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) 697-6666
(Registrant's Telephone Number)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
Important Notice
Please Read Immediately
Aquila Group of Fundssm
Churchill Tax-Free Fund of Kentucky
380 Madison Avenue, Suite 2300, New York, New York 10017
Notice of Annual Meeting of
Shareholders to Be Held
on April 25, 2008
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 Papa John's Cardinal Stadium
Brown & Williamson Room
2800 South Floyd Street
Louisville, Kentucky;
Time: (b) on Friday, April 25, 2008
at 8:30 a.m. Eastern Daylight Time;
Purposes: (c) for the following purposes:
(i) to elect six 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 Tait, Weller & Baker LLP as the Fund's independent
registered public accounting firm for the fiscal year
ending December 31, 2008 (Proposal No. 2);
(iii) to act on an Advisory and Administration Agreement
(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 28, 2008 (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 4, 2008
Please Note:
If you do not expect to attend the Meeting, please vote by any of three ways: by
the Internet, by telephone 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, NY 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 voting
decisions.
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.
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 4, 2008.
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) 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.
(3) 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.
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 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, $10.51; Class C Shares, $10.51; Class Y Shares, $10.52; and Class I
Shares, $10.51. 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 an 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, 18,713,825; Class C Shares,
385,855; Class Y Shares, 4,033,151 and Class I Shares, 806,039.
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:
NFS LLC FEBO
Stock Yards Bank
200 S. 5th St.
Louisville, KY 2,425,489 Class A Shares 12.96%
MLPF&S for the sole
benefit of its customers
4800 Deer Lake Dr East
Jacksonville, FL 80,185 Class C Shares 20.78%
NFS LLC FEBO
Glenview Trust Company
4969 US Highway 42
Suite 2000
Louisville, KY 3,090,831 Class Y Shares 76.64%
Morgan Keegan & Company, Inc.
FBO Bankdan
c/o Kentucky Trust Company
218 W. Main St.
Danville, KY 228,087 Class Y Shares 5.66%
Danky & Co.
P.O. Box 28
Danville, KY 237,240 Class Y Shares 5.88%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 590,517 Class I Shares 73.26%
Strafe & Co.
FAO Charles Dishman
Living Tr.
P.O. Box 160
Westerville, OH 61,118 Class I Shares 7.58%
Ameritrade Inc. for the sole
benefit of its customers
P.O. Box 2226
Omaha, NE 63,113 Class I Shares 7.83%
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, six 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 April, 2007. All nominees have
consented to serve if elected.
Nominees(1)
Number of
Portfolios Other Directorships
Positions Held in Fund Held by Trustee
with Fund and Complex(4) (The position held is a
Name, Address(2) and Length of Principal Occupation(s) Overseen directorship unless
Date of Birth Service(3) During Past 5 Years by Trustee indicated otherwise.)
- ------------- ---------- ------------------- ---------- ---------------------
Interested
Trustee(5)
Diana P. Herrmann Trustee Vice Chair and Chief Executive 12 ICI Mutual Insurance Company
New York, NY since 1995 Officer of Aquila Management
(02/25/58) and Corporation, Founder of the
President Aquila Group of Funds (6) and
since 1999 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; Chair,
Vice Chair, President, Executive
Vice President or Senior Vice
President of funds in the Aquila
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 (a
trade organization for the U.S.
fund industry dedicated to
protecting shareholder interests
and educating the public about
investing) and head of its Small
Funds Committee since 2004;
active in charitable and
volunteer organizations.
Non-interested
Trustees
Thomas A. Chair of the Vice President of Robinson, 3 None
Christopher Board of Hughes & Christopher, C.P.A.s,
Danville, KY Trustees P.S.C., since 1977; President, A
(12/19/47) since 2005 Good Place for Fun, Inc., a
and Trustee sports facility, since 1987;
since 1992 currently or formerly active
with various professional and
community organizations.
Timothy J. Leach Trustee UC Berkeley Haas School of 3 None
Orinda, CA since 2007 Business, Executive Education
(08/28/55) Lecturer since 2006; member,
Oxford Financial LLC Investment
Policy Council since January
2007; Expert Affiliate, LECG LLC
since June 2007; Regional Chief
Executive Officer, US Trust
Company, N.A., 2005-2006;
Executive Vice President & Chief
Investment Officer, U.S. Trust
Company, New York, NY,
2004-2005; Executive Vice
President & Chief Investment
Officer, Private Asset
Management Group, Wells Fargo
Bank, San Francisco, CA,
1999-2003.
Theodore T. Mason Trustee Executive Director, East Wind 8 Trustee, Premier VIT.
New York, NY since 1987 Power Partners LTD since 1994
(11/24/35) and Louisiana Power Partners,
1999-2003; Treasurer, Fort
Schuyler Maritime Alumni
Association, Inc., successor to
Alumni Association of SUNY
Maritime College, since 2004
(President, 2002-2003, First
Vice President, 2000-2001,
Second Vice President,
1998-2000) and director of the
same organization since 1997;
Director, STCM Management
Company, Inc., 1973-2004; 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, 2000-2004; and Fort
Schuyler Maritime Foundation,
Inc., successor to the Maritime
College at Fort Schuyler
Foundation, Inc., since 2000.
