PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.___)
FILED BY REGISTRANT [_X_]
FILED BY A PARTY OTHER THAN THE REGISTRANT [___]
CHECK THE APPROPRIATE BOX:
[___ ] PRELIMINARY PROXY STATEMENT
[___] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (as permitted by Rule
14a-6(e)(2))
[_X_] DEFINITIVE PROXY STATEMENT
[___] DEFINITIVE ADDITIONAL MATERIALS
[___] SOLICITING MATERIAL PURSUANT TO 240.14a-11(c) or 240.14a-12
DUPREE MUTUAL FUNDS
(Name of Registrant as Specified In Its Charter)
Dupree Mutual Funds, by Gay M. Elste, Attorney
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box)
[___] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[___] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[___] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
____________________________________
2) Aggregate number of securities to which transaction applies:
____________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: (Set forth the amount on which the filing
fee is calculated and state how it was determined).__________________
4) Proposed maximum aggregate value of transaction:
__________________________________________
5) Total fee paid: ____________________________________________________
[_X_] Fee paid previously with preliminary materials
[___] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_______________________________________________________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________
3) Filing Party: __________________________________________________________
4) Date Filed: ____________________________________________________________
DUPREE MUTUAL FUNDS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
October 30, 1996
The Annual Meeting of Shareholders of Dupree Mutual Funds, a Kentucky
business trust, (the "Trust"), will be held at the Radisson Plaza Hotel, 369
West Vine Street, Lexington, Kentucky 40507-1636, on Wednesday, October 30, 1996
at 10:00 A. M., Lexington time, for the following purposes:
1. Election of Trustees.
2. Ratification or rejection of independent certified public
accountants.
3. Other business.
Shareholders of the North Carolina Tax-Free Income Series only will
also convene:
4. To approve or reject the adoption of an Investment Advisory
Agreement between the Trust and Dupree Investment Advisers,
Inc., and
Shareholders of the North Carolina Tax-Free Short-to-Medium Series only
will also convene:
5. To approve or reject the adoption of an Investment Advisory
Agreement between the Trust and Dupree Investment Advisers,
Inc.
Shareholders are cordially invited to meet with the officers of the Trust
prior to the meeting, beginning at 9:30 A. M. at the Radisson Plaza Hotel.
FRED L. DUPREE, JR.
Secretary
September 20, 1996
125 South Mill Street
Lexington, Kentucky 40507
YOUR VOTE IS IMPORTANT!
Shareholders are urged to read carefully and follow the instructions on the
enclosed proxy card, indicate their choices as to each of the matters to be
acted upon, and to date, sign, and return the completed and signed proxy in
the accompanying envelope, which requires no postage if mailed in the United
States. Your prompt return of the proxy will help the Trust avoid the
additional expense of further solicitation to assure a quorum at the meeting.
DUPREE MUTUAL FUNDS
Annual Meeting of Shareholders - October 30, 1996
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies by
the Board of Trustees of Dupree Mutual Funds, a Kentucky business trust, (the
"Trust"), for use at the Annual Meeting of Shareholders of the Trust to be held
on October 30, 1996, and at any and all adjournments thereof.
If the enclosed form of proxy is properly executed and returned in time to be
voted at the meeting, the shares covered thereby will be voted in accordance
with the instructions marked thereon by the Shareholders. Executed proxies
that are unmarked will be voted:
for the nominees of the Board of Trustees of the Trust in the election of
Trustees, and
in favor of the ratification of the selection of independent certified public
accountants for the Trust, and
for Shareholders of the North Carolina Tax-Free Income Series only,
in favor of approval of the Investment Advisory Agreement, and
for Shareholders of the North Carolina Tax-Free Short-to-Medium Series only,
in favor of approval of the Investment Advisory Agreement.
Any proxy may be revoked at any time prior to its exercise by a written notice
of revocation addressed to and received by the Secretary of the Trust, by
delivering a duly executed proxy bearing a later date, or by attending the
meeting and voting in person.
As of September 13, 1996, there were ##,###,###.### shares of beneficial
interest of the Trust outstanding, being comprised of:
##,###,###.### shares of Kentucky Tax-Free Income Series
#,###,###.### shares of Kentucky Tax-Free Short-to-Medium Series
###,###.### shares of North Carolina Tax-Free Income Series
###,###.### shares of North Carolina Tax-Free Short-to-Medium Series
###,###.### shares of Tennessee Tax-Free Income Series
###,###.### shares of Tennessee Tax-Free Short-to-Medium Series, and
###,###.### shares of Intermediate Government Bond Series
all having no par value. As of that date no person was known to the Trust to
be the beneficial owner of more than five percent of the outstanding shares of
the Kentucky Tax-Free Income Series.
