File Nos. 33-13021 & 811-5086
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
CHURCHILL TAX-FREE TRUST
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-66667
(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
Churchill Tax-Free Fund of Kentucky
380 Madison Avenue, Suite 2300, New York, NY 10017
Notice of Annual Meeting of
Shareholders to Be Held
on April 25, 2003
To Shareholders of the Fund:
The purpose of this Notice is to advise you that an Annual Meeting of the
Shareholders of Churchill Tax-Free Fund of Kentucky (the "Fund") will be held:
Place: (a) at the Kentucky Derby Museum;
704 Central Avenue
Louisville, Kentucky;
Time: (b) on April 25, 2003
at 10:00 a.m. local time;
Purposes: (c) for the following purposes:
(i) to elect nine 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 auditors for the
fiscal year ending December 31, 2003 (Proposal No. 2);
(iii) to act upon a proposed new revised and amended
Advisory and Administration Agreement under which the
the Fund will become responsible for Fund Accounting
expenses (Proposal No. 3);
(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 a
shareholder on the Fund's records at the close of
business on January 27, 2003 (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
March 10, 2003
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.
Churchill Tax-Free Fund of Kentucky
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
Churchill Tax-Free Fund of Kentucky (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 founder and Manager (the "Manager") is Aquila Management
Corporation, 380 Madison Avenue, Suite 2300, New York, NY 10017. The Fund's
principal underwriter (the "Distributor") is Aquila Distributors, Inc., 380
Madison Avenue, Suite 2300, New York, NY 10017.
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 March
10, 2003.
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 the proposal by
marking the "Abstain" box. If you return your signed proxy card and do not mark
a box on the 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, which will 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 although the Manager is bearing
certain costs of preparation of this proxy material. 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 four 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, $10.62;
Class C Shares, $10.62; Class Y Shares, $10.63; and Class I Shares, $10.62. The
meeting is expected to act only upon matters that affect the Fund as a whole:
the election of Trustees, the selection of independent auditors and the approval
of a new Advisory and Administration 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, 21,313,908; Class C Shares, 468,224;
Class Y Shares, 3,942,782 and Class I Shares, 225,725.
On the record date, the following holders held 5% or more 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
SYAG
c/o Stock Yards Bank and Trust
P.O. Box 34290
Louisville, KY 2,012,789 Class A Shares 7.76%
MLPF&S for the sole
benefit of its customers
4800 Deer Lake Dr East
Jacksonville, FL 70,093 Class C Shares 14.97%
National Financial
Services Corp.
200 Liberty Street
New York NY 1,511,465 Class Y Shares 38.33%
Bankdan
c/o Kentucky Trust Company
218 W. Main St.
Danville, KY 991,998 Class Y Shares 25.16%
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, nine 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 the name, positions with the Fund, address,
date of birth and business experience during at least the past five years of
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 April,
2002. All nominees have consented to serve if elected.
Trustees(1)
and Officers
Number of
Positions Held Portfolios in
with Fund Complex
Fund Overseen by
Name, Address(2) and and Length of Principal Occupation(s) Trustee Other Directorships
Date of Birth Service(3) During Past 5 Years Held by Trustee (The position
held is a directorship unless
indicated otherwise.)
Interested Trustees(4)
Lacy B. Herrmann Chairman of Founder and Chairman of the 12 Director or trustee, OCC Cash
New York, NY the Board of Board, Aquila Management Reserves, Inc., OCC
(05/12/29) Trustees since Corporation, the sponsoring Accumulation Trust,
1987 organization and Manager or Oppenheimer Quest Value Funds
Administrator and/or Adviser or Group, Oppenheimer Small Cap
Sub-Adviser to each fund of the Value Fund, Oppenheimer
Aquilasm Group of Funds (5) and Midcap Fund, and Oppenheimer
Founder, Chairman of the Board of Rochester Group of Funds.
Trustees and (currently or until
1998) President of each since its
establishment, beginning in 1984;
Director of the Distributor since
1981and formerly Vice President
or Secretary, 1981-1998;
President and a Director, STCM
Management Company, Inc., sponsor
and investment adviser to Capital
Cash Management Trust since 1973;
Trustee Emeritus, Brown
University and active in
university, school and charitable
organizations.
Diana P. Herrmann Trustee since President and Chief Operating 7 None
New York, NY 1995 and Officer of the Manager since
(02/25/58) President 1997, a Director since 1984,
since 1999 Secretary since 1986 and
previously its Executive Vice
President, Senior Vice President
or Vice President, 1986-1997;
President, Senior Vice President
or Executive 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; active in mutual fund
and trade organizations and in
charitable and volunteer
organizations.
Non-Interested
Trustees
Thomas A. Trustee Vice President of Robinson, 1 None
Christopher since 1992 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;
active member of the American
Institute of Certified Public
Accountants.