Anne J. Mills Trustee President, Loring Consulting 4 None
Castle Rock, CO since 1987 Company since 2001; Vice
(12/23/38) President for Business
Management and CFO, Ottawa
University, since 2006, Vice
President for Business Affairs,
1992-2001; IBM Corporation,
1965-1991; currently active with
various charitable educational
and religious organizations.
James R. Ramsey Trustee President, University of 2 Community Bank and Trust,
Louisville, KY since 1987 Louisville since November 2002; Pikeville, KY and Texas
(11/14/48) Professor of Economics, Roadhouse Inc.
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.
Other Individuals
Chairman Emeritus(7)
Lacy B. Herrmann Founder and Founder and Chairman of the N/A N/A
New York, NY Chairman Board, Aquila Management
(05/12/29) Emeritus Corporation, the sponsoring
since 2005, organization and parent of the
Chairman of Manager or Administrator and/or
the Board of Adviser or Sub-Adviser to each
Trustees, fund of the Aquila Group of
1987-2005 Funds; Chairman of the Manager
or Administrator and/or Adviser
or Sub-Adviser to each since
2004; Founder and Chairman
Emeritus of each fund in the
Aquila Group of Funds;
previously Chairman and a
Trustee of each fund in the
Aquila Group of Funds since
its establishment until 2004 or
2005; 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.
Officers
Charles E. Executive Executive Vice President of all N/A N/A
Childs, III Vice funds in the Aquila Group of
New York, NY President Fundssm and the Manager and the
(04/01/57) since 2003 Manager's parent since 2003;
formerly Senior Vice President,
corporate development, 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.
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; Senior Vice
President, Tax-Free Fund For
Utah since 2003, Vice President,
2001-2003 and co-portfolio
manager since 2001; Vice
President and backup portfolio
manager, Tax-Free Trust of
Arizona, since 2004; 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 President since 1998, Registered Principal
(06/18/44) since 1994 since 1993, Senior Vice
President, 1997-1998 and Vice
President, 1993-1997; Senior
Vice President, Aquila Three
Peaks High Income Fund, Aquila
Rocky Mountain Equity Fund and
five Aquila Municipal Bond
Funds; Vice President, Churchill
Cash Reserves Trust, 1995-2001.
Todd W. Curtis Vice Senior Vice President and N/A N/A
Phoenix, AZ President Portfolio Manager, Tax-Free
(06/08/49) since 2004 Trust of Arizona, since August
2004; Vice President and backup
portfolio manager, Churchill
Tax-Free Fund of Kentucky, since
2004; Vice President and
Portfolio Manager, Banc One
Investment Advisors, Inc. and
its predecessors, 1981-2004.
Jason T. McGrew Vice Vice President, Churchill N/A N/A
Elizabethtown, KY President Tax-Free Fund of Kentucky since
(08/14/71) since 2001 2001, Assistant Vice President,
2000-2001; Vice President,
Aquila Rocky Mountain Equity
Fund since 2006; 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.
Robert W. Anderson Chief Chief Compliance Officer of the N/A N/A
New York, NY Compliance Fund and each of the other funds
(08/23/40) Officer in the Aquila Group of Funds,
since 2004 the Manager and the Distributor
and since 2004, Compliance Officer
Assistant of the Manager or its
Secretary predecessor and current parent
since 2000 1998-2004; Assistant Secretary
of the Aquila Group of Funds
since 2000.
Joseph P. DiMaggio Chief Chief Financial Officer of the N/A N/A
New York, NY Financial Aquila Group of Funds since
(11/06/56) Officer 2003 and Treasurer since 2000.
since 2003
and
Treasurer
since 2000
Edward M. W. Hines Secretary Shareholder of Butzel Long, a N/A N/A
New York, NY since 1987 professional corporation,
(12/16/39) counsel to the Fund, since 2007;
Partner of Hollyer Brady Barrett
& Hines LLP, its predecessor as
counsel, 1989-2007; Secretary of
the Aquila Group of Funds.
John M. Herndon Assistant Assistant Secretary of the N/A N/A
New York, NY Secretary Aquila Group of Funds since
(12/17/39) 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 Aquila Group of Funds since
(11/02/66) since 2000 2000; Assistant Vice President
of the Manager or its
predecessor and current parent
since 1998; Fund Accountant for
the Aquila 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) or by visiting the EDGAR Database at the SEC's
internet site at www.sec.gov.
(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) Includes certain Aquila-sponsored funds that are dormant and have no public
shareholders.
(5) Ms. Herrmann is an interested person of the Fund as an officer of the Fund,
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. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder and
Chairman Emeritus of the Fund.
(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 Municipal Bond
Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; Aquila Three Peaks
High Income Fund is a high income corporate bond fund; considered together,
these 12 funds, which do not include the dormant funds described in footnote 4,
are called the "Aquila Group of Funds."
(7) The Chairman Emeritus may attend Board meetings but has no voting power.