As of that date, the following persons were known to the Trust to be beneficial
owners of more than five percent of the outstanding shares of the following
series:
Name(s) of Share Owners Amount of Beneficial Percent of
Ownership Shares Held
KY Tax-Free Short-to-Medium Series
Studio Plus Hotels, Inc. #,###,###.### shares ##.## %
NC Tax Tax-Free Income Series
Frank A. Daniels ##,###.### shares ##.## %
Robert A. Eberle ##,###.### shares ##.## %
Lawrence J. LaBrie #,###.### shares #.## %
Sidney C. Teague II ##,###.### shares ##.## %
NC Tax-Free Short-to-Medium Series
Kemp Pendleton Burpeau ##,###.### shares ##.## %
Frank A. Daniels III ##,###.### shares ##.## %
NEC Industries ##,###.### shares ##.## %
Calvin H. Price ##,###.### shares #.## %
TN Tax-Free Income Series
Gail S. Mays ##,###.### shares ##.## %
Terrell D. Mays ##,###.### shares #.## %
TN Tax-Free Short-to-Medium Series
Thomas F. Buchanan, Jr. ##,###.### shares #.## %
Gail S. Mays ##,###.### shares ##.## %
Harry Samuels Trust ##,###.### shares #.## %
Arthur H. Woods ##,###.### shares #.## %
Intermediate Government Bond Series
Saxon & Company ##,###.### shares #.## %
As of that date, the Trustees and officers of the Trust, as a group bene-
ficially owned, directly or indirectly ###,###.### shares, representing
approximately #.### % of the outstanding shares.
A copy of the annual report of Dupree Mutual Funds for the fiscal year ended
June 30, 1996, including financial statements, has been mailed to shareholders
of record at close of business on that date, and to persons who became share-
holders of record between that time and the close of business on September
20, 1996, the record date for the determination of the shareholders who are
entitled to be notified of and to vote at the meeting.
Shareholders are entitled to one vote for each full share, and a proportionate
vote for each fractional share, of the Trust held as of the record date except
with respect to the election of Trustees, as to which cumulative voting shall
apply. In accordance with Kentucky law, shares owed by three or more persons
as co-fiduciaries will be voted in accordance with the will of the majority of
such fiduciaries, unless a written instrument or court order providing to the
contrary has been filed with the Secretary of the Trust.
A majority of the shares of the Trust entitled to vote shall constitute a
quorum for the transaction of business. A majority of the shares voted, at a
meeting where a quorum is present, shall decide any questions, except where a
different vote is specified by the Investment Company Act of 1940, and a
plurality shall elect a Trustee. If no instruction is given on a proxy, the
proxy will be voted in favor of the nominees as trustees, in favor of
selection of Ernst & Young, L.L.P. to serve as independent certified public
accountants and in favor of the investment advisory agreement between the Trust
and Dupree Investment Advisers, Inc. for the North Carolina Tax-Free Income
Series and the North Carolina Tax-Free Short-to-Medium Series. Abstentions and
broker no-votes will not count toward a quorum though they will be counted with
the majority of votes cast on any item of business if a quorum is present.
The costs of the meeting, including the solicitation of proxies, will be paid
by the Trust. Persons holding shares as nominees will be reimbursed, upon
request, for their reasonable expenses in sending soliciting material to the
principals of the accounts. In addition to the solicitation of proxies by
mail, officers and Trustees of the Trust may solicit proxies in person or
by telephone.
The date of this Proxy Statement is September 20, 1996.
ELECTION OF TRUSTEES
The Trust's Board of Trustees has nominated the six (6) persons listed below
for election as Trustees for the ensuing year, each to hold office until the
1997 Annual Meeting of Shareholders and until their successors are duly elected
and qualified. All of the nominees, excepting Ms. Breathitt who is a nominee
for a newly created position, are members of the present Board of Trustees of
the Trust. A shareholder using the enclosed form of proxy can vote for all
or any of the nominees of the Board of Trustees or can withhold his or
her vote from all or any of such nominees. If the proxy card is properly
executed but unmarked it will be voted for all of the nominees. Each of the
nominees has agreed to serve as a Trustee if elected; however, should any
nominee become unable or unwilling to accept nomination or election, the
persons named in the proxy will exercise their voting power in favor of such
other person or persons as the Board of Trustees of the Trust may recommend.
Two of the nominees, Thomas P. Dupree, Sr. and Fred L. Dupree, Jr. are brothers.
In electing Trustees, shareholders are entitled to exercise cumulative voting
rights. Under cumulative voting, each shareholder has the right to cast, in
person or by proxy, an aggregate amount of votes equal to the number of shares
held by such shareholder, multiplied by the number of Trustees to be elected,
and the shareholder may cast the whole number of votes for one candidate, or
distribute such votes among two or more candidates. The accompanying form of
proxy confers cumulative voting rights on the persons named thereon as proxies.
Name, Address and
Age of Nominee
Principal Occupations(1)
Shares Beneficially
Owned Directly or
Indirectly, as of
September 13, 1996
THOMAS P. DUPREE, SR.*
125 South Mill Street
Lexington, KY 40507
Age: 66
Chairman of the Board of
Dupree & Company, Inc. and Dupree
Investment Advisers, Inc., President
until 1996; Director Studio Plus Hotels,
Inc.
###,###.###
.### %
FRED L. DUPREE, JR.*
125 South Mill Street
Lexington, KY 40507
Age: 69
Vice President, Secretary, Treasurer
and Director of Dupree & Company, Inc.
and Dupree Investment Advisers, Inc.