Douglas Dean Trustee Founder and Chairman of the 1 None
Lexington, since 1987 Board of Directors, Dean, Dorton
KY & Ford P.S.C., a public
(03/21/49) accounting firm, since 1982;
active as an officer and member
of various charitable and
community organizations.
Carroll F. Knicely Trustee since President, Associated 1 West Kentucky Corporation;
Glasgow, KY 1998 Publications Inc, Glasgow, South Gate Plaza, Inc.;
(12/08/28) Kentucky; director and member, Knicely and Knicely, Inc.
Executive Board of West Kentucky
Corporation and director and
Secretary-Treasurer, South Gate
Plaza, Inc. (owner and developer
of shopping centers and
commercial real estate);
director, Vice President and
Treasurer, Knicely and Knicely,
Inc. (owner and developer of
rental properties and
residential real estate); former
trustee, Cambellsville
University; formerly Secretary
of Commerce and Commissioner of
Commerce, Commonwealth of
Kentucky.
Theodore T. Mason Trustee since Executive Director, East Wind 6 Trustee, OCC Accumulation
New York, NY 1992 Power Partners LTD since 1994 Trust.
(11/24/35) and Louisiana Power Partners,
LLC since 1999; President,
Alumni Association of SUNY
Maritime College since 2002
(First Vice President,
2000-2001, Second Vice
President, 1998-2000) and
director of the same
organization since 1997;
Director, STCM Management
Company, Inc., since 1973; twice
national officer of Naval
Reserve Association, commanding
officer of four naval reserve
units and Captain, USNR (Ret);
director, The Navy League of the
United States New York Council
since 2002; trustee, The
Maritime Industry Museum at Fort
Schuyler and the Maritime
College at Fort Schuyler
Foundation, Inc. since 2000.
Anne J. Mills Trustee since President, Loring Consulting 5 None
Castle Rock, CO 1987 Company since 2001; Vice
(12/23/38) President for Business Affairs,
Ottawa University, 1992-2001;
IBM Corporation, 1965-1991;
Budget Review Officer, the
American Baptist Churches/USA,
1994-1997; director, the
American Baptist Foundation
since 1985 and Trustee Emerita,
Brown University.
William J. Nightingale Trustee since Retired; formerly Chairman, 2 Ring's End, Inc.
Rowayton, CT 1993 founder (1975) and Senior
(09/16/29) Advisor until 2000 of
Nightingale & Associates,
L.L.C., a general management
consulting firm focusing on
interim management,
divestitures, turnaround of
troubled companies, corporate
restructuring and financial
advisory services.
James R. Ramsey Trustee since President, University of 1 None
Louisville, KY 1987 Louisville since Nov. 2002;
(11/14/48) Professor of Economics,
University of Louisville,
1999-present; Kentucky
Governor's Senior Policy Advisor
and State Budget Director,
1999-2002; Vice Chancellor for
Finance and Administration, the
University of North Carolina at
Chapel Hill, 1998 to 1999;
previously Vice President for
Finance and Administration at
Western Kentucky University,
State Budget Director for the
Commonwealth of Kentucky, Chief
State Economist and Executive
Director for the Office of
Financial Management and
Economic Analysis for the
Commonwealth of Kentucky,
Adjunct Professor at the
University of Kentucky,
Associate Professor at Loyola
University-New Orleans and
Assistant Professor at Middle
Tennessee State University.
Officers
Thomas S. Albright Senior Vice Senior Vice President and N/A N/A
Louisville, KY President Portfolio Manager, Churchill
(07/26/52) since 2000 Tax-Free Fund of Kentucky since
July 2000; Vice President and
Co-portfolio manager, Tax-Free
Fund For Utah since 2001; Vice
President and Portfolio Manager,
Banc One Investment Advisors,
Inc., 1994-2000.
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 1994 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 and Vice
President, Churchill Cash
Reserves Trust, 1995-2001.
James M. McCullough Vice President Senior Vice President or Vice N/A N/A
Portland, OR (06/11/45) since 2000 President of Aquila Rocky
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.
Jason T. McGrew Vice President Vice President, Churchill N/A N/A
Elizabethtown, KY since 2001 Tax-Free Fund of Kentucky since
(08/14/71) 2001, Assistant Vice President,
2000-2001; Investment Broker
with Raymond James Financial
Services 1999-2000 and with J.C.
Bradford and Company 1997-1999;
Associate Broker at Prudential
Securities 1996-1997.
Rose F. Marotta Chief Chief Financial Officer of the N/A N/A
New York, NY Financial Aquilasm Group of Funds since
(05/08/24) Officer since 1991 and Treasurer, 1981-1991;
1991 Treasurer and Director, STCM
Management Company, Inc., since
1974; Treasurer of the Manager
since 1984 and of the
Distributor, 1985-2000.
Joseph P. DiMaggio Treasurer Treasurer of the Aquilasm Group N/A N/A
New York, NY since 2000 of Funds and the Distributor
(11/06/56) since 2000; Controller, Van Eck
Global Funds, 1993-2000.
