File Nos. 33-12381 & 811-5047
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the 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 Sec. 240.14a-12
TAX-FREE FUND OF COLORADO
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
<page>
Important Notice
Please Read Immediately
Aquilasm
Group of Funds
Tax-Free Fund of Colorado
380 Madison Avenue, Suite 2300, New York, NY 10017
Notice of Annual Meeting of
Shareholders to Be Held
on March 10, 2005
To Shareholders of the Fund:
The purpose of this Notice is to advise you that an Annual Meeting of the
Shareholders of Tax-Free Fund of Colorado (the "Fund"), will be held:
Place: (a) Hyatt Regency Denver Tech Center
7800 E. Tufts Avenue
Denver, Colorado;
Time: (b) on Thursday, March 10, 2005
at 10:00 a.m. Mountain Standard Time;
Purposes: (c) for the following purposes:
(i) to elect seven Trustees; each Trustee elected
will hold office until the next annual meeting of
the Fund's shareholders or until his or her
successor is duly elected (Proposal No. 1);
(ii) to ratify (that is, to approve) or reject the
selection of KPMG LLP as the Fund's independent
registered public accounting firm for the fiscal
year ending December 31, 2005 (Proposal No. 2);
(iii) to act upon a proposed Sub-Advisory Agreement
(Proposal No. 3); and
(iv) to act upon any other matters which may
properly come before the Meeting at the scheduled
time and place or any adjourned meeting or meetings.
Who Can
Vote What
Shares: (d) To vote at the Meeting, you must have been ashareholder on
the Fund's records at the close of business on December 15,
2004 (the "record date"). Also, the number of shares of
each of the Fund's outstanding classes of shares that you
held at that time and the respective net asset values of
each class of shares at that time determine the number
of votes you may cast at the Meeting (or any adjourned
meeting or meetings).
By order of the Board of Trustees,
EDWARD M. W. HINES
Secretary
January 31, 2005
Please Note:
If you do not expect to attend the Meeting, please vote by any of three ways: by
telephone, by the Internet or by completing the enclosed proxy card and
returning it in the accompanying stamped envelope. To avoid unnecessary expense
to the Fund, we request your cooperation in voting no matter how large or small
your holding may be.
Tax-Free Fund of Colorado
380 Madison Avenue, Suite 2300, New York, New York 10017
Proxy Statement
Introduction
The purpose of the Notice preceding this Proxy Statement is to advise you
of the time, place and purposes of an Annual Meeting of the Shareholders of
Tax-Free Fund of Colorado (the "Fund"). The purpose of this Proxy Statement is
to give you information on which you may base your decisions as to the choices,
if any, you make in voting.
The Fund's Manager (the "Manager") is Aquila Investment Management LLC, 380
Madison Avenue, Suite 2300, New York, NY 10017, a subsidiary of the Fund's
founder, Aquila Management Corporation. The Fund's principal underwriter (the
"Distributor") is Aquila Distributors, Inc., 380 Madison Avenue, Suite 2300, New
York, NY 10017. The Fund's Investment Sub-Adviser (the "Sub-Adviser") is
Kirkpatrick Pettis Capital Management, Inc., 1600 Broadway, Denver, Colorado
80202.
A copy of the Fund's most recent annual report will be sent to you without
charge upon written request to the Distributor, at the above address, or by
calling 800-437-1020 toll-free or 212-697-6666.
This Notice and Proxy Statement are first being mailed on or about January
31, 2005.
You should read this Proxy Statement prior to voting. If your shares are
registered in the name of your broker or someone other than yourself, you may
authorize that person to vote your shares. If your shares are registered in your
name, then you may vote in one of three ways:
(1) Proxy Card
The enclosed proxy card authorizes the persons named (or their substitutes)
to vote your shares; the Fund calls these persons the "proxy holders." As to the
election of Trustees you may authorize the proxy holders to vote your shares for
the entire slate indicated below by marking the appropriate box on the proxy
card or by merely signing and returning your proxy card with no instructions. Or
you may withhold the authority of the proxy holders to vote on the election of
Trustees by marking the appropriate box. Also, you may withhold that authority
as to any particular nominee by following the instructions on the proxy card.
As to the other matters listed on the proxy card, you may direct the proxy
holders to vote your shares on the proposals by marking the appropriate box
"For" or "Against" or instruct them not to vote your shares on a proposal by
marking the "Abstain" box. If you return your signed proxy card and do not mark
a box on a proposal, the proxy holders will vote your shares for that
proposal.
(2) Telephone Voting
To vote your shares by telephone, call the toll-free number on your proxy
card. You will be prompted to enter the control number on your proxy card.
Follow the recorded instructions using your proxy card as a guide. If you vote
by phone, you need not return the proxy card by mail.
(3) Internet Voting
To vote your shares by the Internet, please contact the Fund at the
Internet address shown on your proxy card. You will be prompted to enter the
control number on your proxy card. Follow the instructions on the screen, using
your proxy card as a guide. If you vote by the Internet, you need not return the
proxy card by mail.
General Information
You may end the power of the proxy holders to vote your shares by: (i) so
notifying the Fund in writing; (ii) signing a new and different proxy card (if
the Fund receives it before the old one is used); (iii) voting your shares at
the meeting in person or by your duly appointed agent; or (iv) calling the toll
free number provided or contacting the Fund's Internet address, both of which
are detailed on your proxy card, entering your control number and revoking your
previous vote.
Proxies for shares held by brokers in "street name" and not voted or marked
as abstentions will be counted for purposes of determining a quorum. They will
be counted as present in determining voting results, and will therefore have the
same effect as negative votes.
The Fund is sending you this Notice and Proxy Statement in connection with
the solicitation by its Trustees of proxies to be used at the Annual Meeting to
be held at the time and place and for the purposes indicated in the Notice or
any adjourned meeting or meetings. Whenever it is stated in this Proxy Statement
that a matter is to be acted on at the Meeting, this means the Meeting held at
the scheduled time or any adjourned meeting or meetings.
The Fund pays the costs of the solicitation. Proxies are being solicited by
the use of the mails; they may also be solicited by telephone, facsimile and
personal interviews. Brokerage firms, banks and others may be requested to
forward this Notice and Proxy Statement to beneficial owners of the Fund's
shares so that these owners may authorize the voting of their shares. The Fund
will pay these firms their out-of-pocket expenses for doing so.
On the record date, the Fund had three classes of shares outstanding. All
shareholders of the Fund are entitled to vote at the meeting. Each shareholder
on the record date is entitled to one vote for each dollar (and a proportionate
fractional vote for each fraction of a dollar) of net asset value (determined as
of the record date) represented by full and fractional shares of any class held
on the record date. On the record date, the net asset value per share of each of
the Fund's outstanding classes of shares was as follows: Class A Shares, $10.73;
Class C Shares, $10.71; and Class Y Shares, $10.76. The meeting is expected to
act only upon matters that affect the Fund as a whole: the election of Trustees,
the selection of an independent registered public accounting firm and action on
a proposed Sub-Advisory Agreement. On matters that affect the Fund as a whole,
all shareholders of the Fund, including the shareholders of all classes of
shares of the Fund, are entitled to vote at the meeting.
On the record date, the total number of shares outstanding for each class
of shares was as follows: Class A Shares, 21,201,209; Class C Shares, 1,439,551;
and Class Y Shares, 1,470,896.
On the record date, the following holders held 5% or more of a class of the
Fund's outstanding shares. On the basis of information received from the
institutional holders the Fund's management believes that all of the shares
indicated are held by them for the benefit of clients.
