June 30, 1998
Dear Shareholder:

     Some of our Tennessee and North Carolina shareholders have asked us to write a 
more "universal" letter. We seem to have a tendency to write mostly in terms of our 
two Kentucky tax-free funds as various topics are discussed, probably because they 
are much larger funds and, then, when it is written we are sitting at a computer in 
Lexington, Kentucky and tend to think in those terms. We are going to try to do much 
better at being "universal". We have great expectations for the success of our two 
Tennessee and two North Carolina funds, so we don't want to seem to overlook them.

     In the future, if you can find us favoring Kentucky in one of these shareholder 
letters, and will write or call, pointing out where in the letter we have done so, we 
will send you a bag of jelly beans as a reward. Your dentist will appreciate that!

     An Update on Our Morningstar Ratings:  For the month of June, Morningstar rates 
our funds as follows:

        Kentucky Tax-Free Income Series                         *****
        Kentucky Tax-Free Short-to-Medium Series                ****
        North Carolina Tax-Free Income Series                   To be rated in Dec. 1998
        North Carolina Tax-Free Short-to-Medium Series          To be rated in Dec. 1998
        Tennessee Tax-Free Income Series                        *****
        Tennessee Tax-Free Short-to-Medium Series               *****	
        Intermediate Government Bond Series                     ***

     Both of the North Carolina Tax-Free Series were started in November of 1995. Morningstar 
does not rate a fund until it has been in business three full years. So, we expect a rating 
on both funds in December of this year. We have high hopes that these two funds will be very 
highly rated, though the Morningstar formula is not public information, and so we can only 
speculate on how that might turn out.

     The Kentucky Tax-Free Income Series has bounced back and forth from four stars to five 
stars twice this year which indicates it is on the lower edge of the five star rating. The 
Kentucky Tax-Free Short-to-Medium Series is rated four stars but "Morningstar Fund Detail" 
indicates it has averaged four and a half stars over the past 93 months. That would suggest 
it is also very close to a five star rating. Indeed, it was once five stars as well. 

     To have such a large percentage of our series in, or near to the top rating is pretty 
amazing for a bunch of mountain boys from Kentucky. There are MBA's from New York and other 
sophisticated places who would fight to get the same ratings!

     Tennessee Tax-Free Income Series now listed: In the early part of April we were thrilled 
to have Commerce Capital Management, Inc., a division of The National Bank of Commerce of 
Memphis advise us that they had decided to close their "in house" Tennessee Tax-Free fund 
and invest the money in our Tennessee Tax-Free Income Series. This did two wonderful things 
for us. Not only did it give us one of the finest professional endorsements we could 
possibly hope to get, but it quickly increased the size of our fund from about $19 million 
to over $25 million. If a Series gets above $25 million it is eligible for listing with 
the other listed funds in local, national and even international newspapers.

     This Series is now listed under the Dupree Mutual Funds bold heading as "TNTF" and 
should have now been listed in your regional city newspaper for several weeks. It is listed 
in the Wall Street Journal and other national publications along with our two Kentucky 
Series and our Intermediate Government Bond Series; four Series in all.

     If your local or regional newspaper is carrying a list of mutual funds, look for 
this listing. We are discovering that each paper buys a list from a central reporting 
service that is edited to include funds of local interest. Sometimes it takes a reminder 
call or two to a newspaper that fails to pick up a local fund when it is first listed 
nationally. If you don't see it locally we urge you to call your local paper as well as 
call us at 800 866 0614. We will follow up for you until the listing appears.

     Is There a Flat-Tax Threat?  Though we wrote about this as late as last December 
31st we continue to get requests to comment on this possible problem. Our opinion in 
December was that there was little or no threat because we felt it would be politically 
impossible to sell the idea that investment income should all be tax free while wages 
should be fully taxable. Our opinion hasn't changed and seems to be endorsed by the fact 
that "flat tax" is heard less and less in current political vocabulary.

     Fountain Square Shares:  Those shareholders who own shares in one of the Fountain 
Square equity series we offer have been buying Class A shares. Your existing shares and 
all future purchases will become "Institutional Shares" on July 13th. Nothing changes 
for you except the class name of shares you own. The reason for this is that Fifth-Third 
Bank is planning to charge a 12b-1 sales fee on the Class A shares. Our agreement is that 
we can offer you shares completely load free and that agreement is being honored.

     Semi-Annual Financial Statements: Every six months we send you a detailed financial 
statement of all the Series we offer. We deliberately print these as simply and 
inexpensively as possible, as opposed to the more elaborate full color format of some 
other fund groups. The one thing Morningstar down rates us on is this choice, giving us 
a low grade on "shareholder communications". (They don't consider shareholder letters 
such as this.) The decision for us is deliberate because we save many thousands of dollars 
in shareholder expense by doing so. The savings come to you instead as tax-free dividends.




                                                            Yours truly,
                                                            Dupree Mutual Funds




                                                            Thomas P. Dupree, Sr.
                                                            President

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