	*	$	50,000	$	53,259
Carteret County NC General Obligation	5.400	05/01/2009	Aaa/AAA	*		100,000		110,664
Catawba County NC Hospital Revenue Catawba Memorial Hospital	4.000	10/01/2003	Aaa/NR			110,000		112,357
Centennial Authority NC Hotel Tax Revenue Bond Arena Project	5.000	09/01/2012	Aaa/AAA	*		100,000		108,827
Coastal Regualtion Solid Waste Management Authority NC	4.250	06/01/2005	Aaa/AAA	*		125,000		132,269
Cumberland County NC Hospital Facility Revenue	5.000	10/01/2006	A3/AA	*		150,000		160,338
Elizabeth City NC Housing Mortgage Corp Virginia Dare Apartments	6.500	01/01/2005	Aaa/AAA	*		35,000		37,136
Greenville NC Certificates of Participation Public Facilities	4.600	06/01/2011	Aaa/AAA	*		100,000		106,567
Johnston County NC Certificates of Participation Judicial Annex	5.200	09/01/2007	Aaa/AAA	*		100,000		111,039
Johnston County NC Finance Corporation School & Museum Project	4.650	08/01/2008	Aaa/AAA	*		200,000		218,456
New Hanover County NC Regional Medical Center Hospital Revenue	4.250	10/01/2009	Aaa/AAA	*		100,000		106,512
North Carolina Eastern Municipal Power Agency Power Sys Revenue	6.125	01/01/2009	A/A	*		120,000		135,186
NC Medical Care Community Hospital—High Point Health System	4.400	10/01/2003	Aaa/AAA	*		50,000		51,213
North Carolina Medical Care Community Hospital-Scotland Memorial	5.375	10/01/2011	NR/AA	*		60,000		62,736
NC Medical Care Community Hospital Wilson Memorial Hospital	4.900	11/01/2007	Aaa/AAA	*		75,000		82,677
North Carolina Medical Care Community Hospital Wayne Memorial	4.250	10/01/2006	Aaa/NR			100,000		107,113
North Carolina Medical Care Community Hospital Rex Health Care	5.250	06/01/2008	Aaa/AAA	*		450,000		502,403
NC Municipal Power Agency No 1 Catawba Electric	5.100	01/01/2007	Aaa/AAA	*		125,000		128,176
North Carolina Municipal Power Agency Catawba Electric	6.000	01/01/2007	Aaa/AAA	*		200,000		226,896
Piedmont Triad NC Airport Authority Revenue Bonds Series A	5.250	07/01/2011	Aaa/AAA	*		200,000		223,146
Pitt County NC Certificates of Participation School Facilities	4.750	04/01/2010	Aaa/AAA	*		100,000		108,471
Randolph County NC Certificates of Participation	5.200	06/01/2008	Aaa/AAA	*		145,000		161,447
University NC System Pool Revenue Series B	5.000	10/01/2009	Aaa/AAA	*		200,000		222,208
Wilkes County NC Refinancing	5.250	06/01/2006	Aaa/AAA	*		250,000		257,495
								3,526,590
GENERAL OBLIGATION BONDS
24.08% of Net Assets
Caldwell County NC General Obligation	6.000	02/01/2005	A1/A	*		50,000		50,790
Cary NC General Obligation	4.250	03/01/2008	Aaa/AAA	*		400,000		428,300
Durham NC Certificates of Participation	5.100	06/01/2005	Aa1/AA+	*		100,000		107,645
Forsyth County Nc Public Improvement General Obligation S:A	4.500	03/01/2009	Aaa/AAA	*		250,000		270,958
Hickory Nc General Obligation	4.300	05/01/2006	Aa3/AA-	*		80,000		85,395
New Hanover County NC General Obligation	5.300	11/01/2006	Aa2/AA-	*		150,000		166,532
NC State General Obligation	5.000	06/01/2003	Aaa/AAA	*		50,000		50,850
NC State General Obligation Series A	4.750	04/01/2006	Aaa/AAA	*		200,000		217,150
North Carolina State General Obligation Series A	4.750	04/01/2010	Aaa/AAA	*		100,000		108,682
North Carolina State Public Improvement General Obligation	4.500	03/01/2010	Aaa/AAA	*		150,000		161,399
North Carolina State Public School Building General Obligation	4.600	04/01/2010	Aaa/AAA	*		50,000		53,933
North Carolina Public School Building General Obligation	4.600	04/01/2011	Aaa/AAA	*		115,000		123,301
Wake County NC General Obligation Unlimited	4.500	03/01/2009	Aaa/AAA	*		250,000		265,355
Wake County NC General Obligation	4.600	03/01/2011	Aaa/AAA	*		200,000		211,790
								2,302,078
HOSPITAL AND HEALTHCARE REVENUE BONDS
20.11% of Net Assets
Charlotte-Mecklenburg Hospital Authority NC Health Care System	5.400	01/15/2007	Aa3/AA	*		200,000		217,186
Cumberland County NC Hospital Facility Revenue	4.100	10/01/2003	A3/A-	*		175,000		177,415
Cumberland County NC Hospital Facility Revenue	4.500	10/01/2007	A3/A-	*		200,000		214,646
NC Community Health Care Facility Duke Hospital	4.100	06/01/2005	Aa3/AA	*		100,000		104,014
NC Medical Care Community Health Care Facility Duke University	4.500	06/01/2007	Aa3/AA	*		200,000		210,624
North Carolina Medical Care Community Hospital Pitt Memorial	4.400	12/01/2011	Aa3/AA-	*		275,000		290,961
North Carolina Medical Care Community Hospital Gaston Memorial	4.900	02/15/2003	A1/A+	*		150,000		150,660
NC Medical Care Community Hospital Gaston Memorial	5.250	02/15/2007	A1/A+	*		325,000		354,390
North Carolina Medical Care Community Hospital—Southeastern	5.000	06/01/2003	A/A	*		200,000		202,364
								1,922,260
CERTIFICATES OF PARTICIPATION BONDS
10.26% of Net Assets
Cabarrus County NC Certificates of Participation	4.250	04/01/2007	Aa3/AA-	*		55,000		58,719
Charlotte NC Certificates of Participation Series D	5.750	06/01/2006	Aa1/AA+	*		100,000		111,585
Charlotte NC Certificates of Participation Series D	5.750	06/01/2007	Aa1/AA+	*		100,000		113,328

The accompanying notes are an integral part of the financial statements.

24

DUPREE MUTUAL FUNDS—NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
North Carolina Municipal Bonds—100% December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
Charlotte NC Certificates of Participation Series D	5.750	06/01/2008	Aa1/AA+	*	$	100,000	$	114,458
Durham County NC Certificates of Participation Series B	4.950	12/01/2005	Aa1/AA+	*		130,000		141,389
Durham NC Certificates of Participation Series B	5.000	06/01/2008	Aa1/AA+	*		100,000		110,269
Durham NC Certificates Of Participation	5.000	04/01/2010	Aa1/AA+	*		300,000		331,206
								980,954
LEASE REVENUE BONDS
3.65% of Net Assets
Greensboro Nc Enterprise System Revenue Combination	4.800	06/01/2012	Aa3/AA-*			75,000		79,971
Raleigh NC Combination Enterprise System Revenue	5.000	03/01/2009	Aa1/AAA	*		150,000		164,622
Winston Salem NC Certificates of Participation Series A	3.950	06/01/2009	Aa1/AA+	*		100,000		104,553
								349,146
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
2.28% of Net Assets
University Of North Carolina Revenue Refunding Series B	5.000	12/01/2010	Aa1/AA+	*		195,000		217,636
								217,636
MUNICIPAL UTILITY REVENUE BONDS
1.12% of Net Assets
Orange County Water & Sewer Authority Revnue	4.350	07/01/2010	Aa1/AA	*		100,000		106,651
								106,651
Total Investments (cost $9,012,414)(a)—98.40% of Net Assets							$	9,405,315

* 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	$	402,423
Unrealized depreciation		(9,522	)
Net unrealized appreciation	$	392,901

The accompanying notes are an integral part of the financial statements.