Name and address Number of shares Percent of Class
of the holder of record
Institutional 5% Shareholders
Merrill Lynch Pierce Fenner
& Smith Inc. 312,905 Class C Shares 21.74%
FBO its Customers 197,242 Class Y Shares 13.41%
4800 Deer Lake Drive East
Jacksonville, FL 32246
Armstrong Ventures LLC 538,497 Class Y Shares 36.61%
700 17th Street, Suite 1400
Denver, CO
Alpine Trust & Asset
Management 377,474 Class Y Shares 25.66%
225 N. Fifth Street
Grand Junction, CO 81501
Additional 5% Shareholders
The Fund's management is not aware of any other person beneficially owning more
than 5% of any class of its outstanding shares as of such date.
Election of Trustees
(Proposal No. 1)
At the Meeting, seven Trustees are to be elected. Each Trustee elected will
serve until the next annual meeting or until his or her successor is duly
elected. The nominees selected by the Trustees are named in the table below. See
"Introduction" above for information as to how you can vote your shares in the
election of Trustees.
The following material includes information about each nominee and each
officer of the Fund. All shares of the Fund listed as owned by the Trustees are
Class A Shares unless indicated otherwise. All of the nominees are presently
Trustees and were elected by the shareholders in May 2004. All nominees have
consented to serve if elected.
Trustees(1)
and Officers
Number of
Positions Held Portfolios in Other Directorships
with Fund Held by Trustee
Fund Complex(4) (The position held is a
Name, Address(2) and and Length of Principal Occupation(s) Overseen by directorship unless
Date of Birth Service(3) During Past 5 Years Trustee indicated otherwise.)
Interested Trustees(5)
Diana P. Herrmann Trustee since Vice Chair and Chief Executive 15 None
New York, NY 2000 and Officer of Aquila Management
(02/25/58) President Corporation, Founder of the
since 1999 Aquilasm Group of Funds(6) and
parent of Aquila Investment
Management LLC, Manager since
2004, President and Chief
Operating Officer since 1997, a
Director since 1984, Secretary
since 1986 and previously its
Executive Vice President, Senior
Vice President or Vice
President, 1986-1997; Chief
Executive Officer and Vice Chair
since 2004 and President, Chief
Operating Officer and Manager of
the Manager since 2003;
President, Executive Vice
President or Senior Vice
President of funds in the
Aquilasm Group of Funds since
1986; Director of the
Distributor since 1997; trustee,
Reserve Money-Market Funds,
1999-2000 and Reserve Private
Equity Series, 1998-2000;
Governor, Investment Company
Institute (2004) and head of its
Small Funds Committee since
2004; active in charitable and
volunteer organizations.
Non-Interested
Trustees
Anne J. Mills Chair of Board President, Loring Consulting 4 None
Castle Rock, CO of Trustees Company since 2001; Vice
(12/23/38) since 2005 and President for Business Affairs,
Trustee since Ottawa University, 1992-2001;
1987 IBM Corporation, 1965-1991;
Budget Review Officer, the
American Baptist Churches/USA,
1994-1997; director, the
American Baptist Foundation;
Trustee, Ottawa University; and
Trustee Emerita, Brown
University.
Tucker Hart Adams Trustee since President, The Adams Group, 2 Director, Touch America,
Colorado Springs, 1989 Inc., an economic consulting Colorado Health Facilities
CO firm, since 1989; formerly Chief Authority and Mortgage
(01/11/38) Economist, United Banks of Analysis Computer Corp.
Colorado; currently or formerly
active with numerous
professional and community
organizations.
Thomas A. Trustee since Vice President of Robinson, 2 None
Christopher 2004 Hughes & Christopher, C.P.A.s,
Danville, KY P.S.C., since 1977; President, A
(12/19/47) Good Place for Fun, Inc., a
sports facility, since 1987.
Gary C. Cornia Trustee since Director, Romney Institute of 4 None
Orem, UT 2000 Public Management, Marriott
(06/24/48) School of Management, Brigham
Young University, 2004 -
present; Professor, Marriott
School of Management, 1980 -
present; Past President, the
National Tax Association;
Fellow, Lincoln Institute of
Land Policy, 2002-2003;
Associate Dean, Marriott School
of Management, Brigham Young
University, 1991-2000; Utah
Governor's Tax Review Committee
since 1993.
John C. Lucking Trustee President, Econ-Linc, an 3 Director, Sanu Resources
Phoenix, AZ since 2000 economic consulting firm, since
(05/20/43) 1995; formerly Consulting
Economist, Bank One Arizona and
Chief Economist, Valley National
Bank; member, Arizona's Joint
Legislative Budget Committee
Economic Advisory Panel and the
Western Blue Chip Economic
Forecast Panel; Board, Northern
Arizona University Foundation
since 1997; member, various
historical, civic and economic
associations.
J. William Weeks Trustee since Retired; limited partner and 2 None
Palm Beach, FL 1995 investor in various real estate
(06/22/27) partnerships since 1988;
formerly Senior Vice President
or Vice President of the Aquila
Bond Funds; and Vice President
of the Distributor.
Officers
Charles E. Executive Vice Executive Vice President of all N/A N/A
Childs, III President funds in the Aquilasm Group of
New York, NY since 2004 Funds and the Manager since
(04/01/57) 2003; Senior Vice President,
corporate development, formerly
Vice President, Assistant Vice
President and Associate of the
Manager's parent since 1987;
Senior Vice President, Vice
President or Assistant Vice
President of the Aquila
Money-Market Funds, 1988-2003.
Stephen J. Caridi Senior Vice Vice President of the N/A N/A
New York, NY (05/06/61) President Distributor since 1995; Vice
since 2004 President, Hawaiian Tax-Free
Trust since 1998; Senior Vice
President, Narragansett Insured
Tax-Free Income Fund since 1998,
Vice President 1996-1997; Senior
Vice President, Tax-Free Fund of
Colorado since 2004; Assistant
Vice President, Tax-Free Fund
For Utah since 1993.
James M. McCullough Senior Vice Senior Vice President or Vice N/A N/A
Portland, OR (06/11/45) President President of Aquila Rocky
since 1999 Mountain Equity Fund and four
Aquila Bond Funds; Senior Vice
President of the Distributor
since 2000; Director of Fixed
Income Institutional Sales, CIBC
Oppenheimer & Co. Inc., Seattle,
WA, 1995-1999.
Jerry G. McGrew Senior Vice President of the Distributor N/A N/A
New York, NY (06/18/44) President since 1998, Registered Principal
since 1997 since 1993, Senior Vice
President, 1997-1998 and Vice
President, 1993-1997; Senior
Vice President, Aquila Rocky
Mountain Equity Fund and five
Aquila Bond Funds since 1995;
Vice President, Churchill Cash
Reserves Trust, 1995-2001.
Emily T. Rae Vice President Vice President of Aquila Rocky N/A N/A
Aurora, CO since 2002 Mountain Equity Fund and
(03/02/74) Tax-Free Fund of Colorado since
2002; investment analyst,
Colorado State Bank and Trust,
2001-02; financial analyst, J.P.
Morgan, 2000-01, senior
registered associate,
Kirkpatrick Pettis, 1998-2000;
registered associate, FBS
Investments (now U.S. Bancorp
Piper Jaffray), 1997-98.
John T. Volk Assistant Vice Marketing representative for the N/A N/A
New York, NY President Distributor since 1998; mutual
(04/15/71) since 2002 fund services representative,
Prudential Securities, 1996-98.
Robert W. Anderson Chief Chief Compliance Officer of the N/A N/A
New York, NY (08/23/40) Compliance Fund, the Manager and the
Officer since Distributor since 2004,
2004 and Compliance Officer of the
Assistant Manager or its predecessor and
Secretary current parent since 1998 and
since 2000 Assistant Secretary of the
Aquilasm Group of Funds since
2000; Consultant, The Wadsworth
Group, 1995-1998.