Edward M. W. Hines Secretary Partner, Hollyer Brady Smith & 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.
Robert W. Anderson Assistant Compliance Officer of the N/A N/A
New York, NY (08/23/40) Secretary Manager since 1998 and Assistant
since 2000 Secretary of the Aquilasm Group
of Funds since 2000; trustee,
Alpha Strategies Fund since
July, 2002; Consultant, The
Wadsworth Group, 1995-1998.
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
five Aquila Money-Market Funds
since 1990; Vice President of
the Manager since 1990.
Lori A. Vindigni Money- Market, Assistant Treasurer of the N/A N/A
New York, NY Bond and Equity Aquilasm Group of Funds since
(11/02/66) Funds: 2000; Assistant Vice President
Assistant of the Manager since 1998; Fund
Treasurer since Accountant for the Aquilasm
2000 Group of Funds, 1995-1998.
(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/o Churchill Tax-Free
Fund of Kentucky, 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) Mr. Herrmann and Ms. Herrmann are interested persons of the Fund, as that
term is defined in the 1940 Act, as officers of the Fund and affiliates of both
the Manager and the Distributor. Each is also an interested person as a member
of the immediate family of the other.
(5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust, Pacific Capital Tax-Free Cash Assets
Trust and Capital Cash Management 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 12 funds are called the "Aquilasm Group of
Funds."
Securities Holdings of the Trustees
(as of 12/31/02)
Dollar Range of Aggregate Dollar Range
Name of Ownership in Churchill of Ownership in Aquilasm
Trustee Tax-Free Fund of Kentucky(1) Investment Companies
Overseen by Trustee(1)
Interested Trustees
Lacy B. Herrmann B E
Diana P. Herrmann B E
Non-interested Trustees
Thomas A. Christopher C C
Douglas Dean D D
Carroll F. Knicely D D
Theodore T. Mason B C
Anne J. Mills C D
William J. Nightingale C C
James R. Ramsey C 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. For its fiscal year ended December 31,
2002, the Fund paid a total of $93,960 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 12 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
Name Fund Group of Funds serves
Thomas A.
Christopher $7,500 $8,700(1) 1
Douglas
Dean $6,950 $6,950 1
Carroll F.
Knicely $7,300 $7,300 1
Theodore T.
Mason $7,300 $50,500 6
Anne J.
Mills $7,300 $35,600 5
William J.
Nightingale $6,600 $12,550 2
James R.
Ramsey $8,800 $8,800 1
(1) Includes compensation from each of the funds in the Aquilasm Group of
Funds for services as Chair of a committee of Trustees of all such funds.
Class A Shares may be purchased without a sales charge by certain of the
Fund's Trustees and officers.
The Fund's Manager is Manager or Administrator to the Aquilasm Group of
Funds. As of January 31, 2003, these funds had aggregate assets of approximately
$3.7 billion, of which approximately $2.3 billion consisted of assets of the
tax-free municipal bond funds. The Manager is controlled by Mr. Lacy B.
Herrmann, through share ownership directly, through a trust and by his wife.
During the fiscal year ended December 31, 2002 the Fund paid $1,010,893 in
management fees.
During the fiscal year ended December 31, 2002, $320,209 was paid under
Part I of the Fund's Distribution Plan to Qualified Recipients with respect to
the Class A Shares, of which $9,081 was retained by the Distributor. With
respect to Class C shares, during the same period $30,419 was paid under Part II
of the Plan and $10,139 was paid under Part I of the Shareholder Services Plan.
Of these total payments of $40,558, the Distributor retained $6,387. With
respect to Class I Shares, during the same period $3,991 was paid under Part III
of the Plan and $2,993 was paid under Part II of the Shareholder Services Plan.
All of such payments were for compensation.
The Distributor currently handles the distribution of the shares of twelve
funds (four money-market funds, seven tax-free municipal bond funds and an
equity fund), 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 Management Corporation.
Other Information on Trustees
The Trustees have appointed a standing Audit Committee consisting of all of
the Trustees who are not "interested persons" of the Fund, as that term is
defined in the 1940 Act. The members of the Audit Committee are Thomas A.
Christopher, Douglas Dean, Carroll F. Knicely, Theodore T. Mason, Anne J. Mills,
William J. Nightingale and James R. Ramsey. None of the members of the Committee
is an "interested person" of the Fund. The Committee (i) recommends to the Board
of Trustees what firm of independent auditors will be selected by the Board of
Trustees (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. The Committee held one
meeting during the Fund's last fiscal year.
During the Fund's last fiscal year, the Board of Trustees held five
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), except that Mr. Nightingale was unable to attend two meetings
due to travel and a prior commitment. The Board of Trustees does not have a
nominating committee.
Since the beginning of the Fund's most recently completed fiscal year, no
Trustee purchased or sold shares of the Manager.