##,###.###
.### %
LUCY A. BREATHITT
1703 Fairway Drive
Lexington, KY 40502
Age: 59
Alexander Farms, farming; KY Horse
Park Foundation Board; KY Horse
Park Museum Board.
None
0.0 %
WILLIAM A. COMBS, JR.
111 Woodland Avenue, #510
Lexington, KY 40502
Age: 56
Secretary, Treasurer, Director, Dana
Motor Company, Cincinnati, OH;
Secretary, Treasurer, Director, Freedom
Dodge, Lexington, KY; Secretary,
Treasurer, Director, Ellerslie Reality,
Inc., Lexington, KY; Partner, Forkland
Development Company, Lexington, KY;
Partner, Lexland, Lexington, KY.
###,###.###
.### %
ROBERT L. MADDOX
2800 Citizens Plaza
Louisville, KY 40202
Age: 72
Partner, Wyatt, Tarrant & Combs,
Louisville, KY, Attorneys; Director,
Nugent Sand Company, Louisville, KY;
Director, Orr Safety Corp., Louisville,
KY; Director, Whip-Mix Corp., Louisville,
KY.
###,###.###
.### %
Name, Address and
Age of Nominee
Principal Occupations(1)
Shares Beneficially
Owned Directly or
Indirectly, as of
September 13, 1996
WILLIAM S. PATTERSON
367 West Short Street
Lexington, KY 40507
Age: 64
President, CEO, Cumberland Surety
Co., Lexington, KY; President,
Patterson & Co., Frankfort, KY (real
estate development thoroughbred
horse-breeding, farming).
#,###.###
.### %
* Thomas P. Dupree, Sr. and Fred L. Dupree, Jr. are "interested persons" of the
Trust's Investment Adviser and of the Trust within the meaning of Section 2(a)
(19) of the Investment Company Act of 1940 by virtue of their officership,
directorship and/or employment with Dupree Investment Advisers, Inc. Dupree
Investment Advisers, Inc. also serves as the Trust's Transfer Agent. The
other nominees are the non-interested Trustees of the Trust.
(1) Except as otherwise noted, each individual has held the office indicated,
or other offices in the same company, for the last five years.
Pension or Total
Name of Person, Aggregate Retirement Estimated Annual Compensation
Position Compensation Benefits Benefits Upon From Trust
From Trust Accrued Retirement and Trust
As Part of Complex
Expenses Paid to
Trustees
Thomas P. Dupree, Sr. -0- None - No Pension None -0-
President, Chairman or Retirement Plan
Trustee
Fred L. Dupree, Jr. -0- None - No Pension None -0-
Vice President, or Retirement Plan
Secretary, Treasurer
Trustee
Lucy A. Breathitt None None - No Pension None -0-
Trustee or Retirement Plan
William A. Combs, Jr. $12,000 None - No Pension None -0-
Trustee or Retirement Plan
Robert L. Maddox $12,000 None - No Pension None -0-
Trustee or Retirement Plan
William S. Patterson $12,000 None - No Pension None -0-
Trustee or Retirement Plan
The Board of Trustees has authorized the payment of a fee of $12,000 to each
of the non-interested Trustees for the fiscal year ending June 30, 1997.
Lucy Alexander Breathitt is the nominee for a newly established trustee
position and did not participate as a trustee during the fiscal year ending
June 30, 1996.
The Board of Trustees has an audit committee comprised of the non-interested
trustees, but does not have an executive committee or a nominating committee.
The audit committee met once during the fiscal year ended June 30, 1996, with
all members in attendance. All nominees attended at least 75% of the four
meetings of the Board of Trustees during the fiscal year ended June 30, 1996.
At the October 30, 1995 Annual Meeting of Shareholders 50,112,339.575 Dupree
Mutual Funds shares were outstanding and entitled to vote. Of the shares
outstanding and entitled to vote 29,365,990.445 shares were present and
voting in person or by proxy, for a percentage of 58.60%.
RATIFICATION OR REJECTION OF SELECTION
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The selection by the Board of Trustees and recommendation of the Audit
Committee of the Trust of the firm of Ernst & Young, L.L.P., certified public
accountants, as the independent certified public accountants for the fiscal
year ending June 30, 1997 will be submitted for ratification or rejection by
the shareholders at the Annual Meeting. If approved, Ernst & Young, L.L.P.
will perform audit, tax preparation and other accounting services for the Trust
for the fiscal year ending June 30, 1997.
The affirmative vote of a majority of the Trust's outstanding voting
securities is required for ratification of the selection of Ernst & Young,
L.L.P.. As defined in the Investment Company Act of 1940, the phrase "vote
of a majority of the outstanding voting securities" means the vote of the
holders of the lesser of (a) 67% of the shares present in person or
represented by proxy and entitled to vote at the meeting, if the holders of
more than 50% of the outstanding shares are so present or represented,
and (b) more than 50% of the outstanding shares.
