IMPORTANT NOTICE
PLEASE READ IMMEDIATELY
CHURCHILL CASH RESERVES TRUST
380 Madison Avenue, Suite 2300, New York, N.Y. 10017
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD
on June 5, 1998
TO SHAREHOLDERS OF THE TRUST:
The purpose of this Notice is to advise you that an Annual Meeting
of the Shareholders of Churchill Cash Reserves Trust (the "Trust")
will be held
Place: (a) at the offices of the Trust
380 Madison Avenue
New York, NY 10017
Time: (b) on June 5, 1998 at 10:00 a.m. local time
Purposes: (c) for the following purposes:
(i) to elect eight Trustees; each Trustee elected
will hold office until the next annual meeting
of the Trust's shareholders or until his or
her successor is duly elected;
(ii) to ratify (that is, to approve) or reject the
selection of KPMG Peat Marwick LLP as the
Trust's independent auditors for the fiscal
year ending September 30, 1998 (Proposal No.
1);
_____________
Please Note:
If you do not expect to attend the Meeting, you are requested to
indicate voting instructions on the enclosed proxy and to date,
sign and return it in the accompanying stamped envelope. To avoid
unnecessary expense to the Trust, your cooperation is requested in
mailing in your proxy no matter how large or small your holding may
be.
(iii) to consider a proposed new investment
advisory and administration agreement between the
Trust and Aquila Management Corporation, which
currently serves as the Trust's Administrator,
under which it would become the Trust's investment
adviser by contracting with others at its expense,
as well as continuing to provide administrative
services as heretofore, and under which all
advisory fees and administration fees would be paid
to it (Proposal No. 2);
(iv) to consider a proposed new sub-advisory
agreement between Aquila Management Corporation as
Manager and Banc One Investment Advisors
Corporation as Sub-Adviser (Proposal No. 3);
(iii) 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 Trust's records at the close of
business on April 10, 1998 (the "record date"). The
number of shares of the Trust that you held at that
time determines 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
May 5, 1998
<PAGE>
AQUILA
CHURCHILL CASH RESERVES TRUST
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 Churchill Cash Reserves
Trust (the "Trust"). 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 on
the enclosed proxy card.
This Notice and Proxy Statement are first being mailed on
or about May 5, 1998.
A copy of the Trust's most recent Annual Report and most
recent Semi-Annual Report will be sent to you without charge upon
written request to the Trust's Distributor, Aquila Distributors,
Inc., 380 Madison Avenue, Suite 2300, New York, NY 10017 or by
calling 800-872-5859 toll-free or 212-697-6666.
The Trust's founder and administrator (the "Administrator")
is Aquila Management Corporation, 380 Madison Avenue, Suite 2300,
New York, NY 10017. The Trust's investment adviser is Banc One
Investment Advisors Corporation, 1111 Polaris Parkway, Columbus,
OH 43240. The parent corporation of the Adviser, Banc One
Corporation has publicly announced that it intends to merge with
First Chicago NBD Corporation in late 1998.
The enclosed proxy card authorizes the persons named (or
their substitutes) to vote your shares; the Trust 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 striking a line through the nominee's name
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 those proposals
by checking the appropriate box "For" or "Against" or instruct
them not to vote your shares on a proposal by checking the
"Abstain" box. If you return your signed proxy card and do not
check any box on a proposal, the proxy holders will vote your
shares for that proposal. Shares held by brokers in "street name"
and not voted or marked as abstentions will not be counted for
purposes of determining a quorum or the vote on any matter.
You may end the power of the proxy holders to vote your
shares after you have signed and returned your proxy card and
before the power is used by (i) so notifying the Trust in
writing; (ii) signing a new and different proxy card (if the
Trust receives it before the old one is used); or (iii) voting
your shares in person or by your duly appointed agent at the
meeting.
The Trust is sending you this Notice and Proxy Statement in
connection with the solicitation by its Trustees of proxy cards
("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. The Trust 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 Trust's shares so that these owners may
authorize the voting of these shares. The Trust will pay these
firms for their out-of-pocket expenses for doing so.
All shareholders of record on the record date are entitled
to vote at the meeting. Each shareholder of the Trust is entitled
to one vote for each share outstanding on the record date.
On the record date, the total number of shares outstanding
for the Trust was 127,336,103. Of the shares of the Trust
outstanding on the record date a nominee of Bank One Trust Co.
held of record 127,335,823 shares (99.9%). The Trust's management
is not aware of any other person who beneficially owned 5% or
more of its outstanding shares on such date. On the basis of
information received from the record owner listed above, the
Trust's management believes (i) that all of the shares indicated
are held for the benefit of custodial or trust clients; and (ii)
that all of such shares could be considered as "beneficially"
owned by the named shareholders in that they possessed shared
voting and/or investment powers as to such shares.
ELECTION OF TRUSTEES
At the Meeting, eight Trustees are to be elected. 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. 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 instruct the proxy holders as to
the voting of your shares as to the election of Trustees.
Each of the nominees is presently a Trustee, and was
previously elected by the shareholders in September, 1997. Each
of the nominees has been a Trustee since the beginning of the
Trust's operations in July, 1985, except that Mr. Nightingale has
been a Trustee since 1993 and Mr. Dean, Ms. Herrmann and Mr.
Ramsey have been Trustees since 1995. All of the Trustees are
also Trustees of Churchill Tax-Free Trust, the only operating
portfolio of which is Churchill Tax-Free Fund of Kentucky, a tax-
free municipal bond fund. In the table below and elsewhere in
this Proxy Statement, the Trust's Administrator, Aquila
Management Corporation, is referred to as the "Administrator" and
the Trust's Distributor, Aquila Distributors, Inc., is referred
to as the "Distributor." On the record date, the Trustees and
officers as a group owned less than 1% of the outstanding shares.