Securities Holdings of the Trustees
(as of 12/31/07)
Dollar Range of Aggregate Dollar Range of
Name of Ownership in Churchill Ownership in the Aquila Group of
Trustee Tax-Free Fund of Kentucky(1) Funds Overseen by Trustee(1)
Interested Trustee
Diana P. Herrmann C E
Non-interested Trustees
Thomas A. Christopher D E
Timothy J. Leach B B
Theodore T. Mason C D
Anne J. Mills C D
James R. Ramsey E E
(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,
2007, the Fund paid a total of $118,997 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 twelve funds in the Aquila Group of Funds, which
consist of three money-market funds, seven tax-free municipal bond funds, a high
income corporate bond fund 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 Aquila Group of Funds during the Fund's fiscal year.
None of such nominees has any pension or retirement benefits from the Fund or
any of the other funds in the Aquila Group of Funds.
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquila Trustee
Name Fund Group of Funds serves
Thomas A.
Christopher $28,506 $72,997 3
Timothy J.
Leach $11,036 $53,786 3
Theodore T.
Mason $16,500 $132,800 8
Anne J.
Mills $18,667 $76,501 4
James R.
Ramsey $14,000 $29,000 2
Class A Shares may be purchased without a sales charge by certain of
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 Aquila Group of Funds. As of
January 31, 2008, these funds had aggregate assets of approximately $5.0
billion, of which approximately $2.3 billion consisted of assets of the tax-free
municipal bond funds. AMC's address is the same as that of the Manager. AMC,
which was founded in 1984, is currently controlled by Mr. Lacy B. Herrmann and
his wife, Mrs. Elizabeth B. Herrmann, directly and through certain trusts. It is
anticipated that these arrangements will change as described in Proposal No. 3.
During the fiscal year ended December 31, 2007, the Fund paid
$1,046,917 in management fees.
During the fiscal year ended December 31, 2007, $305,016 was paid under
Part I of the Fund's Distribution Plan to Qualified Recipients with respect to
the Class A Shares, of which $10,936 was retained by the Distributor. With
respect to Class C shares, during the same period $38,445 was paid under Part II
of the Plan and $12,815 was paid under Part I of the Shareholder Services Plan.
Of these total payments of $51,260 the Distributor retained $12,816. With
respect to Class I Shares, during the same period $16,320 was paid under Part
III of the Plan and $12,241 was paid under Part II of the Shareholder Services
Plan. All of such payments were for compensation.
During the fiscal year ended December 31, 2007 the Fund paid $18,045 to
Butzel Long, a professional corporation ("Butzel Long"), independent counsel to
the Fund, and $23,594 to Hollyer Brady Barrett & Hines LLP, predecessor to
Butzel Long, for legal services. Edward M.W. Hines, Secretary of the Fund, is a
shareholder of Butzel Long, and was a partner of Hollyer Brady Barrett & Hines
LLP.
The Distributor currently handles the distribution of the shares of the
funds in the Aquila 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, 74% by Mr.
Herrmann and other members of his immediate family and the balance by Aquila
Management Corporation.
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 Investment Company Act of 1940 (the
"1940 Act"). The members of the Audit Committee are Thomas A. Christopher,
Timothy J. Leach, Theodore T. Mason, Anne J. Mills and James R. Ramsey. 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 four meetings 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 meetings of committees of which such Trustee was a member.
The Fund's policy is that all Trustees who can do so attend the Annual
Meeting. At the last Annual Meeting all of the Trustees were present.
The Fund has a Nominating Committee, consisting of all of the
non-"interested" Trustees. The Nominating Committee held three 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. Recommendations of nominees
from shareholders are not treated differently than proposals from other sources.
The charter of the Nominating Committee is available on the Fund's website at
www.aquilafunds.com.
Shareholder communications intended for the Board of Trustees (or one
or more specified Trustees) may be sent to them in care of the Manager at the
above address.
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 or its
parent or subsidiaries.
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)
Tait, Weller & Baker LLP ("TWB"), 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 non-"interested" Trustees, as the Fund's independent registered
public accounting firm for the fiscal year ending December 31, 2008. Such
selection is submitted to the shareholders for ratification or rejection.
The following table represents fees for professional audit services
rendered by TWB for the audit of the Fund's annual financial statements, and
fees billed for other services rendered by TWB, for the fiscal years ended
December 31, 2006 and 2007.
2006 2007
Audit Fees $16,000 $16,000
Audit related fees 0 0
Audit and audit related fees $16,000 $16,000
Tax fees (1) 3,000 3,000
All other fees 0 0
Total $19,000 $19,000
(1) Tax fees consisted of fees for tax consultation and tax compliance services.
TWB 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 TWB 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 TWB and has accepted TWB's representation that it is independent in
recommending re-appointment of it for the fiscal year ending December 31, 2008.
TWB has no direct or indirect financial interest in the Fund or the
Manager. It is expected that representatives of TWB 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
Advisory and Administration Agreement
(Proposal No. 3)
Overview and Related Information
The Manager is the Fund's investment adviser under an Advisory and
Administration Agreement (the "Current Advisory Agreement"). The Current
Advisory Agreement was approved by the shareholders of the Fund on April 25,
2003 and has been renewed annually thereafter by the Board of Trustees, most
recently on June 11, 2007.