25

DUPREE MUTUAL FUNDS—NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES

UNAUDITED

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2002

ASSETS:
Investments in securities, at value (Cost: $9,012,414)			$	9,405,315
Cash				65,340
Receivable from investments sold				15,000
Interest receivable				108,782
Total assets				9,594,437
LIABILITIES:
Payable for:
Distributions	$	30,444
Investment advisor		1,803
Transfer agent		1,195
Other fees		2,719
Total liabilities				36,161
NET ASSETS:
Capital				9,193,612
Net accumulated realized losses on investment transactions				(28,237	)
Net unrealized appreciation in value of investments				392,901
Net assets at value			$	9,558,276
NET ASSET VALUE, offering price and redemption price per share ($9,558,276 / 896,112 shares outstanding)			$	10.67
STATEMENT OF OPERATIONS For the year ended December 31, 2002
Net investment income:
Interest income			$	196,318
Expenses:
Investment advisory fees				24,923
Transfer agent				7,477
Professional fees				1,355
Trustee fees				515
Other expenses				3,741
Total expenses				38,011
Expenses reimbursed by Investment Advisor				(13,429	)
Net investment income				171,736
Realized and unrealized gain on investments
Net realized gain				2,414
Net increase in unrealized appreciation				165,434
Net realized and unrealized gain on investments				167,848
Net increase in net assets resulting from operations			$	339,584

The accompanying notes are an integral part of the financial statements.

26

DUPREE MUTUAL FUNDS—NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES

STATEMENT OF CHANGES IN NET ASSETS For the year ended June 30, 2002 and the six months ended December 31, 2002 UNAUDITED

	Six Months 12/31/02			One Year 2002
Increase in net assets:
Operations:
Net investment income	$	171,736		$	246,440
Net realized gain/(loss) on investments		2,414			2,029
Net increase in unrealized appreciation		165,434			149,416
Net increase in net assets resulting from operations		339,584			397,885
Distributions to shareholders from net investment income		(171,736	)		(246,440	)
Net fund share transactions		130,659			4,233,406
Total increase		298,507			4,384,851
Net assets:
Beginning of year		9,259,769			4,874,918
End of year	$	9,558,276		$	9,259,769

FINANCIAL HIGHLIGHTS

Selected data for a share outstanding:

	6 months			For the years ended June 30,
	12/31/2002			2002			2001			2000			1999
Net Asset Value, beginning of year	$	10.47		$	10.25		$	9.94		$	10.09		$	10.24
Income From Investment Operations:
Net investment income		0.18			0.38			0.40			0.39			0.39
Net gain on securities (both realized and unrealized)		0.20			0.22			0.31			(0.15	)		(0.15	)
Total from investment operations		0.38			0.60			0.71			0.24			0.24
Less Distributions:
Distributions (from net investment income)		(0.18	)		(0.38	)		(0.40	)		(0.39	)		(0.39	)
Net Asset Value, end of period	$	10.67		$	10.47		$	10.25		$	9.94		$	10.09
Total return		3.69	%		5.99	%		7.33	%		1.95	%		2.35	%
Net assets, end of year (in thousands)	$	9,558		$	9,260		$	4,875		$	4,246		$	3,938
Ratio of expenses to average net assets		0.25	%		0.48	%		0.48	%		0.48	%		0.44	%
Before expense reimbursement		0.38	%		0.79	%		0.78	%		0.80	%		0.78	%
Ratio of net investment income to average net assets		1.60	%		3.37	%		3.63	%		3.62	%		3.44	%
After expense reimbursement		1.74	%		3.69	%		3.93	%		3.94	%		3.78	%
Portfolio turnover		12.02	%		13.65	%		7.29	%		25.85	%		25.54	%

The accompanying notes are an integral part of the financial statements.

27

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS Tennessee Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#	Par Value		Market Value
INSURED MUNICIPAL BONDS
29.14% of Net Assets
Chattanooga/Hamilton County TN Hospital Revenue Erlanger	5.625	10/01/2018	Aaa/AAA*	$	30,000	$	31,192
Clarksville TN Water Sewer & Gas Revenue	5.650	02/01/2017	Aaa		200,000		218,970
Franklin TN Industrial Development Board Landings Apartment	5.550	10/01/2008	Aaa/AAA*		50,000		54,633
Franklin TN Industrial Development Board Landings Apartment	5.900	10/01/2016	Aaa/AAA*		800,000		853,728
Giles County TN	4.500	02/01/2018	Aaa/A2*		1,000,000		1,016,770
Greater Tennessee Housing Assistance Refunding	7.250	07/01/2024	Aaa/AAA*		5,000		5,004
Hallsdale-Powell Utility District Knox County TN Water & Sewer	4.500	04/01/2021	Aaa/AAA*		1,000,000		979,200
Hawkins County TN Refunding General Obligation Bond	4.750	05/01/2017	NR/AAA*		200,000		207,782
Jackson TN Hospital Revenue Refunding & Improvement	5.625	04/01/2015	Aaa/AAA*		310,000		331,598
Johnson City TN Health & Educational Revenue	5.000	07/01/2018	NR/AAA*		1,000,000		1,059,660
Kingsport TN Water & Sewer System	4.350	06/01/2017	Aaa/NR		710,000		715,346
Knox County/Chapman TN Utility District Water & Sewer	6.000	01/01/2014	Aaa/AAA*		40,000		42,158
Knox County TN Health Educational & Housing Facilities Baptist Hospital	5.500	04/15/2017	NR/AAA*		1,315,000		1,411,074
Knox County TN Health Educational & Housing Facilities Ft Sanders	6.250	01/01/2013	Aaa/AAA*		10,000		11,931
Knox County TN Health Educational & Housing Facilities Mercy Health	5.875	09/01/2015	Aaa/AAA*		15,000		15,774
Knox County TN Health Educational & Housing Facilities Mercy Health	6.000	09/01/2019	Aaa/AAA*		100,000		104,923
Knox County TN Health Educational & Housing Facilities	5.000	01/01/2022	NR/AAA*		1,000,000		1,020,510
Knox County TN Utility District Water & Sewer	5.625	12/01/2019	Aaa		400,000		437,648
Knoxville TN Development Corp Housing Revenue Morningside	6.100	07/20/2020	AA-		500,000		507,695
Memphis/Shelby County TN Airport Revenue Refunding	5.650	09/01/2015	Aaa/AAA*		55,000		56,982
Metropolitan Nashville & Davidson County TN Adventist System	5.750	11/15/2025	Aaa/AAA*		1,150,000		1,232,041
Metropolitan Nashville & Davidson County TN Stadium Project	5.750	07/01/2014	Aaa/AAA*		100,000		109,518
Metropolitan Nashville & Davidson County TN Stadium Project	5.875	07/01/2021	Aaa/AAA*		350,000		381,465
Metropolitan Nashville & Davidson County TN Water & Sewer	5.000	01/01/2017	Aaa/AAA*		1,000,000		1,053,580
North Anderson TN Utility District Waterworks Revenue	5.600	01/01/2015	Aaa/AAA*		100,000		107,016
Oak Ridge TN Industrial Development Board Refunding Revenue	5.250	08/20/2018	Aaa/NR		265,000		274,384
Sevier County TN Public Buildings Auth Solid Waste Facility	5.600	09/01/2015	Aaa/AAA*		100,000		106,413
Shelby County TN Health Educational & Housing Heritage Place	6.900	07/01/2014	Aaa/AAA*		150,000		158,802
Shelby County TN Health Educational & Housing Methodist	5.300	08/01/2015	Aaa/AAA*		680,000		733,951
Shelby County TN Health Educational & Housing Methodist	5.375	04/01/2013	Aaa/AAA*		690,000		755,522
Shelby County TN Health Educational & Housing Methodist	5.000	04/01/2018	Aaa/AAA*		500,000		522,895
Shelby County TN Health Educational & Housing Windsor Apts	6.750	10/01/2017	NR/AA*		355,000		355,586
Sullivan County TN Health Educational & Housing Holston	5.750	02/15/2013	Aaa/AAA*		130,000		133,172
TN Housing Development Agency Homeownership Program	5.900	07/01/2017	Aaa/AAA*		35,000		35,894
TN Housing Development Agency Mortgage Finance Program	5.900	07/01/2018	Aaa/AAA*		85,000		87,146
TN Housing Development Agency Mortgage Finance Program	5.850	07/01/2013	Aaa/AAA*		90,000		92,350
TN Housing Development Agency Mortgage Finance Program	6.200	07/01/2018	Aaa/AAA*		695,000		731,696
							15,954,010
STATE AND LOCAL MORTGAGE REVENUE BONDS
19.79% of Net Assets
Hamilton County TN Multifamily Housing Revenue	6.700	03/01/2021	NR/A*		450,000		469,508
Knoxville TN Development Corp Housing Revenue Clinton Tower	6.600	10/15/2007	NR/BB*		350,000		350,420
Knoxville TN Development Corp Housing Revenue Clinton Tower	6.650	10/15/2010	NR/BB*		285,000		278,217
Memphis TN Health Education & Housing Board Riverdale Plaza	6.350	07/20/2028	NR/AAA*		285,000		293,712
Memphis TN Health Education & Housing Board River Trace II	6.250	10/01/2013	Aaa		50,000		52,568
Metropolitan Nashville & Davidson County TN Hermitage Apts	5.900	02/01/2019	A*		645,000		658,777
Murfreesboro TN Housing Authority Westbrooks Towers Project	5.875	01/15/2010	NR/A*		310,000		316,355
Shelby County TN Health Educational & Housing Cameron Kirby	5.900	07/01/2018	NR/A*		3,800,000		3,871,744
Shelby County TN Health Educational & Housing Cameron Kirby	6.000	07/01/2028	NR/A*		500,000		500,795
Shelby County TN Health Educational & Housing Harbour Apts	6.000	04/15/2018	A*		125,000		126,620
Shelby County TN Health Educational & Housing Harbour Apts	6.000	04/15/2024	A*		50,000		50,691
Shelby County TN Health Educational & Housing Harbour Apts	5.750	04/15/2011	A*		100,000		102,069
TN Housing Development Agency Homeownership Program	6.700	07/01/2012	Aa2/AA*		85,000		86,699
TN Housing Development Agency Homeownership Program	5.850	01/01/2011	Aa2/AA*		200,000		213,622
TN Housing Development Agency Homeownership Program	5.500	07/01/2020	Aa2/AA*		1,655,000		1,732,537
TN Housing Development Agency Mortgage Finance Program	5.700	01/01/2008	AA		100,000		102,854
TN Housing Development Agency Mortgage Finance Program	5.850	07/01/2013	A1/A+*		120,000		123,295
TN Housing Development Agency Mortgage Finance Program	5.900	07/01/2018	A1/A+*		710,000		728,212
TN Housing Development Agency Series 2001—3B	5.250	01/01/2020	Aa2/AA*		750,000		778,095
HOSPITAL AND HEALTHCARE REVENUE BONDS