Previously, Coopers & Lybrand, L.L.P. has served as independent auditor for
the Trust and its predecessor, Kentucky Tax-Free Income Fund, Inc. since our
inception in 1979. The firm has performed our 1996 audit and will continue to
provide tax preparation services for the Trust relating to our fiscal year 1996
operations until those matters are completed. The recommendation to select
Ernst & Young, L.L.P. for the 1997 fiscal year is not due to any negative
assessment of the quality of the independent auditing or accounting services
provided by Coopers & Lybrand, L.L.P., nor is it due to any disagreement or
difference of opinion regarding any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
nor has Coopers & Lybrand, L.L.P. expressed any adverse opinion, disclaimer or
qualification in its audit reports on the Trust's financial statements. The
Board of Trustees did not consult with Ernst & Young, L.L.P. regarding its
opinion of any specific transaction, or seek any advice with respect to
questions of accounting or auditing principles, practices or procedures.
Ernst & Young, L.L.P. has advised the Trust that they have no direct or
material indirect financial interest in the Trust. Representatives of both
Coopers & Lybrand, L.L.P. and Ernst & Young, L.L.P. are expected at the
Annual Meeting, and will be available to make a statement if they desire to
do so, and to respond to any questions which the shareholders may wish to
address to them.
INVESTMENT ADVISORY AGREEMENTS
The Investment Advisory Agreements of only the North Carolina Tax-Free Income
Series and the North Carolina Tax-Free Short-to-Medium Series are subject to
vote at this meeting. Each series of the Trust has its own Investment Advisory
Agreement and only shareholders of each series vote to approve or reject an
Investment Advisory Agreement for that series. Immediately following the
description of the Investment Advisory Agreement of the two North Carolina
Series is information describing the Investment Advisory Agreements for the
Kentucky Tax-Free Income Series, the Kentucky 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, none of which Agreements
is subject to vote.
North Carolina Tax-Free Income Series -- Only
APPROVE OR REJECT THE ADOPTION OF AN INVESTMENT ADVISORY AGREEMENT BETWEEN
THE TRUST AND DUPREE INVESTMENT ADVISERS, INC.
The North Carolina Tax-Free Income Series is currently served by Dupree
Investment Advisers, Inc., pursuant to an Agreement executed November 1,
1995 and will continue in effect until October 31, 1996. The Agreement is
being submitted to the shareholders of the North Carolina Tax-Free Income
Series for approval or rejection. The affirmative vote of a majority of the
series' outstanding voting securities is required for ratification of the
Investment Advisory Agreement.As defined in the Investment Company Act of
1940, the phrase "vote of a majority of the outstanding voting securities"
means the vote of the holders of the lesser of (a) 67% of the shares present
in person or represented by proxy and entitled to vote at the meeting, if the
holders of more than 50% of the outstanding shares are so present or
represented, and (b) more than 50% of the outstanding shares. If approved
by the series' shareholders, the Investment Advisory Agreement will continue
in effect until October 31, 1997, and thereafter from year to year, if such
continuation is specifically approved. At least annually the proposed
agreement must be specifically approved by the Trust's Board of Trustees at
a meeting called for that purpose or by a vote of the holders of a majority
of the series' shares, and in either case, also by vote of a majority of the
Trust's Trustees who are not "interested persons" of Dupree Investment
Advisers, Inc. or the Trust within the meaning of the Investment Company
Act of 1940. The proposed agreement is subject to termination by either
party without penalty on 60 days' written notice to the other, and it
terminates automatically in the event of assignment.
Pursuant to the agreement, the Investment Adviser provides investment
supervisory services, office space and facilities and corporate
administration. Specifically, the Investment Adviser obtains and evaluates
relevant information regarding the economy, industries, businesses, municipal
issuers, securities markets and securities; to formulate a continuing program
for the management of each series' assets in a manner consistent with the
series' investment objectives; and to implement this program by selecting
the securities to be purchased or sold by the series and placing orders for
such purchases and sales. In addition, the Investment Adviser provides for
the series' office needs, maintains each series' books and records, assumes
and pays all sales and promotional expenses incurred in the distribution of
each series' shares, staffs the series with persons competent to perform
all of its executive and administrative functions, supervises and coordinates
the activities of the Trust's institutional and other agents (e.g. custodian,
transfer agent, independent accountants, outside legal counsel), and permits
its officers and employees to serve as Trustees and officers of the Trust, all
without additional cost to the Trust.
Under the agreement, neither the Investment Adviser nor any of its directors,
officers or employees performing executive or administrative functions for each
series will be liable to the Trust for any error of judgment, mistake of law or
other act or omission in connection with a matter to which the agreement
relates, unless such error, mistake, act or omission involves willful
misfeasance, bad faith, gross negligence or reckless disregard of duty or
otherwise constitutes a breach of fiduciary duty involving personal misconduct.
The Trust has agreed to pay to the Investment Adviser as compensation for all
services rendered, facilities furnished and expenses paid or assumed by it
under the agreement, a fee at the annual rate of .50 of 1% $100,000,000; .45
of 1% of the series' average daily net asset value between $100,000,001 and
$150,000,000; and .40 of 1% of the Series average daily net asset value in
excess of $150,000,000.
The fee is payable to the Investment Adviser in monthly installments. As of
June 30, 1996 the net asset value of the North Carolina Tax-Free Income
Series was $1,063,382.
During the fiscal year ending June 30, 1996, the Investment Adviser was paid
$1,534 by the North Carolina Tax-Free Income Series. The Investment Adviser
voluntarily reimbursed the North Carolina Tax-Free Income Series $11,229.
