-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B1o/i0/gFfTRXeX//mDlCIE+9mp8ojBb3FOOA2W2FKObP4wKTR6Ngnu3DW5W913C P8OP3RwZTVUlBBjA1V8SZA== 0000811239-05-000002.txt : 20050105 0000811239-05-000002.hdr.sgml : 20050105 20050105100610 ACCESSION NUMBER: 0000811239-05-000002 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050310 FILED AS OF DATE: 20050105 DATE AS OF CHANGE: 20050105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAX FREE FUND OF COLORADO CENTRAL INDEX KEY: 0000811239 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 811-05047 FILM NUMBER: 05510645 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126976666 MAIL ADDRESS: STREET 1: 380 MADISON AVENUE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 PRE 14A 1 copx05.txt PRELIMINARY PROXY STATEMENT AND FORM OF CARD File Nos. 33-12381 & 811-5047 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Sec. 240.14a-12 TAX-FREE FUND OF COLORADO (Exact Name of Registrant as Specified in Charter) 380 Madison Avenue, Suite 2300 New York, New York 10017 (Address of Principal Executive Offices) (212) 697-6666 (Registrant's Telephone Number) Payment of Filing Fee (Check the appropriate box): [X] No fee required Important Notice Please Read Immediately Aquilasm Group of Funds Tax-Free Fund of Colorado 380 Madison Avenue, Suite 2300, New York, NY 10017 Notice of Annual Meeting of Shareholders to Be Held on March 10, 2005 To Shareholders of the Fund: The purpose of this Notice is to advise you that an Annual Meeting of the Shareholders of Tax-Free Fund of Colorado (the "Fund"), will be held: Place: (a) Hyatt Regency Denver Tech Center 7800 East Tufts Avenue Denver, Colorado; Time: (b) on Thursday, March 10, 2005 at 10:00 a.m. Mountain Standard Time; Purposes: (c) for the following purposes: (i) to elect seven Trustees; each Trustee elected will hold office until the next annual meeting of the Fund's shareholders or until his or her successor is duly elected (Proposal No. 1); (ii) to ratify (that is, to approve) or reject the selection of KPMG LLP as the Fund's independent registered public accounting firm for the fiscal year ending December 31, 2005 (Proposal No. 2); (iii) to act upon a proposed Sub-Advisory Agreement (Proposal No. 3); and (iv) to act upon any other matters which may properly come before the Meeting at the scheduled time and place or any adjourned meeting or meetings. Who Can Vote What Shares: (d) To vote at the Meeting, you must have been a shareholder on the Fund's records at the close of business on December 15, 2004 (the "record date"). Also, the number of shares of each of the Fund's outstanding classes of shares that you held at that time and the respective net asset values of each class of shares at that time determine the number of votes you may cast at the Meeting (or any adjourned meeting or meetings). By order of the Board of Trustees, EDWARD M. W. HINES Secretary January 27, 2005 Please Note: If you do not expect to attend the Meeting, please vote by any of three ways: by telephone, by the Internet or by completing the enclosed proxy card and returning it in the accompanying stamped envelope. To avoid unnecessary expense to the Fund, we request your cooperation in voting no matter how large or small your holding may be. Tax-Free Fund of Colorado 380 Madison Avenue, Suite 2300, New York, New York 10017 Proxy Statement Introduction The purpose of the Notice preceding this Proxy Statement is to advise you of the time, place and purposes of an Annual Meeting of the Shareholders of Tax-Free Fund of Colorado (the "Fund"). The purpose of this Proxy Statement is to give you information on which you may base your decisions as to the choices, if any, you make in voting. The Fund's Manager (the "Manager") is Aquila Investment Management LLC, 380 Madison Avenue, Suite 2300, New York, NY 10017, a subsidiary of the Fund's founder, Aquila Management Corporation. The Fund's principal underwriter (the "Distributor") is Aquila Distributors, Inc., 380 Madison Avenue, Suite 2300, New York, NY 10017. The Fund's Investment Sub-Adviser (the "Sub-Adviser") is Kirkpatrick Pettis Capital Management, Inc., 1600 Broadway, Denver, Colorado 80202. A copy of the Fund's most recent annual report will be sent to you without charge upon written request to the Distributor, at the above address, or by calling 800-437-1020 toll-free or 212-697-6666. This Notice and Proxy Statement are first being mailed on or about January 27, 2005. You should read this Proxy Statement prior to voting. If your shares are registered in the name of your broker or someone other than yourself, you may authorize that person to vote your shares. If your shares are registered in your name, then you may vote in one of three ways: (1) Proxy Card The enclosed proxy card authorizes the persons named (or their substitutes) to vote your shares; the Fund calls these persons the "proxy holders." As to the election of Trustees you may authorize the proxy holders to vote your shares for the entire slate indicated below by marking the appropriate box on the proxy card or by merely signing and returning your proxy card with no instructions. Or you may withhold the authority of the proxy holders to vote on the election of Trustees by marking the appropriate box. Also, you may withhold that authority as to any particular nominee by following the instructions on the proxy card. As to the other matters listed on the proxy card, you may direct the proxy holders to vote your shares on this proposal 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. Proxies are being solicited by the use of the mails; they may also be solicited by telephone, facsimile and personal interviews. Brokerage firms, banks and others may be requested to forward this Notice and Proxy Statement to beneficial owners of the Fund's shares so that these owners may authorize the voting of their shares. The Fund will pay these firms their out-of-pocket expenses for doing so. On the record date, the Fund had three classes of shares outstanding. All shareholders of the Fund are entitled to vote at the meeting. Each shareholder on the record date is entitled to one vote for each dollar (and a proportionate fractional vote for each fraction of a dollar) of net asset value (determined as of the record date) represented by full and fractional shares of any class held on the record date. On the record date, the net asset value per share of each of the Fund's outstanding classes of shares was as follows: Class A Shares, $10.73; Class C Shares, $10.71; and Class Y Shares, $10.76. The meeting is expected to act only upon matters that affect the Fund as a whole: the election of Trustees, the selection of an independent registered public accounting firm and action on a proposed Sub-Advisory Agreement. On matters that affect the Fund as a whole, all shareholders of the Fund, including the shareholders of all classes of shares of the Fund, are entitled to vote at the meeting. On the record date, the total number of shares outstanding for each class of shares was as follows: Class A Shares, 21,201,209; Class C Shares, 1,439,551; and Class Y Shares, 1,470,896. On the record date, the following holders held 5% or more of a class of the Fund's outstanding shares. On the basis of information received from the institutional holders the Fund's management believes that all of the shares indicated are held by them for the benefit of clients. Name and address Number of shares Percent of Class Merrill Lynch Pierce Fenner & Smith Inc. 312,905 Class C Shares 21.74% FBO its Customers 197,242 Class Y Shares 13.41% 4800 Deer Lake Drive East Jacksonville, FL 32246 Armstrong Ventures LLC 538,497 Class Y Shares 36.61% 700 17th Street, Suite 1400 Denver, CO Alpine Trust & Asset Management 377,474 Class Y Shares 25.66% 225 N. Fifth Street Grand Junction, CO 81501 Additional 5% Shareholders The Fund's management is not aware of any other person beneficially owning more than 5% of any class of its outstanding shares as of such date. Election of Trustees (Proposal No. 1) At the Meeting, seven Trustees are to be elected. Each Trustee elected will serve until the next annual meeting or until his or her successor is duly elected. The nominees selected by the Trustees are named in the table below. See "Introduction" above for information as to how you can vote your shares in the election of Trustees. The following material includes information about each nominee and each officer of the Fund. All shares of the Fund listed as owned by the Trustees are Class A Shares unless indicated otherwise. All of the nominees are presently Trustees and were elected by the shareholders in May 2004. All nominees have consented to serve if elected.
