DEF 14A 1 utpx02drr.txt PROXY STATEMENT AND FORM OF CARD File Nos. 33-38766 & 811-6239 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Sec.240.14a-12 TAX-FREE FUND FOR UTAH (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 Aquilasm Please Read Immediately Group of Funds TAX-FREE FUND FOR UTAH 380 Madison Avenue, Suite 2300, New York, NY 10017 Notice of Annual Meeting of Shareholders To be Held on September 27, 2002 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 For Utah (the "Fund") will be held: Place: (a) at the Little America Hotel 500 South Main Street Salt Lake City, Utah; Time: (b) on September 27, 2002 at 9:30 a.m. local time; Purposes: (c) for the following purposes: (i) to elect five Trustees; each Trustee elected will hold office until the next annual meeting of the Fund's shareholders or until his or her successor is duly elected (Proposal No. 1); (ii) to ratify (that is, to approve) or reject the selection of KPMG LLP as the Fund's independent auditors for the fiscal year ending June 30, 2003 (Proposal No. 2); (iii) to act upon a proposed new revised and amended Investment Advisory and Administration Agreement under which the Fund will become responsible for Fund accounting expenses (Proposal No. 3); (iv) to act upon any other matters which may properly come before the Meeting at the scheduled time and place or any adjourned meeting or meetings. Who Can Vote What Shares: (d) To vote at the Meeting, you must have been a shareholder on the Fund's records at the close of business on July 3, 2002 (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 August 12, 2002 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 For Utah 380 Madison Avenue, Suite 2300, New York, New York 10017 Proxy Statement Introduction The purpose of the Notice (the first two pages of this document) is to advise you of the time, place and purposes of an Annual Meeting of the Shareholders of Tax-Free Fund For Utah (the "Fund"). The purpose of this Proxy Statement (all the rest of this document) is to give you information on which you may base your decisions as to the choices, if any, you make in voting. The Fund's founder and Manager (the "Manager") is Aquila Management Corporation, 380 Madison Avenue, Suite 2300, New York, NY 10017. Since August 1, 2001 the Manager has acted as the Fund's investment adviser. 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 that 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 August 12, 2002. 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, you may vote in one of three ways: (1) Proxy Card The enclosed proxy card authorizes the persons named (or their substitutes) to vote your shares; the Fund calls these persons the "proxy holders." As to the election of Trustees you may authorize the proxy holders to vote your shares for the entire slate indicated below by marking the appropriate box on the proxy card or by merely signing and returning your proxy card with no instructions. Or you may withhold the authority of the proxy holders to vote on the election of Trustees by marking the appropriate box. Also, you may withhold that authority as to any particular nominee by following the instructions on the proxy card. As to the other matters listed on the proxy card, you may direct the proxy holders to vote your shares on the proposals by marking the appropriate box "For" or "Against" or instruct them not to vote your shares on the proposals 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 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. Shares held by brokers in "street name" and not voted or marked as abstentions will be counted for purposes of determining a quorum and otherwise counted as present in determining voting results. 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, $9.86; Class C Shares, $9.85; and Class Y Shares, $9.89. The meeting is expected to act only upon matters that affect the Fund as a whole. 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, 5,683,556; Class C Shares, 706,603; and Class Y Shares, 3,084. On the record date, the following institutional 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 Percent of the holder of shares class record Merrill Lynch Pierce 407,839 Class A Shares 6.4% Fenner & Smith 239,209 Class C Shares 33.8% 4800 Deer Lake Dr. 3,069 Class Y Shares 99.5% Jacksonville, FL 32246 Zions First National Bank 761,194 Class A Shares 11.9% P.O. Box 30880 Salt Lake City, UT 84130 Donaldson Lufkin 67,162 Class C Shares 9.5% Jenrette Securities Corporation, Inc. P.O. Box 2052 Jersey City, NJ 07303 McDonald Investments Inc FBO 126,231 Class C Shares 17.9% 4900 Tiedeman Road Brooklyn, OH 44144 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, five Trustees are to be elected. Each Trustee elected will serve until the next annual meeting or until his or her successor is duly elected. The nominees selected by the Trustees are named in the table below. See "Introduction" above for information as to how you can vote your shares in the election of Trustees. The following material includes the name, positions with the Fund, address, date of birth and business experience during at least the past five years of each nominee and each officer of the Fund. All shares of the Fund listed as owned by the Trustees are Class A Shares unless indicated otherwise. All of the nominees are presently Trustees and were elected by the shareholders in September, 2001. Trustees and Officers(1)