The accompanying notes are an integral part of the financial statements.

28

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS Tennessee Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#		Par Value		Market Value
14.14% of Net Assets
Chattanooga TN Health Educational & Housing Revenue	5.000	12/01/2018	Aa3/AA-*			1,000,000		1,015,430
Knox County TN Health Educational & Housing Facilities University	5.750	04/01/2019	Baa1/NR			1,000,000		1,001,190
Metropolitan Nashville & Davidson County TN Adventist System	6.250	11/15/2015	A3/A-	*		1,100,000		1,178,892
Metropolitan Nashville & Davidson County TN Modal	5.500	05/01/2023	NR/AA	*		1,635,000		1,718,990
Metropolitan Nashville & Davidson County TN Open Arms	5.100	08/01/2016	NR/AA	*		1,000,000		1,043,330
Metropolitan Nashville & Davidson County TN Open Arms	5.100	08/01/2019	NR/AA	*		1,660,000		1,704,505
Sumner County TN Health Educational & Housing Sumner Health	7.500	11/01/2014	A-			75,000		80,859
								7,743,196
MUNICIPAL UTILITY REVENUE BONDS
10.78% of Net Assets
Chattanooga TN Electric System Revenue	5.250	09/01/2021	NR/AA	*	$	1,500,000	$	1,581,105
Clarksville TN Water Sewer & Gas Revenue	5.250	02/01/2018	Aaa/NR			1,000,000		1,061,690
Knoxville TN Gas System Revenue Bond Series J	5.000	03/01/2017	Aa3/AA	*		700,000		739,186
Knoxville TN Waste Water System Revenue	5.100	04/01/2018	Aa3/AA	*		435,000		455,541
Metropolitan Nashville & Davidson County TN Electric System	5.125	05/15/2016	Aa3/AA	*		700,000		748,664
Metropolitan Nashville & Davidson County TN Electric System	5.125	05/15/2021	Aa/AA	*		1,085,000		1,133,348
Metropolitan Nashville & Davidson County TN Water & Sewer	5.500	01/01/2016	Aa3/A+	*		185,000		185,640
								5,905,173
GENERAL OBLIGATION BONDS
7.69% of Net Assets
Collierville TN General Obligation Improvement	5.900	05/01/2012	Aa2			30,000		31,946
Franklin TN School District Limited Tax Refunding Bond	4.625	06/01/2018	Aa2			1,000,000		1,029,950
Johnson City TN General Obligation	5.500	05/01/2020	Aaa/AAA	*		300,000		318,948
Memphis TN General Obligation Bond	5.250	04/01/2016	Aa2/AA	*		610,000		656,708
Metropolitan Nashville & Davidson County TN General Obligation	5.125	11/15/2019	Aa2/AA	*		500,000		525,545
Metropolitan Nashville & Davidson County TN General Obligation	5.875	05/15/2026	Aa/AA	*		100,000		108,511
Shelby County TN General Obligation	5.625	04/01/2014	Aa3/AA+	*		60,000		64,835
Williamson County TN Refunding General Obligation Bond	5.000	03/01/2020	Aa1/NR			645,000		680,327
Wilson County TN General Obligation Refunding	5.100	05/01/2016	AAA/NR			745,000		791,689
								4,208,458
PREREFUNDED BONDS
5.77% of Net Assets
Franklin TN Industrial Development Board Sussex Downs LTD	6.250	06/01/2007	NR			30,000		32,947
Jackson TN Water & Sewer Revenue	7.200	07/01/2012	Aaa/AAA	*		10,000		11,912
Knoxville TN Gas System Revenue	5.400	03/01/2015	Aa3/AA	*		100,000		105,715
Marion County TN General Obligation	6.000	04/01/2018	Aaa/NR			950,000		1,114,227
Metropolitan Nashville & Davidson County TN General Obligation	5.625	05/15/2017	Aa/AA	*		250,000		259,300
Metropolitan Nashville & Davidson County TN Water & Sewer	6.500	12/01/2014	Aaa/AAA	*		60,000		74,170
Milan TN Special School District	6.750	04/01/2013	Aaa/AAA	*		60,000		65,252
Shelby County TN General Obligation	5.625	04/01/2014	NR/AA+	*		20,000		21,978
Shelby County TN School Building Revenue Series A	5.800	04/01/2019	Aa/AA+	*		100,000		103,157
TN Local Development Auth Cmnty Provider Pooled Loan Program	6.250	10/01/2009	NR/A-	*		30,000		33,080
TN Local Development Auth Cmnty Provider Pooled Loan Program	6.450	10/01/2014	NR/A-	*		40,000		44,304
Williamson County TN Rural School Building Revenue	5.800	03/01/2012	Aa/NR			100,000		102,787
Williamson County TN General Obligation	5.375	03/01/2019	Aa1/NR			1,000,000		1,143,080
Williamson County TN General Obligation	5.600	09/01/2010	Aa			45,000		49,091
								3,161,000
ESCROWED TO MATURITY BONDS
4.20% of Net Assets
Johnson City TN Health & Educational Facilities	5.125	07/01/2025	AAA			2,000,000		2,083,600
Metropolitan Nashville & Davidson County TN Dandridge Tower	6.375	01/01/2011	A*			200,000		218,762
								2,302,362
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
3.23% of Net Assets
Metropolitan Nashville & Davidson County TN Belmont University	6.300	12/01/2014	Baa3			10,000		10,590
Metropolitan Nashville & Davidson County TN McKendree	5.125	01/01/2020	NR/AA*			1,700,000		1,757,086
								1,767,676
INDUSTRIAL REVENUE AND POLLUTION CONTROL REVENUE BONDS
.97% of Net Assets
Chattanooga TN Industrial Development Board F L Haney Co	7.200	08/15/2010	AAA*			20,000		25,156
Chattanooga TN Industrial Development Board F L Haney Co	7.200	02/15/2009	AAA*			25,000		30,722