Trustees(1) and Officers Number of Positions Held Portfolios in with Fund Complex Fund Overseen by Name, Address(2) and and Length of Principal Occupation(s) Trustee (4) Other Directorships Date of Birth Service(3) During Past 5 Years Held by Trustee Interested Trustees(5) Diana P. Herrmann Trustee since Vice Chair and Chief Executive 10 None New York, NY 2000 and Officer of Aquila Management (02/25/58) President Corporation, Founder of the since 1999 Aquilasm Group of Funds(6) and parent of Aquila Investment Management LLC, Manager since 2004, President and Chief Operating Officer since 1997, a Director since 1984, Secretary since 1986 and previously its Executive Vice President, Senior Vice President or Vice President, 1986-1997; Chief Executive Officer and Vice Chair since 2004 and President, Chief Operating Officer and Manager of the Manager since 2003; President, Executive Vice President or Senior Vice President of funds in the Aquilasm Group of Funds since 1986; Director of the Distributor since 1997; trustee, Reserve Money-Market Funds, 1999-2000 and Reserve Private Equity Series, 1998-2000; Governor, Investment Company Institute (2004) and head of its Small Funds Committee since 2004; active in charitable and volunteer organizations. Non-Interested Trustees Anne J. Mills Chair of Board President, Loring Consulting 4 None Castle Rock, CO of Trustees Company since 2001; Vice (12/23/38) since 2005 and President for Business Affairs, Trustee since Ottawa University, 1992-2001; 1987 IBM Corporation, 1965-1991; Budget Review Officer, the American Baptist Churches/USA, 1994-1997; director, the American Baptist Foundation; Trustee, Ottawa University; and Trustee Emerita, Brown University. Tucker Hart Adams Trustee since President, The Adams Group, 2 Director, Touch America, Colorado Springs, 1989 Inc., an economic consulting Colorado Health Facilities CO firm, since 1989; formerly Chief Authority and Mortgage (01/11/38) Economist, United Banks of Analysis Computer Corp. Colorado; currently or formerly active with numerous professional and community organizations. Thomas A. Trustee since Vice President of Robinson, 2 None Christopher 2004 Hughes & Christopher, C.P.A.s, Danville, KY P.S.C., since 1977; President, A (12/19/47) Good Place for Fun, Inc., a sports facility, since 1987. Gary C. Cornia Trustee since Director, Romney Institute of 4 None Orem, UT 2000 Public Management, Marriott (06/24/48) School of Management, Brigham Young University, 2004 - present; Professor, Marriott School of Management, 1980 - present; Past President, the National Tax Association; Chair of the Executive Committee, the International Center for Land Policy Studies and Training Institute, Taipei, Taiwan; formerly Senior Visiting Fellow, Lincoln Institute of Land Policy, 2002-2003; Associate Dean, Marriott School of Management, Brigham Young University, 1991-2000; Chair, Utah Governor's Tax Review Committee, 1993-2002; member, Governor's Tax Review Committee since 2003; Faculty Associate, the Land Reform Training Institute, Taipei, Taiwan and The Lincoln Institute of Land Policy, Cambridge, Massachusetts. John C. Lucking Trustee President, Econ-Linc, an 3 Director, Sanu Resources Phoenix, AZ since 2000 economic consulting firm, since (05/20/43) 1995; formerly Consulting Economist, Bank One Arizona and Chief Economist, Valley National Bank; member, Arizona's Joint Legislative Budget Committee Economic Advisory Panel and the Western Blue Chip Economic Forecast Panel; Board, Northern Arizona University Foundation since 1997; member, various historical, civic and economic associations. J. William Weeks Trustee since Retired; limited partner and 2 None Palm Beach, FL 1995 investor in various real estate (06/22/27) partnerships since 1988; formerly Senior Vice President or Vice President of the Aquila Bond Funds; and Vice President of the Distributor. Officers Charles E. Executive Vice Executive Vice President of all N/A N/A Childs, III President funds in the Aquilasm Group of New York, NY since 2004 Funds and the Manager since (04/01/57) 2003; Senior Vice President, corporate development, formerly Vice President, Assistant Vice President and Associate of the Manager's parent since 1987; Senior Vice President, Vice President or Assistant Vice President of the Aquila Money-Market Funds, 1988-2003. Stephen J. Caridi Senior Vice Vice President of the N/A N/A New York, NY (05/06/61) President Distributor since 1995; Vice since 2004 President, Hawaiian Tax-Free Trust since 1998; Senior Vice President, Narragansett Insured Tax-Free Income Fund since 1998, Vice President 1996-1997; Senior Vice President, Tax-Free Fund of Colorado since 2004; Assistant Vice President, Tax-Free Fund For Utah since 1993. James M. McCullough Senior Vice Senior Vice President or Vice N/A N/A Portland, OR (06/11/45) President President of Aquila Rocky since 1999 Mountain Equity Fund and four Aquila Bond Funds; Senior Vice President of the Distributor since 2000; Director of Fixed Income Institutional Sales, CIBC Oppenheimer & Co. Inc., Seattle, WA, 1995-1999. Jerry G. McGrew Senior Vice President of the Distributor N/A N/A New York, NY (06/18/44) President since 1998, Registered Principal since 1997 since 1993, Senior Vice President, 1997-1998 and Vice President, 1993-1997; Senior Vice President, Aquila Rocky Mountain Equity Fund and five Aquila Bond Funds since 1995; Vice President, Churchill Cash Reserves Trust, 1995-2001. Emily T. Rae Vice President Vice President of Aquila Rocky N/A N/A Aurora, CO since 2002 Mountain Equity Fund and (03/02/74) Tax-Free Fund of Colorado since 2002; investment analyst, Colorado State Bank and Trust, 2001-02; financial analyst, J.P. Morgan, 2000-01, senior registered associate, Kirkpatrick Pettis, 1998-2000; registered associate, FBS Investments (now U.S. Bancorp Piper Jaffray), 1997-98. John T. Volk Assistant Vice Marketing representative for the N/A N/A New York, NY President Distributor since 1998; mutual (04/15/71) since 2002 fund services representative , Prudential Securities, 1996-98. Robert W. Anderson Chief Chief Compliance Officer of the N/A N/A New York, NY (08/23/40) Compliance Fund, the Manager and the Officer since Distributor since 2004, 2004 and Compliance Officer of the Assistant Manager or its predecessor and Secretary current parent since 1998 and since 2000 Assistant Secretary of the Aquilasm Group of Funds since 2000; Consultant, The Wadsworth Group, 1995-1998. Joseph P. DiMaggio Chief Chief Financial Officer of the N/A N/A New York, NY Financial Aquilasm Group of Funds since (11/06/56) Officer since 2003 and Treasurer since 2000; 2003 and Controller, Van Eck Global Treasurer Funds, 1993-2000. since 2000 Edward M. W. Hines Secretary Partner, Hollyer Brady Barrett & N/A N/A New York, NY since 1987 Hines LLP, legal counsel to the (12/16/39) Fund, since 1989; Secretary of the Aquilasm Group of Funds. John M. Herndon Assistant Assistant Secretary of the N/A N/A New York, NY (12/17/39) Secretary Aquilasm Group of Funds since since 1995 1995 and Vice President of the three Aquila Money-Market Funds since 1990; Vice President of the Manager or its predecessor and current parent since 1990. Lori A. Vindigni Assistant Assistant Treasurer of the N/A N/A New York, NY Treasurer since Aquilasm Group of Funds since (11/02/66) 2000 2000; Assistant Vice President of the Manager or its predecessor and current parent since 1998; Fund Accountant for the Aquilasm Group of Funds, 1995-1998. Trustee Emeritus Lacy B. Herrmann (7) Trustee Founder and Chairman of the 6 Director or trustee, Pimco New York, NY Emeritus since Board, Aquila Management Advisors VIT, Oppenheimer (05/12/29) 2005; Founder, Corporation, the sponsoring Quest Value Funds Group, Chairman of the organization and parent of the Oppenheimer Small Cap Value Board of Manager or Administrator and/or Fund, Oppenheimer Midcap Fund, Trustees Adviser or Sub-Adviser to each and Oppenheimer Rochester 1987-2004 fund of the Aquilasm Group of Group of Funds. Funds, Chairman of the Manager or Administrator and/or Adviser or Sub-Adviser to each since 2004, and Founder, Chairman of the Board of Trustees, Trustee and (currently or until 1998) President of each since its establishment, beginning in 1984, except Chairman of the Board of Trustees of Hawaiian Tax-Free Trust, Pacific Capital Cash Assets Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital U.S. Government Securities Cash Assets Trust through 2003, Trustee until 2004 and Chairman of the Board, Emeritus since 2004; Director of the Distributor since 1981 and formerly Vice President or Secretary, 1981-1998; Trustee Emeritus, Brown University and the Hopkins School; active in university, school and charitable organizations.