Joseph P. DiMaggio Chief Chief Financial Officer of the N/A N/A
New York, NY Financial Aquilasm Group of Funds since
(11/06/56) Officer since 2003 and Treasurer since 2000;
2003 and Controller, Van Eck Global
Treasurer Funds, 1993-2000.
since 2000
Edward M. W. Hines Secretary Partner, Hollyer Brady Barrett & N/A N/A
New York, NY since 1987 Hines LLP, legal counsel to the
(12/16/39) Fund, since 1989; Secretary of
the Aquilasm Group of Funds.
John M. Herndon Assistant Assistant Secretary of the N/A N/A
New York, NY (12/17/39) Secretary Aquilasm Group of Funds since
since 1995 1995 and Vice President of the
three Aquila Money-Market Funds
since 1990; Vice President of
the Manager or its predecessor
and current parent since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of the N/A N/A
New York, NY Treasurer since Aquilasm Group of Funds since
(11/02/66) 2000 2000; Assistant Vice President
of the Manager or its
predecessor and current parent
since 1998; Fund Accountant for
the Aquilasm Group of Funds,
1995-1998.
Trustee Emeritus
Lacy B. Herrmann (7) Trustee Founder and Chairman of the N/A Director or trustee, Pimco
New York, NY Emeritus since Board, Aquila Management Advisors VIT, Oppenheimer
(05/12/29) 2005; Founder, Corporation, the sponsoring Quest Value Funds Group,
Chairman of the organization and parent of the Oppenheimer Small Cap Value
Board of Manager or Administrator and/or Fund, Oppenheimer Midcap Fund,
Trustees Adviser or Sub-Adviser to each and Oppenheimer Rochester
1987-2004 fund of the Aquilasm Group of Group of Funds.
Funds, Chairman of the Manager or
Administrator and/or Adviser or
Sub-Adviser to each since 2004,
and Founder, Chairman of the
Board of Trustees, Trustee and
(currently or until 1998)
President of each since its
establishment, beginning in 1984,
except Chairman of the Board of
Trustees of Hawaiian Tax-Free
Trust, Pacific Capital Cash
Assets Trust, Pacific Capital
Tax-Free Cash Assets Trust and
Pacific Capital U.S. Government
Securities Cash Assets Trust
through 2003, Trustee until 2004
and Chairman of the Board,
Emeritus since 2004; Director of
the Distributor since 1981 and
formerly Vice President or
Secretary, 1981-1998; Trustee
Emeritus, Brown University and
the Hopkins School; active in
university, school and charitable
organizations.
(1) The Fund's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon request by
calling 800-437-1020 (toll free).
(2) The mailing address of each Trustee and officer is c/oTax-Free Fund of
Colorado, 380 Madison Avenue, New York, NY 10017.
(3) Each Trustee holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. The term of office of each
officer is one year.
(4) Includes certain Aquila-sponsored funds that are dormant and have no public
shareholders.
(5) Ms. Herrmann is an interested person of the Trust as an officer of the
Trust, as a director, officer and shareholder of the Manager's corporate parent,
as an officer and Manager of the Manager, and as a shareholder and director of
the Distributor.
(6) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets
Trust, each of which is a money-market fund, are called the "Aquila Money-Market
Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of
which is a tax-free municipal bond fund, are called the "Aquila Bond Funds";
Aquila Rocky Mountain Equity Fund is an equity fund; considered together, these
11 funds, which do not include the dormant funds described in footnote 4, are
called the "Aquilasm Group of Funds."
(7) A Trustee Emeritus may attend Trustee meetings but has no voting power.
Securities Holdings of the Trustees
(as of 9/30/04)
Name of Aggregate Dollar Range
Trustee Dollar Range of Of Ownership in Aquilasm Investment
Ownership in Tax-Free Fund of Companies Overseen by Trustee (1)
Colorado (1)
Interested Trustees
Diana P. Herrmann C E
Non-interested Trustees
Anne J. Mills D D
Tucker H. Adams B B
Thomas A. Christopher B C
Gary C. Cornia B D
John C. Lucking C C
J. William Weeks B C
(1) A. None
B. $1-$10,000
C. $10,001-$50,000
D. $50,001-$100,000
E. over $100,000
None of the non-interested Trustees or their immediate family members holds
of record or beneficially any securities of the Manager or the Distributor.
The Fund does not currently pay fees to any of the Fund's officers or to
Trustees affiliated with the Manager or the Sub-Adviser. For its fiscal year
ended December 31, 2004, the Fund paid a total of $94,060 in compensation and
reimbursement of expenses to the Trustees. No other compensation or remuneration
of any type, direct or contingent, was paid by the Fund to its Trustees.
The Fund is one of the 11 funds in the Aquilasm Group of Funds, which
consist of tax-free municipal bond funds, money-market funds and an equity fund.
The following table lists the compensation of all nominees for Trustee who
received compensation from the Fund or from other funds in the Aquilasm Group of
Funds during the Fund's fiscal year. None of such Trustees has any pension or
retirement benefits from the Fund or any of the other funds in the Aquila group.
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee now
Name Fund Group of Funds serves
Anne J.
Mills $10,450 $38,275 4
Tucker H.
Adams $ 9,512 $14,525 2
Thomas A.
Christopher $ 7,967 $16,467 2
Gary C.
Cornia $ 9,812 $31,962 4
John C.
Lucking $ 9,200 $26,650 3
J. William
Weeks $ 9,200 $19,425 2
Class A Shares may be purchased without a sales charge by the Fund's
Trustees and officers.
The Fund's Manager is a wholly-owned subsidiary of Aquila Management
Corporation ("AMC"), founder of each fund in the Aquilasm Group of Funds. As of
December 31, 2004, these funds had aggregate assets of approximately $4.0
billion, of which approximately $2.5 billion consisted of assets of the tax-free
municipal bond funds. AMC's address is the same as that of the Manager. AMC is
controlled by Mr. Lacy B. Herrmann, through share ownership directly, through
two trusts and by his wife. During the fiscal year ended December 31, 2004, the
Fund paid $1,295,974 in management fees.
During the fiscal year ended December 31, 2004, $114,712 was paid under
Part I of the Fund's Distribution Plan to Qualified Recipients with respect to
the Class A Shares, of which $3,970 was retained by the Distributor. With
respect to Class C Shares, during the same period, $115,082 was paid under Part
II of the Plan and $38,361 was paid under the Fund's Shareholder Services Plan.
Of these total payments of $153,443, the Distributor retained $23,097. All of
such payments were for compensation.
The Distributor currently handles the distribution of the shares of the
funds in the Aquilasm Group of Funds, including the Fund. Under the Distribution
Agreement, the Distributor is responsible for the payment of certain printing
and distribution costs relating to prospectuses and reports as well as the costs
of supplemental sales literature, advertising and other promotional activities.
The shares of the Distributor are owned 24% by Diana P. Herrmann, 72% by Mr.
Herrmann and other members of his immediate family and the balance by current
employees of Aquila Investment Management LLC.
Other Information on Trustees
The Trustees have appointed a standing Audit Committee consisting of all of
the Trustees who are "independent" and are not "interested persons" of the Fund,
as that term is defined in the 1940 Act. The members of the Audit Committee are
Anne J. Mills, Tucker Hart Adams, Thomas A. Christopher, Gary C. Cornia, John C.
Lucking and J. William Weeks. The Committee (i) selects the Fund's independent
registered public accounting firm (subject to shareholder ratification); (ii)
reviews the methods, scope and result of audits and the fees charged; and (iii)
reviews the adequacy of the Fund's internal accounting procedures and controls.
