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)
(Name of Person(s) Filing Proxy Statement)
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[_X_] No fee required
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1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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:
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5) Total fee paid: ____________________________________________________
[___] 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:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed: ____________________________________________________________
DUPREE MUTUAL FUNDS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
October 29, 1997
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 29, 1997 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 Kentucky Tax-Free Income Series only will convene:
4. To approve or reject the adoption on an Investment Advisory Agreement
between the Trust and Dupree & Company, Inc., and
Shareholders of the Kentucky Tax-Free Short-to-Medium Series only will convene:
5. To approve or reject the adoption of an Investment Advisory Agreement
between the Trust and Dupree & Company, Inc., and
Shareholders of the North Carolina Tax-Free Income Series only will convene:
6. To approve or reject the adoption of an Investment Advisory Agreement between
the Trust and Dupree & Company, Inc., and
Shareholders of the North Carolina Tax-Free Short-to-Medium Series only will
convene:
7. To approve or reject the adoption of an Investment Advisory Agreement between
the Trust and Dupree & Company, Inc., and
Shareholders of the Tennessee Tax-Free Income Series only will convene:
8. To approve or reject the adoption of an Investment Advisory Agreement between
the Trust and Dupree & Company, Inc., and
Shareholders of the Tennessee Tax-Free Short-to-Medium Series only will convene:
9. To approve or reject the adoption of an Investment Advisory Agreement between
the Trust and Dupree & Company, Inc., and
Shareholders of the Intermediate Government Bond Series only will convene:
10. To approve or reject the adoption of an Investment Advisory Agreement
between the Trust and Dupree & Company, 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 19, 1997
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 29, 1997
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 29, 1997, 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
Kentucky Tax-Free Income Series only, in favor of approval of the Investment
Advisory Agreement, and for shareholders of the Kentucky Tax-Free Short-
to-Medium Series only, in favor of approval of the Investment Advisory
Agreement, 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, and for shareholders
of the Tennessee Tax-Free Income Series only, In favor of the Investment
Advisory Agreement, and for shareholders of the Tennessee Tax-Free Short-to-
Medium Series only in favor of the Investment Advisory Agreement, and for
shareholders of the Intermediate Government Bond Series only, in favor 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 12, 1997, there were 57,977,971.722 shares of beneficial
interest of the Trust outstanding, being comprised of:
44,579,068.226 shares of Kentucky Tax-Free Income Series
10,194,532.600 shares of Kentucky Tax-Free Short-to-Medium Series
400,707.399 shares of North Carolina Tax-Free Income Series
135,231.106 shares of North Carolina Tax-Free Short-to-Medium Series,
1,462,310.499 shares of Tennessee Tax-Free Income Series
367,191.991 shares of Tennessee Tax-Free Short-to-Medium Series,
838,929.901 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, North Carolina Income Series, or the Inter-
mediate Government Bond 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 Ownership Percent of
Shares Held
KY Tax-Free Short-to-Medium Series
CEBANTCO 563,909.774 shares 5.53 %
NC Tax-Free Short-to-Medium Series
NEC Industries, Inc. 21,483.866 shares 15.89 %
Kemp Pendleton Burpeau 16,606.052 shares 12.28 %
Calvin H. Price 10,926.501 shares 8.08 %
James l. Olsen 8,418.790 shares 6.23 %
Janis G. Burger 7,280.123 shares 5.38 %
TN Tax-Free Income Series
Terrell Dean Mays 95,662.631 shares 6.54 %
Gail S. Mays 87,489.928 shares 5.98 %
TN Tax-Free Short-to-Medium Series
B.D. Hughes Jr. Trust 67,243.036 shares 18.31 %
Gail S. Mays 37,744.011 shares 10.28 %
Harry Samuels Trust 34,223.064 shares 9.32 %
Thomas F. Buchanan, Jr. 21,211.473 shares 5.78 %
As of that date, the Trustees and officers of the Trust, as a group beneficially
owned, directly or indirectly 856,076.343 shares, representing approximately
1.48 % of the outstanding shares.