Number of Positions Held Portfolios in with Fund Complex Fund Overseen by Name, Address(2) and and Length of Principal Occupation(s) Trustee Other Directorships Date of Birth Service(3) During Past 5 Years Held by Trustee Interested Trustees(4) Lacy B. Herrmann Chairman of Founder and Chairman of the 13 Director or trustee, OCC Cash New York, NY the Board of Board, Aquila Management Reserves, Inc., OCC (05/12/29) Trustees since Corporation, the sponsoring Accumulation Trust, 1992 organization and Manager or Oppenheimer Quest Value Funds Administrator and/or Adviser or Group, Oppenheimer Small Cap Sub-Adviser to each of the Value Fund, Oppenheimer Midcap Aquilasm Group of Funds (5) and Fund, and Oppenheimer Founder, Chairman of the Board Rochester Group of Funds. of Trustees and (currently or until 1998) President of each since its establishment, beginning in 1984; Director of the Distributor since 1981and formerly Vice President or Secretary, 1981-1998; President and a Director, STCM Management Company, Inc., sponsor and investment adviser to Capital Cash Management Trust and Capital Cash U.S. Government Securities Trust, since 1973; Trustee Emeritus, Brown University and active in university, school and charitable organizations. Diana P. Herrmann Trustee since President and Chief Operating 8 None New York, NY 1997 and Officer of the Manager since (02/25/58) President 1997, a Director since 1984, since 1998 Secretary since 1986 and previously its Executive Vice President, Senior Vice President or Vice President, 1986-1997; President, Senior Vice President or Executive Vice President of the Aquilasm Group of Funds since 1986; Director of the Distributor since 1997; trustee, Reserve Money-Market Funds, 1999-2000 and Reserve Private Equity Series, 1998-2000; active in mutual fund and trade organizations and in charitable and volunteer organizations. Non-Interested Trustees Gary C. Cornia Trustee President, the National Tax 2 None Orem, UT since 1993 Association; Professor and Chair (06/24/48) of the Executive Committee, the International Center for Land Policy Studies and Training Institute, Taipei, Taiwan; formerly Associate Dean, Marriott School of Management, Brigham Young University, 1991-2000; Chair, Utah Governor's Tax Review Committee since 1993; Faculty Associate, the Land Reform Training Institute, Taipei, Taiwan and The Lincoln Institute of Land Policy, Cambridge, Massachusetts. . William L. Ensign Trustee Planning and Architectural 2 None Annapolis, MD since 1991 Consultant; Acting Architect, (12/14/28) United States Capitol 1995-1997; formerly Assistant Architect; former trustee of various cultural organizations. Anne J. Mills Trustee since President, Loring Consulting 6 None Castle Rock, CO 1994 Company since 2001; Vice (12/23/38) President for Business Affairs, Ottawa University, 1992-2001; IBM Corporation, 1965-1991; Budget Review Officer, the American Baptist Churches/USA, 1994-1997; director, the American Baptist Foundation since 1985 and formerly trustee, Brown University. Officers 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 four Aquila Bond Funds and Vice President, Churchill Cash Reserves Trust, 1995-2001. Kimball L. Young Senior Vice Co-portfolio manager, Tax-Free N/A N/A Salt Lake City, UT President Fund For Utah since 2001; (08/07/46) since 1998 Co-founder, Lewis Young Robertson & Burningham, Inc., a NASD licensed broker/dealer providing public finance services to Utah local governments, 1995-2001; Senior Vice President of four Aquila Bond and Equity Funds; formerly Senior Vice President-Public Finance, Kemper Securities Inc., Salt Lake City, Utah. Thomas S. Albright Vice President Vice President and Co-portfolio N/A N/A Louisville, KY since 2001 manager, Tax-Free Fund For Utah (07/26/52) since 2001; Senior Vice President and Portfolio Manager, Churchill Tax-Free Fund of Kentucky since July 2000; Vice President and Portfolio Manager, Banc One Investment Advisors, Inc., 1994-2000. Stephen J. Caridi Assistant Vice Vice President of the N/A N/A New York, NY (05/06/61) President Distributor since 1995; Vice since 1993 President, Hawaiian Tax-Free Trust since 1998; Senior Vice President, Narragansett Insured Tax-Free Income Fund since 1998, Vice President 1996-1997; Assistant Vice President, Tax-Free Fund For Utah since 1993. Mary Kayleen Willis Assistant Vice Assistant Vice President of N/A N/A Salt Lake City, UT President Tax-Free Fund For Utah since (06/11/63) since 2002 January, 2002, various securities positions: Paine Webber, Inc., Salt Lake City, 2002-2001, Dean Witter Reynolds, Inc., Salt Lake City, 1996-1998. Rose F. Marotta Chief Chief Financial Officer of the N/A N/A New York, NY Financial Aquilasm Group of Funds since (05/08/24) Officer since 1991 and Treasurer, 1981-1991; 1991 Treasurer and director, STCM Management Company, Inc., since 1974; Treasurer of the Manager since 1984 and the Distributor, 1985-2000. Joseph P. DiMaggio Treasurer Treasurer of the Aquilasm Group N/A N/A New York, NY since 2000 of Funds and the Distributor (11/06/56) since 2000; Controller, Van Eck Global Funds, 1993-2000. Edward M. W. Hines Secretary Partner, Hollyer Brady Smith & N/A N/A New York, NY since 1990 Hines LLP, legal counsel to the (12/16/39) Fund, since 1989; Secretary of the Aquilasm Group of Funds. Robert W. Anderson Assistant Compliance Officer of the N/A N/A New York, NY (08/23/40) Secretary Manager since 1998 and Assistant since 2000 Secretary of the Aquilasm Group of Funds since 2000; trustee, Alternative Investment Strategies Fund since July, 2002; Consultant, The Wadsworth Group, 1995-1998. John M. Herndon Assistant Assistant Secretary of the N/A N/A New York, NY (12/17/39) Secretary Aquilasm Group of Funds since since 1995 and Vice President of the 1995 five Aquila Money-Market Funds since 1990; Vice President of the Manager since 1990. Lori A. Vindigni Assistant Assistant Treasurer of the N/A N/A New York, NY Treasurer Aquilasm Group of Funds since (11/02/66) since 2000 2000; Assistant Vice President of the Manager since 1998; Fund Accountant for the Aquilasm Group of Funds, 1995-1998.