North Carolina Tax-Free Short-to-Medium Series -- Only
APPROVE OR REJECT THE ADOPTION OF AN INVESTMENT ADVISORY AGREEMENT BETWEEN
THE TRUST AND DUPREE INVESTMENT ADVISERS, INC.
The North Carolina Tax-Free Short-to-Medium Series is currently served by
Dupree Investment Advisers, Inc., pursuant to an agreement executed November
1, 1995 and will continue in effect until October 31, 1997. The Agreement is
being submitted to the shareholders of the North Carolina Tax-Free Short-to-
Medium Series for approval or rejection. The affirmative vote of a majority
of the series' outstanding voting securities is required required for
ratification of the Investment Advisory Agreement. As defined in the
Investment Company Act of 1940, the phrase "vote of a majority of the
outstanding voting securities" means the vote of the holders of the lesser of
(a) 67% of the shares present in person or represented by proxy and entitled
to vote at the meeting, if the holders of more than 50% of the outstanding
shares are so present or represented, and (b) more than 50% of the
outstanding shares. If approved by the series' shareholders, the Investment
Advisory Agreement will continue in effect until October 31, 1997, and
thereafter from year to year, if such continuation is specifically approved.
At least annually the proposed agreement must be specifically approved by the
Trust's Board of Trustees at a meeting called for that purpose or by a vote
of the holders of a majority of the series' shares, and in either case, also
by vote of a majority of the Trust's Trustees who are not "interested
persons" of Dupree Investment Advisers, Inc. or the Trust within the meaning
of the Investment Company Act of 1940. The proposed Agreement is subject to
termination by either party without penalty on 60 days' written notice to the
other, and it terminates automatically in the event of assignment.
Pursuant to the agreement, the Investment Adviser provides investment
supervisory services, office space and facilities and corporate
administration. Specifically, the Investment Adviser obtains and evaluates
relevant information regarding the economy, industries, businesses, municipal
issuers, securities markets and securities; to formulate a continuing program
for the management of each series' assets in a manner consistent with the
series' investment objectives; and to implement this program by selecting the
securities to be purchased or sold by the series and placing orders for such
purchases and sales. In addition, the Investment Adviser provides for the
series' office needs, maintains each series' books and records, assumes and
pays all sales and promotional expenses incurred in the distribution of each
series' shares, staffs the series with persons competent to perform all of
its executive and administrative functions, supervises and coordinates the
activities of the Trust's institutional and other agents (e.g. custodian,
transfer agent, independent accountants, outside legal counsel),
and permits its officers and employees to serve as Trustees and officers of
the Trust, all without additional cost to the Trust.
Under the agreement, neither the Investment Adviser nor any of its directors,
officers or employees performing executive or administrative functions for
each series will be liable to the Trust for any error of judgment, mistake
of law or other act or omission in connection with a matter to which the
agreement relates, unless such error, mistake, act or omission involves
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty or otherwise constitutes a breach of fiduciary duty involving personal
misconduct.
The Trust has agreed to pay to the Investment Adviser as compensation for all
services rendered, facilities furnished and expenses paid or assumed by it
under the agreement, a fee at the annual rate of .50 of 1% $100,000,000; .45
of 1% of the series' average daily net asset value between $100,000,001 and
$150,000,000; and .40 of 1% of the series average daily net asset value in
excess of $150,000,000.
The fee is payable to the Investment Adviser in monthly installments. As of
June 30, 1996 the net asset value of the North Carolina Tax-Free Short-to-
Medium Series was $1,158,698.
During the fiscal year ending June 30, 1996, the Investment Adviser was paid
$2,312 by the North Carolina Tax-Free Short-to-Medium Series. The Investment
Adviser voluntarily reimbursed the North Carolina Tax-Free Short-to-Medium
Series $12,026.
Kentucky Tax-Free Income Series
Kentucky Tax-Free Short-to-Medium Series
Tennessee Tax-Free Income Series
Tennessee Tax-Free Short-to-Medium Series
Intermediate Government Bond Series
Each series of the Trust has its own Investment Advisory Agreement, and only
shareholders of each series vote to approve or reject an Investment Advisory
Agreement for that series. The provisions of the current Investment Advisory
Agreements for the two Kentucky Series are identical.
The Kentucky Tax-Free Income Series, the Kentucky Tax-Free Short-to-Medium
Series, the Tennessee Tax-Free Income Series, Tennessee Tax-Free Short-to-Medium
Series and the Intermediate Government Bond Series are currently served by
Dupree Investment Advisers, Inc., pursuant to separate agreements for each
series approved by the shareholders of each series at their annual meeting
on October 11, 1989, October 11, 1989, October 31, 1994, October 30 1995 and
October 21, 1993, respectively. Each agreement commenced November 1, in the
year of approval and continued in effect for two calendar years. Thereafter
the agreements for each series were and are renewed annually to continue in
effect until October 31, pursuant to specific approval at least annually by
the Trust's Board of Trustees at a meeting called for that purpose, or by a
vote of the holders of a majority of the series' shares, and, in either case,
also by vote of a majority of the Trust's Trustees who are not "interested
persons" of Dupree Investment Advisers, Inc. or the Trust within the meaning of
the Investment Company Act of 1940. The agreements are subject to termination
by either party without penalty on 60 days' written notice to the other, and
terminate automatically in the event of assignment.