A copy of the annual report of Dupree Mutual Funds for the fiscal year ended
June 30, 1997, including financial statements, has been mailed to share-
holders of record at the close of business on that date, and to persons who
became shareholders of record between that time and the close of business on
September 19, 1997, 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, LLP to serve as independent certified public
accountants. 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 19, 1997.
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 1998
Annual Meeting of Shareholders and until their successors are duly elected
and qualified. All of the nominees, 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 12, 1997
THOMAS P. DUPREE, SR.*
125 South Mill Street
Lexington, KY 40507
Age: 67
Chairman of the Board of Dupree & Company, Inc. and Dupree Investment Advisers,
Inc. (President until 1996)
281,823.835
.49 %
FRED L. DUPREE, JR.*
125 South Mill Street
Lexington, KY 40507
Age: 70
Vice President, Secretary, Treasurer and Director of Dupree & Company, Inc. and
Dupree Investment Advisers, Inc.
28,149.445
.05 %
LUCY A. BREATHITT
1703 Fairway Drive
Lexington, KY 40502
Age: 60
Alexander Farms, farming: KY Horse Park Foundation Board; KY Horse Park Museum
Board.
1,655.836
.00 %
WILLIAM A. COMBS, JR.
111 Woodland Avenue, #510
Lexington, KY 40502
Age: 57
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; Director,
First Security Bank (in organization as of 9/19/97)
315,314.913
.54 %
ROBERT L. MADDOX
2800 Citizens Plaza
Louisville, KY 40202
Age: 73
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.
211,936.564
.37 %
WILLIAM S. PATTERSON
367 West Short Street
Lexington, KY 40507
Age: 65
President, CEO, Cumberland Surety Co., Lexington, KY; President, Patterson &
Co., Frankfort, KY (real estate development thoroughbred horse-breeding,
farming).
None
0.000 %
* 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 officer-
ship, 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.
Name of Person,
Position
Aggregate
Compensation
From Trust
Pension or
Retirement
Benefits Accrued As
Part of Trust
Expenses
Estimated Annual
Benefits Upon Retirement
Total Compensation
From Trust and
Trust Complex
Paid to Trustees
Thomas P. Dupree, Sr.
President, Chairman, Trustee
- -0-
None - No Pension or Retirement Plan
None
- -0-
Fred L. Dupree, Jr.
Vice President, Secretary, Treasurer, Trustee
- -0-
None - No Pension or Retirement Plan
None
- -0-
Lucy A. Breathitt
Trustee
$12,000
None - No Pension or Retirement Plan
None
$12,000
William A. Combs, Jr.
Trustee
$12,000
None - No Pension or Retirement Plan
None
$12,000
Robert L. Maddox
Trustee
$12,000
None - No Pension or Retirement Plan
None
$12,000
William S. Patterson
Trustee
$12,000
None - No Pension or Retirement Plan
None
$12,000
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, 1998, plus a
fee of $1,000 to each of the non-interested Trustees for each audit committee
meeting attended. Two audit committee meetings are anticipated to be held
during the fiscal year ending June 30, 1998.
The Board of Trustees has an audit committee comprised of the four non-
interested trustees, but does not have an executive committee or a nominating
committee. The audit committee met twice during the fiscal year ended June
30, 1997, with all members in attendance. All nominees attended all of the
four meetings of the Board of Trustees during the fiscal year ended June 30,
1997.
At the October 30, 1996 Annual Meeting of Shareholders 55,167,028.259 Dupree
Mutual Funds shares were outstanding and entitled to vote. Of the shares
outstanding and entitled to vote 33,695,826.217 shares were present and
voting in person or by proxy, for a percentage of 51.06%.