Mr. Herrmann is an interested person of the Trust as that term is
defined in the Investment Company Act of 1940 (the "1940 Act") as
an officer of the Trust and as a Director, officer and
shareholder of the Distributor. Ms. Herrmann is an interested
person of the Trust as a member of his immediate family. Mr. Dean
is an interested person of the Trust as a trustee of a trust that
owns shares of the Adviser's parent. They are so designated by an
asterisk.
Described in the following material are the name, positions
with the Trust, age as of March 31, 1998, and business experience
during at least the past five years (other than with the Trust)
of each nominee and all officers of the Trust. None of the
Trustees owns any shares of the Trust.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, Age: 68
Founder, President and Chairman of the Board of Aquila Management
Corporation since 1984, the sponsoring organization and Manager,
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: Pacific Capital Cash Assets
Trust since 1984; Pacific Capital U.S. Government Securities Cash
Assets Trust since 1988; Pacific Capital Tax-Free Cash Assets
Trust since 1988; each of which is a money market fund, and
together with Capital Cash Management Trust ("CCMT") are called
the Aquila Money-Market Funds; and Hawaiian Tax-Free Trust since
1984; Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; Tax-Free Fund For
Utah since 1992; and Narragansett Insured Tax-Free Income Fund
since 1992; each of which is a tax-free municipal bond fund, and
two equity funds, Aquila Rocky Mountain Equity Fund since 1993
and Aquila Cascadia Equity Fund, since 1996, which, together with
this Trust are called the Aquila Bond and Equity Funds; Vice
President, and Director, and formerly Secretary and Treasurer of
Aquila Distributors, Inc. since 1981, distributor of the above
funds; President and Chairman of the Board of Trustees of CCMT, a
money market fund since 1981, and an Officer and Trustee/Director
of its predecessors since 1974; Chairman of the Board of Trustees
and President of Prime Cash Fund (which is inactive), since 1982
and of Short Term Asset Reserves 1984-1996; President and a
Director of STCM Management Company, Inc., sponsor and sub-
adviser to CCMT; Chairman, President, and a Director since 1984,
of InCap Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term Asset Reserves,
and Founder and Chairman of several other money market funds;
Director or Trustee of OCC Cash Reserves, Inc., Oppenheimer Quest
Global Value Fund, Inc., Oppenheimer Quest Value Fund, Inc., and
Trustee of Quest For Value Accumulation Trust, The Saratoga
Advantage Trust, and of the Rochester Group of Funds, each of
which is an open-end investment company; Trustee of Brown
University, 1990-1996 and currently Trustee Emeritus; actively
involved for many years in leadership roles with university,
school and charitable organizations.
Thomas A. Christopher, Trustee, Age: 50
Shareholder of Robinson, Hughes & Christopher, C.P.A.s, P.S.C.,
since 1977; President of A Good Place for Fun, Inc., a sports
facility, since 1987; active member of the American Institute of
Certified Public Accountants; Board of Directors of the Kentucky
Society of CPAs 1991 to 1994; Trustee of Churchill Tax-Free Fund
of Kentucky since 1992; presently active in leadership roles with
various civic, community and church organizations.
Douglas Dean*, Trustee, Age: 49
Founder and President of Dean, Dorton & Ford P.S.C., a public
accounting firm, since 1979; previously Staff Accountant, Tax
Supervisor and Tax Manager with Coopers & Lybrand, a public
accounting firm; Trustee of Trent Equity Fund, an equity mutual
fund, 1992-1994; Trustee of Churchill Tax-Free Fund of Kentucky
since 1987; Active as an officer and board member of various
charitable and community organizations.
Diana P. Herrmann*, Trustee and Senior Vice President, Age: 40
Trustee of Tax-Free Trust of Arizona and Tax-Free Trust of Oregon
since 1994, of Churchill Tax-Free Fund of Kentucky since 1995, of
Aquila Cascadia Equity Fund since 1996 and of Aquila Rocky
Mountain Equity Fund and Tax-Free Fund for Utah since 1997;
President and Chief Operating Officer of the Administrator since
1997; Senior Vice President and Secretary, formerly Vice
President of the Administrator since 1986 and Director since
1984; Senior Vice President or Vice President and formerly
Assistant Vice President of the Aquila Money-Market Funds since
1986; Vice President of the Aquila Bond and Equity Funds since
1997; Vice President of InCap Management Corporation since 1986
and Director since 1983; Assistant Vice President of Oxford Cash
Management Fund, 1986-1988; Assistant Vice President and formerly
Loan Officer of European American Bank, 1981-1986; daughter of
the Trust's President; Trustee of the Leopold Schepp Foundation
(academic scholarships) since 1995; actively involved in mutual
fund and trade associations and in college and other volunteer
organizations.
Theodore T. Mason, Trustee, Age: 62
Managing Director of EastWind Power Partners, Ltd. since 1994;
Second Vice President, Alumni Association, SUNY Maritime College
1998; Director for the same organization, 1997; Director of
Cogeneration Development of Willamette Industries, Inc., a forest
products company, 1991-1993; Vice President of Corporate
Development of Penntech Papers, Inc., 1978-1991; Vice President
of Capital Projects for the same company, 1977-1978; Vice
Chairman of the Board of Trustees of CCMT since 1981; Trustee and
Vice President, 1976-1981, and formerly Director of its
predecessor; Director of STCM Management Company, Inc.; Vice
Chairman of the Board of Trustees and Trustee of Prime Cash Fund
(which is inactive) since 1982; Trustee of Short Term Asset
Reserves, 1984-1986 and 1989-1996, of Hawaiian Tax-Free Trust and
Pacific Capital Cash Assets Trust since 1984, of Churchill Cash
Reserves Trust since 1985, of Pacific Capital Tax-Free Cash
Assets Trust and Pacific Capital U.S. Government Securities Trust
since 1988 and of Churchill Tax-Free Fund of Kentucky since 1992;
Vice President and Trustee of Oxford Cash Management Fund, 1983-
1989; Vice President of Trinity Liquid Assets Trust, 1983-1985;
President and Director of Ted Mason Venture Associates, Inc., a
venture capital consulting firm, 1972-1980; Advisor to the
Commander, U.S. Maritime Defense Zone Atlantic, 1984-1988;
National Vice President, Surface/Subsurface, Naval Reserve
Association, 1985-1987; National Vice President, Budget and
Finance, for the same Association, 1983-1985; Commanding Officer
of four Naval Reserve Units, 1974-1985; Captain, USNR, 1978-1988.