(1)The Fund's Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request by calling 800-437-1020 (toll free). (2) The mailing address of each Trustee and officer is c/o Tax-Free Fund For Utah, 380 Madison Avenue, New York, NY 10017. (3) Each Trustee holds office until the next annual meeting of shareholders or until his or her successor is elected and qualifies. The term of office of each officer is one year. (4) Mr. Herrmann and Ms. Herrmann are interested persons of the Fund, as that term is defined in the 1940 Act, as officers of the Fund and their affiliations with both the Manager and the Distributor. Each is also an interested person as a member of the immediate family of the other. (5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S. Government Securities Cash Assets Trust, Pacific Capital Tax-Free Cash Assets Trust, Capital Cash Management Trust and Capital Cash U.S. Government Securities 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 13 funds are called the "Aquilasm Group of Funds." Securities Holdings of the Trustees (as of 6/01/02) Dollar Range of Aggregate Dollar Range of Name of Ownership in the Ownership in Aquilasm Investment Trustee Fund(1) Companies Overseen by Trustee(1) Interested Trustees Lacy B. Herrmann A E Diana P. Herrmann B D Non-interested Trustees Gary C. Cornia A B William L. Ensign B C Anne J. Mills B D (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 June 30, 2002 the Fund paid a total of $35,810 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 13 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 which the from the in the Trustee Fund Aquilasm serves Name Group of Funds Gary C. Cornia $4,200 $12,150 2 William L. Ensign $3,850 $13,800 2 Anne J. Mills $5,200 $36,200 6 Class A Shares may be purchased without a sales charge by certain of the Fund's Trustees and officers. The Fund's Manager is Manager or Administrator to each member of the Aquilasm Group of Funds, which consists of tax-free municipal bond funds, money-market funds and an equity fund. As of June 30, 2002 these funds had aggregate assets of approximately $3.6 billion, of which approximately $2.1 billion consisted of assets of the tax-free municipal bond funds. The Manager is controlled by Mr. Lacy B. Herrmann, through share ownership directly, through a trust and by his wife. During the fiscal year ended June 30, 2002, the Fund incurred Management fees of $258,558, of which $256,700 was waived and the balance was paid to the Fund's former sub-adviser. During the fiscal year ended June 30, 2002, $94,336 was paid under Part I of the Fund's Distribution Plan to Qualified Recipients with respect to the Class A Shares, of which $2,694 was retained by the Distributor. With respect to Class C Shares, during the same period $33,866 was paid under Part II of the Plan and $11,288 was paid under the Shareholder Services Plan. Of these total payments of $45,154, the Distributor received $17,585. All of such payments were for compensation. The Distributor currently handles the distribution of the shares of thirteen funds (five money-market funds, seven tax-free municipal bond funds and an equity fund), including the Fund. Under the Distribution Agreement, the Distributor is responsible for the payment of certain printing and distribution costs relating to prospectuses and reports as well as the costs of supplemental sales literature, advertising and other promotional activities. The shares of the Distributor are owned 24% by Diana P. Herrmann, 72% by Mr. Herrmann and other members of his immediate family and the balance by current employees of Aquila Management Corporation. Other Information on Trustees The Trustees have appointed a standing Audit Committee consisting of all of the Trustees who are not "interested persons" of the Fund, as that term is defined in the 1940 Act. The members of the Audit Committee are Gary C. Cornia, William L. Ensign and Anne J. Mills. None of the members of the Committee is an "interested person" of the Fund. The Committee (i) recommends to the Board of Trustees what firm of independent auditors will be selected by the Board of Trustees (subject to shareholder ratification); (ii) reviews the methods, scope and result of audits and the fees charged; and (iii) reviews the adequacy of the Fund's internal accounting procedures and controls. The Committee held one meeting during the Fund's last fiscal year. During the Fund's last fiscal year, the Board of Trustees held 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). Since the beginning of the Fund's most recently completed fiscal year, no Trustee purchased or sold shares of the Manager. Ratification or Rejection of Selection of Independent Auditors (Proposal No. 2) KPMG LLP ("KPMG"), which is currently serving as the Fund's independent auditors, has been selected by the Fund's Board of Trustees, including a majority of the Independent Trustees, as the Fund's independent auditors for the fiscal year ending June 30, 2002. Such selection is submitted to the shareholders for ratification or rejection. The Fund paid the following fees to KPMG during the fiscal year ended June 30, 2002: Audit Fees: $12,500 Financial Information Systems Design and Implementation 0 All Other Fees $12,304 (Fees for preparation of the Fund's tax returns and correspondence tax-equivalent yield.) KPMG did not perform any services during the fiscal year for the Fund's investment adviser (the Manager) or any entity controlling, controlled by or under common control with the Manager that provides services to the Fund. The Audit Committee of the Fund's Board of Trustees, which consists of all of the independent Trustees, has reviewed all services performed and fees charged by KPMG and has accepted its representation that it is independent in recommending re-appointment of it for the fiscal year ending June 30, 2003. KPMG has no direct or indirect financial interest in the Fund or the Manager. It is expected that representatives of KPMG will not be present at the meeting but will be available should any matter arise requiring their presence. Consideration of a New Revised and Amended Advisory and Administration Agreement Which Will Provide that the Fund Will Pay for Fund Accounting Services Currently Paid for by the Manager Proposal No. 3 Background and Reasons for the Proposal The purpose of this proposal is