RATIFICATION OR REJECTION OF SELECTION
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The selection by the Board of Trustees of the firm of Ernst & Young, LLP,
certified public accountants, as the independent certified public accountants
for the fiscal year ending June 30, 1998 will be submitted for ratification
or rejection by the shareholders at the annual meeting. If approved, Ernst &
Young, LLP will perform audit, tax preparation and other accounting services
for the Trust for the fiscal year ending June 30, 1998.
The affirmative vote of a majority of the Trust's outstanding voting securities
is required for ratification of the selection of Ernst & Young, LLP 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.
INVESTMENT ADVISORY AGREEMENTS - ALL 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.
For business and tax reasons, the current Investment Advisor for each series,
Dupree Investment Advisers, Inc., will be absorbed by its parent company, Dupree
& Company, Inc. Dupree & Company, Inc. was the original Investment Advisor from
1979-1986 of the original series of the Trust, the former Kentucky Tax-Free
Income Fund, Inc. At the time that the shareholders of the former Kentucky
Tax-Free Income Fund, Inc. voted to change its form of business to a business
trust, Dupree & Company, Inc. created its subsidiary corporation, Dupree
Investment Advisers, Inc. to become the investment advisor for the several
series of the Trust which were later created. The creation of Dupree Invest-
ment Advisers, Inc. was undertaken at that time by Dupree & Company, Inc. for
business and tax reasons associated with that company.
Thomas P. Dupree, Sr., who is Chairman of the Board of Dupree & Company, Inc.
and owner of 51% of the stock of Dupree & Company, Inc. (Claire Dupree, Mr.
Dupree's wife is the owner of the remaining 49% of the stock of Dupree &
Company, Inc.) also serves as Chairman of the Board of Dupree Investment
Advisers, Inc. and as President and 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 and Dorine D.
Kelly are Vice Presidents 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. Each of the individuals
who serve as officers of Dupree & Company, Inc. will continue in those
capacities after Dupree Investment Advisers, Inc. is absorbed by Dupree &
Company, Inc.
Each series is currently served by Dupree Investment Advisers Inc., pursuant to
agreements previously approved by shareholders of each series. A new agreement
is being submitted to the shareholders of each 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 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 each series shareholders, the
Investment Advisory Agreement for each series will commence November 1,
1997 and continue in effect until October 31, 1998, 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 a vote of a
majority of the Trust's Trustees who are not "interested persons" of Dupree &
Company, 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 each agreement, the Investment Adviser provides investment super-
visory services, office space and facilities and corporate administration.
Specifically, the Investment Adviser obtains and evaluates relevant informa-
tion 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 each 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.
Each agreement permits the Investment Adviser to voluntarily reimburse any
series. The Trust currently sells to Kentucky, Indiana, Florida, Tennessee,
Texas and North Carolina residents. Kentucky, Florida, Tennessee and North
Carolina 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.
Kentucky Tax-Free Income Series - Only
APPROVE OR REJECT THE ADOPTION OF AN INVESTMENT ADVISORY AGREEMENT
BETWEEN THE TRUST AND DUPREE & COMPANY, INC.
The Kentucky Tax-Free Income Series is currently served by Dupree Investment
Advisers, Inc. pursuant to an agreement approved by the shareholders at their
annual meeting on October 11, 1989. The proposed agreement commences on
November 1, 1997 and continues in effect until October 31, 1999. The
proposed agreement is exactly the same as the current agreement and is
described above in the section entitled Investment Advisory Agreements - All
Series, except that the advisor will be Dupree & Company, Inc., replacing
Dupree Investment Advisers, Inc. Under the proposed agreement, like the
current agreement, 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 agreements, a fee at the annual rate of .50
of 1% of the average daily net asset value up to $100,000,000; .45 of 1% of
the average daily net asset value between $100,000,001 and $150,000,000; and
.40 of 1% of the average daily net assets value in excess of $150,000,001.
The fees are payable to the Investment Adviser in monthly installments.
As of June 30, 1997 the net asset value of the Kentucky Tax-Free Income Series
was $327,303,832. During the fiscal year ending June 30, 1997, the Investment
Adviser was paid $1,375,201 by the Trust.