The accompanying notes are an intregral part of the financial statements

29

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE INCOME SERIES SCHEDULE OF PORTFOLIO INVESTMENTS Tennessee Municipal Bonds—100% December 31, 2002 UNAUDITED

Bond Description	Coupon	Maturity Date	Rating#		Par Value	Market Value
Chattanooga TN Industrial Development Board F L Haney Co	7.200	08/15/2009	AAA	*	25,000		31,093
Chattanooga TN Industrial Development Board F L Haney Co	7.200	02/15/2010	AAA	*	100,000		124,641
Cookeville TN Industrial Development Board General Hospital	5.625	10/01/2016	NR/A	*	200,000		215,374
Maury County TN Pollution Control Revenue Saturn Corporation Project	6.500	09/01/2024	A3/BBB+	*	100,000		104,187
							531,172
LEASE REVENUE BONDS
.86% of Net Assets
Memphis/Shelby County TN Special Facilities Revenue FedEx	5.050	09/01/2012	Baa/BBB	*	250,000		268,163
TN Local Development Authority Student Loan Program	5.750	03/01/2011	AA/AA-	*	200,000		205,276
							473,439
Total Investments (cost $50,573,172)(a)—96.57% of Net Assets						$	52,883,274

* 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	$	2,408,166
Unrealized depreciation		(98,065	)
Net unrealized appreciation	$	2,310,101

The accompanying notes are an integral part of the financial statements.

30

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE INCOME SERIES

UNAUDITED

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2002

ASSETS:
Investments in securities, at value (Cost: $50,573,172)			$	52,883,274
Cash				1,132,376
Receivable for investments sold				375,000
Interest receivable				936,902
Broker receivable				609
Total assets				55,328,161
LIABILITIES:
Payable for:
Distributions	$	540,350
Management fee		23,008
Transfer agent		6,032
Other fees		245
Total liabilities				569,635
NET ASSETS:
Net assets consist of:
Capital			$	53,335,636
Net accumulated realized losses on investment transactions				(887,211	)
Net unrealized appreciation in value of investments				2,310,101
Net assets at value			$	54,758,526
NET ASSET VALUE, offering price and redemption price per share ($54,758,526/4,931,278 shares outstanding)			$	11.10

STATEMENT OF OPERATIONS

For the six months ended December 31, 2002

Net investment income:
Interest income	$	1,331,302
Expenses:
Investment advisory fees		131,226
Transfer agent		34,519
Professional fees		3,373
Trustee fees		2,684
Other expenses		2,394
Total expenses		174,196
Expenses reimbursed by Investment Advisor		(8,384	)
Net investment income		1,165,490
Realized and unrealized gain on investments
Net realized gain		3,383
Net increase in unrealized appreciation		1,330,357
Net realized and unrealized gain on investments		1,333,740
Net increase in net assets resulting from operations	$	2,499,230

The accompanying notes are an integral part of the financial statements.

31

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE INCOME SERIES

UNAUDITED

STATEMENTS OF CHANGES IN NET ASSETS

For the year ended June 30, 2002 and the six months ended December 31, 2002

	Six Months 12/31/02			One Year 2002
Increase in net assets:
Operations:
Net investment income	$	1,165,490		$	2,236,740
Net realized gain on investments		3,383			143,434
Net increase in unrealized appreciation		1,330,357			243,343
Net increase in net assets resulting from operations		2,499,230			2,623,517
Distributions to shareholders from:
Net investment income		(1,165,490	)		(2,236,740	)
Net fund share transactions		4,897,568			3,105,488
Total increase		6,231,308			3,492,265
Net assets:
Beginning of year		48,527,218			45,034,953
End of period	$	54,758,526		$	48,527,218

FINANCIAL HIGHLIGHTS

Selected data for a share outstanding:

	Six months 12/31/2002			For the years ended June 30,
				2002			2001			2000			1999
Net asset value, beginning of year	$	10.82		$	10.72		$	10.32		$	10.77		$	10.97
Income from investment operations:
Net investment income		0.28			0.52			0.52			0.53			0.54
Net gains/(losses) on securities,
both realized and unrealized		0.28			0.10			0.40			(0.45	)		(0.19	)
Total from investment operations		0.56			0.62			0.92			0.08			0.35
Less distributions:
Distributions from capital gains		0.00			0.00			0.00			(0.01	)		(0.01	)
Distributions from net investment income		(0.28	)		(0.52	)		(0.52	)		(0.53	)		(0.54	)
Net asset value, end of period	$	11.10		$	10.82		$	10.72		$	10.32		$	10.77
Total return		5.78	%		5.85	%		9.08	%		0.84	%		3.03	%
Net assets, end of period (in thousands)	$	54,759		$	48,527		$	45,035		$	40,524		$	46,086
Ratio of expenses to average net assets		0.32	%		0.54	%		0.54	%		0.54	%		0.48	%
Before expense reimbursement		0.34	%		0.70	%		0.69	%		0.67	%		0.69	%
Ratio of net investment income to average net assets		2.24	%		4.62	%		4.75	%		4.97	%		4.50	%
After expense reimbursement		2.22	%		4.77	%		4.90	%		5.09	%		4.71	%
Portfolio turnover		2.72	%		11.85	%		22.31	%		8.80	%		14.76	%

The accompanying notes are an integral part of the financial statements.