(1)The Fund's Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request by calling 800-437-1020 (toll free). (2) The mailing address of each Trustee and officer is c/oTax-Free Fund of Colorado, 380 Madison Avenue, New York, NY 10017. (3) Each Trustee holds office until the next annual meeting of shareholders or until his or her successor is elected and qualifies. The term of office of each officer is one year. (4) Does not include funds that are currently inactive. (5) Ms. Herrmann is an interested person of the Trust as an officer of the Trust, as a director, officer and shareholder of the Manager's corporate parent, as an officer and Manager of the Manager, and as a shareholder and director of the Distributor. (6) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S. Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets Trust, each of which is a money-market fund, are called the "Aquila Money-Market Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky, Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of which is a tax-free municipal bond fund, are called the "Aquila Bond Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; considered together, these 11 funds are called the "Aquilasm Group of Funds." (7) A Trustee Emeritus may attend Trustee meetings but has no voting power. Securities Holdings of the Trustees (as of 9/30/04) Name of Aggregate Dollar Range Trustee Dollar Range of Of Ownership in Aquilasm Ownership in Tax-Free Fund of Investment Companies Colorado (1) Overseen by Trustee (1) Interested Trustees Diana P. Herrmann B E Non-interested Trustees Anne J. Mills D D Tucker H. Adams B B Thomas A. Christopher B C Gary C. Cornia B D John C. Lucking C C J. William Weeks B C (1) A. None B. $1-$10,000 C. $10,001-$50,000 D. $50,001-$100,000 E. over $100,000 None of the non-interested Trustees or their immediate family members holds of record or beneficially any securities of the Manager or the Distributor. The Fund does not currently pay fees to any of the Fund's officers or to Trustees affiliated with the Manager or the Sub-Adviser. For its fiscal year ended December 31, 2004, the Fund paid a total of $___,___ in compensation and reimbursement of expenses to the Trustees. No other compensation or remuneration of any type, direct or contingent, was paid by the Fund to its Trustees. The Fund is one of the 11 funds in the Aquilasm Group of Funds, which consist of tax-free municipal bond funds, money-market funds and an equity fund. The following table lists the compensation of all nominees for Trustee who received compensation from the Fund or from other funds in the Aquilasm Group of Funds during the Fund's fiscal year. None of such Trustees has any pension or retirement benefits from the Fund or any of the other funds in the Aquila group. Compensation Number of from all boards on Compensation funds in the which the from the Aquilasm Trustee now Name Fund Group of Funds serves Anne J. Mills $_____ $______ _ Tucker H. Adams $_____ $______ _ Thomas A. Christopher $_____ $_____ _ Gary C. Cornia $_____ $______ _ John C. Lucking $_____ $______ _ J. William Weeks $_____ $______ _ Class A Shares may be purchased without a sales charge by the Fund's Trustees and officers. The Fund's Manager is a wholly-owned subsidiary of Aquila Management Corporation ("AMC"), founder of each fund in the Aquilasm Group of Funds. As of December 31, 2004, these funds had aggregate assets of approximately $4.0 billion, of which approximately $2.5 billion consisted of assets of the tax-free municipal bond funds. AMC's address is the same as that of the Manager. AMC is controlled by Mr. Lacy B. Herrmann, through share ownership directly, through two trusts and by his wife. During the fiscal year ended December 31, 2004, the Fund paid $_________ in management fees. During the fiscal year ended December 31, 2004, $_______ was paid under Part I of the Fund's Distribution Plan to Qualified Recipients with respect to the Class A Shares, of which $______ was retained by the Distributor. With respect to Class C Shares, during the same period, $_______ was paid under Part II of the Plan and $________ was paid under the Fund's Shareholder Services Plan. Of these total payments of $________, the Distributor retained $________. All of such payments were for compensation. The Distributor currently handles the distribution of the shares of the funds in the Aquilasm Group of Funds, including the Fund. Under the Distribution Agreement, the Distributor is responsible for the payment of certain printing and distribution costs relating to prospectuses and reports as well as the costs of supplemental sales literature, advertising and other promotional activities. The shares of the Distributor are owned 24% by Diana P. Herrmann, 72% by Mr. Herrmann and other members of his immediate family and the balance by current employees of Aquila Investment Management LLC. Other Information on Trustees The Trustees have appointed a standing Audit Committee consisting of all of the Trustees who are "independent" and are not "interested persons" of the Fund, as that term is defined in the 1940 Act. The members of the Audit Committee are Anne J. Mills, Tucker Hart Adams, Thomas A. Christopher, Gary C. Cornia, John C. Lucking and J. William Weeks. The Committee (i) selects the Fund's independent registered public accounting firm (subject to shareholder ratification); (ii) reviews the methods, scope and result of audits and the fees charged; and (iii) reviews the adequacy of the Fund's internal accounting procedures and controls. Selection of the independent registered public accounting firm is also ratified by the Board of Trustees. The Audit Committee held one meeting during the Fund's last fiscal year. The Board of Trustees has adopted a written charter for the Audit Committee. During the Fund's last fiscal year, the Board of Trustees held four meetings. Each current Trustee was present for at least 75% of the total number of Board meetings and Audit Committee meetings (if such Trustee was a member of that committee). The Fund's policy is that all Trustees who can do so attend the Annual Meeting. The Fund has a Nominating Committee, consisting of all the Independent Trustees. The charter of the Nominating Committee is available on the Fund's website at www.aquilafunds.com. Since the beginning of the Fund's most recently completed fiscal year, no Trustee purchased or sold any shares of any class of the Manager, Sub-Adviser or the parents or subsidiaries of either. Vote Required To be elected, each nominee must receive the affirmative votes of a majority of the shares present. Ratification or Rejection of Selection of Independent Registered Public Accounting Firm (Proposal No. 2) KPMG LLP ("KPMG"), which is currently serving as the Fund's independent registered public accounting firm, has been selected by the Fund's Audit Committee and ratified by the Board of Trustees, including a majority of the Independent Trustees, as the Fund's independent registered public accounting firm for the fiscal year ending December 31, 2005. Such selection is submitted to the shareholders for ratification or rejection. The