Anne J. Mills, Trustee, Age: 59
Vice President for Business Affairs of Ottawa University since
1992; Director of Customer Fulfillment, U.S. Marketing and
Services Group, IBM Corporation, 1990-1991; Director of Business
Requirements of that Group, 1988-1990; Director of Phase
Management of that Group, 1985-1988; Budget Review Officer of the
American Baptist Churches/USA, 1994-1997; Director of the
American Baptist Foundation 1985-1986 and since 1998; Trustee of
Brown University; Trustee of Churchill Cash Reserves Trust since
1985, of Tax-Free Trust of Arizona since 1986, of Churchill Tax-
Free Fund of Kentucky, and Capital Cash Management Trust since
1987 and of Tax-Free Fund For Utah since 1994.
William J. Nightingale, Trustee, Age: 68
Chairman and founder (1975) and Senior Advisor since 1995 of
Nightingale & Associates, L.L.C., a general management consulting
firm focusing on interim management, divestitures, turnaround of
troubled companies, corporate restructuring and financial
advisory services; President, Chief Executive Officer and
Director of Bali Company, Inc., a manufacturer of women's
apparel, which became a subsidiary of Hanes Corporation, 1970-
1975; prior to that, Vice President and Chief Financial Officer
of Hanes Corporation after being Vice President-Corporate
Development and Planning of that company, 1968-1970; formerly
Senior Associate of Booz, Allen & Hamilton, management
consultants, after having been Marketing Manager with General
Mills, Inc.; Trustee of Narragansett Insured Tax-Free Income Fund
since 1992 and of Churchill Cash Reserves Trust and Churchill
Tax-Free Fund of Kentucky since 1993; Director of Kasper A.S.L.
Ltd.; The Leslie Fay Company, Inc.; Ring's End, Inc.
James R. Ramsey, Trustee, Age: 49
Vice President for Finance and Administration, and Professor of
Economics, Western Kentucky University; Trustee of Churchill Tax-
Free Fund of Kentucky since 1987; Chief State Economist and
Executive Director of the Office for Financial Management and
Economic Analysis of the Commonwealth of Kentucky, 1981-1992;
Adjunct Professor of the University of Kentucky; Assistant Dean
and Director of Public Administration of Loyola University in New
Orleans, Louisiana, 1978-1981; Assistant Professor of Public
Finance and Administration of Loyola University, 1977-1981;
Assistant Professor of Economics, Middle Tennessee State
University, 1975-1977; published numerous articles, monographs
and working papers on economics and fiscal management.
Charles E. Childs, III, Senior Vice President, Age: 40
Vice President - Administration and formerly Assistant Vice
President and Associate of the Administrator since 1987; Senior
Vice President, Vice President or Assistant Vice President of the
Money-Market Funds since 1988; Northeastern University, 1986-1987
(M.B.A., 1987); Financial Analyst, Unisys Corporation, 1986;
Associate Analyst at National Economic Research Associates, Inc.
(NERA), a micro-economic consulting firm, 1979-1985.
John M. Herndon, Vice President and Assistant Secretary, Age: 59
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Jerry G. McGrew, Vice President, Age: 53
Senior Vice President of Aquila Rocky Mountain Equity Fund since
1997; Senior Vice President of Churchill Tax-Free Fund of
Kentucky since 1994, Vice President since 1987; Vice President of
Tax-Free Fund For Utah since 1992; Registered Principal since
1993; Vice President of Aquila Distributors, Inc. since 1993;
Registered Representative of J.J.B. Hilliard, W.L. Lyons Inc.,
1983-1987; Account Manager with IBM Corporation, 1967-1981;
Gubernatorial appointee, Kentucky Financial Institutions Board,
since 1993; Chairman, Total Quality Management for Small
Business, 1990-1994; President of Elizabethtown/Hardin County,
Kentucky, Chamber of Commerce, 1989-1991; President of
Elizabethtown Country Club, 1983-1985.
Rose F. Marotta, Chief Financial Officer, Age: 73
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-1991;
formerly Treasurer of the predecessor of CCMT; Treasurer and
Director of STCM Management Company, Inc., since 1974; Treasurer
of Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash
Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Administrator since 1984 and of
the Distributor since 1985.
Richard F. West, Treasurer, Age: 62
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT Insight Funds, Inc., 1986-
1988; Vice President of Lehman Management Co., Inc. and Assistant
Treasurer of Lehman Money Market Funds, 1981-1985; Controller of
Seligman Group of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, Age: 58
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust, 1982-
1985 and Trustee of that Trust, 1985-1986; Secretary of Oxford
Cash Management Fund, 1982-1988.