32

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
Tennessee Municipal Bonds—100%
December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#	Par Value		Market Value
INSURED MUNICIPAL REVENUE BONDS
58.01% of Net Assets
Chattanooga-Hamilton County TN Hospital Authority Erlanger	5.625	10/01/2009	Aaa/AAA*	$	715,000	$	823,215
Chattanooga-Hamilton County TN Hospital Authority Erlanger	4.250	10/01/2006	Aaa/AAA*		50,000		53,520
Dickson Tn Electric System Revenue	3.500	09/01/2008	Aaa/AAA*		300,000		308,385
Gatlinburg TN General Obligation	5.000	05/01/2008	Aaa/AAA*		100,000		110,146
Hardeman County TN Corrctional Facility Revenue	7.000	08/01/2005	A/A*		240,000		266,465
Hawkins County TN General Obligation	4.500	05/01/2008	Aaa/AAA*		315,000		341,510
Johnson City TN General Obligation	5.250	06/01/2008	Aaa/AAA*		125,000		140,356
Knox County TN Health Education & Housing Facilities Board	5.500	04/15/2011	Baa/AAA*		300,000		328,722
Knox County TN Health Education & Housing Baptist Health System	5.000	04/15/2006	Aaa/AAA*		100,000		108,568
Knox County Utility District Water & Sewer Revenue	5.250	12/01/2006	Aaa/AAA*		220,000		232,650
Marshall County TN General Obligation	4.450	12/01/2010	Aaa/AAA*		270,000		292,529
Memphis-Shelby County TN Sports Arena Project Series A	3.800	11/01/2008	Aaa/AAA*		250,000		263,498
Memphis-Shelby County TN Sports Authority Memphis Arena	5.000	11/01/2008	Aaa/AAA*		150,000		167,726
Metropolitan Government of Nashville & Davidson County Housing	5.500	01/01/2007	Aaa/AAA*		400,000		429,156
Metropolitan Nashville & Davidson Counties TN Stadium Project	5.000	07/01/2003	Aaa/AAA*		110,000		112,149
Montgomery County TN General Obligation	5.250	05/01/2007	Aaa/NR		400,000		444,200
Municipal Energy Acquisition Corporation TN Gas Revenue	4.125	03/01/2008	Aaa/AAA*		250,000		264,340
Municipal Energy Acquisition Gas Corporation Revenue	4.125	03/01/2009	Aaa/AAA*		200,000		210,844
Oak Ridge TN General Obligation Unlimited	4.500	04/01/2007	Aaa/AAA*		220,000		237,721
Shelby County TN Methodist Hospital Healthcare Revenue	5.500	04/01/2008	Aaa/AAA*		250,000		280,783
Shelby County TN Health Education & Housing Facility Rhodes	4.500	08/01/2008	Aaa/AAA*		100,000		108,620
Shelby County TN Health Education & Housing Facility Rhodes	4.500	08/01/2009	Aaa/AAA*		100,000		108,288
Shelby County TN Health Education & Housing Facility Rhodes	4.350	08/01/2006	Aaa/AAA*		100,000		106,904
Tennergy Corporation TN Gas Revenue	5.000	06/01/2008	Aaa/AAA*		500,000		550,950
Tennergy Corporation TN Gas Revenue	5.000	06/01/2009	Aaa/AAA*		150,000		165,455
TN Energy Acquisition Corporation Gas Revenue	4.400	09/01/2006	Aaa/AAA*		100,000		107,195
TN Energy Acquisition Corporation Gas Revenue Series A	5.000	09/01/2007	Aaa/AAA*		210,000		231,326
TN Energy Acquisition Corporation Gas Revenue	5.000	09/01/2007	Aaa/AAA*		300,000		330,465
TN Energy Acquisition Corporation Gas Revenue Ser:B	4.500	09/01/2008	Aaa/AAA*		295,000		318,689
TN State General Obligation Series A	5.250	02/01/2008	Aaa/AAA*		140,000		155,582
							7,599,954
GENERAL OBLIGATION BONDS
17.61% of Net Assets
Hamilton County TN General Obligation Series A	4.550	08/01/2009	Aa1/NR		100,000		107,818
Knox County TN Public Improvement General Obligation	5.100	05/01/2008	Aa2/AA*		90,000		100,139
Memphins TN General Obligation Capital Outlay Notes	5.375	06/01/2003	Aa2/AA*		350,000		356,080
Metropolitan Government Nashville & Davidson County TN GO	4.250	11/15/2007	Aa2/AA*		100,000		107,740
Metropolitan Government Nashville & Davidson County TN	5.125	11/15/2013	Aa2/AA*		300,000		331,470
Rutherford County TN General Obligation	5.000	04/01/2009	Aa2/AA*		250,000		278,440
Rutherford County TN Public Improvement General Obligation	4.250	04/01/2009	Aa2/AA*		200,000		213,790
Shelby County Tn Public Improvement General Obligation	5.625	06/01/2004	Aa3/AA+*		250,000		264,288
Shelby County TN Public Improvement General Obligation S:A	5.500	04/01/2009	Aa3/AA+*		100,000		114,085
Tennessee State General Obligation Series B	5.000	05/01/2009	Aa2/AA*		300,000		332,535
TN State General Obligation	5.000	03/01/2003	Aa2/AA*		100,000		100,649
							2,307,033
HOSPITAL AND HEALTHCARE REVENUE BONDS
7.49% of Net Assets
Chattanooga TN Catholic Health Initiatives Series A	5.500	12/01/2006	Aa2/AA*		700,000		769,629
Knox County TN Hospital Facility Revenue Catholic Healthcare	4.500	10/01/2011	A1/AA-*		100,000		108,103
Metropolitan Government Nashville & Davidson Counties TN	4.300	08/01/2004	NR/AA*		100,000		103,772
							981,504
LEASE REVENUE BONDS
4.10% of Net Assets
Memphis-Shelby County Airport Special Facilities-Federal Ex	5.000	09/01/2009	Baa2BBB*		250,000		264,938
Memphis-Shelby County TN Sports Authority Arena Project	4.000	11/01/2006	Aa3/AA-*		255,000		271,585
							536,523
UNIVERSITY CONSOLIDATED EDUCATION AND BUILDING REVENUE BONDS
2.97% of Net Assets
Metropolitan Government Of Nashville & Davidson County Vanderbuilt	5.750	01/01/2008	Aa3/AA*		250,000		284,188

The accompanying notes are an integral part of the financial statements.

33

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
Tennessee Municipal Bonds—100%
December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#	Par Value		Market Value
Tennessee State School Board Authority Higher Education Facilities	4.800	05/01/2014	Aa2/AA8	$	100,000	$	105,275
							389,463
STATE AND LOCAL MORTGAGE REVENUE BONDS
2.73% of Net Assets
Shelby County TN Multi-Family Housing Memphis Series A	5.000	01/01/2009	NR		240,000		156,000
TN Housing Development Mortgage Agency Series A	5.500	01/01/2005	A1/AA*		195,000		201,351
							357,351
PREREFUNDED BONDS
2.56% of Net Assets
Lenoir City TN Electric System Refunding & Improvement	4.800	06/01/2011	Aaa/NR		100,000		110,726
Unicoi County TN General Obligation Unlimited	5.400	04/01/2010	Aaa/AAA*		200,000		224,156
							334,882
MUNICIPAL UTILITY REVENUE BONDS
2.23% of Net Assets
Knoxville Tn Gas Revenue System Series J	4.750	03/01/2010	Aa3/AA*		170,000		186,407
Memphis TN Electric System Revenue Refunding Jr Lien	4.000	12/01/2009	Aa3/AA*		100,000		106,266
							292,673
ESCROWED TO MATURITY BONDS
.57% of Net Assets
Metro Government Nashville/Davidson County TN Meharry Medical	7.875	12/01/2004	AAA/NR		70,000		74,425
							74,425
Total Investments (cost $12,398,400)(a)—98.23% of Net Assets						$	12,873,807

* 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	$	546,501
Unrealized depreciation		(71,094	)
Net unrealized appreciation	$	475,407

The accompanying notes are an integral part of the financial statements.

34

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
				UNAUDITED
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2002
ASSETS:
Investments in securities, at value (Cost: $12,398,400)			$	12,873,807
Cash				33,117
Bonds sold receivable				100,000
Interest receivable				141,528
Total assets				13,148,452
LIABILITIES:
Payable for:
Distributions	$	40,421
Investment advisor		2,993
Transfer agent		1,669
Other fees		1,558
Total liabilities				46,641
NET ASSETS:
Capital				12,679,965
Net accumulated realized losses on investment transactions				(53,561	)
Net unrealized appreciation in value of investments				475,407
Net assets at value			$	13,101,811
NET ASSET VALUE, offering price and redemption price per share ($13,101,811 / 1,216,913     shares outstanding)			$	10.77

STATEMENT OF OPERATIONS
For the six months ended December 31, 2002
Net investment income:
Interest income	$	261,053
Expenses:
Investment advisory fees		34,330
Transfer agent		10,299
Professional fees		1,560
Trustee fees		696
Other expenses		3,287
Total expenses		50,172
Expenses reimbursed by Investment Advisor		(16,297	)
Net investment income		227,178
Realized and unrealized gain on investments
Net realized gain		7,935
Net increase in unrealized appreciation		305,454
Net realized and unrealized gain on investments		313,389
Net increase in net assets resulting from operations	$	540,567

The accompanying notes are an integral part of the financial statements.