following table represents fees for professional audit services rendered by KPMG for the audit of the Fund's annual financial statements for 2003 and 2004, and fees billed for other services rendered by KPMG. 2003 2004 Audit Fees: $20,100 ______ Audit related fees 0 __ ______ ______ Audit and audit related fees 20,100 ______ Tax fees (1) 6,792 _____ All other fees 0 __ ______ ______ Total fees $26,892 ______ ______ ______ (1) Tax fees consisted of fees for tax consultation and tax compliance services. KPMG did not perform any services during the last fiscal year for the Fund's investment adviser (the Manager) or any entity controlling, controlled by or under common control with the Manager that provides services to the Fund. All audit and non-audit services performed by KPMG on behalf of the Fund or non-audit services performed on behalf of affiliated entities within the investment company complex where such engagement relates directly to the operations and financial reporting of the Fund are pre-approved by the Audit Committee. Services to be considered between meetings of the Committee are pre-approved by a selected member of the Committee in accordance with applicable regulations and subject to additional procedures established by the Committee. The Audit Committee has reviewed all services performed and fees charged by KPMG and has accepted KPMG's representation that it is independent in recommending re-appointment of it for the fiscal year ending December 31, 2005. KPMG has no direct or indirect financial interest in the Fund, the Manager or the Sub-Adviser. It is expected that representatives of KPMG will not be present at the meeting but will be available should any matter arise requiring their presence. Consideration of New Sub-Advisory Agreement (Proposal No. 3) Proposal No. 3 seeks approval by the shareholders of a new Sub-Advisory Agreement between the Manager and KIRKPATRICK PETTIS CAPITAL MANAGEMENT, INC.("KPCM"). Background and Reasons for the Proposal The Former Sub-Adviser From 1992 until December 31, 2004, the Fund's portfolio was managed by Kirkpatrick Pettis Investment Management, Inc. ("KPIM") and its predecessors, first as investment adviser and, since 1996, as sub-adviser. KPIM was a wholly-owned subsidiary of KFS Corporation ("KFS"), a wholly-owned subsidiary of Mutual of Omaha Insurance Company. Mr. Christopher Johns has been the Fund's portfolio manager since the Fund's inception in 1987. Mr. Johns is a Vice President of KPCM and was a Vice President of KPIM from 1992 through 2004. From 1984 through 1992, he was a portfolio manager at United Bank of Denver (now Wells Fargo, Denver) which acted as investment adviser to the Fund from its inception through 1992. He was formerly a portfolio manager of Toledo Trust Company. He holds the degree of BBA in Finance from the University of Cincinnati. Sale of the Former Sub-Adviser In September 2004, KPIM informed the Fund that for its own business reasons, Mutual of Omaha had decided to sell KFS Corporation and its subsidiaries, including KPIM, to the Davidson Companies, Great Falls, Montana. The transaction took place on December 31, 2004. Effect of the Transaction The former sub-advisory agreement between the Manager and KPIM provided that if it were to be assigned, it would immediately terminate. The sale described above is such an assignment and accordingly, the former sub-advisory agreement terminated upon the sale. The New Sub-Advisory Agreement In anticipation of the sale, the Manager and the Board of Trustees negotiated and approved a New Sub-Advisory Agreement with KPCM, which was formerly a company affiliated with KPIM and is now a wholly-owned subsidiary of Davidson Investment Advisors, Inc., which is in turn a wholly-owned subsidiary of Davidson Companies. KPCM has a local office at 1600 Broadway, Denver, Colorado 80202. The New Sub-Advisory Agreement went into effect upon termination of the former sub-advisory agreement. If approved by the shareholders of the Fund, it will remain in effect until April 30, 2005, and will continue from year to year so long as it is re-approved annually by the Board of Trustees of the Fund. Without shareholder approval, it will terminate on May 31, 2005. Description of the New Sub-Advisory Agreement The New Sub-Advisory Agreement is attached to this proxy statement. Except as described below, it is identical to the former sub-advisory agreement, including the same fee structure as the former sub-advisory agreement; there will be no change in fees paid by the Fund. The principal new features are as follows: o It has a new provision under which KPCM agrees that portfolio management of the Fund will remain local. o Another new provision provides that current portfolio management personnel will be retained; thus Mr. Christopher Johns will continue to manage the Fund's portfolio. The Credit Committee, with the addition of one Davidson Companies representative, remains the same. o The name "Kirkpatrick Pettis" will be retained for at least five years. o No fund that competes with the Fund will be started by Davidson Companies for the duration of the agreement. o Performance of all of these provisions as well as all of the other obligations of KPCM under the New Sub-Advisory Agreement is guaranteed by the Davidson Companies. Description of Davidson Companies Davidson Companies is a holding company, based at 8 Third Street North, Great Falls, MT 59401, providing financial services to its customers throughout the nation from its locations in the Northern Rockies and Pacific Northwest. It has four wholly-owned subsidiaries, in addition to the companies it acquired from KFS: D.A. Davidson & Co., a securities broker-dealer; Davidson Investment Advisors, Inc., a portfolio management company; Davidson Travel, Inc., a travel agency; and Davidson Trust Co., a trust company. Ownership of Davidson Companies Ian B. Davidson 25% Employee Stock Ownership Plan ESOP (owned by the Employees of Davidson Companies) 32% No other person owns more than 10% of its outstanding shares. Considerations of the Board of Trustees In Approving the New Sub-Advisory Agreement And in Recommending its Approval by the Shareholders The Board of Trustees, at a meeting called and held for the purpose in December, 2004, approved the New Sub-Advisory Agreement and recommended that it be approved by the Fund's shareholders. The Board of Trustees noted that in March 2004 they had re-approved the former sub-advisory agreement, which has the same terms as the New Sub-Advisory Agreement, except as noted above. In connection with that renewal the following materials were considered: o The agreement to be renewed; o A term sheet describing the material terms of agreement; o The report of the Manager containing data about the performance of the Fund, and data about the fees and expenses for the Fund and comparisons of such data with similar data about other comparable funds, and profitability of the former sub-adviser; o The Trustees had also reviewed on a quarterly basis reports on the Fund's performance, operations, portfolio and compliance. In considering the former sub-advisory agreement, the Trustees also drew upon prior discussions with representatives of the Manager and former sub-adviser, at each quarterly meeting, of the Fund's performance and expenses and their familiarity with the personnel and resources of the former sub-adviser. The Trustees noted that the Fund had good performance and had enjoyed net new inflows of investments during 2003. In considering the nature and quality of the services provided by the former sub-adviser in relation to the fees and other benefits received, they concluded that the overall investment performance of the Fund had been satisfactory in the light of market conditions. They concluded that the sub-advisory fee paid by the Manager was fair and reasonable in relation to the services rendered and that the services rendered were satisfactory. Accordingly, the Trustees determined that renewal of the former sub-advisory agreement until April 30, 2005 was appropriate and it was approved by the unanimous vote of all of the Trustees, including all of the non-interested trustees. In considering