to authorize a new revised and amended Advisory and Administration Agreement (the "Proposed Agreement") between the Fund and Aquila Management Corporation, the Manager. The only change between the current Advisory and Administration Agreement (the "Current Agreement") and the Proposed Agreement is that the payment for the cost of fund accounting, currently the responsibility of the Manager, will become the responsibility of the Fund under the Proposed Agreement. The Current Agreement provides that the Manager shall either keep the accounting records of the Fund, including the computation of net asset value per share and the dividends or, at its expense and responsibility, delegate such duties in whole or in part to a company satisfactory to the Fund. These services are called "Fund Accounting." The Fund Accounting services for the Fund are currently delegated to an outside service provider and are currently supervised and paid for by the Manager. It is proposed that while an outside service provider will continue to provide accounting services to the Fund under the Manager's continued supervision, the costs of the Fund Accounting services will be shifted from the Manager to the Fund. If the Proposal is approved, these costs will be borne by the Fund and not by the Manager. What is Fund Accounting? Fund Accounting is the routine bookkeeping function under which the Fund's per share price (net asset value) is computed each day for the purposes of sales and redemptions of the Fund's shares. Fund Accounting also tracks the Fund's income and expenses for the purpose of calculating the Fund's daily dividends. What are the current and anticipated costs of Fund Accounting? The cost of providing Fund Accounting to the Fund at its current asset level of approximately $66 million, is approximately $52,200 per year. Based on the Fund's current net assets, this equates to approximately 8 basis points (0.08%) in annual expenses. At the present time there would be no change in the Fund's net expenses because the Manager is currently reimbursing a majority of Fund expenses and waiving its management fee. The Manager has assured the Board of Trustees that it intends to continue such support in order that the Fund remains competitive in the marketplace. Thus, while the Fund would become responsible for the Fund Accounting fee, that fee would currently continue to be reimbursed by the Manager under the current arrangements. Under the current Fund Accounting fee structure, the maximum fee paid by the Fund would be as follows at various asset sizes: Net Assets Annual Expense % of Net Assets ($MM) 66 (Current) $52,200 0.079 100 $52,200 0.052 150 $52,200 0.035 200 $56,200 0.028 250 $66,200 0.026 300 $76,200 0.025 At present, there would be no change in the Fund's net expenses because the Manager intends to continue to waive its management fee and reimburse expenses as necessary. What will happen if the Fund grows? As stated above, the Manager intends to continue to subsidize the Fund in order that it will remain competitive within the marketplace, although it is not obligated to do so. As such, it expects to continue to waive fees and reimburse fund expenses, as necessary. Over time, as Fund assets grow, however, the Manager intends to reduce its subsidization of fund expenses, while at the same time assuring that the Fund continues to remain competitive with its yield in the marketplace. Initially the subsidization would be reduced with respect to regular fund operating expenses, followed by reduction of the waiver of management fees. Assuming continued growth of the Fund, at some point, the full Fund Accounting fee would be borne by the Fund. When will the Manager cease to subsidize the Fund? The Fund's yield is dependent on market factors, particularly the level of interest rates, as well as its expenses, which are dependent upon the competitive environment. Accordingly, it is difficult to specify the asset level at which subsidization would be completely eliminated. Similarly, growth of the asset size of the Fund is dependent on market factors, including competing funds and the relative desirability of alternative investments. It is accordingly difficult to predict when the Fund will reach a given level of assets. It should be noted that since inception of the Fund in 1992, the Manager has spent approximately $2 million in subsidization of Fund expenses to ensure that the Fund has a competitive return. The Manager intends to continue such subsidization as necessary. Based on past experience, the Manager currently estimates that when Fund assets exceed approximately $100 million, reimbursement of fund operating expenses would cease and the Manager would begin to take a modest part of the Management fee that is now being waived. Depending on the competitive environment, the Manager could continue to waive some portion of the Management fee until Fund assets reach as much as $300 million. What are the reasons for the Proposal? The Manager is seeking this change to reduce its costs and thereby effectively increase its net income without an increase in its management fee. The Manager has advised the Board of Trustees that it has had increasing costs of operations, particularly within the past year due to its internalization of the Fund's portfolio research and management function. An increase would assist the Manager in retaining experienced investment professionals. It has advised the Board of Trustees that a high quality portfolio management team is critical to the success of the Fund, particularly in light of the increased necessity to scrutinize the credit quality of issues. Compliance with new regulations regarding privacy, combating money laundering and protecting against terrorism is requiring new systems and additional resources. Additional income would also assist the Manager in maintaining new and/or upgraded systems and other technology investments and related support, an area of growing criticality for all mutual fund companies. What changes in the Fund's expenses will result from the change? Under the Proposed Agreement, the contractual advisory fee (currently being waived) will continue to accrue at the annual rate of 0.50 of 1% of the Fund's net asset value. The following table shows the Management fee and Fund Accounting fee under the Current Agreement and the Proposed Agreement. Annual Fee Rates (as a percentage of the Fund's average daily net assets) Annual Fund Operating Expenses (expenses that are deducted from the Fund's assets) as they were for the fiscal year ended June 30, 2002.