Selection of the independent registered public accounting firm is also ratified
by the Board of Trustees. The Audit Committee held one meeting during the Fund's
last fiscal year. The Board of Trustees has adopted a written charter for the
Audit Committee.
During the Fund's last fiscal year, the Board of Trustees held four
meetings. Each current Trustee was present for at least 75% of the total number
of Board meetings and Audit Committee meetings (if such Trustee was a member of
that committee).
The Fund's policy is that all Trustees who can do so attend the Annual
Meeting.
The Fund has a Nominating Committee, consisting of all of the Independent
Trustees. The Nominating Committee held no meetings during the last fiscal year.
The committee will consider nominees recommended by the shareholders who may
send recommendations to the committee in care of the Manager at 380 Madison
Avenue, New York, NY 10017. The charter of the Nominating Committee is available
on the Fund's website at www.aquilafunds.com.
Since the beginning of the Fund's most recently completed fiscal year, no
Trustee purchased or sold any shares of any class of the Manager, Sub-Adviser or
the parents or subsidiaries of either.
Vote Required
To be elected, each nominee must receive the affirmative votes of a
majority of the shares present.
Ratification or Rejection
of Selection of
Independent Registered Public Accounting Firm
(Proposal No. 2)
KPMG LLP ("KPMG"), which is currently serving as the Fund's independent
registered public accounting firm, has been selected by the Fund's Audit
Committee and ratified by the Board of Trustees, including a majority of the
Independent Trustees, as the Fund's independent registered public accounting
firm for the fiscal year ending December 31, 2005. Such selection is submitted
to the shareholders for ratification or rejection.
The following table represents fees for professional audit services
rendered by KPMG for the audit of the Fund's annual financial statements for
2003 and 2004, and fees billed for other services rendered by KPMG.
2003 2004
Audit Fees: $20,100 $22,110
Audit related fees 0 0
______ ______
Audit and audit related fees 20,100 22,110
Tax fees (1) 6,792 8,945
All other fees 0 0
______ ______
Total fees $26,892 31,055
______ ______
(1) Tax fees consisted of fees for tax consultation and tax compliance services.
KPMG did not perform any services during the last fiscal year for the
Fund's investment adviser (the Manager) or any entity controlling, controlled by
or under common control with the Manager that provides services to the Fund.
All audit and non-audit services performed by KPMG on behalf of the Fund or
non-audit services performed on behalf of affiliated entities within the
investment company complex where such engagement relates directly to the
operations and financial reporting of the Fund are pre-approved by the Audit
Committee. Services to be considered between meetings of the Committee are
pre-approved by a selected member of the Committee in accordance with applicable
regulations and subject to additional procedures established by the Committee.
The Audit Committee has reviewed all services performed and fees charged by
KPMG and has accepted KPMG's representation that it is independent in
recommending re-appointment of it for the fiscal year ending December 31, 2005.
KPMG has no direct or indirect financial interest in the Fund, the Manager
or the Sub-Adviser. It is expected that representatives of KPMG will not be
present at the meeting but will be available should any matter arise requiring
their presence.
Vote Required
Approval requires the affirmative votes of a majority of the shares
present.
Consideration of
New Sub-Advisory Agreement
(Proposal No. 3)
Proposal No. 3 seeks approval by the shareholders of a new Sub-Advisory
Agreement between the Manager and Kirkpatrick Pettis Capital Management, Inc.
("KPCM").
Background and Reasons for the Proposal
The Former Sub-Adviser
From 1992 until December 31, 2004, the Fund's portfolio was managed by
Kirkpatrick Pettis Investment Management, Inc. ("KPIM") and its predecessors,
first as investment adviser and, since 1996, as sub-adviser. KPIM was a
wholly-owned subsidiary of KFS Corporation ("KFS"), a wholly-owned subsidiary of
Mutual of Omaha Insurance Company.
Mr. Christopher Johns has been the Fund's portfolio manager since the
Fund's inception in 1987. Mr. Johns is a Senior Vice President of KPCM and was a
Vice President of KPIM from 1992 through 2004. From 1984 through 1992, he was a
portfolio manager at United Bank of Denver (now Wells Fargo, Denver) which acted
as investment adviser to the Fund from its inception through 1992. He was
formerly a portfolio manager of Toledo Trust Company. He holds the degree of BBA
in Finance from the University of Cincinnati.
Sale of the Former Sub-Adviser
In September 2004, KPIM informed the Fund that for its own business
reasons, Mutual of Omaha had decided to sell KFS Corporation and its
subsidiaries, including KPIM, to the Davidson Companies, Great Falls, Montana.
The transaction took place on December 31, 2004.
Effect of the Transaction
The former sub-advisory agreement between the Manager and KPIM provided
that if it were to be assigned, it would immediately terminate. The sale
described above is such an assignment and accordingly, the former sub-advisory
agreement terminated upon the sale.
The New Sub-Advisory Agreement
In anticipation of the sale, the Manager and the Board of Trustees
negotiated and approved a New Sub-Advisory Agreement with KPCM, which was
formerly a company affiliated with KPIM and is now a wholly-owned subsidiary of
Davidson Companies. KPCM has a local office at 1600 Broadway, Denver, Colorado
80202.
The New Sub-Advisory Agreement went into effect upon termination of the
former sub-advisory agreement. If approved by the shareholders of the Fund, it
will remain in effect until April 30, 2005, and will continue from year to year
so long as it is re-approved annually by the Board of Trustees of the Fund.
Without shareholder approval, it will terminate on May 31, 2005.
Description of the New Sub-Advisory Agreement
The New Sub-Advisory Agreement is attached to this proxy statement. Except
as described below, it is identical to the former sub-advisory agreement,
including the same fee structure as the former sub-advisory agreement; there
will be no change in fees paid by the Fund.
The principal new features are as follows:
o It has a new provision under which KPCM agrees that portfolio
management of the Fund will remain local.
o Another new provision provides that current portfolio management
personnel will be retained; thus Mr. Christopher Johns will continue
to manage the Fund's portfolio. The Credit Committee, with the
addition of one Davidson Companies representative, remains the same.
o The name "Kirkpatrick Pettis" will be retained for at least five
years.
o No fund that competes with the Fund will be started by Davidson
Companies for the duration of the agreement.
o Performance of all of these provisions as well as all of the other
obligations of KPCM under the New Sub-Advisory Agreement is guaranteed
by the Davidson Companies.
Description of Davidson Companies
Davidson Companies is a holding company, based at 8 Third Street North,
Great Falls, MT 59401, providing financial services to its customers throughout
the nation from its locations in the Northern Rockies and Pacific Northwest. It
has four wholly-owned subsidiaries, in addition to the companies it acquired
from KFS: D.A. Davidson & Co., a securities broker-dealer; Davidson Investment
Advisors, Inc., a portfolio management company; Davidson Travel, Inc., a travel
agency; and Davidson Trust Co., a trust company.
Ownership of Davidson Companies
Ian B. Davidson 25%
Employee Stock Ownership
Plan ESOP (owned by the
Employees of Davidson
Companies) 32%
No other person owns more than 10% of its outstanding shares.
Considerations of the Board of Trustees
In Approving the New Sub-Advisory Agreement
And in Recommending its Approval by the Shareholders
The Board of Trustees, at a meeting called and held for the purpose in
December, 2004, approved the New Sub-Advisory Agreement and recommended that it
be approved by the Fund's shareholders.