The Manager is a wholly-owned subsidiary of AMC. AMC, which was founded
in 1984, is currently controlled by Mr. Lacy B. Herrmann ("LBH") and his wife,
Mrs. Elizabeth B. Herrmann ("EBH"), directly and through certain trusts. These
ownership arrangements are described in detail below. Collectively, the current
owners of the shares of AMC are called the "Owners."
The Owners wish to ensure, to the maximum extent possible, the ongoing
continuity of management of the Manager and the Fund. Consistent with their
estate planning and tax objectives, they have sought through prudent planning to
structure an orderly generational transition of ownership changes of AMC among
the Owners.
Although the proposed changes in ownership of AMC will not result in
any changes in the day-to-day operation of the Fund, the services provided to
it, the investment approach or style of the Manager with respect to the Fund, or
any increase in its advisory fees, the changes could be considered to result in
an "assignment" of the Current Advisory Agreement under the provisions of the
1940 Act. The 1940 Act provides generally that an advisory agreement of a mutual
fund must provide for its automatic termination in the event of an assignment
(as that term is defined in the 1940 Act), such as when a controlling block of
the Fund's investment adviser's voting securities is transferred. Under the 1940
Act, a person who does not own more than 25% of the voting securities of a
company shall be presumed not to control such company, while control is presumed
in an owner of more than 25%. As required by the 1940 Act, the Current Advisory
Agreement provides that in the event of an assignment, it terminates. Under the
current ownership arrangements such an assignment could also occur upon the
deaths of certain of the Owners.
On March 1, 2008, the Trustees approved a new advisory and
administration agreement (the "New Advisory Agreement") for the Fund between the
Manager and the Fund, which will replace the Current Advisory Agreement when it
terminates by reason of the expected assignment. The Trustees are recommending
that shareholders of the Fund approve the New Advisory Agreement for the Fund.
As described below, the New Advisory Agreement is substantially identical to the
advisory and administration agreement currently in effect for the Fund (the
"Current Advisory Agreement").
Under the 1940 Act a fund cannot enter into an advisory agreement, such
as the New Advisory Agreement, unless the shareholders of that fund vote to
approve the new agreement. The Trustees have carefully considered the matter,
and have concluded that it is appropriate to approve the New Advisory Agreement.
Under the New Advisory Agreement, the Manager shall continue, following the
Transaction, to manage the Fund on the same terms as are now in effect, thereby
promoting stability of the Fund's management. No change in the Fund's advisory
fees or expenses is being proposed. Furthermore, no changes are being proposed
with respect to the services provided for the Fund, the investment approach or
style of the Manager with respect to the Fund, or the personnel or operations of
the Manager.
Information Regarding the Manager
The Manager is the Fund's investment adviser under the Current Advisory
Agreement. The Manager provides for investment supervision, including
supervising continuously the investment program of the Fund and the composition
of its portfolio, determining what securities will be purchased or sold by the
Fund and arranging for the purchase and the sale of securities held in the
portfolio of the Fund, and, at the Manager's expense, providing for pricing of
the Fund's portfolio daily. The Manager is also responsible for administrative
services, including providing for the maintenance of the headquarters of the
Fund, overseeing relationships between the Fund and the service providers to the
Fund and providing other administrative services.
Names, Addresses and Principal Occupations of Each Manager of the Manager
LBH is the Founder and Chairman Emeritus of each of the funds in the
Aquila Group of Funds. He previously served as Chairman of the Board of Trustees
of each of the funds in the Aquila Group of Funds. Additionally, LBH is the
Founder and Chairman of the Board of AMC (the sponsoring organization and parent
of the Manager or the administrator of each of the funds in the Aquila Group of
Funds), as well as the Chairman of the Manager. LBH has served as a Director of
the Aquila Group of Funds' distributor since 1981. LBH is a Trustee Emeritus of
Brown University and the Hopkins School, and remains active in university,
school and charitable organizations.
EBH is a Director of AMC and a Manager of the Manager. She does not
have any other position with AMC or the Manager. She is active with various
charitable and volunteer organizations. EBH is the wife of LBH.
Diana P. Herrmann ("DPH") is President and, in some instances, Vice
Chair of each of the funds in the Aquila Group of Funds. She serves as Vice
Chair, President, Chief Executive Officer and Director of AMC; Chief Executive
Officer, Vice Chair, President, Chief Operating Officer and Manager of the
Manager; and as Director of the distributor. She previously served as Trustee to
the Reserve Money-Market Funds (1999-2000) and Reserve Private Equity Series
(1998-2000). DPH currently serves as Governor, Investment Company Institute and
head of its Small Funds Committee, as well as Director of ICI Mutual Insurance
Company. She is active in charitable and volunteer organizations. DPH is the
daughter of LBH and EBH.
The address of each of the Managers of the Manager is c/o Aquila
Investment Management LLC, 380 Madison Avenue, Suite 2300, New York, NY 10017.