Class A Class C Class I Class Y Shares Shares Shares Shares Management Fee(1)......... 0.50% 0.50% 0.50% 0.50% Distribution (12b-1) Fee. 0.20% 0.75% 0.10% None All Other Expenses:(2) Service Fee......... None 0.25% Other Expenses (including 0.0794% fund accounting)(2) 0.49% 0.49% Total All Other Expenses(2)....... 0.49% 0.74% 0.57% 0.49% Total Annual Fund Operating Expenses(2).... 1.19% 1.99% 1.17% 0.99%
Annual Fund Operating Expenses (expenses that are deducted from the Fund's assets) as they would have been under the proposed arrangement.
Class A Class C Class I Class Y Shares Shares Shares Shares Management Fee(1)......... 0.50% 0.50% 0.50% 0.50% Distribution (12b-1) Fee. 0.20% 0.75% 0.10% None All Other Expenses:(2) Service Fee......... None 0.25% Other Expenses (including 0.0794% fund accounting)(2) 0.569% 0.569% Total All Other Expenses(2)....... 0.569% 0.819% 0.649% 0.569% Total Annual Fund Operating Expenses(2)......1.269% 2.069% 1.249% 1.069%
(1) The Fund pays the Manager an advisory fee at the annual rate of 0.50% of 1% of average annual net assets of which all is being waived. (2) At present, fees are being waived by the Manager. It is anticipated that once the asset size of the Fund reaches approximately $100 million, these waivers may no longer be necessary. Also, operating expenses are being subsidized through reimbursement by the Manager. This subsidy is being phased out progressively so that the Fund will bear its own expenses, other than management fees, once its asset size reaches approximately $100 million. The undertakings of the Manager as to fee waivers and the practices of the Manager as to expense reimbursement may reduce the fees and expenses of the Fund in order for the Fund to maintain a competitive yield. These waivers and reimbursements can be discontinued at any time. The expense ratios for the fiscal year ended June 30, 2001 after giving effect to the waivers including waivers by the former sub-adviser and the 0.09% expense offset for uninvested cash balances were incurred at the following annual rates: for Class A Shares, management fee, 0.06%; 12b-1 fee, 0.00%; other expenses, 0.33%, for total operating expenses of 0.39%; for Class C Shares, management fee, 0.06%; 12b-1 fee, 0.75%; service fee, 0.25%; other expenses, 0.33%, for total operating expenses of 1.39%; management fees, all other expenses, and total Fund operating expenses for Class I Shares would have been 0.06%, 0.48% and 0.64% respectively: for Class Y, these expenses would have been 0.06%, 0.30%, and 0.36%, respectively. Other expenses for the two classes differ because Class I Shares bear program costs for financial intermediaries of 0.25%, which includes transfer agent services, and charges common to both classes of 0.42%; Class Y Shares bear only the common charges of 0.42% and an allocation for transfer agent services of 0.07%. The following table shows the contractual Management fees and Fund Accounting fees during the Fund's latest fiscal year, the contractual fees if the proposed arrangements had been in effect during that fiscal year and the percentage change. Type of Fund Actually Fee accrued Percent Fee accrued if new change arrangements had been in effect Management fee $258,558(1) $258,558(1) 0% Fund Accounting fee N/A $52,200 (2) N/A Total $258,558 (1) $310,758(1)(2) 20% (1) Waived. (2) Would have been reimbursed by the Manager. Fund Accounting fee reflects a recent contractual increase. What information about the Manager should I know? The Fund's Manager is founder and Manager and/or administrator of each fund in the Aquilasm Group of Funds, which consists of tax-free municipal bond funds, money-market funds and an equity fund. As of July 24, 2002 these funds had aggregate assets of approximately $3.6 billion, of which approximately $2.2 billion consisted of assets of seven tax-free municipal bond funds. The Manager, founded in 1984, is controlled by Mr. Lacy B. Herrmann, directly, through a trust and through share ownership by his wife and daughter as follows: Elizabeth B. Herrmann 27.5% Lacy B. Herrmann 25% Elizabeth B. Herrmann 1993 Annuity Trust 40% Diana P. Herrmann 5% The names, addresses and principal occupations of the principal executive officer and each director of Aquila are as follows: Name Position with Aquila Lacy B. Herrmann Chairman, Chief Executive Officer and Director Diana P. Herrmann President, Chief Operating Officer and Director Elizabeth B. Herrmann Director The address of all of these individuals is 380 Madison Avenue, Suite 2300, New York, NY 10017. When was the Current Agreement last approved? The Current Agreement between the Fund and the Manager was approved by the shareholders of the Fund in October, 1997. It has been renewed annually by the Board of Trustees since that time, most recently in December, 2001. What changes are proposed in the Proposed Agreement? The complete text of the Proposed Agreement, marked to show the proposed changes, is attached to this Proxy Statement. What factors did the Board of Trustees consider in approving the Proposed Agreement? The Trustees noted that the Manager had presented for the Board's consideration materials including, among other things: conditions and trends in the municipal securities markets; an analysis of the Fund's current and historical expenses, originally included in the contract evaluation material