Pursuant to the agreements the Investment Adviser provides investment
supervisory services, office space and facilities and corporate
administration. Specifically, the Investment Adviser obtains and evaluates
relevant information regarding the economy, industries, businesses, municipal
issuers, securities markets and securities; to formulate a continuing program
for the management of each series' assets in a manner consistent with the
series' investment objectives; and to implement this program by selecting the
securities to be purchased or sold by the series and placing orders for such
purchases and sales. In addition, the Investment Adviser provides for the
series' office needs, maintains each series' books and records, assumes and
pays all sales and promotional expenses incurred in the distribution of each
series' shares, staffs the series with persons competent to perform all of
its executive and administrative functions, supervises and coordinates the
activities of the Trust's institutional and other agents (e.g. custodian,
transfer agent, independent accountants, outside legal counsel), and permits
its officers and employees to serve as Trustees and officers of the Trust, all
without additional cost to the Trust.
Under the Agreements, neither the Investment Adviser nor any of its directors,
officers or employees performing executive or administrative functions for each
series will be liable to the Trust for any error of judgment, mistake of law or
other act or omission in connection with a matter to which the agreement
relates, unless such error, mistake, act or omission involves willful
misfeasance, bad faith, gross negligence or reckless disregard of duty or
otherwise constitutes a breach of fiduciary duty involving personal misconduct.
For the Kentucky Tax-Free Income Series, the Kentucky Tax-Free Short-to-Medium
Series, the Tennessee Tax-Free Income Series, and the Tennessee Tax-Free Short-
to-Medium Series the Trust has agreed to pay to the Investment Adviser as
compensation for all services rendered, facilities furnished and expenses
paid or assumed by it under the agreements, a fee at the annual rate of .50% of
1% of each series' average daily net asset value up to $100,000,000; .45 of 1%
of each series' average daily net asset value between 100,000,001 and
$150,000,000; and .40 of 1% of each series average daily net asset value in
excess of $150,000,000.
For the Intermediate Government Bond Series the Trust has agreed to pay the
Investment Adviser as compensation for all services rendered, facilities
furnished and expenses paid or assumed by it under the agreement, a fee at
the annual rate of .20 of 1% of the series average daily net asset value.
The fees are payable to the Investment Adviser in monthly installments.
As of June 30, 1996 the net asset value of the Kentucky Tax-Free Income Series
was $295,028,727. As of June 30, 1996 the net asset value of the Kentucky Tax-
Free Short-to-Medium Series was $66,574,052.
As of June 30, 1996 the net asset value of the Tennessee Tax-Free Income Series
was $8,055,798. As of June 30, 1996 the net asset value of the Tennessee Tax-
Free Short-to-Medium Series was $2,455,175.
As of June 30, 1996 the net asset value of the Intermediate Government Bond
Series was $7,764,785.
During the fiscal year ending June 30, 1996, the Investment Adviser was paid
$1,279,636 by the Kentucky Tax-Free Income Series. During the fiscal year
ending June 30, 1996, the Investment Adviser was paid $292,588 by the
Kentucky Tax-Free Short-to-Medium Series.
During the fiscal year ending June 30, 1996, the Investment Adviser was paid
$33,578 by the Tennessee Tax-Free Income Series. The Investment Adviser
voluntarily reimbursed the Tennessee Tax-Free Income Series $24,095.
During the fiscal year ending June 30, 1996, the Investment Adviser was paid
$10,277 by the Tennessee Tax-Free Short-to-Medium Series. The Investment
Adviser voluntarily reimbursed the Tennessee Tax-Free Short-to-Medium Series
$14,297.
During the fiscal year ending June 30, 1996, the Investment Adviser was paid
$16,061 by the Intermediate Government Bond Series. The Investment Adviser
voluntarily reimbursed the Intermediate Government Bond Series $17,702.
Each agreement permits the Investment Adviser to voluntarily reimburse
any series. The Trust currently sells to Kentucky, Indiana, Florida,
Tennessee and Texas residents. Kentucky, Florida and Tennessee do not
currently impose a limitation upon investment advisory fees charged to mutual
funds, but both Indiana and Texas do as follows: 1.5% of the first
$30,000,000 in net assets and 1% of any additional net assets for Indiana;
and 2% of the first $10,000,000 of average net assets, 1.5% of the next
$20,000,000 of average net assets and 1% of the remaining average net assets
for Texas.
Investment Adviser
The investment activities of the original Kentucky Tax-Free Income Fund, Inc.
were managed from 1979 to 1986 by Dupree & Company, Inc., 167 West Main Street,
Lexington, Kentucky 40507. On November 1, 1986, Dupree Investment Advisers,
Inc., a wholly owned subsidiary of Dupree & Company, Inc., commenced managing
the investment activities of the fund. Dupree Investment Advisers, Inc. has
continued as the adviser to Kentucky Tax-Free Income Series and became the
adviser to Kentucky Tax-Free Short-to-Medium Series, all as of September 15,
1987, the effective date for our change in business from a Kentucky
corporation to a Kentucky business trust.