The Transaction
At the time of the Transaction, the AMC shares will be divided into two
classes: voting (the "Voting Shares") and non-voting (the "Non-Voting Shares",
and together with the Voting Shares, the "Shares"). Prior to dividing its share
capital into two classes of shares, AMC has one class of common shares. 99.5% of
the Shares are held directly by or in trust for the benefit of members of the
Herrmann family. The Voting Shares are held as follows:
Owner Direct Ownership Indirect Ownership* Total
LBH 24.9% 20.0% 44.9%
EBH 27.5% -- 27.5%
DPH 4.9% 20.0% 24.9%
Conrad B. Herrmann ("CBH") -- 0.2% 0.2%
Catherine E. Wolff ("CEW") -- 2.0% 2.0%
Other 0.5% -- 0.5%
Total 100.0%
* Indicates Voting Shares for which the indicated Owner has voting rights but
does not directly own.
o LBH currently holds 24.9% of the Voting Shares directly; additionally in
his role as trustee (with voting rights) of a family trust for the benefit
of Conrad B. Herrmann ("CBH") (the "CBH Trust"), his son, LBH holds voting
rights with respect to an additional 20.0% of the Voting Shares.
o EBH currently holds 27.5% of the Voting Shares directly.
o DPH holds 4.9% of the Voting Shares directly and, through her position as
trustee (with voting rights) of a family trust for her benefit (the "DPH
Trust"), holds voting rights with respect to an additional 20.0% of the
Voting Shares.
o CBH serves as trustee (with voting rights) of a trust for his own benefit,
and through his role as trustee (with voting rights) of that trust holds
voting rights with respect to 0.2% of the Voting Shares.
o Two family trusts (the "Family Trusts") hold 2.0% of the Voting Shares;
Catherine E. Wolff ("CEW"), a first cousin of DPH and CBH, currently serves
as trustee (with voting rights) of the Family Trusts.
In connection with their estate planning, LBH and EBH wish to (i)
transfer ownership of some of their Voting Shares, and (ii) appoint a new
trustee to serve as trustee for one of the trusts. Upon the consummation of the
Transaction, the ownership of the Voting Shares would be as follows:
Owner Direct Ownership Indirect Ownership* Total
LBH 24.9% -- 24.9%
T. Randolph Harris ("TRH") -- 24.9% 24.9%
EBH -- -- --
DPH 4.9% 20.0% 24.9%
CBH -- 0.2% 0.2%
CEW -- 24.6% 24.6%
Other 0.5% -- 0.5%
Total 100.0%
* Indicates Voting Shares for which the indicated Owner has voting rights but
does not directly own.
o LBH will continue to hold 24.9% of the Voting Shares directly.
o 24.9% of the Voting Shares previously held by EBH will be held in a
trust for the benefit of EBH (the "EBH Trust"), with T. Randolph Harris
("TRH") serving as trustee (with voting rights).
o DPH's ownership will remain unchanged, such that she will continue to
hold, either directly or through her position as trustee (with voting
rights) of the DPH Trust, 24.9% of the Voting Shares.
o CBH's ownership will remain unchanged, such that he will continue to
hold voting rights with respect to 0.2% of the Voting Shares through
his position as trustee (with voting rights) of a trust for his own
benefit.
o CEW will replace LBH as trustee of the CBH Trust, such that she will
serve as trustee (with voting rights) with respect to 20.0% of the
Voting Shares. The Family Trusts will hold 4.6% of the Voting Shares
(including 2.6% of the Voting Shares previously held by EBH), with CEW
continuing as trustee (with voting rights) of the Family Trusts.
Through her position as trustee (with voting rights) of the CBH Trust
and of the Family Trusts, CEW will serve as trustee (with voting
rights) with respect to 24.6% of the Voting Shares in the aggregate.
Upon consummation of the Transaction, no individual will hold with
power to vote, directly or indirectly, more than 24.9% of the Voting Shares. As
previously stated, the Transaction will not result in any changes in the Fund's
advisory fees and expenses, services provided, the investment approach or style
of the Manager with respect to the Fund, or the personnel or operations of the
Manager.
Although the Owners currently intend to consummate the Transaction, the
Transaction may not necessarily occur. For example, approval or disapproval by
the Fund's shareholders of the New Advisory Agreement, taken together with
consents or approvals of other funds in the Aquila Group of Funds, could affect
whether or not the Transaction occurs. It is possible, however, that the Owners
may proceed with the Transaction even if new contracts are approved by less than
all of the funds in the Aquila Group of Funds for which the Manager serves as
investment adviser (either because the shareholders of one or more of such funds
do not approve such fund's new advisory agreement or because LBH or EBH dies
before approvals are obtained from all such funds). AMC currently expects that
the Transaction will occur during the fourth quarter of 2008 (or upon the
earlier death of either LBH or EBH, as described below), but the Transaction
could be delayed. If for some reason the Transaction does not occur, the
automatic termination of the Current Advisory Agreement will not occur and the
New Advisory Agreement will not be entered into, even if it has been approved by
the Fund's shareholders.
Performance of the Current Advisory Agreement is currently guaranteed
by AMC. If the Transaction occurs, AMC will provide an identical guarantee of
performance of the New Advisory Agreement.