approval of the New Sub-Advisory Agreement and recommending approval to the shareholders the Board of Trustees reviewed the foregoing materials and the materials they had received on a quarterly basis regarding the Fund during 2004. Although the materials listed above related to calendar year 2003, the Trustees viewed the reports of operations during the calendar year 2004 as not indicating that any material changes had occurred. The Trustees observed that since inception the Fund had been managed to achieve a high quality portfolio with somewhat shorter average maturities than its competition. They noted that the materials, copies of which were provided to the Trustees in advance of the meeting, indicated to the Trustees that compared to other Colorado funds the Fund has generally: o Somewhat lower average annual total returns than its five largest Colorado peers for one-, five- and ten-year periods. This is attributable in part to the relatively shorter average maturity of the Fund's portfolio; o Lower contractual management fees. The average fees of the Fund's Colorado competition (ten funds) and of all single state front-end load municipal bond funds nationally and all single-state front-end load municipal bond funds with $200 - $350 million in assets are generally higher than those paid by the Fund; o Lower fund operating expenses. The average fund operating expenses for the ten competitive Colorado funds and all single state front-end load municipal bond funds nationally, and all single state front-end load municipal bond funds with $200 - $350 million in assets are generally higher than those of the Fund. The materials reviewed by the Board included the profitability of services to the Fund of the Manager, of the former sub-adviser and of the two on a combined basis. The Board considered that the profitability did not prevent approval of the New Sub-Advisory Agreement. The services provided to the Fund by the Manager and former sub-adviser were judged to be similar to those provided to other single state tax-free municipal bond funds. The Independent Trustees and their counsel met with senior management of Davidson Companies and reviewed with them the additional contractual provisions described above, which the Trustees and management had requested for the protection of the shareholders and the local quality of the Fund. On the basis of this review the Board of Trustees, including the independent Trustees, reached the following conclusions: 1. The Board of Trustees believes that the Fund has been well managed and has successfully achieved its objectives for the past 17 years. It has received good acceptance among investors and in the brokerages and financial planners community. The Board of Trustees considered that its chief goal in response to the change of ownership was to preserve the Fund's portfolio management strength. To this end, it insisted on retention of the terms of the former sub-advisory agreement with the addition of several new terms, described above, to maintain continuity of personnel and to retain local portfolio management. 2. The Board of Trustees was familiar with the costs and profitability of the former sub-adviser, having re-approved the former sub-advisory agreement in March, 2004. Since the operations of the new sub-adviser would use the same facilities and personnel, it was anticipated that initially the costs and profits would be essentially the same. Davidson Companies have advised the Board, however, that they believe they will be able to provide the same services on a more efficient basis, which may increase profitability to the new sub-adviser. The Board of Trustees intends to revisit the matter of profitability with its next annual renewal of the agreement. 3. The Board did not consider that attempting to achieve reductions in fees as a result of economies of scale as the Fund grows was appropriate at this time; it was determined to defer such considerations until such growth is more likely. The Fund has maintained a relatively constant size in terms of net assets in recent years. The recent increases in prevailing interest rates and the possibility of further increases may make it difficult to achieve substantial growth in net assets in the near future. The materials presented to the Board indicate that the Fund's expense level is relatively low on a competitive basis. 4. The Board noted that the new sub-adviser does not serve in a similar capacity for any other investment company. 5. On behalf of the Shareholders, the Board was primarily concerned with continuing the same local portfolio management that has served the Fund commendably since its inception. Comparisons with other possible providers were not considered useful or appropriate. 6. The new sub-adviser represented to the Board that it does not engage in so-called soft dollar arrangements. Other Information About KPCM KPCM is a wholly-owned subsidiary of Davidson Investment Advisors, Inc., which is a wholly-owned subsidiary of Davidson Companies. The names, addresses and principal occupations of the principal executive officer and each director of KPCM are as follows: Name Position with KPCM The address of all of these individuals is Annual Fee Rates for the New Sub-Advisory Agreement (Fee rates are annual rates as a percentage of the Fund's average daily net assets.) Type of payment Under arrangements Under the in effect before New Sub- termination of the Advisory former sub-advisory Agreement agreement Sub-Advisory fee (paid by the Adviser) 0.20 of 1% 0.20 of 1% Advisory fee 0.50 of 1% 0.50 of 1% Total Payments by the Fund 0.50 of 1% 0.50 of 1% Since there is no change in fee arrangements from the former arrangements a table showing percentage change in fees is omitted. Escrow Arrangements Until the New Sub-Advisory Agreement is approved by the shareholders of the Fund the fees earned by the new sub-adviser and paid by the Manager under the New Sub-Advisory Agreement will be held in an interest-bearing escrow account with a bank. If the shareholders approve the New Sub-Advisory Agreement, the amount in the escrow account (including interest earned) will be paid to the new sub-adviser within 30 days of such approval; if the Fund's shareholders do not approve the agreement the new sub-adviser will be paid within 30 days of the failure to receive approval, out of the escrow account, the lesser of: (1) Any costs incurred in performing its responsibilities under the agreement during the intervening period (plus interest earned on that amount while in escrow); or (2) The total amount in the escrow account (plus interest earned). If this proposal is not approved by the shareholders the New Sub-Advisory Agreement will terminate on May 31, 2005. The Board of Trustees will consider what further action is appropriate, which could include calling another shareholder meeting. Action Requested THE BOARD OF TRUSTEES RECOMMENDS THAT THE NEW SUB-ADVISORY AGREEMENT DESCRIBED ABOVE BE APPROVED. Vote Required The favorable vote of the holders of a majority (as defined in the 1940 Act) of the outstanding shares of the Fund is required for the approval of this Proposal No. 3. Under the 1940 Act, the vote of the holders of a majority of the outstanding shares of the Fund means the vote of the holders of the lesser of (a) 67% or more of the shares of the Fund present at the Meeting or represented by proxy if the holders of more than 50% of such shares are so present or represented, or (b) more than 50% of the outstanding shares of the Fund, with one (1) vote for each dollar (and a proportionate fractional vote for each fraction of a dollar) of net asset value (determined as of the record date) represented by full and fractional shares of all of the Fund's three outstanding classes of shares. If necessary or desirable, the meeting can be adjourned by the affirmative vote of a majority of the shares present in person or by proxy. In voting for an adjournment, the proxies will consider all relevant factors, including possible delay of receipt of proxies and whether or not a substantial number of negative votes have been cast with respect to any proposal. The proxies of shareholders who have voted