Kentucky Tax-Free Short-to-Medium Series - Only
APPROVE OR REJECT THE ADOPTION OF AN INVESTMENT ADVISORY AGREEMENT
BETWEEN THE TRUST AND DUPREE & COMPANY, INC.
The Kentucky Tax-Free Short-to-Medium Series is currently served by Dupree
Investment Advisers, Inc. pursuant to an agreement approved by the shareholders
at their annual meeting on October 11, 1989. The proposed agreement commences
on November 1, 1997 and continues in effect until October 31, 1999. The
proposed agreement is exactly the same as the current agreement and is
described above in the section entitled Investment Advisory Agreements -
All Series, except that the advisor will be Dupree & Company, Inc., replacing
Dupree Investment Advisers, Inc. Under the proposed agreement, like the current
agreement, 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 agreements, a fee at the annual rate of .50 of 1% of the
average daily net asset value up to $100,000,000; .45 of 1% of the average
daily net asset value between $100,000,001 and $150,000,000; and .40 of 1% of
the average daily net assets value in excess of $150,000,001. The fees are
payable to the Investment Adviser in monthly installments.
As of June 30, 1997 the net asset value of the Kentucky Tax-Free Short-to-Medium
Series was $53,829,429. During the fiscal year ending June 30, 1997, the
Investment Adviser was paid $300,340 by the Trust.
North Carolina Tax-Free Income Series - Only
APPROVE OR REJECT THE ADOPTION OF AN INVESTMENT ADVISORY AGREEMENT
BETWEEN THE TRUST AND DUPREE & COMPANY, INC.
The North Carolina Tax-Free Income Series is currently served by Dupree
Investment Advisers, Inc. pursuant to an agreement approved by the share-
holders at their annual meeting on October 30, 1996. The proposed agreement
commences on November 1, 1997 and continues in effect until October 31, 1999.
The proposed agreement is exactly the same as the current agreement and is
described above in the section entitled Investment Advisory Agreements - All
Series, except that the advisor will be Dupree & Company, Inc., replacing
Dupree Investment Advisers, Inc. Under the proposed agreement, like the
current agreement, 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 agreements, a fee at the annual rate of .50
of 1% of the average daily net asset value up to $100,000,000; .45 of 1% of the
average daily net asset value between $100,000,001 and $150,000,000; and .40 of
1% of the average daily net assets value in excess of $150,000,001. The fees
are payable to the Investment Adviser in monthly installments.
As of June 30, 1997 the net asset value of the North Carolina Tax-Free Income
Series was $3,586,300. During the fiscal year ending June 30, 1997, the
Investment Adviser voluntarily reimbursed the North Carolina Tax-Free Income
Series $12,274.
North Carolina Tax-Free Short-to-Medium Series - Only
APPROVE OR REJECT THE ADOPTION OF AN INVESTMENT ADVISORY AGREEMENT
BETWEEN THE TRUST AND DUPREE & COMPANY, INC.
The North Carolina Tax-Free Short-to-Medium Series is currently served by Dupree
Investment Advisers, Inc. pursuant to an agreement approved by the shareholders
at their annual meeting on October 30, 1996. The proposed agreement commences
on November 1, 1997 and continues in effect until October 31, 1999. The
proposed agreement is exactly the same as the current agreement and is de-
scribed above in the section entitled Investment Advisory Agreements - All
Series, except that the advisor will be Dupree & Company, Inc., replacing
Dupree Investment Advisers, Inc. Under the proposed agreement, like the
current agreement, 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 agreements, a fee at the annual rate of .50 of 1% of
the average daily net asset value up to $100,000,000; .45 of 1% of the average
daily net asset value between $100,000,001 and $150,000,000; and .40 of 1% of
average daily net asset value in excess of $150,000,001. The fees are payable
to the Investment Adviser in monthly installments.