35

DUPREE MUTUAL FUNDS—TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES
					UNAUDITED
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended June 30, 2002 and the six months ended December 31, 2002
	Six Months			One Year
	12/31/02			2002
Increase in net assets:
Operations:
Net investment income	$	227,178		$	296,701
Net realized gain on investments		7,935			2,877
Net increase/(decrease) in unrealized appreciation		305,454			105,607
Net increase in net assets resulting from operations		540,567			405,185
Dividends to shareholders from net investment income		(227,178	)		(296,701	)
Net fund share transactions		1,422,664			4,041,023
Total increase		1,736,053			4,149,507
Net assets:
Beginning of year		11,365,758			7,216,251
End of year	$	13,101,811		$	11,365,758

FINANCIAL HIGHLIGHTS
Selected data for a share outstanding
	6 months			For the years ended June 30,
	12/31/2002			2002			2001			2000			1999
Net Asset Value, beginning of year	$	10.50		$	10.35		$	10.18		$	10.33		$	10.44
Income From Investment Operations:
Net investment income		0.18			0.40			0.42			0.41			0.39
Net gain/(loss) on securities (both realized and unrealized)		0.27			0.15			0.17			(0.15	)		(0.11	)
Total from investment operations		0.45			0.55			0.59			0.26			0.28
Less Distributions:
Distributions (from net investment income)		(0.18	)		(0.40	)		(0.42	)		(0.41	)		(0.39	)
Net Asset Value, end of period	$	10.77		$	10.50		$	10.35		$	10.18		$	10.33
Total return		4.29	%		5.42	%		5.85	%		2.53	%		2.67	%
Net assets, end of period (in thousands)	$	13,102		$	11,366		$	7,216		$	6,415		$	5,819
Ratio of expenses to average net assets		0.25	%		0.41	%		0.59	%		0.60	%		0.56	%
Before expense reimbursement		0.37	%		0.76	%		0.76	%		0.78	%		0.73	%
Ratio of net investment income to average net assets		1.55	%		3.49	%		3.86	%		3.78	%		3.52	%
After expense reimbursement		1.67	%		3.84	%		4.03	%		3.96	%		3.69	%
Portfolio turnover		15.90	%		22.10	%		48.90	%		28.67	%		81.81	%

The accompanying notes are an integral part of the financial statements.

36

DUPREE MUTUAL FUNDS—INTERMEDIATE GOVERNMENT BOND SERIES	UNAUDITED
SCHEDULE OF PORTFOLIO INVESTMENTS
Government Securities and Agencies—100%
December 31, 2002

Bond Description	Coupon	Maturity Date	Rating#	Par Value		Market Value
FEDERAL HOME LOAN BANK
63.89% of Net Assets
Medium Term Note	7.000	08/15/2014	Aaa/AAA*	$	500,000	$	605,389
Medium Term Note	7.560	09/01/2004	Aaa/AAA*		150,000		164,836
Medium Term Note	8.170	12/16/2004	Aaa/AAA*		2,000,000		2,247,835
Medium Term Note	5.700	10/24/2011	Aaa/AAA*		600,000		618,608
Medium Term Note	6.400	02/13/2012	Aaa/AAA*		1,000,000		1,005,311
Medium Term Note	6.050	03/12/2012	Aaa/AAA*		1,400,000		1,466,788
Medium Term Note	6.000	09/18/2017	Aaa/AAA*		3,100,000		3,123,701
Medium Term Note	5.875	09/19/2017	Aaa/AAA*		1,175,000		1,195,293
							10,427,762
FEDERAL FARM CREDIT
12.07% of Net Assets
Medium Term Note	5.450	09/05/2012	Aaa/AAA*		1,930,000		1,969,679
							1,969,679
FEDERAL HOME LOAN MORTGAGE
9.26% of Net Assets
Medium Term Note	4.875	03/15/2007	Aaa/AAA*		1,400,000		1,511,657
							1,511,657
STUDENT LOAN MARKETING ASSOCIATION
7.50% of Net Assets
Medium Term Note	7.300	08/01/2012	Aaa/AAA*		1,000,000		1,224,445
							1,224,445
FEDERAL NATIONAL MORTGAGE ASSOCIATION
4.39% of Net Assets
Medium Term Note	5.640	12/10/2008	Aaa/AAA*		300,000		303,467
Medium Term Note	5.750	11/07/2017	Aaa/AAA*		400,000		413,725
							717,192
CASH EQUIVALENTS
1.88% of Net Assets
US Bank U.S. Treasury Money Market Fund					306,462		306,462
							306,462
Total Investments (cost $15,264,278)(a)—98.99% of Net Assets						$	16,157,196

* 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	$	892,918
Unrealized depreciation		—
Net unrealized appreciation	$	892,918

The accompanying notes are part of the financial statements.

37

DUPREE MUTUAL FUNDS—INTERMEDIATE GOVERNMENT BOND SERIES

UNAUDITED

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2002

ASSETS:
Investments in securities, at value (Cost: $15,264,278)			$	16,157,197
Interest receivable				246,274
Pre-paid expenses				3,032
Total assets				16,406,503
LIABILITIES:
Payable for:
Distributions	$	79,106
Management fee		2,746
Transfer agent		2,060
Total liabilities				83,912
NET ASSETS:
Net assets consist of:
Capital				16,432,162
Net accumulated realized losses on investment transactions				(1,002,491	)
Net unrealized appreciation in value of investments				892,920
Net assets at value			$	16,322,591
NET ASSET VALUE, offering price and redemption price per share ($16,622,591 / 1,584,826 shares outstanding)			$	10.30

STATEMENT OF OPERATIONS

For the six months ended December 31, 2002

Net investment income:
Interest income	$	429,347
Expenses:
Investment advisory fees		15,000
Transfer agent		11,250
Professional fees		1,129
Trustee fees		754
Other expenses		5,575
Total expenses		33,708
Net investment income		395,639
Realized and unrealized gain on investments
Net realized gain		20,158
Net increase in unrealized appreciation		328,186
Net realized and unrealized gain on investments		348,344
Net increase in net assets resulting from operations	$	743,983

The accompanying notes are an integral part of the financial statements.

38

DUPREE MUTUAL FUNDS—INTERMEDIATE GOVERNMENT BOND SERIES

UNAUDITED

STATEMENTS OF CHANGES IN NET ASSETS

For the year ended June 30, 2002 and the six months ended December 31, 2002

	Six Months 12/31/02			One Year 2002
Increase in net assets:
Operations:
Net investment income	$	395,639		$	703,402
Net realized gain/(loss) on investments		20,158			(13,948	)
Net increase in unrealized appreciation		328,186			297,636
Net increase in net assets resulting from operations		743,983			987,090
Distributions to shareholders		(395,639	)		(703,402	)
Net fund share transactions		2,562,603			2,071,240
Total increase		2,910,947			2,354,928
Net assets:
Beginning of year		13,411,645			11,056,717
End of period	$	16,322,592		$	13,411,645

FINANCIAL HIGHLIGHTS

Selected data for a share outstanding:

	Six months 12/31/02			For the years ended June 30,
				2002			2001			2000			1999
Net asset value, beginning of year	$	10.07		$	9.83		$	9.43		$	9.73		$	10.14
Income from investment operations:
Net investment income		0.30			0.58			0.64			0.65			0.64
Net gains/(losses) on securities, both realized and unrealized		0.23			0.24			0.40			(0.30	)		(0.41	)
Total from investment operations		0.53			0.82			1.04			0.35			0.23
Less distributions:
Distributions from net investment income		(0.30	)		(0.58	)		(0.64	)		(0.65	)		(0.64	)
Net asset value, end of period	$	10.30		$	10.07		$	9.83		$	9.43		$	9.73
Total return		5.03	%		8.54	%		11.29	%		3.76	%		2.21	%
Net assets, end of period (in thousands)	$	16,322		$	13,412		$	11,057		$	10,167		$	10,778
Ratio of expenses to average net assets		0.23	%		0.48	%		0.42	%		0.41	%		0.49	%
Ratio of net investment income to average net assets		2.67	%		5.81	%		6.56	%		6.83	%		6.32	%
Portfolio turnover		29.40	%		75.15	%		24.94	%		33.35	%		24.04	%

The accompanying notes are an integral part of the financial statements.

39

DUPREE MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2002 UNAUDITED

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.

40

DUPREE MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2002 UNAUDITED

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, 2002. 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.

G. Income Recognition

In November 2000 the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the Guide). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. The adoption of the Guide did not have a material impact on the funds.

2. Investment Advisory Fee and Other Transactions with Affiliates

The Trustees of the Trust consist of seven individuals, five of whom are not “interested persons” of the Trust as defined in the Investment Company Act of 1940. Two of the Trust’s trustees are “interested persons” of the Trust’s Investment Advisor and of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act of 1940 by virtue of their officership, directorship and/or employment with Dupree & Company, Inc.