The Board of Trustees noted that in March 2004 they had re-approved the
former sub-advisory agreement, which has the same terms as the New Sub-Advisory
Agreement, except as noted above. In connection with that renewal the following
materials were considered:
o The agreement to be renewed;
o A term sheet describing the material terms of agreement;
o The report of the Manager containing data about the performance of the
Fund, and data about the fees and expenses for the Fund and
comparisons of such data with similar data about other comparable
funds, and profitability of the former sub-adviser;
o The Trustees had also reviewed on a quarterly basis reports on the
Fund's performance, operations, portfolio and compliance.
In considering the former sub-advisory agreement, the Trustees also drew
upon prior discussions with representatives of the Manager and former
sub-adviser, at each quarterly meeting, of the Fund's performance and expenses
and their familiarity with the personnel and resources of the former
sub-adviser. The Trustees noted that the Fund had good performance and had
enjoyed net new inflows of investments during 2003. In considering the nature
and quality of the services provided by the former sub-adviser in relation to
the fees and other benefits received, they concluded that the overall investment
performance of the Fund had been satisfactory in the light of market conditions.
They concluded that the sub-advisory fee paid by the Manager was fair and
reasonable in relation to the services rendered and that the services rendered
were satisfactory. Accordingly, the Trustees determined that renewal of the
former sub-advisory agreement until April 30, 2005 was appropriate and it was
approved by the unanimous vote of all of the Trustees, including all of the
non-interested trustees. In considering approval of the New Sub-Advisory
Agreement and recommending approval to the shareholders the Board of Trustees
reviewed the foregoing materials and the materials they had received on a
quarterly basis regarding the Fund during 2004. Although the materials listed
above related to calendar year 2003, the Trustees viewed the reports of
operations during the calendar year 2004 as not indicating that any material
changes had occurred. The Trustees observed that since inception the Fund had
been managed to achieve a high quality portfolio with somewhat shorter average
maturities than its competition. They noted that the materials, copies of which
were provided to the Trustees in advance of the meeting, indicated to the
Trustees that compared to other Colorado funds the Fund has generally:
o Somewhat lower average annual total returns than its five largest
Colorado peers for one-, five- and ten-year periods. This is
attributable in part to the relatively shorter average maturity of the
Fund's portfolio;
o Lower contractual management fees. The average fees of the Fund's
Colorado competition (ten funds) and of all single state front-end
load municipal bond funds nationally and all single-state front-end
load municipal bond funds with $200-$350 million in assets are
generally higher than those paid by the Fund;
o Lower fund operating expenses. The average fund operating expenses for
the ten competitive Colorado funds and all single state front-end load
municipal bond funds nationally, and all single state front-end load
municipal bond funds with $200-$350 million in assets are generally
higher than those of the Fund.
The materials reviewed by the Board included the profitability of services
to the Fund of the Manager, of the former sub-adviser and of the two on a
combined basis. The Board considered that the profitability did not prevent
approval of the New Sub-Advisory Agreement. The services provided to the Fund by
the Manager and former sub-adviser were judged to be similar to those provided
to other single state tax-free municipal bond funds.
The Independent Trustees and their counsel met with senior management of
Davidson Companies and reviewed with them the additional contractual provisions
described above, which the Trustees and management had requested for the
protection of the shareholders and the local quality of the Fund.
On the basis of this review the Board of Trustees, including the
independent Trustees, reached the following conclusions:
1. The Board of Trustees believes that the Fund has been well managed and has
successfully achieved its objectives for the past 17 years. It has received
good acceptance among investors and in the brokerages and financial
planners community. The Board of Trustees considered that its chief goal in
response to the change of ownership was to preserve the Fund's portfolio
management strength. To this end, it insisted on retention of the terms of
the former sub-advisory agreement with the addition of several new terms,
described above, to maintain continuity of personnel and to retain local
portfolio management.
2. The Board of Trustees was familiar with the costs and profitability of the
former sub-adviser, having re-approved the former sub-advisory agreement in
March, 2004. Since the operations of the new sub-adviser would use the same
facilities and personnel, it was anticipated that initially the costs and
profits would be essentially the same. Davidson Companies have advised the
Board, however, that they believe they will be able to provide the same
services on a more efficient basis, which may increase profitability to the
new sub-adviser. The Board of Trustees intends to revisit the matter of
profitability with its next annual renewal of the agreement.
3. The Board did not consider that attempting to achieve reductions in fees as
a result of economies of scale as the Fund grows was appropriate at this
time; it was determined to defer such considerations until such growth is
more likely. The Fund has maintained a relatively constant size in terms of
net assets in recent years. The recent increases in prevailing interest
rates and the possibility of further increases may make it difficult to
achieve substantial growth in net assets in the near future. The materials
presented to the Board indicate that the Fund's expense level is relatively
low on a competitive basis.
4. The Board noted that the new sub-adviser does not serve in a similar
capacity for any other investment company.
5. On behalf of the Shareholders, the Board was primarily concerned with
continuing the same local portfolio management that has served the Fund
commendably since its inception. Comparisons with other possible providers
were not considered useful or appropriate.
6. The new sub-adviser represented to the Board that it does not engage in
so-called soft dollar arrangements.
Other Information About KPCM
KPCM is a wholly-owned subsidiary of Davidson Companies.
The names, addresses and principal occupations of the principal executive
officer and each director of KPCM are as follows:
Name and Address of KPCM Director Position with KPCM
Samuel C. Doyle President of KPCM; SVP, Managing Director,
1600 Broadway, Suite 1100, Denver, Co-Head of D.A. Davidson & Co. Fixed Income
Colorado 80202 Department
Christopher K. Blackwood SVP, Managing Director of KPCM
1600 Broadway, Suite 1100, Denver,
Colorado 80202
Charles R. Langhoff Senior Vice President, Manager, Structured
1600 Broadway, Suite 1100, Denver, Investments of KPCM
Colorado 80202
Scott D. Prickett Vice President, Senior Portfolio Manager of KPCM
1600 Broadway, Suite 1100, Denver,
Colorado 80202
Tom S. Nelson SVP, Chief Financial Officer of Davidson Companies
8 Third Street North, Great Falls,
Montana 59401
Kreg A. Jones SVP, Managing Director, CO-Head of D.A. Davidson &
8 Third Street North, Great Falls, Co. Fixed Income Department
Montana 59401
Rodney D. Cerny Senior Vice President; Senior Portfolio Manger of
10250 Regency Circle, Suite 500, Omaha, Kirkpatrick Pettis Investment Management, a
Nebraska 68114 division of Davidson Investment Advisors, Inc.
L.C. (Jack) Peterson Vice Chairman of D.A. Davidson & Co.
10250 Regency Circle, Suite 500, Omaha,
Nebraska 68114
Annual Fee Rates for the New Sub-Advisory Agreement
(Fee rates are annual rates as a percentage of the Fund's average daily net
assets.)
Type of payment Under arrangements Under the
in effect before New Sub-
termination of the Advisory
ormer sub-advisory Agreement
agreement
Sub-Advisory fee
(paid by the Adviser) 0.20 of 1% 0.20 of 1%
Advisory fee 0.50 of 1% 0.50 of 1%
Total Payments
by the Fund 0.50 of 1% 0.50 of 1%
Since there is no change in fee arrangements from the former arrangements a
table showing percentage change in fees is omitted.
Escrow Arrangements
Until the New Sub-Advisory Agreement is approved by the shareholders of the
Fund the fees earned by the new sub-adviser and paid by the Manager under the
New Sub-Advisory Agreement will be held in an interest-bearing escrow account
with a bank. If the shareholders approve the New Sub-Advisory Agreement, the
amount in the escrow account (including interest earned) will be paid to the new
sub-adviser within 30 days of such approval; if the Fund's shareholders do not
approve the agreement the new sub-adviser will be paid within 30 days of the
failure to receive approval, out of the escrow account, the lesser of:
(1) Any costs incurred in performing its responsibilities under the
agreement during the intervening period (plus interest earned on that
amount while in escrow); or
(2) The total amount in the escrow account (plus interest earned).