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 Auditors
(Proposal No. 2)
KPMG LLP ("KPMG"), which is currently serving as the Fund's independent
auditors, has been selected by the Fund's Board of Trustees, including a
majority of the Independent Trustees, as the Fund's independent auditors for the
fiscal year ending December 31, 2003. 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
2001 and 2002, and fees billed for other services rendered by KPMG.
2001 2002
Audit Fees: $17,000 $19,500
Audit related fees 0 0
______ ______
Audit and audit related fees 17,000 19,500
Tax fees (1) 7,383 9,500
All other fees 0 0
______ ______
Total fees $24,383 $29,000
_______ _______
(1) Tax fees consisted of fees for tax consultation and tax compliance services.
KPMG did not perform any services during the 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.
The Audit Committee of the Fund's Board of Trustees, which consists of all
independent Trustees, has reviewed all services performed and fees charged by
KPMG and has accepted its representation that it is independent in recommending
reappointment of it for the fiscal year ending December 31, 2003.
KPMG has no direct or indirect financial interest in the Fund or the
Manager. 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 a New Revised and Amended
Advisory and Administration Agreement
Which will Provide that the Fund
Will pay for Fund Accounting Services
Currently paid for by the Manager
(Proposal No. 3)
Background and Reasons for the Proposal
The purpose of this proposal is to authorize a new revised and amended
Advisory and Administration Agreement (the "Proposed Agreement") between the
Fund and Aquila Management Corporation, the Manager. The only change between the
current Advisory and Administration Agreement (the "Current Agreement") and the
Proposed Agreement is that the payment for the cost of fund accounting,
currently the responsibility of the Manager, will become the responsibility of
the Fund under the Proposed Agreement.
The Current Agreement provides that the Manager shall either keep the
accounting records of the Fund, including the computation of net asset value per
share and the dividends or, at its expense and responsibility, delegate such
duties in whole or in part to a company satisfactory to the Fund. These services
are called "Fund Accounting." The Fund Accounting services for the Fund are
currently delegated to an outside service provider and are currently supervised
and paid for by the Manager. It is proposed that while an outside service
provider will continue to provide accounting services to the Fund under the
Manager's continued supervision, the costs of the Fund Accounting services will
be shifted from the Manager to the Fund. If the Proposal is approved, these
costs will be borne by the Fund and not by the Manager.
What is Fund Accounting?
Fund Accounting is the routine bookkeeping function under which the Fund's
per share price (net asset value) is computed each day for the purposes of sales
and redemptions of the Fund's shares. Fund Accounting also tracks the Fund's
income and expenses for the purpose of calculating the Fund's daily dividends.
What are the current and anticipated costs of Fund Accounting?
The cost of providing Fund Accounting to the Fund at its current asset
level of approximately $264 million is $52,200 per year. Based on the Fund's
current net assets, this equates to approximately 2.0 basis points (0.020%) in
annual expenses.
Under the current Fund Accounting fee structure, the estimated fee paid by
the Fund would be as follows at various asset sizes:
Estimated Class A Share
Net Assets Annual Fund Accounting Fee Total Expense Ratio
($MM) ($) (%) (%)
264 52,200 0.020 0.73
300 55,200 0.018 0.72
375 59,624 0.016 0.71
425 63,636 0.015 0.70
While the Fund's expense ratio will increase, it is important to note that
the expense ratio of the Fund has traditionally been at a highly competitive
level.
What will happen if the Fund grows?
The Manager and the Distributor intend to continue efforts to increase the
asset size of the Fund. As illustrated in the chart above, if the Fund assets
grow, the impact on the overall Fund expense ratio decreases. Conversely, were
the Fund to decrease in size, the expense ratio would increase.
What are the reasons for the Proposal?
The Manager is seeking this change to reduce its costs and thereby
effectively increase its net income without an increase in its contractual
management fee. Without subsidization, the effect of reducing the Manager's
costs is the same as increasing its fees by the same amount. The Manager has
advised the Board of Trustees that it has had increasing costs of operations.
Examples of past operating expense increases include additional
staffing/other resource needs which resulted from the addition of new classes of
shares (C, Y, and I shares) and significant salary level increases necessitated
in order to retain staff. Most recently, additional rules and regulations
imposed by the Securities and Exchange Commission (SEC) and the federal
government have resulted in the need for increased resources and related costs.
These new rules and regulations have included anti-money laundering, privacy,
protecting against terrorism, and, most recently, Sarbanes-Oxley. Technology
plays a large part in compliance with these new rules and is a major and ongoing
component of Aquila's increased costs, as it has gained increasing importance
overall for financial services companies, in particular.
An effective fee increase would assist the Manager in retaining experienced
investment professionals. The Manager has advised the Board of Trustees that a
high quality portfolio management team is critical to the success of the Fund,
particularly in light of the increased necessity to scrutinize the credit
quality of issues. Additional income would also assist the Manager in
maintaining new and/or upgraded systems and other technology investments and
related support, an area of growing criticality for all mutual fund companies.