reviewed by the Board in connection with renewal of the current agreement in December, 2001; information about the non-profitability of the Manager's mutual fund operations with respect to the Fund due to its fee waiver and subsidization of Fund operating expenses; performance of the Fund as related to various industry indices; and a statement of the rationale underlying the proposed advisory fee structure, including conforming with a trend within the industry. Copies of the Proposed Agreement were also provided. The Trustees also noted that at their request, the Manager had retained at the Manager's expense, a recognized independent outside consulting firm to analyze the frequency with which investment managers have unbundled Fund Accounting from the management fee. The report of that firm indicated that there is a trend in this regard in the mutual fund industry. While the analysis noted that 21 - 25% of funds disclose Fund Accounting as a separate fund expense, it also noted that the frequency is higher in actuality because fund accounting costs are often bundled into custody fees. The Manager advised the Board that this is particularly the case with some of the larger custodian banks based upon its discussions with a number of industry representatives. The independent consultant's analysis also noted that a number of comparable funds treat fund accounting as a fund expense. Within the Aquilasm Group of Funds, Fund Accounting has previously been unbundled from the advisory fee to become a fund expense with respect to three funds. This change resulted in part from the fact that there was a trend in this direction within the industry. From the foregoing, the Board of Trustees derived the following considerations: o Due to the current and prior management fee waiver and the subsidization of the majority of Fund's expenses by the Manager, the performance and expense ratio of the Fund continued to be at a highly competitive level. o Consistent with previous determinations by the Board of Trustees, the contracted Advisory and Administration fees were both reasonable and well in line with industry standards and the Fund's peer group, being in general below those of comparable Funds. As of March 31, 2002, the Fund's gross management fee was 0.50 of 1% versus the average and median of 0.57 and 0.55 of 1%, respectively, of those of comparable funds. o Since inception of the Fund in 1992, the Manager has spent approximately $2 million on subsidization of Fund expenses to ensure that the Fund has a competitive return. The waiver and expense reimbursement by the Manager would continue until such time that the Fund reaches a size significant enough that these fees and expenses can be phased in without adversely affecting the Fund and its performance. o A comparison of the Fund's net operating expenses vis-a-vis comparable funds reflected that most of the comparable funds have higher expense structures than the Fund, based upon data provided by outside consultants and fund financial reports. The Fund's net expense ratio of 0.38 of 1% was also significantly lower than the 0.84 of 1% average and 0.85 of 1% median for all front-end load shares of single-state municipal bond funds (466 funds). o The overall nature and quality of the services provided by the Manager had historically been, and continued to be, very high. o The proposal was representative of a trend within the mutual fund industry. o The Fund has traditionally had a relatively low net ratio of expenses. The Manager has assured through subsidization that the Fund has had consistent performance relative to comparable funds. o The Manager has had increasing costs of its operations, particularly within the past year due to its internalization of the Fund's portfolio research and management function. Being relieved of Fund Accounting costs would assist the Manager in retaining experienced investment professionals and would also assist in the Manager's maintaining new and/or upgraded systems and other technology investments and related support and in providing resources for compliance with the new regulatory and other requirements, an area of growing criticality for all mutual fund companies. o The Fund currently has no competitors in the Utah single-state municipal bond fund marketplace. Upcoming tax law changes (in January 2003) could very well be attractive to competitors. It would, therefore, be advantageous for the Manager to assist in growing the Fund as quickly as possible in order to achieve economies of scale and ensure the Fund's viability for the long-term future. o The Manager had agreed to share the costs with the Fund relating to the proxy statement preparation. o Due to the Manager's subsidization, the proposed change would have no current impact on the Fund's net expense ratio. o If the Fund's asset size increases, the cost of Fund Accounting services as a percentage of its operating expenses will be well within the range of expense ratios of comparable funds and is not expected to adversely affect its competitive position in the future. On the basis of the foregoing considerations, the Board of Trustees, including all of the Independent Trustees, voted to approve the proposed change and recommend that the shareholders of the Fund approve it. The Board of Trustees will consider the proposal again at an in-person meeting immediately preceding the Shareholder's Meeting, at which time the above action is expected to be re-approved. If the Board of Trustees should not approve the Proposed Agreement at that meeting, the proposal will be withdrawn from the shareholder's meeting and will not be voted on by the shareholders. THE BOARD OF TRUSTEES RECOMMENDS THAT THE NEW REVISED AND AMENDED ADVISORY AND ADMINISTRATION AGREEMENT DESCRIBED ABOVE BE APPROVED. Vote Required The favorable vote of the holders of a majority (as defined in the 1940 Act) of the outstanding shares of the Fund, is required for the approval of this Proposal No. 3. Under