As of June 30, 1997 the net asset value of the North Carolina Tax-Free Short-to-
Medium Series was $1,458,390. During the fiscal year ending June 30, 1997, the
Investment Adviser was paid $6,989 by the Trust. The Investment Adviser
voluntarily reimbursed the North Carolina Tax-Free Short-to-Medium Series
$8,243.
Tennessee Tax-Free Income Series - Only
The Tennessee Tax-Free Income Series is currently served by Dupree Investment
Advisers, Inc. pursuant to an agreement approved by the shareholders at their
annual meeting on October 31, 1994. The proposed agreement commences on
November 1, 1997 and continues in effect until October 31, 1999. The
proposed agreement is exactly the same as the current agreement and is
described above in the section entitled Investment Advisory Agreements - All
Series, except that the advisor will be Dupree & Company, Inc., replacing Dupree
Investment Advisers, Inc. Under the proposed agreement, like the current
agreement, 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 agreements, a fee at the annual rate of .50 of 1% of the
average daily net asset value up to $100,000,000; .45 of 1% of the average
daily net asset value between $100,000,001 and $150,000,000; and .40 of 1% of
the average daily net assets value in excess of $150,000,001. The fees are
payable to the Investment Adviser in monthly installments.
As of June 30, 1997 the net asset value of the Tennessee Tax-Free Income Series
was $13,678,238. During the fiscal year ending June 30, 1997, the Investment
Adviser was paid $51,432 by the Trust. The Investment Adviser voluntarily
reimbursed the Tennessee Tax-Free Income Series $23,339.
Tennessee Tax-Free Short-to-Medium Series - Only
The Tennessee Tax-Free Short-to-Medium Series is currently served by Dupree
Investment Advisers, Inc. pursuant to an agreement approved by the shareholders
at their annual meeting on October 30, 1995. The proposed agreement commences
on November 1, 1997 and continues in effect until October 31, 1999. The
proposed agreement is exactly the same as the current agreement and is
described above in the section entitled Investment Advisory Agreements - All
series, except that the advisor will be Dupree & Company, Inc., replacing
Dupree Investment Advisers, Inc. Under the proposed agreement, like the current
agreement, 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 agreements, a fee at the annual rate of .50 of 1% of the average
daily net asset value up to $100,000,000; .45 of 1% of the average daily net
asset value between $100,000,001 and $150,000,000; and .40 of 1% of the
average daily net assets value in excess of $150,000,001. The fees are payable
to the Investment Adviser in monthly installments.
As of June 30, 1997 the net asset value of the Tennessee Tax-Free Short-to-
Medium Series was $2,992,831. During the fiscal year ending June 30, 1997,
the Investment Adviser was paid $13,694 by the Trust. The Investment Adviser
voluntarily reimbursed the Tennessee Tax-Free Short-to-Medium Series $10,311.
Intermediate Government Bond Series - Only
The Intermediate Government Bond Series is currently served by Dupree Investment
Advisers, Inc. pursuant to an agreement approved by the shareholders at their
annual meeting on October 21, 1993. The proposed agreement commences on
November 1, 1997 and continues in effect until October 31, 1999. The
proposed agreement is exactly the same as the current agreement and is
described above in the section entitled Investment Advisory Agreements - All
Series, except that the advisor will be Dupree & Company, Inc., replacing
Dupree Investment Advisers, Inc. Under the proposed agreement, like the
current agreement, 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 agreements, a fee at the annual rate of .20
of 1% of the average daily net asset value. The fees are payable to the
Investment Adviser in monthly installments.
As of June 30, 1997 the net asset value of the Intermediate Government Bond
Series was $8,288,316. During the fiscal year ending June 30, 1997, the
Investment Adviser was paid $16,159 by the Trust. The Investment Adviser
voluntarily reimbursed the Intermediate Government Bond Series $5,347.