Patricia A. Craven, Assistant Secretary & Compliance Officer,
Age: 31
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the
Administrator and the Distributor since 1995; Secretary of the
Distributor since 1997; formerly a Legal Associate for
Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Trust does not pay fees to Trustees affiliated with the
Administrator or to any of the Trust's officers. During the
fiscal year ended September 30, 1997, the Trust paid $49,552 in
fees and reimbursement of expenses to its other Trustees. The
Trust is one of the 14 funds in the Aquilasm Group of Funds,
which consist of tax-free municipal bond funds, money market
funds and two equity funds. The following table lists the
compensation of all Trustees who received compensation from the
Trust and the compensation they received during the Trust's
fiscal year from other funds in the Aquilasm Group of Funds. None
of such Trustees has any pension or retirement benefits from the
Trust or any of the other funds in the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards which
Compensation funds in the the Trustee
Name from the Trust Aquila Group now serves
<S> <C> <C> <C>
Thomas A. $6,348 $15,867 2
Christopher
Douglas Dean $5,820 $12,623 2
Theodore T. $6,999 $51,687 8
Mason
Anne J. $5,460 $36,824 6
Mills
William J. $5,614 $16,050 3
Nightingale
James R. $5,585 $13,420 2
Ramsey
</TABLE>
The Trust's Administrator is administrator to the Aquilasm Group of
Funds which consists of tax-free municipal bond funds, money market funds
and two equity funds. As of December 31, 1997, these funds had aggregate
assets of approximately $2.8 billion, of which approximately $1.9 billion
consisted of assets of the tax-free municipal bond funds. The Administrator
is controlled by Mr. Lacy B. Herrmann, through share ownership directly,
through a trust and by his wife. For the fiscal year ended September 30,
1997, the fees payable to the Adviser under the Advisory Agreement were
$417,092 of which $54,585 was voluntarily waived. During the same period,
fees payable to the Administrator under the Administration Agreement were
$213,571 of which $27,571 was voluntarily waived.
The Distributor currently handles the distribution of the shares of
fourteen funds (five money market funds, seven tax-free municipal bond
funds and two equity funds) including the Trust. 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. At the date of this proxy statement, there is a
proposed transaction whereby all of the shares of the Distributor, which
are currently owned 75% by Mr. Herrmann and 25% by Diana P. Herrmann, will
be owned by certain directors and/or officers of the Administrator and/or
the Distributor including Mr. Herrmann and Ms. Herrmann.
Other Information on Trustees
The Trustees have appointed an Audit Committee consisting of all of
the Trustees (the "Independent Trustees") who are not "interested persons,"
as that term is defined in the 1940 Act. 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 Trust's internal accounting procedures and
controls. The Committee held one meeting during the Trust's last fiscal
year. The Board of Trustees does not have a nominating committee. During
the Trust's last fiscal year, the Board of Trustees held four meetings. All
Trustees were present at least 75% of the total number of Board and (if
such Trustee was a member of that Committee) Audit Committee meetings.
RATIFICATION OR REJECTION OF SELECTION OF
INDEPENDENT AUDITORS
(Proposal No. 1)
KPMG Peat Marwick LLP is being recommended as the Trust's independent
auditors for the fiscal year ending September 30, 1998; such selection is
submitted to the shareholders for ratification or rejection.
The firm has no direct or indirect financial interest in the Trust,
the Trust's Adviser or the Trust's Administrator. It is expected that
representatives of the firm will not be present at the meeting but will be
available should any matter arise requiring their presence.
BACKGROUND AND REASONS FOR
PROPOSALS NO. 2 AND NO. 3
Proposals No. 2 and No. 3 are designed to change the form of the
Trust's investment advisory and administration arrangements to a new
structure involving an adviser and a sub-adviser. The proposed arrangements
will not result in any change in overall management fees paid by the Trust,
nor any change in the parties providing these services. Marketing efforts
and positioning of the Trust will remain the same with a strong local
orientation.
The Board of Trustees believes that the new structure would, among
other things, enhance the ability of the Trust to secure stable,
continuous, high-quality local portfolio management services, and would
improve the ability of the Trust to obtain various other services on
beneficial terms.
Under the proposals, Aquila Management Corporation ("Aquila"), which
currently serves as the Trust's administrator, would in addition become
investment adviser under a new agreement (the "Advisory and Administration
Agreement") under which it would also continue to provide the Trust with
all administrative services (Proposal No. 2). Also, under a proposed
agreement (the "Sub-Advisory Agreement") between Aquila and Banc One
Investment Advisors Corporation ("BOIAC"), the current investment advisory
agreement would be replaced by one under which Aquila would appoint BOIAC
as Sub-Adviser to the Trust (Proposal No. 3). Under the Sub-Advisory
Agreement, BOIAC would continue to provide the Trust with advisory services
of the kind which it currently provides to the Trust. The duties of the
administrator, now performed under an administration agreement, would be
performed by Aquila under the Advisory and Administration Agreement where
it would be referred to as the "Manager." The current administration
agreement will no longer be needed and will terminate upon implementation
of the proposed agreements.
The Board of Trustees believes that it is in the best interest of the
shareholders to provide Aquila with the authority to retain an investment
sub-adviser (subject to the approval of the Board of Trustees and the
shareholders) and to terminate a sub-adviser (subject to the approval of
the Board of Trustees) if it were to deem doing so to be in the best
interests of the Trust and its shareholders. The Board of Trustees
considers that this authority will enhance Aquila's ability to obtain for
the Trust benefits of stable, continuous, high-quality portfolio
management.
In addition, Aquila has advised the Board of Trustees that it plans to
propose a similar reorganization to other funds in the Aquilasm Group of
Funds. If, as expected, those proposals are adopted, the following
additional reasons support the proposed reorganization, although there can
be no assurance that they will be realized:
There would be heightened public recognition of the Aquilasm Group and
its funds, and better public relations possibilities.