What changes in the Fund's expenses will result from the change?
Under the Proposed Agreement, the contractual advisory fee will continue to
accrue at the annual rate of 0.40 of 1% of the Fund's net asset value. The
following tables show the Management fee and Other Expenses (including
Accounting) under the Current Agreement and the Proposed Agreement.
Annual Fund Operating Expenses
(as a percentage of the Fund's average daily net assets)
The chart below compares Current Annual Fund Operating Expenses (expenses that
are deducted from the Fund's assets) as they were for the fiscal year ended
December 31, 2002 against Proposed Annual Fund Operating Expenses as they would
have been for that year under the proposed arrangement.
Class A Shares Class C Shares
(Current) (Proposed) (Current) (Proposed)
Management Fee......... 0.40% 0.40% 0.40% 0.40%
Distribution (12b-1) Fee. 0.15% 0.15% 0.75% 0.75%
All Other Expenses:
Service Fee..... None None 0.25% 0.25%
Other Expenses 0.17% 0.19%(1) 0.17% 0.19%(1)
Total All Other Expenses.. 0.17% 0.19% 0.42% 0.44%
Total Annual Fund
Operating Expenses(2) 0.72% 0.74%(1) 1.57% 1.59%(1)
Class Y Shares Class I Shares
(Current) (Proposed) (Current) (Proposed)
Management Fee......... 0.40% 0.40% 0.40% 0.40%
Distribution (12b-1) Fee. None None 0.10% 0.10%
All Other Expenses:
Service Fee..... None None 0.10% 0.10%
Other Expenses 0.17% 0.19%(1) 0.27% 0.29%(1)
Total All Other Expenses.. 0.17% 0.19% 0.37% 0.39%
Total Annual Fund
Operating Expenses(2) 0.57% 0.59%(1) 0.87% 0.89%(1)
(1) Includes 0.020% for fund accounting.
(2) Does not reflect an offset in Fund expenses received in the year ended
December 31, 2002 for uninvested cash balances. Reflecting this offset for
that year, total annual Fund operating expenses were 0.71% for Class A
Shares, 1.55% for Class C Shares, 0.86% for Class I Shares, and 0.56% for
Class Y Shares. Expenses for the various classes differ because Class I
Shares bear program costs for financial intermediaries of 0.15% and charges
common to both Class I Shares and Class Y Shares of 0.12%; Class Y Shares
bear only the common charges of 0.12% and an allocation for transfer agent
services of 0.05%.
The following table shows the contractual Management fees and Fund
Accounting fees during the Fund's latest fiscal year, the contractual fees if
the proposed arrangements had been in effect during that fiscal year and the
percentage change.
Fee accrued
if new
arrangements
Type of Fund Actually had been Percent
Fee accrued in effect of change
Management fee $1,010,893 $1,010,893 0%
Fund Accounting fee N/A $52,200 N/A
Total $1,010,893 $1,063,093
What information about the Manager should I know?
The Fund's Manager is founder and Manager and/or administrator of each fund
in the Aquilasm Group of Funds, which consists of seven tax-free municipal bond
funds, four money-market funds and a regional equity fund. As of December 31,
2002 these funds had aggregate assets of approximately $3.7 billion, of which
approximately $2.3 billion consisted of assets of the seven tax-free municipal
bond funds. The Manager was founded in 1984 by Mr. Lacy B. Herrmann and is
directly controlled by him, through a trust and through share ownership by his
wife and daughter, as follows:
Elizabeth B. Herrmann 27.5%
Lacy B. Herrmann 25.0%
Elizabeth B. Herrmann
1993 Annuity Trust 40.0%
Diana P. Herrmann 5.0%
The names, addresses and principal occupations of the principal executive
officer and each director of the Manager are as follows:
Name Position with The Manager
Lacy B. Herrmann Chairman, Chief Executive Officer
and Director
Diana P. Herrmann President, Chief Operating Officer
and Director
Elizabeth B. Herrmann Director
The address of all of these individuals is 380 Madison Avenue, Suite 2300,
New York, NY 10017.
When was the Current Agreement last approved?
The Current Agreement between the Fund and the Manager was approved by the
shareholders of the Fund in May, 1998. It has been renewed annually by the Board
of Trustees since that time, most recently in June, 2002.
What changes are proposed in the Proposed Agreement?
The complete text of the Proposed Agreement, marked to show the proposed
changes, is attached to this Proxy Statement.
What factors did the Board of Trustees consider in approving the Proposed
Agreement?
The Trustees noted that the Manager had presented for the Board's
consideration materials including, among other things: conditions and trends in
the municipal securities markets; an analysis of the Fund's current and
historical expenses; information about the profitability of the Manager's mutual
fund operations with respect to the Fund; performance of the Fund as related to
various industry indices; and a statement of the rationale underlying the
proposed advisory fee structure. Copies of the Proposed Agreement were also
provided.