Thomas P. Dupree, Sr., who is Chairman of the Board and owner of 51% of the
stock of Dupree & Company, Inc. also serves as Chairman of the Board of
Dupree Investment Advisers, Inc. and as President and as a member of the
Trust's Board of Trustees. William T. Griggs II is President of Dupree &
Company, Inc. and Dupree Investment Advisers, Inc. Mr. Griggs also serves
as a Vice President of the Trust. Fred L. Dupree, Jr. is Vice President,
Secretary, Treasurer and a Director of Dupree & Company, Inc., and holds the
same offices with the Trust and Dupree Investment Advisers, Inc. Michelle M.
Dragoo is Vice President of Dupree & Company, Inc. and Dupree Investment
Advisers, Inc. Dorine D. Kelly is Vice President of Dupree & Company, Inc.
and Dupree Investment Advisers, Inc. Alison L. Arnold is Assistant Vice
President of Dupree & Company, Inc. and Dupree Investment Advisers, Inc.
PORTFOLIO TRANSACTIONS
Ordinarily, portfolio securities of the Trust's series are purchased from
underwriters at prices that include underwriting fees or from primary market
makers acting as principals and selling to the Trust at net prices. In
either case, the Trust would not pay any brokerage commission. Transactions
placed with brokers serving as primary market makers are executed at prices
within the spread between the bid and the asked prices for the securities.
Decisions with respect to the purchase and sale of the Trust's portfolio
securities, including the allocation of principal business and portfolio
brokerages, are made by the Trust's Investment Adviser, which has
discretionary authority to implement these decisions by placing orders for the
purchase or sale of securities for the Trust's accounts with underwriters, or
brokers selected by it for the purpose. However, Dupree Investment Advisers,
Inc. will not deal with the Trust as principal, or receive brokerage
commissions for acting as the Trust's agent, in purchasing and selling
securities for the Trust's accounts. Purchases and sales of securities
for the Trust's portfolios, as well as allocation of brokerage are reviewed
quarterly by the Trust's Board of Trustees.
The Investment Adviser has advised the Trust that, in placing orders for the
purchase and sale of the Trust's portfolio securities, it seeks execution at
the most favorable prices through responsible brokers and, in agency
transactions, at competitive commission rates. The Investment Adviser has
also advised the Trust that, in selecting broker-dealers to execute the
Trust's portfolio transactions, it gives consideration to such factors as
the price of the security, the rate of commission, if any, the size and
difficulty of the order, the reliability, integrity, financial condition and
general execution and operating capabilities of competing brokers, and the
brokerage and research services which they provide to Investment Adviser or
to the Trust.
The Investment Adviser has further advised the Trust that it does not award
brokerage on the Trust's portfolios to brokers who charge higher commissions
because of research services they provide. However, under both Agreements,
the Trust has authorized the Investment Adviser to adopt a brokerage
allocation policy embodying the concepts of Section 28(e) of the Securities
Exchange Act of 1934. Under such policy, a broker furnishing research
services could be paid a higher commission than the commission that would be
paid to another broker which either does not furnish research services or
furnishes research services deemed to be of lesser value, if such higher
commission is deemed to be reasonable in relation to the value of the
brokerage and research services provided by the broker charging it, either
in terms of that particular transaction or in terms of the overall
responsibilities of the Investment Adviser with respect to the account as to
which it exercises investment discretion.
Whether and to what extent net prices or commissions charged by brokers
selected by the Investment Adviser reflect an element of value for research
services cannot presently be determined. The extent that research services of
value are provided by brokers with or though which it places the Trust's
portfolio transactions, the Investment Adviser may be relieved of expenses
it might otherwise bear. Research services furnished by brokers could be
useful and of value to the Investment Adviser in serving its other clients
as well as the Trust, but, on the other hand, research services obtained by
the Investment Adviser as a result of placing portfolio brokerage of other
clients could be useful and of value to it in serving the Trust.
Because the Trust's shares are not sold through intermediary brokers, it is not
the practice of the Investment Adviser to allocate principal business or
portfolio brokerage on the basis of such sales. However, brokers effecting
purchases of the Trust's shares for their customers may participate in
principal transactions or brokerage allocated as described in the preceding
paragraphs.
The Trust's Board of Trustees has considered with the Investment Adviser the
possibility that the Investment Adviser might seek to "recapture" underwriting
discounts and selling group concessions that the Trust pays when the Trust
purchases securities in underwriting. Recapture would involve the payment by
underwriters and brokers of a portion of their discounts and concessions to
the Investment Adviser which would then apply some of all of these payments
toward the reduction of the Investment Advisory fees due from the Trust. The
economic effect of recapture would be to reduce the Trust's cost of acquiring
securities in underwriting.
As applied to underwriting of municipal securities, recapture presents a number
of difficult legal questions that have been considered, but not yet resolved, by
the federal courts, the Securities and Exchange Commission, the National
Association of Securities Dealers and the Municipal Securities Rulemaking
Board. In view of the uncertainties, the Trust's Trustees have concluded that
it is not appropriate at this time to request the Investment Adviser to take
the steps necessary to produce recapture of underwriting discounts and
selling group concessions. However, it is the intention of the Trust's
Trustees to reconsider the issue when the related legal questions have been
resolved.