The new arrangements would benefit the entire group because they would
tend to increase the negotiating power of Aquila in dealing with
service providers to the funds in various ways.
The arrangements potentially increase the standardization of
procedures, e.g. compliance, among the advisers.
The Board of Trustees noted that Aquila is the founder and organizer
of the Trust and has continuously served as its administrator since 1992.
Since 1985, Aquila has formed and sponsored seven state-specific tax-free
municipal bond funds, which have grown to a total of $1.9 billion in
combined assets. These funds and their years of inception are Hawaiian Tax-
Free Trust (1985), Tax-Free Trust of Oregon (1986), Tax-Free Trust of
Arizona (1986), Tax-Free Fund of Colorado (1987), the Trust (1987),
Narragansett Insured Tax-Free Income Fund (1992) and Tax-Free Fund For Utah
(1992). Aquila has also sponsored five money market funds and two regional
capital appreciation equity funds. As of December 31, 1997, the Aquilasm
Group of Funds had combined assets of approximately $2.8 billion.
Recent years have seen a consolidation in the financial services
industry that has resulted in many prominent local banks becoming parts of
larger national institutions. A number of these transactions have affected
the advisers of other Aquila funds. In every instance, Aquila has been able
to secure commitments to continuous management, but in some instances it
became necessary for Aquila to seek out other organizations to provide the
continuity and quality of service that investors expect. The Board of
Trustees believes that by providing Aquila with the authority as to the
investment advisory function contained in the new agreements, the Board
would better enable Aquila to ensure continuity of portfolio management.
Another anticipated advantage of the proposed arrangements is that, to
the extent extended, as planned, to other Aquila funds, Aquila expects to
improve its ability to negotiate beneficial terms with service providers,
such as transfer agents and pricing services, under substantially uniform
agreements that would provide services to all of the funds. Because of the
combined size of the funds, Aquila expects that its collective bargaining
position would be enhanced and that costs for these services may be lower
than would be obtained if these arrangements were negotiated on a piecemeal
basis. There can be no assurance that this will occur.
The Board of Trustees believes that making Aquila Manager has definite
organizational benefits, including a better structure for handling any
possible future changes. The costs of the change in structure will be borne
by Aquila and not the Trust.
In approving of the proposed new arrangements, the Board of Trustees
stipulated that the Sub-Advisory Agreement could provide for its
termination by the Adviser upon reasonable notice, provided, however, that
the Adviser should not terminate the Sub-Advisory Agreement (and any
attempt by the Adviser to terminate such agreement would be null and void)
unless, prior to giving notice to the Sub-Adviser of such termination,
either (i) the Advisory Agreement had been reapproved by the Board of
Trustees of the Trust, in the manner described in Section 15 of the 1940
Act, in contemplation of the Adviser's managing the investment portfolio of
the Trust without the assistance of a Sub-Adviser; (ii) a new Sub-Advisory
Agreement, to take effect upon the termination of the existing Sub-Advisory
Agreement, had been approved by the Board of Trustees and the shareholders
of the Trust as contemplated by Section 15 of the 1940 Act; (iii) the Board
had authorized such termination; or (iv) the Adviser had complied with such
other or additional directives and authorizations of the Board with respect
to such termination as may from time to time be in effect.
Other Changes
The current advisory agreement and the Administration Agreement
provide that fees payable thereunder shall not exceed certain amounts or
percentages of the Trust's net assets or income. These provisions, which
were required by certain State securities laws, have had no effect on the
Trust, due to its size. The state securities laws were preempted by Federal
legislation in 1996 and accordingly, these provisions, which are no longer
required by law, would not be included in the new agreements.
Other Information About Aquila
Aquila, founded in 1984, is controlled by Mr. Lacy B. Herrmann
(directly, through a trust and through share ownership by his wife).
Aquila's shares are owned as follows:
Elizabeth B. Herrmann 35%
Lacy B. Herrmann 25%
Elizabeth B. Herrmann
1993 Annuity Trust 40%
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.
Other Information about BOIAC
The Trustees noted that Banc One Investment Advisors Corporation
("BOIAC") is a wholly-owned subsidiary of Bank One, NA, in turn a wholly-
owned subsidiary of Banc One Ohio Corporation, a bank holding company,
which is in turn a wholly-owned subsidiary of BANC ONE CORPORATION ("Banc
One"), also a bank holding company. The Trust has been advised that no
single shareholder owns more than 10% of the outstanding voting securities
of Banc One.
The Trustees noted that BANC ONE CORPORATION ("Banc One") currently
has affiliate banking organizations in Kentucky, Arizona, Colorado,
Illinois, Indiana, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia
and Wisconsin. On a consolidated basis, Banc One had assets of
approximately $115.9 billion as of December 31, 1997. The Adviser was
responsible for management of over $51 billion of investments of which $9.9
billion were in money-market obligations.
The Trustees noted that BOIAC has been the Trust's adviser since 1995.
The Trust's advisory agreement was last submitted to the shareholders for
approval in 1995.
The Board noted that BOIAC advises the One Group Family of Mutual
Funds with $25 billion in assets. It employs 81 investment professionals.
BOIAC has a short-term investment management group consisting of 4
investment management professionals which is supported by a 13-member Fixed
Income Research Group. BOIAC is experienced in compliance with Rule 2a-7
under the 1940 Act. The Trust has been advised that certain Bank One
affiliates of BOIAC intend to use the Trust as an alternative money market
fund for temporary cash investments of clients. Substantial funds are, and
are expected to continue to be invested in the Trust from such sources.