The Trustees also noted that the Manager had retained, at the Manager's
expense, a recognized independent outside consulting firm to analyze the
frequency with which investment managers have unbundled Fund Accounting from the
management fee. While the analysis noted that 21 - 25% of funds disclose Fund
Accounting as a separate fund expense, it also noted that the frequency is
higher in actuality because fund accounting costs are sometimes part of bundled
fees charged by the Custodian. The Manager advised the Board that this is
particularly the case with some of the larger custodian banks based upon its
discussions with a number of industry representatives. The independent
consultant's analysis also noted that a number of comparable funds treat fund
accounting as a fund expense.
From the foregoing, the Board of Trustees derived the following
considerations:
o The performance and expense ratio of the Fund continued to be at a highly
competitive level.
o Consistent with previous determinations by the Board of Trustees, the
contracted Advisory and Administration fees were reasonable and well in
line with industry standards and the Fund's peer group, being in general
below those of comparable Funds. As of September 30, 2002, the Fund's gross
management fee was 0.40 of 1% versus the average and median of 0.56 and
0.55 of 1%, respectively, of those of comparable funds and the 0.58 of 1%
average of the five competing Kentucky funds.
o A comparison of the Fund's net operating expenses vis-a-vis comparable
funds reflected that the comparable funds had higher expense structures
than the Fund, based upon data provided by outside consultants and fund
financial reports. The Fund's net expense ratio for its Class A Shares of
0.71 of 1% was also significantly lower than the 0.82 of 1% average and
0.84 of 1% median for all front-end load shares of single-state municipal
bond funds (437 funds) and the 0.84 of 1% average of the five competing
Kentucky funds.
o The expense ratio of the Fund would remain competitive, even with the added
cost of fund accounting.
o The cost of Fund Accounting services as a percentage of its operating
expenses would be well within the range of expense ratios of comparable and
competing funds and is not expected to adversely affect its competitive
position in the future.
o The overall nature and quality of the services provided by the Manager had
historically been, and continued to be, very high.
o The Fund has traditionally had a relatively low net ratio of expenses and
consistent performance relative to comparable and competing funds.
o Shareholders would benefit, in that the Manager, by being relieved of Fund
Accounting costs, would be in a better position to:
o retain experienced professionals;
o utilize more readily new and/or upgraded systems;
o make other technology investments and obtain related support to
provide for current and future shareholder needs; and
o provide resources for compliance with the new regulatory and other
requirements, an area of growing criticality for all mutual fund
companies.
o The Manager had agreed to bear the costs relating to preparation of
material regarding this proposal for inclusion in the Fund's proxy
statement for the Annual Meeting of Shareholders.
On the basis of the foregoing considerations, the Board of Trustees,
including all of the Independent Trustees, voted to approve the proposed change
and recommend that the shareholders of the Fund approve it.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE NEW REVISED AND AMENDED ADVISORY AND
ADMINISTRATION 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 classes of
shares.
If the shareholders of the Fund fail to approve Proposal No. 3, the Board
of Trustees will consider what action might be appropriate, including calling
another meeting of the shareholders or continuing with the present arrangements.
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, the Fund will so advise you.
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.
<page>
Appendix A
CHURCHILL TAX-FREE FUND OF KENTUCKY
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of by and between CHURCHILL TAX-FREE
TRUST (the "Business Trust"), 380 Madison Avenue, Suite 2300, New York, New
York 10017 and AQUILA MANAGEMENT CORPORATION (the "Manager"), a New York
corporation, 380 Madison Avenue, Suite 2300, New York, New York 10017.
W I T N E S S E T H:
WHEREAS, the Business Trust 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, the sole series and portfolio of
which is Churchill Tax-Free Fund of Kentucky (the "Fund");
WHEREAS, the Business Trust and the Manager wish to enter into an Advisory
and Administration Agreement referred to hereafter as "this Agreement," with
respect to the Fund;
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
The Manager shall perform (at its own expense) the functions set forth more
fully herein for the Fund.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services Subject to the succeeding provisions of
this section and subject to the direction and control of the Board of Trustees
of the Business Trust, the Manager 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
Subject to the provisions of Section 5 hereof, the Manager may at its own
expense delegate to a qualified organization ("Sub-Adviser"), affiliated or not
affiliated with the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a written
agreement (the "Sub-Advisory Agreement") approved as provided in Section 15 of
the Investment Company Act of 1940.