If this proposal is not approved by the shareholders the New Sub-Advisory
Agreement will terminate on May 31, 2005. The Board of Trustees will consider
what further action is appropriate, which could include calling another
shareholder meeting.
Action Requested
THE BOARD OF TRUSTEES RECOMMENDS THAT THE NEW SUB-ADVISORY AGREEMENT DESCRIBED
ABOVE BE APPROVED.
Vote Required
The favorable vote of the holders of a majority (as defined in the 1940
Act) of the outstanding shares of the Fund is required for the approval of this
Proposal No. 3. Under the 1940 Act, the vote of the holders of a majority of the
outstanding shares of the Fund means the vote of the holders of the lesser of
(a) 67% or more of the shares of the Fund present at the Meeting or represented
by proxy if the holders of more than 50% of such shares are so present or
represented, or (b) more than 50% of the outstanding shares of the Fund, with
one (1) vote for each dollar (and a proportionate fractional vote for each
fraction of a dollar) of net asset value (determined as of the record date)
represented by full and fractional shares of all of the Fund's three outstanding
classes of shares.
If necessary or desirable, the meeting can be adjourned by the affirmative
vote of a majority of the shares present in person or by proxy. In voting for an
adjournment, the proxies will consider all relevant factors, including possible
delay of receipt of proxies and whether or not a substantial number of negative
votes have been cast with respect to any proposal. The proxies of shareholders
who have voted by proxy against a proposal will be voted against adjournment.
Receipt of Shareholder Proposals
Under the proxy rules of the Securities and Exchange Commission,
shareholder proposals meeting tests contained in those rules may, under certain
conditions, be included in the Fund's proxy statement and proxy card for a
particular annual meeting. One of these conditions relates to the timely receipt
by the Fund of any such proposal. Under these rules, proposals submitted for
inclusion in the proxy material for the Fund's next annual meeting after the
meeting to which this Proxy Statement relates must be received by the Fund not
less than 120 days before the anniversary of the date stated in this Proxy
Statement for the first mailing of this Proxy Statement. The date for such
submission could change, depending on the scheduled date for the next annual
meeting; if so, shareholders will be notified.
The fact that the Fund receives a shareholder proposal in a timely manner
does not insure its inclusion in the Fund's proxy material, since there are
other requirements in the proxy rules relating to such inclusion.
Other Business
The Fund does not know of any other matter which will come up for action at
the Meeting. If any other matter or matters properly come up for action at the
Meeting, including any adjournment of the Meeting, the proxy holders will vote
the shares which your proxy card, telephone or Internet vote entitles them to
vote, in accordance with their judgment on such matter or matters, except as
noted. That is, by signing and returning your proxy card or by voting by
telephone or the Internet, you give the proxy holders discretionary authority as
to any such matter or matters.
APPENDIX
TAX-FREE FUND OF COLORADO
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of December 12, 2004 by and between AQUILA
INVESTMENT MANAGEMENT LLC (the "Manager"), 380 Madison Avenue, Suite 2300, New
York, New York 10017, and KIRKPATRICK PETTIS CAPITAL MANAGEMENT, INC., 1600
Broadway, Suite 1100, Denver, CO 80202, (the "Future Sub-Adviser"),
W I T N E S S E T H :
WHEREAS, TAX-FREE FUND OF COLORADO (the "Fund") is a Massachusetts business
trust which is registered under the Investment Company Act of 1940 (the "Act")
as an open-end, non-diversified management investment company;
WHEREAS, the Manager acts as investment adviser with respect to the Fund
pursuant to an Advisory and Administration Agreement dated October 31, 1997
between the Fund and Aquila Management Corporation (the "Advisory and
Administration Agreement"), which agreement was assigned to the Manager
effective January 1, 2004;
WHEREAS, pursuant to paragraph 2 of the Advisory and Administration
Agreement, Aquila Management Corporation has retained and the Manager continues
to utilize Kirkpatrick Pettis Investment Management, Inc. (formerly named KPM
Investment Management, Inc.) (the "Current Sub-Adviser"), 1600 Broadway, Suite
1100, Denver, CO 80202, for purposes of rendering investment advisory services
to the Manager pursuant to a Sub-Advisory Agreement dated August 28, 2000 (the
"Current Agreement") with respect to the Fund;
WHEREAS, the Current Agreement is anticipated to be terminated by its terms
upon its assignment (the "Assignment") effective as of the closing of the sale
of the assets of the Current Sub-Adviser and sale of the outstanding stock of
the Future Sub-Adviser to D.A. Davidson & Co. and Davidson Companies,
respectively;
WHEREAS, the parties desire that effective on the Assignment, the Future
Sub-Adviser, which is an affiliated company of the Current Sub-Adviser, shall
provide investment advisory services to the Manager and the Fund;
WHEREAS, these services are to be provided on the same terms and conditions
as the Current Agreement, in accordance with the conditions set forth in, and
except for certain differences enumerated in, Rule 15a-4(b)(2) (the "Rule")
promulgated by the Securities and Exchange Commission under the Act and except
for certain additional differences as agreed by the parties; and
WHEREAS, as provided in the Rule, this Agreement has been approved by the
Board of Trustees of the Fund at meetings called and held for the purpose on
September 11, 2004 and December 12, 2004 and will be submitted for approval by
the shareholders of the Fund at a meeting anticipated to be held on or about
March 10, 2005;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. In General
Effective as of the date of the Assignment, the Manager hereby appoints the
Future Sub-Adviser to render, to the Manager and to the Fund, investment
research and advisory services as set forth below under the supervision of the
Manager and subject to the approval and direction of the Board of Trustees of
the Fund. The Future Sub-Adviser shall, all as more fully set forth herein, act
as managerial investment adviser to the Fund with respect to the investment of
the Fund's assets, and supervise and arrange the purchase of securities for and
the sale of securities held in the portfolio of the Fund.
2. Duties and Obligations of the Future Sub-Adviser With Respect To Investment
of the Assets of the Fund
(a) Subject to the succeeding provisions of this section and subject to
the direction and control of the Manager and the Board of Trustees of
the Fund, the Future Sub-Adviser shall:
(i) supervise continuously the investment program of the Fund and the
composition of its portfolio;
(ii) determine what securities shall be purchased or sold by the Fund;
(iii) arrange for the purchase and the sale of securities held in the
portfolio of the Fund;
(iv) at its expense provide for pricing of the Fund's portfolio daily
using a pricing service or other source of pricing information
satisfactory to the Fund and, unless otherwise directed by the
Board of Trustees, provide for pricing of the Fund's portfolio at
least quarterly using another such source satisfactory to the
Fund; and
(v) consult with the Manager in connection with its duties hereunder.
(b) Any investment program furnished by the Future Sub-Adviser under this
section shall at all times conform to, and be in accordance with, any
requirements imposed by: (1) the Investment Company Act of 1940 (the
"Act") and any rules or regulations in force thereunder; (2) any other
applicable laws, rules and regulations; (3) the Declaration of Trust
and By-Laws of the Fund as amended from time to time; (4) any policies
and determinations of the Board of Trustees of the Fund; and (5) the
fundamental policies of the Fund, as reflected in its registration
statement under the Act or as amended by the shareholders of the Fund.
(c) The Future Sub-Adviser shall give to the Manager and to the Fund the
benefit of its best judgment and effort in rendering services
hereunder, but the Future Sub-Adviser shall not be liable for any loss
sustained by reason of the adoption of any investment policy or the
purchase, sale or retention of any security, whether or not such
purchase, sale or retention shall have been based upon (i) its own
investigation and research or (ii) investigation and research made by
any other individual, firm or corporation, if such purchase, sale or
retention shall have been made and such other individual, firm or
corporation shall have been selected in good faith by the Future
Sub-Adviser.