the 1940 Act, the vote of the holders of a majority of the outstanding shares of the Fund means the vote of the holders of the lesser of (a) 67% or more of the shares of the Fund present at the Meeting or represented by proxy if the holders of more than 50% of such shares are so present or represented, or (b) more than 50% of the outstanding shares of the Fund, with one (1) vote for each dollar (and a proportionate fractional vote for each fraction of a dollar) of net asset value (determined as of the record date) represented by full and fractional shares of all of the Fund's three classes of shares. If the shareholders of the Fund fail to approve Proposal No. 3, the Board of Trustees will consider what action might be appropriate, including calling another meeting of the shareholders or continuing with the present arrangements. Receipt of Shareholder Proposals Under the proxy rules of the Securities and Exchange Commission, shareholder proposals meeting tests contained in those rules may, under certain conditions, be included in the Fund's proxy statement and proxy card for a particular annual meeting. One of these conditions relates to the timely receipt by the Fund of any such proposal. Under these rules, proposals submitted for inclusion in the proxy material for the Fund's next annual meeting after the meeting to which this Proxy Statement relates must be received by the Fund not less than 120 days before the anniversary of the date stated in this Proxy Statement for the first mailing of this Proxy Statement. The date for such submission could change, depending on the scheduled date for the next annual meeting; if so, the Fund will so advise you. The fact that the Fund receives a shareholder proposal in a timely manner does not insure its inclusion in the Fund's proxy material, since there are other requirements in the proxy rules relating to such inclusion. Other Business The Fund does not know of any other matter which will come up for action at the Meeting. If any other matter or matters properly come up for action at the Meeting, including any adjournment of the Meeting, the proxy holders will vote the shares which your proxy card, telephone or Internet vote entitles them to vote, in accordance with their judgment on such matter or matters except as noted. That is, by signing and returning your proxy card or by voting by telephone or the Internet, you give the proxy holders discretionary authority as to any such matter or matters. Important Notice Please Read Immediately Tax-Free Fund For Utah Notice of Annual Meeting of Shareholders to be held on September 27, 2002 PROXY STATEMENT Attachment A TAX-FREE FUND FOR UTAH ADVISORY AND ADMINISTRATION AGREEMENT THIS AGREEMENT, made as of by and between TAX-FREE FUND FOR UTAH (the "Fund"), a Massachusetts business trust, 380 Madison Avenue, Suite 2300, New York, New York 10017 and AQUILA MANAGEMENT CORPORATION (the "Manager"), a New York corporation, 380 Madison Avenue, Suite 2300, New York, New York 10017 W I T N E S S E T H: WHEREAS, the Fund 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 Fund, 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 Fund, 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; and (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 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. (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 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 Manager is authorized and shall authorize any Sub-Adviser, to consider, in determining whether a particular dealer will provide best execution, the dealer's reliability, integrity, financial condition and risk in positioning the securities involved, as well as the difficulty of the transaction in question, and thus need not pay the lowest spread or commission available if the Manager determines in good faith that the amount of commission is reasonable in relation to the value of the brokerage and research services provided by the dealer, viewed either in terms of the particular transaction or the Manager's overall responsibilities. If, on the foregoing basis, the transaction in question could be allocated to two or more dealers, the Manager is authorized, in making such allocation, to consider (i) whether a dealer has provided research services, as further discussed below; and (ii) whether a dealer has sold shares of the Fund. Such research may be in written form or through direct contact with individuals and may include quotations on portfolio securities and information on particular issuers and industries, as well as on market, economic, or institutional activities. The 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 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 Fund'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 Fund 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 willful 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) Indemnification. The Fund shall indemnify the Manager to the full extent permitted by the Fund's Declaration of Trust. 3. Allocation of Expenses The Manager shall, at its own expense, provide office space, facilities, equipment, and personnel for the performance of its functions hereunder and shall pay all compensation of Trustees, officers, and employees of the Fund who are affiliated persons of the Manager. The Fund agrees to bear the costs of preparing and setting in type its prospectuses, statements of additional information and reports to its shareholders, and the costs of printing or otherwise producing and distributing those copies of such prospectuses, statements of additional information and reports as are sent to its shareholders. All costs and expenses not expressly assumed by the Manager under this sub-section or otherwise by the Manager, administrator or principal underwriter or by any Sub-Adviser shall be paid by the Fund, including, but not limited to (i) interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and expenses of its