(b) Administration. Subject to the succeeding provisions of this section
and subject to the direction and control of the Board of Trustees of the
Business Trust, the Manager shall provide all administrative services to the
Fund other than those relating to its investment portfolio delegated to a
Sub-Adviser of the Fund under a Sub-Advisory Agreement; as part of such
administrative duties, the Manager shall:
(i) provide office space, personnel, facilities and equipment for the
performance of the following functions and for the maintenance of the
headquarters of the Fund;
(ii) oversee all relationships between the Fund and any sub-adviser,
transfer agent, custodian, legal counsel, auditors, fund accounting
agent and principal underwriter, including the negotiation of
agreements in relation thereto, the supervision and coordination of
the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for the
effective operation of the Fund and for the sale, servicing or
redemption of the Fund's shares;
(iii) maintain the Fund's books and records, and prepare (or assist
counsel and auditors in the preparation of) all required proxy
statements, reports to the Fund's shareholders and Trustees, reports
to and other filings with the Securities and Exchange Commission and
any other governmental agencies, and tax returns, and oversee the
insurance relationships of the Fund;
(iv) prepare, on behalf of the Fund and at the Fund's expense, such
applications and reports as may be necessary to register or maintain
the registration of the Fund and/or its shares under the securities or
"Blue-Sky" laws of all such jurisdictions as may be required from time
to time;
(v) respond to any inquiries or other communications of shareholders
of the Fund and broker-dealers, or if any such inquiry or
communication is more properly to be responded to by the Fund's
shareholder servicing and transfer agent or distributor, oversee such
shareholder servicing and transfer agent's or distributor's response
thereto.
(c) Compliance with Requirements. Any investment program furnished,
and any activities performed, by the Manager or by a 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 Business Trust as amended from time to time;
(4) any policies and determinations of the Board of Trustees of the
Business Trust; 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.
(d) Best Efforts; Responsibility. The Manager shall give the Fund the
benefit of its best judgment and effort in rendering services hereunder, but the
Manager 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 Manager or a Sub-Adviser.
(e) Other Customers. Nothing in this Agreement shall prevent the Manager or
any officer thereof from acting as investment adviser, sub-adviser,
administrator or manager for any other person, firm, or corporation, and shall
not in any way limit or restrict the Manager or any of its officers,
stockholders or employees 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 Manager expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations under this Agreement.
(f) Order Allocation. In connection with any duties for which it may become
responsible to arrange for the purchase and sale of the Fund's portfolio
securities, the Manager shall select, and shall cause any Sub-Adviser to select,
such broker-dealers ("dealers") as shall, in the Manager'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 Manager shall
cause the Fund to deal directly with the selling or purchasing principal or
market maker without incurring brokerage commissions unless the Manager
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 Business Trust 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 Manager is
authorized and shall authorize any Sub-Adviser, 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 Manager
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 Manager's overall
responsibilities. If, on the foregoing basis, the transaction in question could
be allocated to two or more dealers, the Manager is authorized, in making such
allocation, to consider (i) whether a dealer has provided research services, as
further discussed below; and (ii) whether a dealer has sold shares of the Fund.
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 Business Trust 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
Manager or its other clients. The Manager shall cause the foregoing provisions,
in substantially the same form, to be included in any Sub-Advisory Agreement.
(g) Registration Statement; Information. It is agreed that the Manager
shall have no responsibility or liability for the accuracy or completeness of
the Business Trust's Registration Statement under the Act and the Securities Act
of 1933, except for information supplied by the Manager for inclusion therein.
The Manager shall promptly inform the Business Trust as to any information
concerning the Manager appropriate for inclusion in such Registration Statement,
or as to any transaction or proposed transaction which might result in an
assignment of the Agreement.
(h) Liability for Error. The Manager 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.
(i) Indemnification. The Business Trust shall indemnify the Manager to the
full extent permitted by the Business Trust's Declaration of Trust.
3. Allocation of Expenses
The Manager shall, at its own expense, provide office space, facilities,
equipment, and personnel for the performance of its functions hereunder and
shall pay all compensation of Trustees, officers, and employees of the Fund who
are affiliated persons of the Manager.
The Fund agrees to bear the costs of preparing and setting in type its
prospectuses, statements of additional information and reports to its
shareholders, and the costs of printing or otherwise producing and distributing
those copies of such prospectuses, statements of additional information and
reports as are sent to its shareholders. All costs and expenses not expressly
assumed by the Manager under this sub-section or otherwise by the Manager,
administrator or principal underwriter or by any Sub-Adviser shall be paid by
the Fund, including, but not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Manager or such adviser,
administrator or principal underwriter; (v) legal and audit expenses; (vi)
custodian and transfer agent, or shareholder servicing agent, fees and expenses;
(vii) expenses incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and expenses incident to
the registration under Federal or State securities laws of the Fund or its
shares; (ix) expenses of preparing, printing and mailing reports and notices and
proxy material to shareholders of the Fund; (x) all other expenses incidental to
holding meetings of the Fund's shareholders; (xi) expenses of keeping the Fund's
accounting records including the computation of net asset value per share and
the dividends; and (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations for which the Business
Trust may have to indemnify its officers and Trustees.