Notwithstanding the foregoing, if one or more of LBH or EBH dies after
the Fund's shareholders approve the New Advisory Agreement but before the
Manager obtains the approval or consent of all of the other funds in the Aquila
Group of Funds for which the Manager serves as investment adviser, the surviving
Herrmann family members may elect to proceed with the contemplated direct and
indirect ownership changes (as modified to reflect such deaths, as described
below), and the approval by the Fund's shareholders will be considered to have
approved the entry into the New Advisory Agreement after such death and the
resulting direct and indirect ownership changes. In such event, the ownership of
the Voting Shares would be as follows:
(A) If LBH dies before EBH:
Owner Direct Ownership Indirect Ownership Total
LBH -- -- --
BAS and then TRH -- 24.9% 24.9%
EBH 24.9% -- 24.9%
DPH 4.9% 20.0% 24.9%
CBH -- 0.2% 0.2%
CEW -- 24.6% 24.6%
Other 0.5% -- 0.5%
Total 100.0%
o 24.9% of the Voting Shares will be held first in LBH's estate, with Barbara
A. Sloan ("BAS") serving as executor (with voting rights), and then in a
marital trust for the benefit of EBH, with TRH serving as trustee (with
voting rights).
o EBH will hold 24.9% of the Voting Shares directly.
o DPH's ownership will remain unchanged, such that she will continue to hold,
either directly or through her position as trustee (with voting rights) of
the DPH Trust, 24.9% of the Voting Shares.
o CBH's ownership will remain unchanged, such that he will continue to hold
voting rights with respect to 0.2% of the Voting Shares through his
position as trustee (with voting rights) of a trust for his own benefit.
o CEW will replace LBH as trustee of the CBH Trust, such that she serves as
trustee (with voting rights) with respect to 20.0% of the Voting Shares.
The Family Trusts will hold 4.6% of the Voting Shares, with CEW continuing
as trustee (with voting rights) of the Family Trusts. Through her position
as trustee (with voting rights) of the CBH Trust and of the Family Trusts,
CEW will serve as trustee (with voting rights) with respect to 24.6% of the
Voting Shares in the aggregate.
In such event, no individual will hold, directly or indirectly, more than
24.9% of the Voting Shares. The changes in ownership of the Voting Shares
will not result in any changes in the Fund's advisory fees and expenses,
services provided, the investment approach or style of the Manager with
respect to the Fund, or personnel or operations of the Manager (except that
LBH would no longer serve as a Manager or officer).
(B) If EBH dies before LBH:
Owner Direct Ownership Indirect Ownership Total
LBH 24.9% -- 24.9%
EBH -- -- --
BAS and then TRH -- 24.9% 24.9%
DPH 4.9% 20.0% 24.9%
CBH -- 0.2% 0.2%
CEW -- 24.6% 24.6%
Other 0.5% -- 0.5%
Total 100.0%
o LBH will continue to hold 24.9% of the Voting Shares directly.
o 24.9% of the Voting Shares will be held first in EBH's estate, with BAS
serving as executor (with voting rights), and then in a marital trust for
the benefit of LBH, with TRH serving as trustee (with voting rights).
o DPH's ownership will remain unchanged, such that she will continue to hold,
either directly or through her position as trustee (with voting rights) of
the DPH Trust, 24.9% of the Voting Shares.
o CBH's ownership will remain unchanged, such that he will continue to hold
voting rights with respect to 0.2% of the Voting Shares through his
position as trustee (with voting rights) of a trust for his own benefit.
o CEW will replace LBH as trustee of the CBH Trust, such that she serves as
trustee (with voting rights) with respect to 20.0% of the Voting Shares.
The Family Trusts will hold 4.6% of the Voting Shares, with CEW continuing
as trustee (with voting rights) of the Family Trusts. Through her position
as trustee (with voting rights) of the CBH Trust and of the Family Trusts,
CEW will serve as trustee (with voting rights) with respect to 24.6% of the
Voting Shares in the aggregate.
In such event, no individual will hold, directly or indirectly, more than
24.9% of the Voting Shares. The changes in ownership of the Voting Shares will
not result in any changes in the Fund's advisory fees and expenses, services
provided, the investment approach or style of the Manager with respect to the
Fund, or personnel or operations of the Manager (except that EBH would no longer
serve as a Manager).
Description of the New Advisory Agreement
The Manager provides the Fund with local advisory services. Under the
New Advisory Agreement, the Fund will pay the Manager a 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 Fund pays or accrues a fee under
the Distribution Plan of the Fund based upon the assets of the Fund, the annual
advisory fee is payable at the annual rate of 0.40% of 1% of such net asset
value.
The proposed New Advisory Agreement for the Fund is substantially
identical to the Current Advisory Agreement (together, the "Advisory
Agreements"). For a complete understanding of the proposed New Advisory
Agreement, please refer to the form of New Advisory Agreement provided as
Appendix A.