BOIAC is currently the investment adviser for the following money
market funds and receives from them the fees indicated in the following
table:
<TABLE>
<CAPTION>
Name of Fund Assets as of Advisory fee rate
December 31, 1997
(000 omitted)
<S> <C> <C>
The One Group $758,055 0.08 of 1%
Treasury Only
Money Market
Portfolio
The One Group $587,536 0.08 of 1%
Treasury Money
Market Portfolio
The One Group $587,536 0.30 of 1% (1)
U.S. Treasury
Securities Money
Market Portfolio
The One Group $2,977,614 0.30 of 1% (1)
Prime Money
Market Portfolio
The One Group $594,524 0.25 of 1% (1)
Municipal Money
Market Portfolio
The One Group $99,948 0.25 of 1% (1)
Ohio Municipal Money
Market Portfolio
(1) Fees after waivers currently in effect.
</TABLE>
Since March, 1995, an affiliate of the Adviser, Bank One
Trust Company, N.A., has acted as custodian (the "Custodian") for
all of the funds in the Aquilasm Group of Funds, except for the
Trust and since September, 1995, for the Trust, as well. BOIAC
also acts as sub-adviser for Tax-Free Trust of Arizona and
Churchill Tax-Free Fund of Kentucky, other funds in the Aquilasm
Group of Funds.
The asset size of the Trust has been less than BOIAC and
Aquila envisioned at the time BOIAC became the investment adviser
of the Trust. So that Aquila will receive revenues at the rate
which it had anticipated from the asset size originally
contemplated, BOIAC has undertaken to make certain monthly
payments to Aquila. So far, BOIAC has made two payments of
$8,000, and a third such payment is expected. No payment from
the assets of the Trust is involved.
BOIAC has advised the Trust that it is subject to the Glass-
Steagall Act. The Glass-Steagall Act, among other things,
prohibits, with certain exceptions, banks and bank holding
companies from engaging in the business of issuing, underwriting,
selling or distributing securities and from affiliating with
companies engaged in those activities. In April 1971, the United
States Supreme Court held, in Investment Company Institute v.
Camp, that certain provisions of the Glass-Steagall Act
applicable to both national and Federal Reserve member banks
prohibit any such bank from operating a collective investment
fund. The fund which was the subject of litigation was registered
as an open-end investment company, and participations in the fund
were offered on a continuous basis directly by the bank.
Subsequent to that decision, the Board of Governors of the
Federal Reserve System amended its Regulation Y to forbid a bank
holding company or subsidiary thereof from organizing, sponsoring
or controlling a registered open-end investment company
continuously engaged in distributing its shares but to permit a
non-banking subsidiary of a bank holding company to serve as
investment adviser to a registered investment company, subject to
a number of terms and conditions. The validity of this amendment
to Regulation Y, as it relates to closed-end investment
companies, was upheld by the Supreme Court in February, 1981 in
Board of Governors v. Investment Company Institute. In addition,
the Comptroller of the Currency has taken the position that a
national bank having fiduciary powers may act as investment
advisor to an open-end investment company. In the view of BOIAC,
it is permitted under current Federal banking laws to perform the
services for the Trust required by the current advisory agreement
and the proposed sub-advisory agreement. However, future changes
in federal or state statutes and regulations relating to the
permissible activities of banks and bank holding companies,
including their bank and non-bank subsidiaries, as well as future
judicial or administrative decisions and interpretations of
present and future statutes and regulations, might at some future
time prevent it from continuing to serve in those capacities.
In the event BOIAC is prohibited from acting as the Trust's
investment sub-adviser, it is probable that the Trust's Manager
or the Trustees would recommend to the shareholders the selection
of another qualified sub-adviser.
BOIAC believes that it must comply with the position of the
Comptroller of the Currency referred to above and, because not
legally applicable to a national bank acting as an investment
adviser, need not comply with the provisions of Regulation Y (and
the interpretations thereof) of the Board of Governors of the
Federal Reserve System that specify the terms on which a non-
banking subsidiary of a bank holding company may serve as
investment adviser to an open-end investment company.
Among the restrictions imposed by the Comptroller of the
Currency are that BOIAC may not be involved in the promotion or
distribution of shares of the Trust and that Trust accounts
administered by BOIAC may not purchase shares of the Trust unless
lawfully authorized by the instrument creating the relationship
or by court order or by local law. Under Kentucky law, if the
portfolios of that investment company or investment trust consist
of investments permitted by the applicable fiduciary instrument,
BOIAC, in its capacity as a fiduciary, may purchase shares of the
Trust. Collective investment funds operated by BOIAC may not
purchase shares of the Trust.
The Chief Executive Officer and directors of BOIAC are as
follows:
Position(s)
Held with
Banc One
Name Investment Advisors Principal Occupation
Michael J. Director Executive Vice President
McMennamin and Chief Financial Officer
BANC ONE CORPORATION
Frederick L. Director Chairman and Chief Executive
Cullen President and Chief Financial
Officer, Bank One, NA and
President and Chief Executive
Officer, Banc One Ohio Corporation
David R. Director Chairman and Chief Executive
Meuse Officer, Banc One Capital Holdings
Corporation
Garrett Director President and Chief Executive
Jamison Officer, Fiduciary and
Banc One Investment Management
and Trust Group
Geoff Director Senior Managing Director, Banc
Von Kuhn One Institutional Asset and Trust
Group
Michael V. Secretary Attorney, BANC ONE CORPORATION
Wible
David J. Chairman and Chairman and Chief Executive
Kundert Chief Officer, Banc One Investment
Executive Management and Trust Group
Officer
The address of these persons is 1111 Polaris Parkway, Columbus, OH 43240.
Annual Fee Rates
(Fee rates are annual rates as a percentage of the Trust's average daily net
assets.)