4. Compensation of the Manager
The Business Trust agrees to pay the Manager, and the Manager agrees to
accept as full compensation for all services rendered by the Manager as such, an
annual 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 0.50 of 1% of such
net asset value; provided, however, that for any day that the Business Trust
pays or accrues a fee under the Distribution Plan of the Fund based upon the
assets of the Fund, the annual management fee shall be payable at the annual
rate of 0.40 of 1% of such net asset value.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its termination by the Manager
upon reasonable notice, provided, however, that the Manager agrees not to
terminate the Sub-Advisory Agreement except in accordance with such
authorization and direction of the Board of Trustees, if any, as may be in
effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become as of the date first written
above following approval by the shareholders of the Fund and shall, unless
terminated as hereinafter provided, continue in effect until the June 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 Business Trust'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) Termination. This Agreement may be terminated by the Manager at any
time without penalty upon giving the Business Trust sixty days' written notice
(which notice may be waived by the Business Trust) and may be terminated by the
Business Trust at any time without penalty upon giving the Manager sixty days'
written notice (which notice may be waived by the Manager), provided that such
termination by the Business Trust 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. The portions of this Agreement which relate to
providing investment advisory services (Sections 2(a), (c), (d) and (e)) shall
automatically terminate in the event of the assignment (as defined in the Act)
of this Agreement, but all other provisions relating to providing services other
than investment advisory services shall not terminate, provided however, that
upon such an assignment the annual fee payable monthly and computed on the net
asset value of the Fund as of the close of business each business day shall be
reduced to the annual rate of 0.33 of 1% of such net asset value and provided
further that for any day that the Business Trust pays or accrues a fee under the
Distribution Plan of the Fund based upon the assets of the Fund, the annual
management fee shall be payable at the annual rate of 0.26 of 1% of such net
asset value.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this Agreement are not
binding upon any shareholder of the Fund personally, but bind only the Business
Trust's property; the Manager represents that it has notice of the provisions of
the Business Trust's Declaration of Trust disclaiming shareholder liability for
acts or obligations of the Fund.
8. Notices of Meetings
The Business Trust agrees that notice of each meeting of the Board of
Trustees of the Business Trust will be sent to the Manager and that the Business
Trust will make appropriate arrangements for the attendance (as persons present
by invitation) of such person or persons as the Manager may designate.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers and their seals to be hereunto
affixed, all as of the day and year first above written.
ATTEST: CHURCHILL TAX-FREE TRUST
_______________________ By:___________________________________
ATTEST: AQUILA MANAGEMENT CORPORATION
_______________________ By:___________________________________
<page>
IMPORTANT NOTICE
PLEASE READ IMMEDIATELY
CHURCHILL TAX-FREE FUND OF KENTUCKY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on APRIL 25, 2003
PROXY STATEMENT
<page>
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. You will
be prompted to enter the 14-digit control number on this proxy card. 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 You will be prompted to enter the 14-digit control
number on this proxy card. 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
Churchill Tax-Free Fund of Kentucky
Class A
Proxy for Shareholder Meeting April 25, 2003
Proxy Solicited on Behalf of the Board of Trustees
The shareholder(s) of Churchill Tax-Free Fund of Kentucky (the Fund) whose
signature(s)appears 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 Friday, April 25, 2003 at the Kentucky
Derby Museum, 704 Central Avenue, Louisville, Kentucky, at 10:00 a.m. local
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: __________________, 2003
_________________________________
Signature(s) PLEASE SIGN WITHIN THE BOX
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEARS 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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please fold and detach card at perforation before MAILING
Churchill Tax-Free Fund of Kentucky
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
01) Lacy B. Herrmann*; 02) Thomas A. Christopher; 03) Douglas Dean; 04) Diana P.
Herrmann*; 05) Carroll F. Knicely; 06) Theodore T. Mason; 07) Anne J. Mills;
08)William J. Nightingale; 09) James R. Ramsey
* interested Trustees
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[__] FOR ALL
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[__] WITHHOLD ALL
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[__] 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 below.
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[bolded in printed form]
Management recommends a vote FOR all nominees listed above and FOR the proposal
listed below. The shares represented hereby will be voted as indicated below or
FOR if no choice is indicated.
2. Action on selection of KPMG LLP as independent auditors
(Proposal No.2 in Proxy Statement)
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FOR [__] AGAINST [__] ABSTAIN [__]
3. Action on a proposed new revised and amended Advisory and Administration
Agreement under which the Fund will become responsible for Fund accounting
expenses
(Proposal No. 3 in Proxy Statement)
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FOR [__] AGAINST [__] ABSTAIN [__]
As to any other matter said proxies shall vote in accordance with their best
judgment.
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I plan to attend the annual meeting in Louiisville [__]
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I plan to attend the outreach meeting in Bowling Green [__]
For address changes and/or comments, please check this box and write them on the
front where indicated.
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[_]
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON THE REVERSE SIDE.
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