by proxy against a proposal will be voted against adjournment. Receipt of Shareholder Proposals Under the proxy rules of the Securities and Exchange Commission, shareholder proposals meeting tests contained in those rules may, under certain conditions, be included in the Fund's proxy statement and proxy card for a particular annual meeting. One of these conditions relates to the timely receipt by the Fund of any such proposal. Under these rules, proposals submitted for inclusion in the proxy material for the Fund's next annual meeting after the meeting to which this Proxy Statement relates must be received by the Fund not less than 120 days before the anniversary of the date stated in this Proxy Statement for the first mailing of this Proxy Statement. The date for such submission could change, depending on the scheduled date for the next annual meeting; if so, shareholders will be notified. The fact that the Fund receives a shareholder proposal in a timely manner does not insure its inclusion in the Fund's proxy material, since there are other requirements in the proxy rules relating to such inclusion. Other Business The Fund does not know of any other matter which will come up for action at the Meeting. If any other matter or matters properly come up for action at the Meeting, including any adjournment of the Meeting, the proxy holders will vote the shares which your proxy card, telephone or Internet vote entitles them to vote, in accordance with their judgment on such matter or matters, except as noted. That is, by signing and returning your proxy card or by voting by telephone or the Internet, you give the proxy holders discretionary authority as to any such matter or matters. APPENDIX TAX-FREE FUND OF COLORADO SUB-ADVISORY AGREEMENT THIS AGREEMENT, made as of December 12, 2004 by and between AQUILA INVESTMENT MANAGEMENT LLC (the "Manager"), 380 Madison Avenue, Suite 2300, New York, New York 10017, and KIRKPATRICK PETTIS CAPITAL MANAGEMENT, INC., 1600 Broadway, Suite 1100, Denver, CO 80202, (the "Future Sub-Adviser"), W I T N E S S E T H : WHEREAS, TAX-FREE FUND OF COLORADO (the "Fund") is a Massachusetts business trust which is registered under the Investment Company Act of 1940 (the "Act") as an open-end, non-diversified management investment company; WHEREAS, the Manager acts as investment adviser with respect to the Fund pursuant to an Advisory and Administration Agreement dated October 31, 1997 between the Fund and Aquila Management Corporation (the "Advisory and Administration Agreement"), which agreement was assigned to the Manager effective January 1, 2004; WHEREAS, pursuant to paragraph 2 of the Advisory and Administration Agreement, Aquila Management Corporation has retained and the Manager continues to utilize Kirkpatrick Pettis Investment Management, Inc. (formerly named KPM Investment Management, Inc.) (the "Current Sub-Adviser"), 1600 Broadway, Suite 1100, Denver, CO 80202, for purposes of rendering investment advisory services to the Manager pursuant to a Sub-Advisory Agreement dated August 28, 2000 (the "Current Agreement") with respect to the Fund; WHEREAS, the Current Agreement is anticipated to be terminated by its terms upon its assignment (the "Assignment") effective as of the closing of the sale of the assets of the Current Sub-Adviser and sale of the outstanding stock of the Future Sub-Adviser to D.A. Davidson & Co. and Davidson Companies, respectively; WHEREAS, the parties desire that effective on the Assignment, the Future Sub-Adviser, which is an affiliated company of the Current Sub-Adviser, shall provide investment advisory services to the Manager and the Fund; WHEREAS, these services are to be provided on the same terms and conditions as the Current Agreement, in accordance with the conditions set forth in, and except for certain differences enumerated in, Rule 15a-4(b)(2) (the "Rule") promulgated by the Securities and Exchange Commission under the Act and except for certain additional differences as agreed by the parties; and WHEREAS, as provided in the Rule, this Agreement has been approved by the Board of Trustees of the Fund at meetings called and held for the purpose on September 11, 2004 and December 12, 2004 and will be submitted for approval by the shareholders of the Fund at a meeting anticipated to be held on or about March 10, 2005; NOW THEREFORE, in consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. In General Effective as of the date of the Assignment, the Manager hereby appoints the Future Sub-Adviser to render, to the Manager and to the Fund, investment research and advisory services as set forth below under the supervision of the Manager and subject to the approval and direction of the Board of Trustees of the Fund. The Future Sub-Adviser shall, all as more fully set forth herein, act as managerial investment adviser to the Fund with respect to the investment of the Fund's assets, and supervise and arrange the purchase of securities for and the sale of securities held in the portfolio of the Fund. 2. Duties and Obligations of the Future Sub-Adviser With Respect To Investment of the Assets of the Fund (a) Subject to the succeeding provisions of this section and subject to the direction and control of the Manager and the Board of Trustees of the Fund, the Future Sub-Adviser shall: (i) supervise continuously the investment program of the Fund and the composition of its portfolio; (ii) determine what securities shall be purchased or sold by the Fund; (iii) arrange for the purchase and the sale of securities held in the portfolio of the Fund; (iv) at its expense provide for pricing of the Fund's portfolio daily using a pricing service or other source of pricing information satisfactory to the Fund and, unless otherwise directed by the Board of Trustees, provide for pricing of the Fund's portfolio at least quarterly using another such source satisfactory to the Fund; and (v) consult with the Manager in connection with its duties hereunder. (b) Any investment program furnished by the Future Sub-Adviser under this section shall at all times conform to, and be in accordance with, any requirements imposed by: (1) the Investment Company Act of 1940 (the "Act") and any rules or regulations in force thereunder; (2) any other applicable laws, rules and regulations; (3) the Declaration of Trust and By-Laws of the Fund as amended from time to time; (4) any policies and determinations of the Board of Trustees of the Fund; and (5) the fundamental policies of the Fund, as reflected in its registration statement under the Act or as amended by the shareholders of the Fund. (c) The Future Sub-Adviser shall give to the Manager and to the Fund the benefit of its best judgment and effort in rendering services hereunder, but the Future Sub-Adviser shall not be liable for any loss sustained by reason of the adoption of any investment policy or the purchase, sale or retention of any security, whether or not such purchase, sale or retention shall have been based upon (i) its own investigation and research or (ii) investigation and research made by any other individual, firm or corporation, if such purchase, sale or retention shall have been made and such other individual, firm or corporation shall have been selected in good faith by the Future Sub-Adviser. (d) Nothing in this Agreement shall prevent the Future Sub-Adviser or any affiliated person (as defined in the Act) of the Future Sub-Adviser from acting as investment adviser or manager for any other person, firm or corporation and shall not in any way limit or restrict the Future Sub-Adviser or any such affiliated person from buying, selling or trading any securities for its own or their own accounts or for the accounts of others for whom it or they may be acting, provided, however, that the Future Sub-Adviser expressly represents that, while acting as Future Sub-Adviser, it will undertake no activities which, in its judgment, will adversely affect the performance of its obligations to the Fund under this Agreement. (e) In connection with its duties to arrange for the purchase and sale of the Fund's portfolio securities, the Future Sub-Adviser shall select such broker-dealers ("dealers") as shall, in