(d) Nothing in this Agreement shall prevent the Future Sub-Adviser or any
affiliated person (as defined in the Act) of the Future Sub-Adviser
from acting as investment adviser or manager for any other person,
firm or corporation and shall not in any way limit or restrict the
Future Sub-Adviser or any such affiliated person from buying, selling
or trading any securities for its own or their own accounts or for the
accounts of others for whom it or they may be acting, provided,
however, that the Future Sub-Adviser expressly represents that, while
acting as Future Sub-Adviser, it will undertake no activities which,
in its judgment, will adversely affect the performance of its
obligations to the Fund under this Agreement.
(e) In connection with its duties to arrange for the purchase and sale of
the Fund's portfolio securities, the Future Sub-Adviser shall select
such broker-dealers ("dealers") as shall, in the Future Sub-Adviser's
judgment, implement the policy of the Fund to achieve "best
execution," i.e., prompt, efficient, and reliable execution of orders
at the most favorable net price. The Future Sub-Adviser shall cause
the Fund to deal directly with the selling or purchasing principal or
market maker without incurring brokerage commissions unless the Future
Sub-Adviser determines that better price or execution may be obtained
by paying such commissions; the Fund expects that most transactions
will be principal transactions at net prices and that the Fund will
incur little or no brokerage costs. The Fund understands that
purchases from underwriters include a commission or concession paid by
the issuer to the underwriter and that principal transactions placed
through dealers include a spread between the bid and asked prices. In
allocating transactions to dealers, the Future Sub-Adviser is
authorized to consider, in determining whether a particular dealer
will provide best execution, the dealer's reliability, integrity,
financial condition and risk in positioning the securities involved,
as well as the difficulty of the transaction in question, and thus
need not pay the lowest spread or commission available if the Future
Sub-Adviser determines in good faith that the amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by the dealer, viewed either in terms of the
particular transaction or the Future Sub-Adviser's overall
responsibilities. If, on the foregoing basis, the transaction in
question could be allocated to two or more dealers, the Future
Sub-Adviser is authorized, in making such allocation, to consider
whether a dealer has provided research services, as further discussed
below. Such research may be in written form or through direct contact
with individuals and may include quotations on portfolio securities
and information on particular issuers and industries, as well as on
market, economic, or institutional activities. The Fund recognizes
that no dollar value can be placed on such research services or on
execution services and that such research services may or may not be
useful to the Fund and may be used for the benefit of the Future
Sub-Adviser or its other clients.
(f) The Future Sub-Adviser agrees to maintain, and to preserve for the
periods prescribed, such books and records with respect to the
portfolio transactions of the Fund as are required by applicable law
and regulation, and agrees that all records which it maintains for the
Fund on behalf of the Manager shall be the property of the Fund and
shall be surrendered promptly to the Fund or the Manager upon request.
(g) The Future Sub-Adviser agrees to furnish to the Manager and to the
Board of Trustees of the Fund such periodic and special reports as
each may reasonably request.
(h) It is agreed that the Future Sub-Adviser shall have no responsibility
or liability for the accuracy or completeness of the Fund's
Registration Statement under the Act and the Securities Act of 1933,
except for information supplied by the Future Sub-Adviser for
inclusion therein. The Future Sub-Adviser shall promptly inform the
Fund as to any information concerning the Future Sub-Adviser
appropriate for inclusion in such Registration Statement, or as to any
transaction or proposed transaction which might result in an
assignment (as defined in the Act) of this Agreement.
(i) The Future Sub-Adviser shall not be liable for any error in judgment
or for any loss suffered by the Fund or its security holders in
connection with the matters to which this Agreement relates, except a
loss resulting from wilful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
Nothing in this Agreement shall, or shall be construed to, waive or
limit any rights which the Fund may have under federal and state
securities laws which may impose liability under certain circumstances
on persons who act in good faith.
(j) To the extent that the Manager is indemnified under the Fund's
Declaration of Trust with respect to the services provided hereunder
by the Future Sub-Adviser, the Manager agrees to provide the Future
Sub-Adviser the benefits of such indemnification.
3. Allocation of Expenses
The Future Sub-Adviser shall bear all of the expenses it incurs in
fulfilling its obligations under this Agreement. In particular, but without
limiting the generality of the foregoing: the Future Sub-Adviser shall furnish,
at the Future Sub-Adviser's expense, all office space, facilities, equipment and
clerical personnel necessary for carrying out its duties under this Agreement.
The Future Sub-Adviser shall supply, or cause to be supplied, to any investment
adviser, administrator or principal underwriter of the Fund all necessary
financial information in connection with such adviser's, administrator's or
principal underwriter's duties under any agreement between such adviser,
administrator or principal underwriter and the Fund. The Future Sub-Adviser will
also pay all compensation of the Fund's officers, employees, and Trustees, if
any, who are affiliated persons of the Future Sub-Adviser.
4. Compensation of the Future Sub-Adviser
(a) The Manager agrees to pay the Future Sub-Adviser, and the Future
Sub-Adviser agrees to accept as full compensation for all services
rendered by the Future Sub-Adviser as such, a management fee payable
monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.20 of 1%
of such net asset value.
(b) Until this agreement is approved by a vote of the holders of a
"majority" (as defined in the Act) of the outstanding voting
securities of the Fund in accordance with the Rule, the fees earned by
the Future Sub-Adviser and paid by the Manager hereunder will be held
in an interest-bearing escrow account with the Fund's custodian or a
bank; if a majority of the Fund's outstanding voting securities
approve a contract with the Future Sub-Adviser by the end of the
150-day period provided in the Rule, the amount in the escrow account
(including interest earned) will be paid to the Future Sub-Adviser
within 30 days of such approval; and if a majority of the Fund's
outstanding voting securities do not approve a contract with the
Future Sub-Adviser, the Future Sub-Adviser will be paid within 30 days
of the failure to receive approval, out of the escrow account, the
lesser of:
(1) Any costs incurred in performing the interim contract (plus
interest earned on that amount while in escrow); or
(2) The total amount in the escrow account (plus interest earned).
5. Duration and Termination
(a) This Agreement shall become effective on the termination of the
Current Agreement and shall, unless terminated as hereinafter
provided, continue in effect until the April 30 next preceding the
first anniversary of the effective date of this Agreement, and from
year to year thereafter, but only so long as such continuance is
specifically approved at least annually (1) by a vote of the Fund's
Board of Trustees, including a vote of a majority of the Trustees who
are not parties to this Agreement or "interested persons" (as defined
in the Act) of any such party, with votes cast in person at a meeting
called for the purpose of voting on such approval, or (2) by a vote of
the holders of a "majority" (as so defined) of the outstanding voting
securities of the Fund and by such a vote of the Trustees.
(b) This Agreement may be terminated by the Future Sub-Adviser at any time
without penalty upon giving the Manager and the Fund sixty days'
written notice (which notice may be waived). This Agreement may be
terminated by the Manager or the Fund at any time without penalty upon
giving the Future Sub-Adviser sixty days' written notice (which notice
may be waived by the Future Sub-Adviser), provided that such
termination by the Fund shall be directed or approved by a vote of a
majority of its Trustees in office at the time or by a vote of the
holders of a majority (as defined in the Act) of the voting securities
of the Fund outstanding and entitled to vote. This Agreement shall
automatically terminate in the event of its assignment (as defined in
the Act) or the termination of the Advisory and Administration
Agreement.