Trustees other than those affiliated with the Manager or such adviser, administrator or principal underwriter; (v) legal and audit expenses; (vi) custodian and transfer agent, or shareholder servicing agent, fees and expenses; (vii) expenses incident to the issuance of its shares (including issuance on the payment of, or reinvestment of, dividends); (viii) fees and expenses incident to the registration under Federal or State securities laws of the Fund or its shares; (ix) expenses of preparing, printing and mailing reports and notices and proxy material to shareholders of the Fund; (x) all other expenses incidental to holding meetings of the Fund's shareholders; (xi) expenses of keeping the Fund's accounting records including the computation of net asset value per share and the dividends; and (xii) such non-recurring expenses as may arise, including litigation affecting the Fund and the legal obligations for which the Fund may have to indemnify its officers and Trustees. 4. Compensation of the Manager The Fund 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. 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 effective 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 December 31 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) Termination. This Agreement may be terminated by the Manager at any time without penalty upon giving the Fund sixty days' written notice (which notice may be waived by the Fund) and may be terminated by the Fund 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 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. 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 0.27 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 Fund's property; the Manager represents that it has notice of the provisions of the Fund's Declaration of Trust disclaiming shareholder liability for acts or obligations of the Fund. 8. Notices of Meetings The Fund agrees that notice of each meeting of the Board of Trustees of the Fund will be sent to the Manager and that the Fund 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: TAX-FREE FUND FOR UTAH ________________________ By:___________________________________ ATTEST: AQUILA MANAGEMENT CORPORATION _______________________ By:___________________________________ THE AQUILASM GROUP OF FUNDS 380 MADISON AVENUE, SUITE 2300 NEW YORK, NY 10017 VOTE BY TELEPHONE OR INTERNET OR MAIL 24 hours a day, 7 days a week Telephone 1-888-221-0697 To vote your shares by telephone, call toll free 1-888-221-0697. You will be prompted to enter the 14-digit control number on this proxy card. Follow the simple recorded instructions using this proxy card as a guide. If you vote by phone, you need not return the proxy card by mail. Internet voting www.proxyweb.com To vote your shares by the Internet, contact the Fund at www.proxyweb.com You will be prompted to enter the 14-digit control number on this proxy card. Follow the simple instructions at the website, using your proxy card as a guide. If you vote by the Internet, you need not return the proxy card by mail. Mail You can vote your shares by completing and returning this proxy card. Please mark your proxy, date and sign it below and return it promptly in the accompanying envelope which requires no postage if mailed in the United States. Please fold and detach card at perforation before mailing Aquilasm Group of Funds TAX-FREE FUND FOR UTAH Proxy for Shareholders Meeting September 27, 2002 Proxy Solicited on Behalf of the Board of Trustees The shareholder of TAX-FREE FUND FOR UTAH (the "Fund") whose signature(s) appears below does hereby appoint LACY B. HERRMANN, DIANA P. HERRMANN and EDWARD M. W. HINES, or any of them, as attorneys and proxies of the undersigned, with full power of substitution, to attend the Annual Meeting of Shareholders of the Fund to be held on Friday, September 27, 2002, at Little America Hotel, 500 South Main Street, Salt Lake City, Utah; at 9:30 a.m. local time, and at all adjournments thereof, and thereat to vote the shares held in the name of the undersigned on the record date for said meeting on the matters listed on the reverse side. Such shares are entitled to one vote for every dollar of net asset value represented by the share balance printed below. Please read the proxy statement prior to voting. Annual Meeting Attendance We encourage you to attend the Annual Meeting of Shareholders. If you can join us, please so indicate on the proxy card or e-mail us at info@aquilafunds.com Address changes/comments: _______________________________ _______________________________ _______________________________ (If you noted any address changes/comments above, please mark corresponding box on other side.) Dated: ____________________, 2002 _________________________________ Signature(s) [Please sign within the box] PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEARS ON THIS PROXY CARD. When signing as a custodian, attorney, executor, administrator, trustee, guardian, etc., please sign your full title as such. Joint owners should each sign. TAX-FREE FUND FOR UTAH Please fill in box(es) as shown using black or blue ink or number 2 pencil. _ [X] PLEASE DO NOT USE FINE POINT PENS. 1. Election of Trustees 01) Lacy B. Herrmann* 02) Gary C. Cornia 03) William L. Ensign 04) Diana P. Herrmann* 05) Anne J. Mills *interested Trustees __ [__] 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. ____________________ [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 below or FOR if no choice is indicated. 2. Action on selection of KPMG LLP as independent auditors (Proposal No. 2 in Proxy Statement) __ __ __ FOR [__] AGAINST [__] ABSTAIN [__] 3. Action on a proposed new revised and amended Investment Advisory and Administration Agreement under which the Fund will become responsible for Fund accounting expenses (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. [__] For address changes and/or comments, please check 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.