<TABLE>
<CAPTION>
Under
arrangements
Type of payment Under arrangements if Proposals 2
made by the Trust currently in effect and 3 are adopted
<S> <C> <C>
Advisory fee 0.33 of 1% 0.50 of 1%
(Sub-Advisory fee
paid by the Adviser) 0 (0.33 of 1%)
Administration fee 0.17 of 1% 0
Total Payments
by the Trust 0.50 of 1% 0.50 of 1%
</TABLE>
The following table shows the advisory and administration fees the
Trust paid during its last fiscal year, the fees it would have paid if the
proposed arrangements had been in effect during that fiscal year and the
percentage change.
<TABLE>
<CAPTION>
Type of payment Amount Amount that would Difference between
by the Trust actually paid have been paid the old and new
(net of if the new arrangements as a
fee waivers) arrangements percentage of the
had been in effect old arrangements
<S> <C> <C> <C>
Advisory fee $363,504 $549,506 151%
(Sub-Advisory
fee Paid by
the Adviser) 0 ($363,404) N/A
Administration
fee $186,000 0 0%
Total payments $549,506 $549,506 0%
</TABLE>
Proposals No. 2 and No. 3 are designed to operate together.
Neither separately will have the intended results. Neither
proposal will be implemented unless both are approved by
shareholders. Accordingly, the proposed new Investment Advisory
and Administration Agreement and the proposed Sub-Advisory
Agreement will go into effect upon approval by shareholders of
both Proposals No. 2 and 3. If these proposals are not both
approved, the current arrangements will remain in effect. The
Board of Trustees will consider what further action is
appropriate, which could include calling another shareholder
meeting.
The Trustees also noted that in addition to the foregoing
matters, Aquila has more than twelve years of experience in
forming and administering tax-exempt municipal bond funds,
including identifying and securing the services of competent
local investment advisers. The Trustees also noted that Aquila
had secured the agreement of BOIAC to serve as the Trust's Sub-
Adviser on the terms described in Proposal No. 3.
For the reasons set forth above, at an in-person meeting
called and held for the purpose in December, 1997, the Board of
Trustees, including a majority of the Trustees who are not
parties to the Advisory and Administration Agreement or the Sub-
Advisory Agreement or "interested persons" (as defined in the
1940 Act) of any such party (the "Independent Trustees"), voted
to approve the Advisory Agreement and Sub-Advisory Agreement.
ACTION ON A NEW INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
WHICH WILL PROVIDE THAT ALL ADVISORY FEES AND ADMINISTRATION FEES
WILL BE PAID TO AQUILA MANAGEMENT CORPORATION ALTHOUGH COMBINED
ADVISORY AND ADMINISTRATION FEES WILL REMAIN AT THE CURRENT LEVEL
(PROPOSAL NO. 2)
The new Investment Advisory and Administration Agreement
(the "Advisory Agreement") has several parts, most of which are
substantially identical to corresponding provisions in the
Trust's former advisory agreements and administration agreement.
The Advisory Agreement contains provisions relating to investment
advice for the Trust and management of its portfolio that are
substantially identical to prior advisory agreements, except that
the Adviser has the power to delegate its advisory functions to a
Sub-Adviser, which it will employ at its own expense. The
Advisory Agreement contains provisions relating to administrative
services that are substantially identical to those contained in
the Trust's current and prior administration agreements. In the
following description, Aquila is referred to as the "Manager."
Description of the Investment Advisory and Administration
Agreement
The Advisory Agreement provides that subject to the
direction and control of the Board of Trustees of the Trust, the
Manager shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust; and
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust.
The Advisory Agreement provides that, subject to the
termination provisions described below, 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. The Manager will delegate all of
such functions to BOIAC under the proposed Sub-Advisory
Agreement. See "Background and Reasons for Proposals No. 2 and
No. 3."
The Advisory Agreement provides that subject to the
direction and control of the Board of Trustees of the Trust, the
Manager shall provide all administrative services to the Trust
other than those relating to its investment portfolio which have
been delegated to a Sub-Adviser of the Trust 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 Trust;
(ii) oversee all relationships between the Trust and any
sub-adviser, transfer agent, custodian, legal counsel,
auditors 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 Trust and for the sale, servicing or redemption of
the Trust's shares;
(iii) either keep the accounting records of the Trust,
including the computation of net asset value per share and
the dividends (provided that if there is a Sub-Adviser,
daily pricing of the Trust's portfolio shall be the
responsibility of the Sub-Adviser under the Sub-Advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory to
the Trust;
(iv) maintain the Trust's books and records, and prepare (or
assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Trust'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 Trust;
(v) prepare, on behalf of the Trust and at the Trust's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Trust and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Trust and broker-dealers, or if any such
inquiry or communication is more properly to be responded to
by the Trust's shareholder servicing and transfer agent or
distributor, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
The Advisory Agreement contains provisions relating to
compliance of the investment program, responsibility of the
Manager for any investment program managed by it, allocation of
brokerage, and responsibility for errors that are substantially
the same as the corresponding provisions in the Sub-Advisory
Agreement. See Proposal No. 3.
The Advisory Agreement provides that the Manager shall, at
its own expense, provide office space, facilities, equipment, and
personnel for the performance of its functions thereunder and
shall pay all compensation of Trustees, officers, and employees
of the Trust who are affiliated persons of the Manager.
The Trust shall 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 the agreement or otherwise
by the Manager, administrator or principal underwriter or by any
Sub-Adviser shall be paid by the Trust, 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
sub-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 Trust or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Trust; (x) all other expenses
incidental to holding meetings of the Trust's shareholders; and
(xi) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations for
which the Trust may have to indemnify its officers and Trustees.
Under the Advisory and Administration Agreement, the Trust
will pay to Aquila a fee payable monthly and computed on the net
asset value of the Trust as of the close of business each
business day at the annual rate of 0.50 of 1% of such net asset
value.