(c) As provided in the Rule, this Agreement shall also terminate
automatically unless it is approved by a vote of the holders of a
majority (as defined in the Act) of voting securities of the Fund
outstanding and entitled to vote at a meeting to be held on or before
the 150th day following termination of the Current Agreement. Until
this Agreement is so approved, the Fund's Board of Trustees or a
majority of the Fund's outstanding voting securities may terminate the
contract at any time, without the payment of any penalty, on not more
than 10 calendar days' written notice to the Future Sub-Adviser.
6. Additional Undertakings of Future Sub-Adviser
(a) The Future Sub-Adviser, under the supervision of the Manager, shall
provide at its expense portfolio management particularly qualified to
manage investments in which the Fund primarily invests, and such
portfolio management personnel shall be principally located in the
state of issuers of such investments. Such portfolio management
personnel shall consist upon the effectiveness of this Agreement of
the portfolio manager and the credit committee listed on Appendix A
attached hereto. The Future Sub-Adviser shall assure that the
portfolio manager and credit committee shall be provided with
appropriate resources for the performance of their functions
hereunder. For at least three years after the Assignment, any change
of personnel, and any change of arrangements materially adversely
affecting the provision of portfolio management services hereunder,
shall be reported immediately to the Manager and, unless beyond the
control of the Future Sub-Adviser, shall be permissible only if
acceptable to the Board of Trustees of the Fund.
(b) For at least five years after the Assignment, the business name of the
Future Sub-Adviser shall include the words "Kirkpatrick Pettis," all
material referring to the Future Sub-Adviser in connection with the
Fund shall include that name, and the Buyer shall cause all investment
advisory services performed on behalf of the Fund to be provided in
association with that name.
(c) For the duration of this Agreement, the Future Sub-Adviser shall not
cause or permit any Advised Investment Company, as hereafter defined,
to offer or sell its shares directly to retail customers, but shall
restrict such offers or sales to institutions acting for investors in
a fiduciary, advisory, agency, custodial or similar capacity. An
Advised Investment Company is an investment company registered under
the Investment Company Act of 1940 which (i) is provided with
portfolio management by the Future Sub-Adviser or any affiliate
thereof; and (ii) invests in municipal securities issued by the State
of Colorado or its political subdivisions.
(d) Notwithstanding anything in this Section 6, either party may terminate
this Agreement in accordance with the provisions of Section 5 of this
Agreement.
7. Notices of Meetings
The Manager agrees that notice of each meeting of the Board of Trustees of
the Fund will be sent to the Future Sub-Adviser. The Future Sub-Adviser will
make appropriate arrangements for the attendance (as persons present by
invitation) of such person or persons as the Future Sub-Adviser may designate.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument
to be executed by their duly
[balance of page intentionally left blank]
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authorized officers and their seals to be hereunto affixed, all as of the day
and year first above written.
ATTEST: AQUILA INVESTMENT MANAGEMENT LLC
By:
ATTEST: KIRKPATRICK PETTIS CAPITAL MANAGEMENT, INC.
By
The performance of the undertakings of the Future Sub-Adviser under the
foregoing agreement is hereby guaranteed as of January 1, 2005:
ATTEST: DAVIDSON COMPANIES
BY By:
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Appendix A
Portfolio Manager:
Christopher B. Johns
Credit Committee:
Rodney D. Cerny
Samuel C. Doyle
Christopher B. Johns
Kreg A. Jones
John L. Maginn
L. Jack Petersen
Robert M. Schultz
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IMPORTANT NOTICE
PLEASE READ IMMEDIATELY
Tax-Free Fund of Colorado
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on March 10, 2005
PROXY STATEMENT
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THE AQUILASM GROUP OF FUNDS
380 MADISON AVENUE, SUITE 2300
NEW YORK, NY 10017
VOTE BY TELEPHONE OR INTERNET OR MAIL
24 Hours a day, 7 days a week
TELEPHONE
1-888-221-0697
To vote your shares by telephone, call toll free 1-888-221-0697. Follow the
simple recorded instructions using this proxy card as a guide. If you vote by
phone, you need not return the proxy card by mail.
INTERNET VOTING
www.proxyweb.com/aquila
To vote your shares by the Internet, contact the Fund at
www.proxyweb.com/aquila. Follow the simple instructions at the website, using
your proxy card as a guide. If you vote by the Internet, you need not return the
proxy card by mail.
MAIL
You can vote your shares by completing and returning this proxy card.
Please mark your proxy, date and sign it below and return it promptly in the
accompanying envelope which requires no postage if mailed in the United States.
Please fold and detach card at perforation before mailing.
Aquilasm Group of Funds
Tax-Free Fund of Colorado
Proxy for Shareholder Meeting March 10, 2005
Proxy Solicited on Behalf of the Board of Trustees
The shareholder(s) of Tax-Free Fund of Colorado (the "Fund") whose
signature(s)appear(s) below does/do hereby appoint LACY B. HERRMANN, DIANA P.
HERRMANN and EDWARD M. W. HINES, or any of them, as attorneys and proxies of the
undersigned, with full power of substitution, to attend the Annual Meeting of
Shareholders of the Fund to be held on Thursday, March 10, 2005 at the Hyatt
Regency Denver Tech Center, 7800 E. Tufts Avenue, Denver, CO, at 10:00 a.m.
Mountain Standard Time, and at all adjournments thereof, and thereat to vote the
shares held in the name of the undersigned on the record date for said meeting
on the matters listed on the reverse side. Such shares are entitled to one vote
for every dollar of net asset value represented by the share balance printed
below.
Please read the proxy statement prior to voting.
Annual Meeting Attendance
We encourage you to attend the Annual Meeting of Shareholders. If you can join
us, please so indicate on the proxy card or e-mail us at info@aquilafunds.com
Address changes/comments: _______________________________
_________________________________________________________
_________________________________________________________
(If you noted any address changes/comments above, please mark corresponding box
on other side.)
Dated: __________________, 2005
_________________________________
Signature(s) (SIGN IN THE BOX)
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS PROXY CARD. When signing
as a custodian, attorney, executor, administrator, trustee, guardian, etc.,
please sign your full title as such. Joint owners should each sign.
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Tax-Free Fund of Colorado
Please fill in box(es) as shown using black or blue ink or number 2 pencil.
[X] PLEASE DO NOT USE FINE POINT PENS
1. Election of Trustees
1) Tucker Hart Adams; 2) Thomas A. Christopher; 3) Gary C. Cornia;
4)Diana P. Herrmann*; 5) John C. Lucking; 6) Anne J. Mills;
7) J. William Weeks
* interested Trustee
__
[__] FOR ALL
__
[__] WITHHOLD ALL
__
[__] FOR ALL EXCEPT
__________________
INSTRUCTION: To withhold authority to vote for one or more (but not all)
nominees, mark "FOR ALL EXCEPT" and write the nominee number(s) and/ or name(s)
on the line above.
[bolded in printed form]
Management recommends a vote FOR all nominees listed above and FOR the proposals
listed below. The shares represented hereby will be voted as indicated at right
or FOR if no choice is indicated.
2. Action on selection of KPMG LLP as independent registered public accounting
firm.
(Proposal No.2 in Proxy Statement)
__ __ __
FOR [__] AGAINST [__] ABSTAIN [__]
3. Action on proposed Sub-Advisory Agreement.
(Proposal No.3 in Proxy Statement)
__ __ __
FOR [__] AGAINST [__] ABSTAIN [__]
As to any other matter said proxies shall vote in accordance with their best
judgment.
__
I plan to attend the annual meeting in Denver [__]
__
I plan to attend the outreach meeting in Colorado Springs [__]
For address changes and/or comments, please check the box at right and write
them on the front where indicated. _
[_]
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON THE REVERSE SIDE.
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