The Funds have a contractual agreement with U.S. Bank whereby the bank will provide certain custodial services for $1.00 per year.

41

DUPREE MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2002 UNAUDITED

2. Investment Advisory Fee and Other Transactions with Affiliates, continued:

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:

Range of Net Assets		$100,000,001-	$150,000,0001-
	$0-$100,000,000	$150,000,000	$500,000,000	$500,000,001+
Alabama Tax-Free Income Series	.50 of 1%	.45 of 1%	.40 of 1%	.35 of 1%
Kentucky Tax-Free Income Series	.50 of 1%	.45 of 1%	.40 of 1%	.35 of 1%
Kentucky Tax-Free Short-to-Medium Series	.50 of 1%	.45 of 1%	.40 of 1%	.35 of 1%
Mississippi Tax-Free Income Series	.50 of 1%	.45 of 1%	.40 of 1%	.35 of 1%
North Carolina Tax-Free Income Series	.50 of 1%	.45 of 1%	.40 of 1%	.35 of 1%
North Carolina Tax-Free Short-to-Medium Series	.50 of 1%	.45 of 1%	.40 of 1%	.35 of 1%
Tennessee Tax-Free Income Series	.50 of 1%	.45 of 1%	.40 of 1%	.35 of 1%
Tennessee Tax-Free Short-to-Medium Series	.50 of 1%	.45 of 1%	.40 of 1%	.35 of 1%
Intermediate Government Bond Series	.20 of 1%	.20 of 1%	.20 of 1%	.20 of 1%

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 December 31, 2002 investment advisory fees for:

the Alabama Tax-Free Income Series totaled $8,961; however, Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses totaling $9,542 in accordance with the investment advisory agreement,

the Mississippi Tax-Free Income Series totaled $5,479; however, Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses totaling $6,281 in accordance with the investment advisory agreement,

the North Carolina Tax-Free Income Series totaled $87,122; however, Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses totaling $7,767 in accordance with the investment advisory agreement,

the North Carolina Tax-Free Short-to-Medium Series totaled $24,923; however, Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses totaling $13,429 in accordance with the investment advisory agreement,

the Tennessee Tax-Free Income Series totaled $131,226; however, Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses totaling $8,384 in accordance with the investment advisory agreement,

the Tennessee Tax-Free Short-to-Medium Series totaled $34,330; however, Dupree & Company, Inc. voluntarily refunded fees and reimbursed expenses totaling $16,297 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.

42

DUPREE MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2002 UNAUDITED

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:

	Purchases		Sales/Calls
Alabama Tax-Free Income Series	$	1,875,079	$	56,000
Kentucky Tax-Free Income Series		51,242,627		21,649,470
Kentucky Tax-Free Short-to-Medium Series		12,428,727		4,999,500
Mississippi Tax-Free Income Series		436,018		0
North Carolina Tax-Free Income Series		3,671,287		1,654,928
North Carolina Tax-Free Short-to-Medium Series		1,159,081		1,317,464
Tennessee Tax-Free Income Series		4,678,749		1,384,750
Tennessee Tax-Free Short-to-Medium Series		3,503,850		2,062,313
Intermediate Government Bond Series		6,600,166		4,216,720

4. Capital Shares

At December 31, 2002, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

ALABAMA TAX-FREE INCOME SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	209,830		$	2,413,027		187,892		$	2,091,440
Shares issued for reinvestment from net investment income	4,524			51,880		6,663			73,594
Shares redeemed	(52,641	)		(600,986	)	(98,284	)		(1,094,498	)
Net increase	161,713		$	1,863,921		96,271		$	1,070,536

KENTUCKY TAX-FREE INCOME SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	6,262,051		$	47,363,655		12,104,599		$	90,309,070
Shares issued for reinvestment from net investment income	990,318			7,496,601		1,821,017			13,529,947
Shares redeemed	(3,002,865	)		(22,707,741	)	(5,337,063	)		(39,770,506	)
Net increase	4,249,505		$	32,152,515		8,588,553		$	64,068,511

KENTUCKY TAX-FREE SHORT-TO-MEDIUM SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	3,798,643		$	20,337,024		9,073,064		$	47,881,527
Shares issued for reinvestment from net investment income	207,779			1,111,720		355,615			1,873,388
Shares redeemed	(1,874,706	)		(10,038,696	)	(4,961,145	)		(26,159,467	)
Net increase	2,131,715		$	11,410,048	)	4,467,534		$	23,595,447

43

DUPREE MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2002 UNAUDITED

4. Capital Shares, continued:

MISSISSIPPI TAX-FREE INCOME SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	59,463		$	668,850		127,812		$	1,394,088
Shares issued for reinvestment from net investment income	3,361			37,850		4,080			44,391
Shares redeemed	(23,629	)		(264,257	)	(40,975	)		(448,245	)
Net increase	39,195		$	442,444		90,917		$	990,234

NORTH CAROLINA TAX-FREE INCOME SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	393,167		$	4,257,653		980,550		$	10,457,092
Shares issued for reinvestment from net investment income	49,557			538,362		86,992			922,950
Shares redeemed	(302,294	)		(3,286,416	)	(456,591	)		(4,860,271	)
Net increase	140,429		$	1,509,598		610,951		$	6,519,771

NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	302,602		$	3,214,434		670,664		$	6,949,430
Shares issued for reinvestment from net investment income	14,156			150,075		20,068			207,575
Shares redeemed	(304,657	)		(3,233,850	)	(282,523	)		(2,923,600	)
Net increase	12,101		$	130,659		408,210		$	4,233,406

TENNESSEE TAX-FREE INCOME SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	622,720		$	6,862,908		814,016		$	8,803,282
Shares issued for reinvestment from net investment income	54,339			598,049		101,555			1,090,890
Shares redeemed	(232,463	)		(2,563,389	)	(630,054	)		(6,788,684	)
Net increase	444,596		$	4,897,568		285,517		$	3,105,488

44

DUPREE MUTUAL FUNDS UNAUDITED	UNAUDITED
NOTES TO FINANCIAL STATEMENTS December 31, 2002

4. Capital Shares, continued:

TENNESSEE TAX-FREE SHORT-TO-MEDIUM SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	387,959		$	4,128,476		755,112		$	7,893,417
Shares issued for reinvestment from net investment income	12,222			130,285		18,487			192,640
Shares redeemed	(265,437	)		(2,836,097	)	(388,393	)		(4,045,034	)
Net increase	134,744		$	1,422,664		385,206		$	4,041,023

INTERMEDIATE GOVERNMENT BOND SERIES	Six Months Ended December 31, 2002					Year ended June 30, 2002
	SHARES		AMOUNT			SHARES		AMOUNT
Shares sold	306,215		$	3,110,383		333,482		$	3,328,905
Shares issued for reinvestment from net investment income	24,500			249,042		44,811			447,216
Shares redeemed	(78,143	)		(796,822	)	(171,088	)		(1,704,881	)
Net increase(decrease)	252,571		$	2,562,603		207,205		$	2,071,240

45

DUPREE MUTUAL FUNDS	UNAUDITED
NOTES TO FINANCIAL STATEMENTS December 31, 2002

5. Concentration of credit risk

The Alabama Tax-Free Income Series, Kentucky Tax-Free Income Series, Kentucky Tax-Free Short-to-Medium Series, Mississippi Tax-Free Income 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 each invest solely in debt obligations issued by the states of Alabama, Kentucky, Mississippi, North Carolina and Tennessee, respectively, and its respective political subdivision, agencies and public authorities to obtain funds for various public purposes. Each of these funds is more susceptible to economic and political factors adversely affecting issuers of their states respective municipal securities than in a municipal bond fund that is not concentrated in these issuers to the same extent.

6. Federal Income Taxes

At June 30, 2002 the Alabama Tax-Free Income Series, the Kentucky Tax-Free Income Series, the Kentucky Tax-Free Short-to-Medium Series, the North Carolina Tax-Free Income Series, the North Carolina Tax-Free Short-to-Medium Series, the Tennessee Tax-Free Income Series, the Tennessee Tax-Free Short-to-Medium Series, and the Intermediate Government Bond Series have capital loss carry forwards which are available to offset future capital gains, if any.