The Trust understands that, in purchasing municipal securities in underwriting,
certain investors have negotiated the elimination of all or a portion of the
selling group concession, and, in rare instances, the underwriting discount.
This practice also raises legal questions that have not yet been resolved.
The Investment Adviser has advised the Trust that it will engage in similar
negotiations on its behalf, if and to the extent it is feasible to do so.
OTHER BUSINESS
The management of the Trust knows of no other business which may come before
the meeting. However, if any additional matters are properly presented at the
meeting, it is intended that the persons named in the enclosed proxy, or
their substitutes, will vote such proxy in accordance with their judgment on
such matters.
SHAREHOLDERS' PROPOSALS
If a shareholder wishes to present a proposal at the 1997 Annual Meeting of
shareholders, scheduled for that year, such proposal must be received by the
Secretary of the Trust at the Trust's Lexington office prior to June 1, 1997.
The Trustees and officers of the Trust welcome the opportunity to discuss
proposals or suggestions any shareholder may have.
PROXY
DUPREE MUTUAL FUNDS
PROXY SOLICITED BY THE BOARD OF TRUSTEES FOR ANNUAL MEETING TO BE HELD AT THE
RADISSON PLAZA HOTEL, 369 WEST VINE STREET, LEXINGTON, KY 40507-1636 AT 10:00
A.M., LEXINGTON TIME, OCTOBER 30, 1996
The undersigned hereby constitutes and appoints THOMAS P. DUPREE, SR. and FRED
L. DUPREE, JR. and each of them, with full power of substitution, to represent
the undersigned at the Annual Meeting of the Shareholders of DUPREE MUTUAL
FUNDS (the "Trust") to be held at the Radisson Plaza Hotel, 369 West Vine
Street, Lexington, KY 40507-1636 on October 30, 1996 at 10:00 A.M.,
Lexington time, and at any adjournments thereof, and there at to vote all
of the shares of the Trust which the undersigned would be entitled to vote,
with all powers the undersigned would possess if personally present, in
accordance with the following instructions:
(1) Election of Trustees
Please indicate your vote FOR: or: ONLY for the following individuals as
marked
__ Thomas P. Dupree, Sr.
__ William A. Combs, Jr.
__ ALL Trustees as given herein __ Fred L. Dupree, Jr.
__ Robert L. Maddox
__ Lucy A. Breathitt
__ William S. Patterson
Cumulative voting rights will be exercised in the election of Trustees. Total
proxy votes as to this issue will be distributed among those individuals
selected.
(2) Ratification or rejection of selection of Independent Certified Public
Accountants
__ FOR __ AGAINST __ ABSTAIN FROM
ratification of the selection of Ernst & Young, L.L.P. to serve as independent
certified public accountants for the Trust for the fiscal year ending June 30,
1997.
(3) Other Business
__ FOR __ AGAINST __ ABSTAIN FROM
use of their discretion in acting upon any and all other matters which may
properly come before the meeting and any adjournments thereof.
Shareholders Of: NORTH CAROLINA TAX-FREE INCOME SERIES ONLY
(4) Approve or reject the adoption of an Investment Advisory Agreement
between the Trust and Dupree Investment Advisers, Inc.
__ FOR __ AGAINST __ ABSTAIN FROM
approval of an Investment Advisory Agreement.
Shareholders Of: NORTH CAROLINA TAX-FREE SHORT-TO-MEDIUM SERIES ONLY
(5) Approve or reject the adoption of an Investment Advisory Agreement between
the Trust and Dupree Investment Advisers, Inc.
__ FOR __ AGAINST __ ABSTAIN FROM
approval of an Investment Advisory Agreement.
In order for us to estimate attendance at the Annual Meeting, we would
appreciate if you would indicate whether you plan to attend the meeting
in person. __ Yes, I (We) plan to attend: __ #attending.
__ No, I am (We are) unable to attend.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER INSTRUCTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO INSTRUCTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES AS TRUSTEES, IN FAVOR OF THE RATIFI-
CATION OF THE SELECTION OF ERNST & YOUNG L.L.P. TO SERVE AS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS, AND IN FAVOR OF APPROVAL OF AN INVESTMENT
ADVISORY AGREEMENT.
The undersigned hereby acknowledges receipt of the accompanying Notice of
Annual Meeting and Proxy Statement, each dated September 20, 1996. ALL Joint
owners must sign.
Dated:____________ Signed: _______________________________(Individual Account)
_______________________________(Joint Account)
When signing as attorney, trustee, executor, administrator, custodian,
guardian or corporate officer, please give full title.
THIS IS YOUR PROXY BALLOT, PLEASE:
1. Complete the reverse side
2. Have all owner's sign as designated
3. Tear the proxy at the perforation, and
4. Return your proxy in the reply envelope provided.
Your Vote is Important. Your prompt return of the proxy will help the Trust
avoid the additional expense of further solicitation to assure a quorum at
the meeting. We hope you will be able to attend the annual shareholder's
meeting.