Basis for the Trustees' Approval of the New Advisory Agreement
The New Advisory Agreement was approved by the Board of Trustees,
including a majority of the Independent Trustees, at an in-person meeting on
March 1, 2008 called and held for the purpose. In considering these actions, the
Trustees noted that in connection with their annual review of the Fund's
advisory arrangements (the "Annual Review"), on June 11, 2007, they had approved
the Current Advisory Agreement (which is substantially identical to the New
Advisory Agreement) for another one-year term commencing on June 30, 2007. In
connection with the Annual Review, the Trustees considered a wide range of
information of the type they regularly consider when determining whether to
continue the Fund's advisory agreement as in effect from year to year. In
approving the New Advisory Agreement, the Trustees considered the information
provided and the factors considered in connection with the Annual Review as well
as such new information (for example, information about the Transaction) as they
considered appropriate. In considering the Advisory Agreements, the Trustees did
not identify any single factor as determinative. Matters considered by the
Trustees, including the Independent Trustees, in connection with their review of
the New Advisory Agreement included the following:
The Transaction and the implications for the Fund. In evaluating the
Transaction, the Trustees considered a wide range of information, including
ensuring, to the maximum extent possible, ongoing and future continuity of
management of the Fund.
The nature, extent and quality of the services provided by the Manager.
The Manager has provided local management of the Fund's portfolio. The Trustees
noted that the Manager employed Thomas S. Albright as portfolio manager for the
Fund and had provided facilities for credit analysis of the Fund's portfolio
securities. Mr. Albright, based in Louisville, has provided local information
regarding specific holdings in the Fund's portfolio. The portfolio manager has
also been available to and has met with the brokerage and financial planner
community and with investors and prospective investors to provide them with
information generally about the Fund's portfolio, with which to assess the Fund
as an investment vehicle for residents of Kentucky in light of prevailing
interest rates and local economic conditions. In addition, he has been present
at all regular meetings of the Board and Shareholders.
The Board considered that the Manager had provided all services the
Board deemed necessary or appropriate, including the specific services that the
Board has determined are required for the Fund, given that its purpose is to
provide shareholders with as high a level of current income exempt from Kentucky
state and regular Federal income taxes as is consistent with preservation of
capital. The Manager has additionally provided all administrative services to
the Fund. The Board considered the nature and extent of the Manager's
supervision of third-party service providers, including the Fund's shareholder
servicing agent and custodian. The Board considered that the Manager had
established and maintained a strong culture of ethical conduct and regulatory
compliance.
The Trustees also considered representations by the Manager that the
persons at the Manager involved in providing those services would not change as
a result of the Transaction. The Board concluded that the services provided were
appropriate and satisfactory and that the Fund would be well served if they
continued. Evaluation of this factor weighed in favor of approval of the New
Advisory Agreement.
The investment performance of the Fund and the Manager. The Board
reviewed each aspect of the Fund's performance and compared its performance with
that of its local competitors, with national averages and with the benchmark
index. It was noted that the materials provided by the Manager indicated that
compared to the five largest competitive Kentucky funds, the Fund has had
investment performance that is generally comparable to that of its peers for the
one-, five- and ten-year periods, with lower investment performance explained by
the Fund's generally higher-quality portfolio and generally shorter average
maturities. The Board considered these results to be consistent with the
purposes of the Fund.
The Trustees also considered representations from the Manager that the
Transaction was not expected to result in any changes to the personnel managing
the Fund's investment portfolio.
The Board concluded that the performance of the Fund was acceptable in
light of market conditions, the length of its average maturities, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that approval of the New Advisory Agreement
would be appropriate.
The costs of the services to be provided and profits to be realized by
the Manager from its relationship with the Fund. The information provided
contained expense data for the Fund and its local competitors as well as data
for single-state funds and all single-state tax-free municipal bond funds
nationwide. The Board compared the expense and fee data with respect to the Fund
to similar data about other funds that it found to be relevant. The Board
concluded that the expenses of the Fund and the fees paid were generally lower
than those being paid by single-state tax-free municipal bond funds nationwide,
and by the Fund's local competitors.
The Trustees noted that in connection with the Annual Review they had
concluded that the costs of the services to be provided supported the renewal of
the Current Advisory Agreement, and that the Transaction will not result in any
change to the advisory fees paid by the Fund or the Fund's total expense ratio.
The materials in connection with the Annual Review had shown the
profitability to the Manager of its services to the Fund. The Trustees
considered that the profitability to the Manager of its relationship to the Fund
was not expected to change as a result of the Transaction because the
Transaction will not result in a change to the fees received by the Manager or
of the costs of the services to be provided by the Manager.
The extent to which economies of scale would be realized as the Fund
grows. Data provided to the Trustees showed that the Fund's asset size had
declined in recent years. The Trustees also noted that the materials indicated
that the Fund's fees were already generally lower than those of its peers,
including those with breakpoints. Evaluation of these factors indicated to the
Board that the New Advisory Agreement should be approved without addition of
breakpoints at this time.
Benefits derived or to be derived by the Manager and its affiliates
from their relationships with the Fund. The Board observed that, as is generally
true of most fund complexes, the Manager and its affiliates, by providing
services to a number of funds including the Fund, were able to spread costs as
they would otherwise be unable to do. The Board noted that while that produces
efficiencies and increased profitability for the Manager and its affiliates, it
also makes their services available to the Fund at favorable levels of quality
and cost which are more advantageous to the Fund than would otherwise have been
possible.