The capital loss carry forwards expire as follows:

	2003		2004		2005		2006		2007	2008		2009		2010
Alabama Tax-Free Income Series		—		—		—		—	—		—		—	$	63
Kentucky Tax-Free Income Series		—		—		—		—	—	$	649,863	$	2,355,968		—
Kentucky Tax-Free Short-to-Medium Series	$	344,195	$	10,144	$	188,198	$	73,155	—		135,232		312,672		34,064
North Carolina Tax-Free Income Series		—		—		—		—	—		112,544		—		17,738
North Carolina Tax-Free Short-to-Medium Series		—		—		763		804	—		6,858		22,226		—
Tennessee Tax-Free Income Series		—		—		—		—	—		276,976		523,414		69,806
Tennessee Tax-Free Short-to-Medium Series		—		—		—		1,722	—		21,890		37,349		—
Intermediate Government Bond Series		659,407		87,381		—		—	—		209,853		46,873		—

During the current fiscal year the Kentucky 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 utilized $168,398; $1,688; $3,411 and $5,186 of capital loss carryforwards respectively.

The tax basis components of distributable earnings for each of the funds is not materially different than the book basis.

46

DUPREE MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2002 UNAUDITED

6. Federal Income Taxes, continued:

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 the fiscal 2002 as follows:

	Post October Losses
Alabama Tax-Free Income Series	$	(2,694	)
Kentucky Tax-Free Income Series		(167,676	)
Kentucky Tax-Free Short-to-Medium Series		(9,394	)
Mississippi Tax-Free Income Series		(62	)
North Carolina Tax-Free Income Series		(13,795	)
North Carolina Tax-Free Short-to-Medium Series		0
Tennessee Tax-Free Income Series		(20,398	)
Tennessee Tax-Free Short-to-Medium Series		(535	)
Intermediate Government Bond Series		(19,134	)

7. Line of Credit Agreement

Under the terms of an agreement with the funds’ custodian, 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. Securities with a minimum value of three times the loan proceeds will be assigned as collateral until the balance of the not 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 during the fiscal year 2002.

8. Trustee Information:

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. Two of the Trust’s trustees are “interested persons” of the Trust’s Investment Advisor and of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act of 1940 by virtue of their officership, directorship and/or employment with Dupree & Company, Inc.

47

DUPREE MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2002 UNAUDITED

8. Trustee Information, continued:

The following table sets forth information as to the trustees:

Interested Persons:

Name, Address and Age	Position(s) held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Director-ships Held by Director
THOMAS P. DUPREE SR. 125 South Mill Street Lexington, KY 40507 Age: 72	President and Trustee	Annual Term 23 years service as President and Trustee (Director)	Chairman of the Board of Dupree & Company, Inc., President of Dupree Investment Advisers, Inc. Director, Office Suites Plus, Inc.	9	Office Suites Plus
WILLIAM T. GRIGGS, II 125 South Mill Street Lexington, KY 40507 Age: 51	Vice President Assistant Secretary and Trustee	Annual Term 4 years of Service as Director; 10 years of Service as Vice President, Assistant Secretary	President of Dupree & Company, Inc. and Dupree Investment Advisers, Inc.	9
Non Interested Persons
WILLIAM A. COMBS, JR. 111 Woodland Ave., #510 Lexington, KY 40502 Age: 62	Chairman, Trustee	Annual Term 2 years of Service Chairman; 14 years of Service Trustee	Secretary, Treasurer, Director, Dana Motor Cincinnati, Ohio; Secretary-Treasurer, Director Freedom Dodge, Lexington, KY; Secretary, Treasurer, Director Ellerslie Realty Inc., Lexington, KY; Partner, Forkland Development Co., Lexington, KY; Partner, Lexland, Lexington, KY.; Director, First Security Bank, Lexington, KY	9	First Security Bank, Lexington, KY
C. TIMOTHY CONE 201 West Short Street Lexington, KY 40507 Age: 58	Trustee	Annual Term	President, Gess, Mattingly & Atchison, P.S.C. (law firm)	9
LUCY A. BREATHITT 1703 Fairway Drive Lexington, KY 40502 Age: 65	Trustee	Annual Term 6 years of Service Trustee	Alexander Farms, farming	9
J. WILLIAM HOWERTON 3954 Primrose Place Paducah, KY 42001 Age: 70	Trustee	Annual Term 2 years of Service Trustee	Judge (retired November 1996) KY Court of Appeals; Lifetime Trustee Paducah Junior College; Self-Employed Mediator, Arbitrator and Special Judge.	9

48

DUPREE MUTUAL FUNDS UNAUDITED	UNAUDITED
NOTES TO FINANCIAL STATEMENTS December 31, 2002

9. Shareholder Meeting

A meeting of Shareholders was held on October 29, 2002. The purpose of the meeting was (I) to elect Messrs. Thomas P. Dupree Sr., William T. Griggs II, William Combs, C. Timothy Cone, J. William Howerton, William Patterson and Ms. Lucy A. Breathitt as Trustees; (ii) to ratify the selection of Ernst & Young LLP as the Trust’s independent auditors for the fiscal year ending June 30, 2003 (iii) to ratify a new investment advisory agreement for each of the tax-free series which reduced the investment advisory fees to .35% of 1% whenever the portfolio of each series reaches $500,000,000.

The results of all matters voted on by shareholders at the Shareholder Meeting held October 29, 2002 were as follows:

A. Election of Trustees:

	FOR	AGAINST	ABSTAIN	WITHHELD	TOTAL
Thomas P. Dupree, Sr.	63,564,218.416	2,088.593	176,464.057	0.00	63,742,741.066
William T. Griggs II	63,554,632.925	2,088.593	176,464.057	0.00	63,733,155.575
Lucy A. Breathitt	63,313,507.718	2,088.593	176,464.057	0.00	63,492,030.368
William A. Combs	63,514,942.522	2,088.593	176,464.057	0.00	63,693,465.172
C. Timothy Cone	63,268,368.964	2,088.593	176,464.057	0.00	63,446,891.614
J. William Howerton	63,200,000.651	2,088.593	176,464.057	0.00	63,378,523.301
William S. Patterson	63,288,885.481	2,088.593	176,464.057	0.00	63,467,408.131

Cumulative voting rights were exercised in the election of Trustees. The total proxy votes are distributed among those individuals selected.

B. Ratification of Ernst & Young LLP for the fiscal year 2003:

	FOR	AGAINST	ABSTAIN	TOTAL
Ernst & Young LLP	62,328,973.918	254,555.929	1,012,381.589	63,595,911.436

C. Ratification of change of Investment Advisory Agreement:

	FOR	AGAINST	ABSTAIN	TOTAL
Alabama Tax-Free Income Series	228,534.515	0.000	14,203.302	242,737.817
Kentucky Tax-Free Income Series	45,730,086.669	268,129.541	756,916.368	46,755,132.578
Kentucky Tax-Free Short-to-Medium Series	8,547,452.753	13,006.400	132,982.889	8,693,442.042
Mississippi Tax-Free Income Series	120,147.692	0.000	0.000	120,147.692
North Carolina Tax-Free Income Series	1,937,808.231	2,783.575	21,034.506	1,961,626.312
North Carolina Tax-Free Short-to-Medium Series	576,332.917	0.000	19,554.781	595,887.698
Tennessee Tax-Free Income Series	3,133,304.304	2,088.593	229,370.872	3,364,763.769
Tennessee Tax-Free Short-to-Medium Series	874,834.819	0.000	36,595.224	911,430.043

49

DUPREE MUTUAL FUNDS UNAUDITED	UNAUDITED
NOTES TO FINANCIAL STATEMENTS December 31, 2002

9. Shareholder Meeting, continued:

D.    Other business:

	FOR	AGAINST	ABSTAIN	TOTAL
Other business	53,530,645.266	1,239,886.949	8,825,379.221	63,595,911.436

50