PORTFOLIO TRANSACTIONS
Ordinarily, portfolio securities of the Trust's series are purchased from under-
writers 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 discretion-
ary 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 & Company, 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 1998 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 May 22, 1998.
The Trustees and officers of the Trust welcome the opportunity to discuss
proposals or suggestions any shareholder may have.
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.
COMMENTS:
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 29, 1997
The signed 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
SIGNED 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 29, 1997 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 signed would be entitled to vote, with all powers the
signed would possess if personally present, in accordance with the following
instructions:
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
INSTRUCTED HEREIN BY THE SIGNED SHAREHOLDER.
IF NO INSTRUCTION IS GIVEN THIS PROXY WILL BE VOTED:
FOR THE ELECTION OF THE NOMINEES AS TRUSTEES,
IN FAVOR OF THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP TO
SERVE AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, AND
IN FAVOR OF APPROVAL OF AN INVESTMENT ADVISORY AGREEMENT OF THE
RELEVANT SERIES.
DUPREE MUTUAL FUNDS - 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 29, 1997
(1) Election Of Trustees, please indicate your vote :---------------------->
The Nominees are:
Thomas P. Dupree, Sr. William A. Combs, Jr.
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------------------------------------------------------------------>
ratification of the selection of Ernst & Young, LLP to serve as independent
certified public accountants for the Trust for the fiscal year ending June 30,
1998.
(3) Other Business--------------------------------------------------------->
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 EACH SERIES of the Trust will convene SEPARATELY to approve or
reject the adoption of:
(4) Shareholders of: KENTUCKY Tax-Free Income Series ONLY --------------->
(5) Shareholders of: KENTUCKY Tax-Free Short-to-Medium Series ONLY ------>
(6) Shareholders of: NORTH CAROLINA Tax-Free Income Series ONLY ---------->
(7) Shareholders of: NORTH CAROLINA Tax-Free Short-to-Medium Series ONLY ->
(8) Shareholders of: TENNESSEE Tax-Free Income Series ONLY --------------->
(9) Shareholders of: TENNESSEE Tax-Free Short-to-Medium Series ONLY ------>
(10) Shareholders Of: Intermediate GOVERNMENT BOND Series ONLY ----------->
Your shares will be voted as indicated. If signed and no direction is provided
for a given item, it will be voted as indicated on the reverse.
DUPREE MUTUAL FUNDS - ANNUAL MEETING: 10:00 A.M., OCTOBER 29, 1997
Election Of Trustees
___ FOR ALL Trustees as nominated
___ WITHHOLD authority to vote for any individual nominee, write the name of
the nominee(s) to withhold below.
___ WITHHOLD ALL Nominees - (ABSTAIN FROM)
___ FOR ____ AGAINST ____ ABSTAIN FROM
Ratification or rejection of selection of Independent Certified Public
Accountants
___ FOR ____ AGAINST ____ ABSTAIN FROM
Other Business
An Investment Advisory Agreement between the Trust and Dupree & Company, Inc.
____ FOR ____ AGAINST ____ ABSTAIN FROM
____ FOR ____ AGAINST ____ ABSTAIN FROM
___ FOR ____ AGAINST ____ ABSTAIN FROM
___ FOR ____ AGAINST ____ ABSTAIN FROM
___ FOR ____ AGAINST ____ ABSTAIN FROM
___ FOR ____ AGAINST ____ ABSTAIN FROM
___ FOR ____ AGAINST ____ ABSTAIN FROM
approval of an Investment Advisory Agreement by the applicable Series.
Vote only for one Series, i.e. the Series appropriate for this account.
____ Check this box if you plan to attend the meeting: # _____ Attending
The signed hereby acknowledges receipt of the accompanying Notice of Annual
Meeting and Proxy Statement, each dated September 19, 1997.
ALL Joint owners must sign.
Signed:_____________________________________ Dated: _____________
Signed:_____________________________________ Dated: _____________
When signing as attorney, trustee, executor, administrator, custodian,
guardian or corporate officer, please give full title.