In addition to considering the factors discussed above, which the
Trustees regularly consider on an annual basis, the Trustees also gave
particular consideration to matters relating to the change of control at AMC,
including representations from representatives of AMC and the Manager that the
proposed change of control is not expected to result in a change in the
personnel or operations of the Manager, the investment approach or style of the
Manager with respect to the Fund, or the services provided to the Fund by the
Manager.
o The Trustees also considered other factors, either in connection with
the Annual Review or with their approval of the New Advisory Agreement.
These factors included but were not limited to whether the Fund has
operated in compliance with its investment objective and the Fund's
record of compliance with its investment restrictions, and the
compliance programs of the Fund and the Manager.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees, concluded
that the New Advisory Agreement should be approved and recommended that the
shareholders of the Fund vote to approve the New Advisory Agreement for an
initial one-year term.
Action Requested
THE TRUSTEES OF THE FUND RECOMMEND THAT THE SHAREHOLDERS OF THE FUND
VOTE TO APPROVE THE NEW ADVISORY AGREEMENT FOR THE FUND.
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 four 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.
If this proposal is not approved by the shareholders the Board of
Trustees will consider what further action is appropriate, which could include
calling another shareholder meeting.
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 of this Proxy Statement.
Accordingly, a shareholder proposal intended to be presented at the Fund's 2008
annual meeting must be received by the Fund by October 31, 2008 in order to be
included in the Fund's proxy material relating to that meeting. 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.
A shareholder wishing to provide notice of a proposal in the manner
prescribed by Rule 14a-4 (c)(1) under the Securities Exchange Act of 1934 must
submit written notice of the proposal to the Fund by January 16, 2009.
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, Internet or telephone 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 the Internet or telephone, you give the proxy holders discretionary
authority as to any such matter or matters.
Appendix A
CHURCHILL TAX-FREE FUND OF KENTUCKY
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of __________, 2008 by and between CHURCHILL
TAX-FREE TRUST (the "Business Trust"), 380 Madison Avenue, Suite 2300, New York,
New York 10017 and AQUILA INVESTMENT MANAGEMENT LLC (the "Manager"), a Delaware
limited liability company, 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 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 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 of its Trustees other
than those affiliated with the Manager or such adviser, administrator or
principal underwriter and expenses of all of its Trustees; (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 INVESTMENT MANAGEMENT LLC
_______________________ By:___________________________________
IMPORTANT NOTICE
PLEASE READ IMMEDIATELY
CHURCHILL TAX-FREE FUND OF KENTUCKY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on April 25, 2008
PROXY STATEMENT
CHURCHILL TAX-FREE FUND OF KENTUCKY
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET VOTING
www.proxyvote.com/aquila
To vote your shares by the Internet, contact the Fund at
www.proxyvote.com/aquila. Follow the simple instructions at the website, using
this proxy card as a guide. If you vote by the Internet, you need not return the
proxy card by mail.
VOTE BY MAIL
You can vote your shares by completing and returning this proxy card. Please
mark this proxy, date and sign it below and return it promptly in the
accompanying envelope which requires no postage if mailed in the United States.
TELEPHONE VOTING
1-877-587-0761
To vote your shares by telephone, call toll-free 1-877-587-0761. 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.
TO VOTE: MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
CHURCHILL TAX-FREE FUND OF KENTUCKY
1. Election of Trustees Nominees:
01) Thomas A. Christopher; 02) Diana P. Herrmann*; 03) Timothy J. Leach; 04)
Theodore T. Mason; 05) Anne J. Mills; 06) James R. Ramsey
* 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 below.
- ----------------------------------
[sentences below 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 Tait, Weller & Baker LLP as independent registered
public accounting firm. (Proposal No. 2 in Proxy Statement)
For Against Abstain
-- -- --
[--] [--] [--]
3. Action on an Advisory and Administration 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.
For address changes and/or comments, please check this box and write them on the
back where indicated. _
[_]
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.
- ---------------------------------- ---- ---------------------------- -----
Signature (PLEASE SIGN WITHIN BOX) Date Signature(Joint Owners) Date
Yes No
-- --
I plan to attend the annual meeting in Louisville. [--] [--]
Aquila Group of Fundssm
CHURCHILL TAX-FREE FUND OF KENTUCKY
Proxy for Shareholder Meeting - April 25, 2008
Proxy Solicited on Behalf of the Board of Trustees
The shareholder(s) of Churchill Tax-Free Fund of Kentucky (the "Fund")
whose signature(s)appear(s) on the reverse does/do hereby appoint DIANA P.
HERRMANN, CHARLES E. CHILDS, III 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, 2008 at Papa John's Cardinal Stadium, Brown & Williamson Room, 2800
South Floyd Street, Louisville, Kentucky, at 8:30 a.m. Eastern Daylight 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 on the reverse.
Please read the proxy statement prior to voting.
Annual Meeting Attendance - You are encouraged to attend the Annual Meeting of
Shareholders. If you can attend, 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 the reverse side.)
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON THE REVERSE SIDE.