the Future Sub-Adviser's judgment, implement the policy of the Fund to achieve "best execution," i.e., prompt, efficient, and reliable execution of orders at the most favorable net price. The Future Sub-Adviser shall cause the Fund to deal directly with the selling or purchasing principal or market maker without incurring brokerage commissions unless the Future Sub-Adviser determines that better price or execution may be obtained by paying such commissions; the Fund expects that most transactions will be principal transactions at net prices and that the Fund will incur little or no brokerage costs. The Fund understands that purchases from underwriters include a commission or concession paid by the issuer to the underwriter and that principal transactions placed through dealers include a spread between the bid and asked prices. In allocating transactions to dealers, the Future Sub-Adviser is authorized to consider, in determining whether a particular dealer will provide best execution, the dealer's reliability, integrity, financial condition and risk in positioning the securities involved, as well as the difficulty of the transaction in question, and thus need not pay the lowest spread or commission available if the Future Sub-Adviser determines in good faith that the amount of commission is reasonable in relation to the value of the brokerage and research services provided by the dealer, viewed either in terms of the particular transaction or the Future Sub-Adviser's overall responsibilities. If, on the foregoing basis, the transaction in question could be allocated to two or more dealers, the Future Sub-Adviser is authorized, in making such allocation, to consider whether a dealer has provided research services, as further discussed below. Such research may be in written form or through direct contact with individuals and may include quotations on portfolio securities and information on particular issuers and industries, as well as on market, economic, or institutional activities. The Fund recognizes that no dollar value can be placed on such research services or on execution services and that such research services may or may not be useful to the Fund and may be used for the benefit of the Future Sub-Adviser or its other clients. (f) The Future Sub-Adviser agrees to maintain, and to preserve for the periods prescribed, such books and records with respect to the portfolio transactions of the Fund as are required by applicable law and regulation, and agrees that all records which it maintains for the Fund on behalf of the Manager shall be the property of the Fund and shall be surrendered promptly to the Fund or the Manager upon request. (g) The Future Sub-Adviser agrees to furnish to the Manager and to the Board of Trustees of the Fund such periodic and special reports as each may reasonably request. (h) It is agreed that the Future Sub-Adviser shall have no responsibility or liability for the accuracy or completeness of the Fund's Registration Statement under the Act and the Securities Act of 1933, except for information supplied by the Future Sub-Adviser for inclusion therein. The Future Sub-Adviser shall promptly inform the Fund as to any information concerning the Future Sub-Adviser appropriate for inclusion in such Registration Statement, or as to any transaction or proposed transaction which might result in an assignment (as defined in the Act) of this Agreement. (i) The Future Sub-Adviser shall not be liable for any error in judgment or for any loss suffered by the Fund or its security holders in connection with the matters to which this Agreement relates, except a loss resulting from wilful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. Nothing in this Agreement shall, or shall be construed to, waive or limit any rights which the Fund may have under federal and state securities laws which may impose liability under certain circumstances on persons who act in good faith. (j) To the extent that the Manager is indemnified under the Fund's Declaration of Trust with respect to the services provided hereunder by the Future Sub-Adviser, the Manager agrees to provide the Future Sub-Adviser the benefits of such indemnification. 3. Allocation of Expenses The Future Sub-Adviser shall bear all of the expenses it incurs in fulfilling its obligations under this Agreement. In particular, but without limiting the generality of the foregoing: the Future Sub-Adviser shall furnish, at the Future Sub-Adviser's expense, all office space, facilities, equipment and clerical personnel necessary for carrying out its duties under this Agreement. The Future Sub-Adviser shall supply, or cause to be supplied, to any investment adviser, administrator or principal underwriter of the Fund all necessary financial information in connection with such adviser's, administrator's or principal underwriter's duties under any agreement between such adviser, administrator or principal underwriter and the Fund. The Future Sub-Adviser will also pay all compensation of the Fund's officers, employees, and Trustees, if any, who are affiliated persons of the Future Sub-Adviser. 4. Compensation of the Future Sub-Adviser (a) The Manager agrees to pay the Future Sub-Adviser, and the Future Sub-Adviser agrees to accept as full compensation for all services rendered by the Future Sub-Adviser as such, a management fee payable monthly and computed on the net asset value of the Fund as of the close of business each business day at the annual rate of 0.20 of 1% of such net asset value. (b) Until this agreement is approved by a vote of the holders of a "majority" (as defined in the Act) of the outstanding voting securities of the Fund in accordance with the Rule, the fees earned by the Future Sub-Adviser and paid by the Manager hereunder will be held in an interest-bearing escrow account with the Fund's custodian or a bank; if a majority of the Fund's outstanding voting securities approve a contract with the Future Sub-Adviser by the end of the 150-day period provided in the Rule, the amount in the escrow account (including interest earned) will be paid to the Future Sub-Adviser within 30 days of such approval; and if a majority of the Fund's outstanding voting securities do not approve a contract with the Future Sub-Adviser, the Future Sub-Adviser will be paid within 30 days of the failure to receive approval, out of the escrow account, the lesser of: (1) Any costs incurred in performing the interim contract (plus interest earned on that amount while in escrow); or (2) The total amount in the escrow account (plus interest earned). 5. Duration and Termination (a) This Agreement shall become effective on the termination of the Current Agreement and shall, unless terminated as hereinafter provided, continue in effect until the April 30 next preceding the first anniversary of the effective date of this Agreement, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually (1) by a vote of the Fund's Board of Trustees, including a vote of a majority of the Trustees who are not parties to this Agreement or "interested persons" (as defined in the Act) of any such party, with votes cast in person at a meeting called for the purpose of voting on such approval, or (2) by a vote of the holders of a "majority" (as so defined) of the outstanding voting securities of the Fund and by such a vote of the Trustees. (b) This Agreement may be terminated by the Future Sub-Adviser at any time without penalty upon giving the Manager and the Fund sixty days' written notice (which notice may be waived). This Agreement may be terminated by the Manager or the Fund at any time without penalty upon giving the Future Sub-Adviser sixty days' written notice (which notice may be waived by the Future Sub-Adviser), provided that such termination by the Fund shall be directed or approved by a vote of a majority of its Trustees in office at the time or by a vote of the holders of a majority (as defined in the Act) of the voting securities of the Fund outstanding and entitled to vote. This Agreement shall automatically terminate in the event of its assignment (as defined in the Act) or the termination of the Advisory and Administration Agreement. (c) As provided in the Rule, this Agreement shall also terminate automatically unless it is approved by a vote of the holders of a majority (as defined in the Act) of voting securities of the Fund outstanding and entitled to vote at a meeting to be held on or before the 150th day following termination of the Current Agreement. Until this Agreement is so approved, the Fund's Board of Trustees or a majority of the Fund's outstanding voting securities may terminate the contract at any time, without the payment of any penalty, on not more than 10 calendar days' written notice to the Future Sub-Adviser. 6. Additional Undertakings of Future Sub-Adviser (a) The Future Sub-Adviser, under the supervision of the Manager, shall provide at its expense portfolio management particularly qualified to manage investments in which the Fund primarily invests, and such portfolio management personnel shall be principally located in the state of issuers of such investments. Such portfolio management personnel shall consist upon the effectiveness of this Agreement of the portfolio manager and the credit committee listed on Appendix A attached hereto. The Future Sub-Adviser shall assure that the portfolio manager and credit committee shall be provided with appropriate resources for the performance of their functions hereunder. For at least three years after the Assignment, any change of personnel, and any change of arrangements materially adversely affecting the provision of portfolio management services hereunder, shall be reported immediately to the Manager and, unless beyond the control of the Future Sub-Adviser, shall be permissible only if acceptable to the Board of Trustees of the Fund. (b) For at least five years after the Assignment, the business name of the Future Sub-Adviser shall include the words "Kirkpatrick Pettis," all material referring to the Future Sub-Adviser in connection with the Fund shall include that name, and the Buyer shall cause all investment advisory services performed on behalf of the Fund to be provided in association with that name. (c) For the duration of this Agreement, the Future Sub-Adviser shall not cause or permit any Advised Investment Company, as hereafter defined, to offer or sell its shares directly to retail customers, but shall restrict such offers or sales to institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity. An Advised Investment Company is an investment company registered under the Investment Company Act of 1940 which (i) is provided with portfolio management by the Future Sub-Adviser or any affiliate thereof; and (ii) invests in municipal securities issued by the State of Colorado or its political subdivisions. (d) Notwithstanding anything in this Section 6, either party may terminate this Agreement in accordance with the provisions of Section 5 of this Agreement. 7. Notices of Meetings The Manager agrees that notice of each meeting of the Board of Trustees of the Fund will be sent to the Future Sub-Adviser. The Future Sub-Adviser will make appropriate arrangements for the attendance (as persons present by invitation) of such person or persons as the Future Sub-Adviser may designate. IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to be executed by their duly [balance of page intentionally left blank] authorized officers and their seals to be hereunto affixed, all as of the day and year first above written. ATTEST: AQUILA INVESTMENT MANAGEMENT LLC By: ATTEST: KIRKPATRICK PETTIS CAPITAL MANAGEMENT, INC. By The performance of the undertakings of the Future Sub-Adviser under the foregoing agreement is hereby guaranteed as of January 1, 2005: ATTEST: DAVIDSON COMPANIES BY By: Appendix A Portfolio Manager: Christopher B. Johns Credit Committee: Rodney D. Cerny Samuel C. Doyle Christopher B. Johns Kreg A. Jones John L. Maginn L. Jack Petersen Robert M. Schultz IMPORTANT NOTICE PLEASE READ IMMEDIATELY Tax-Free Fund of Colorado NOTICE OF ANNUAL MEETING OF SHAREHOLDERS to be held on March 10, 2005 PROXY STATEMENT THE AQUILASM GROUP OF FUNDS 380 MADISON AVENUE, SUITE 2300 NEW YORK, NY 10017 VOTE BY TELEPHONE OR INTERNET OR MAIL 24 Hours a day, 7 days a week TELEPHONE 1-888-221-0697 To vote your shares by telephone, call toll free 1-888-221-0697. Follow the simple recorded instructions using this proxy card as a guide. If you vote by phone, you need not return the proxy card by mail. INTERNET VOTING www.proxyweb.com/aquila To vote your shares by the Internet, contact the Fund at www.proxyweb.com/aquila. Follow the simple instructions at the website, using your proxy card as a guide. If you vote by the Internet, you need not return the proxy card by mail. MAIL You can vote your shares by completing and returning this proxy card. Please mark your proxy, date and sign it below and return it promptly in the accompanying envelope which requires no postage if mailed in the United States. Please fold and detach card at perforation before mailing. Aquilasm Group of Funds Tax-Free Fund of Colorado Proxy for Shareholder Meeting March 10, 2005 Proxy Solicited on Behalf of the Board of Trustees The shareholder(s) of Tax-Free Fund of Colorado (the "Fund") whose signature(s)appear(s) below does/do hereby appoint LACY B. HERRMANN, DIANA P. HERRMANN and EDWARD M. W. HINES, or any of them, as attorneys and proxies of the undersigned, with full power of substitution, to attend the Annual Meeting of Shareholders of the Fund to be held on Thursday, March 10, 2005 at the Hyatt Regency Denver Tech Center, 7800 E. Tufts Avenue, Denver, CO, at 10:00 a.m. Mountain Standard Time, and at all adjournments thereof, and thereat to vote the shares held in the name of the undersigned on the record date for said meeting on the matters listed on the reverse side. Such shares are entitled to one vote for every dollar of net asset value represented by the share balance printed below. Please read the proxy statement prior to voting. Annual Meeting Attendance We encourage you to attend the Annual Meeting of Shareholders. If you can join us, please so indicate on the proxy card or e-mail us at info@aquilafunds.com Address changes/comments: _______________________________ _________________________________________________________ _________________________________________________________ (If you noted any address changes/comments above, please mark corresponding box on other side.) Dated: __________________, 2005 _________________________________ Signature(s) (SIGN IN THE BOX) PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS PROXY CARD. When signing as a custodian, attorney, executor, administrator, trustee, guardian, etc., please sign your full title as such. Joint owners should each sign. Tax-Free Fund of Colorado Please fill in box(es) as shown using black or blue ink or number 2 pencil. [X] PLEASE DO NOT USE FINE POINT PENS 1. Election of Trustees 1) Tucker Hart Adams; 2) Thomas A. Christopher; 3) Gary C. Cornia; 4)Diana P. Herrmann*; 5) John C. Lucking; 6) Anne J. Mills; 7) J. William Weeks * interested Trustee __ [__] FOR ALL __ [__] WITHHOLD ALL __ [__] FOR ALL EXCEPT __________________ INSTRUCTION: To withhold authority to vote for one or more (but not all) nominees, mark "FOR ALL EXCEPT" and write the nominee number(s) and/ or name(s) on the line above. [bolded in printed form] Management recommends a vote FOR all nominees listed above and FOR the proposals listed below. The shares represented hereby will be voted as indicated at right or FOR if no choice is indicated. 2. Action on selection of KPMG LLP as independent registered public accounting firm. (Proposal No.2 in Proxy Statement) __ __ __ FOR [__] AGAINST [__] ABSTAIN [__] 3. Action on proposed Sub-Advisory Agreement. (Proposal No.3 in Proxy Statement) __ __ __ FOR [__] AGAINST [__] ABSTAIN [__] As to any other matter said proxies shall vote in accordance with their best judgment. __ I plan to attend the annual meeting in Denver [__] __ I plan to attend the outreach meeting in Colorado Springs [__] For address changes and/or comments, please check the box at right and write them on the front where indicated. _ [_] THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON THE REVERSE SIDE. -----END PRIVACY-ENHANCED MESSAGE-----