The Advisory Agreement provides that 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.
The Advisory Agreement provides that it will become
effective on the date of its approval by the shareholders of the
Trust and will, unless terminated as hereinafter provided,
continue in effect until the April 30 next preceding the first
anniversary of the effective date of the Advisory 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 Trust's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to the Advisory
Agreement or "interested persons" (as defined in the 1940 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 Trust and by such a vote of the Trustees.
The Advisory Agreement provides that it may be terminated by
the Manager at any time without penalty upon giving the Trust
sixty days' written notice (which notice may be waived by the
Trust) and may be terminated by the Trust at any time without
penalty upon giving the Manager sixty days' written notice (which
notice may be waived by the Manager), provided that such
termination by the Trust shall be directed or approved by a vote
of a majority of its Trustees in office at the time or by a vote
of the holders of a majority (as defined in the 1940 Act) of the
voting securities of the Trust outstanding and entitled to vote.
The specific portions of the Advisory Agreement which relate to
providing investment advisory services will automatically
terminate in the event of the assignment (as defined in the 1940
Act) of the Advisory Agreement, but all other provisions relating
to providing services other than investment advisory services
will not terminate, provided however, that upon such an
assignment the annual fee payable monthly and computed on the net
asset value of the Trust as of the close of business each
business day shall be reduced to the annual rate of 0.17 of 1% of
such net asset value.
Action Requested
THE BOARD OF TRUSTEES RECOMMENDS THAT THE PROPOSED INVESTMENT
ADVISORY AND ADMINISTRATION AGREEMENT DESCRIBED ABOVE BE
APPROVED. See "Background and Reasons for Proposals No. 2 and No.
3" for the reasons.
Vote Required
The favorable vote of the holders of a majority (as defined
in the 1940 Act) of the outstanding shares of the Trust, is
required for the approval of this Proposal No. 2. Under the 1940
Act, the vote of the holders of a majority of the outstanding
shares of the Trust means the vote of the holders of the lesser
of (a) 67% or more of the shares of the Trust 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 Trust, 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 Trust's three classes of shares.
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 shares of shareholders who
have voted by proxy against a proposal will be voted against
adjournment.
ACTION UPON A PROPOSED NEW
SUB-ADVISORY AGREEMENT BETWEEN AQUILA MANAGEMENT CORPORATION
AS MANAGER AND BOIAC AS SUB-ADVISER
(PROPOSAL NO. 3)
The proposed Sub-Advisory Agreement (the "Sub-Advisory
Agreement") has substantially the same terms as the current
advisory Agreement, except that the Sub-Advisory Agreement is
with the Manager and not with the Trust, the compensation of the
Sub-Advisor is paid by the Manager and not by the Trust and the
state-imposed expense limitation described above has been
eliminated.
The Sub-Advisory Agreement provides that the Manager
appoints BOIAC as Sub-Adviser to render, to the Manager and to
the Trust, 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 Trust.
The Sub-Advisory Agreement provides that the Sub-Adviser will act
as managerial investment adviser to the Trust with respect to the
investment of the Trust's assets, and will supervise and arrange
the purchase of securities for and the sale of securities held in
the portfolio of the Trust.
The Sub-Advisory Agreement provides in general that subject
to the direction and control of the Manager and the Board of
Trustees of the Trust, the Sub-Adviser shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust;
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust; and
(v) consult with the Manager in connection with its duties
thereunder.
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser 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 Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the
fundamental policies of the Trust, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Trust.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall give to the Manager and to the Trust the benefit of its
best judgment and effort in rendering services thereunder, but
the 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 Sub-Adviser. Under the Sub-Advisory Agreement, the
Sub-Adviser will not be liable for any error in judgment or for
any loss suffered by the Trust or its security holders in
connection with the matters to which the 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
the Agreement.
The Sub-Advisory Agreement provides that nothing in it shall
prevent the Sub-Adviser or any affiliated person (as defined in
the Act) of the 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 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
Sub-Adviser expressly represents that, while acting as Sub-
Adviser, it will undertake no activities which, in its judgment,
will adversely affect the performance of its obligations to the
Trust under the Agreement. It is agreed that the Sub-Adviser
shall have no responsibility or liability for the accuracy or
completeness of the Trust's Registration Statement under the Act
and the Securities Act of 1933, except for information supplied
by the Sub-Adviser for inclusion therein. The Sub-Adviser shall
promptly inform the Trust as to any information concerning the
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 the
Agreement. To the extent that the Manager is indemnified under
the Trust's Declaration of Trust with respect to the services
provided under the Agreement by the Sub-Adviser, the Manager
agrees to provide the Sub-Adviser the benefits of such
indemnification.
The Sub-Advisory Agreement provides that in connection with
its duties to arrange for the purchase and sale of the Trust's
portfolio securities, the Sub-Adviser shall select such broker-
dealers ("dealers") as shall, in the Sub-Adviser's judgment,
implement the policy of the Trust to achieve "best execution,"
i.e., prompt, efficient, and reliable execution of orders at the
most favorable net price. The Sub-Adviser shall cause the Trust
to deal directly with the selling or purchasing principal or
market maker without incurring brokerage commissions unless the
Sub-Adviser determines that better price or execution may be
obtained by paying such commissions; the Trust expects that most
transactions will be principal transactions at net prices and
that the Trust will incur little or no brokerage costs. The Trust
understands that purchases from underwriters include a commission
or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread
between the bid and asked prices. In allocating transactions to
dealers, the 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
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 Sub-
Adviser's overall responsibilities. If, on the foregoing basis,
the transaction in question could be allocated to two or more
dealers, the Sub-Adviser 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 Trust. 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 Trust recognizes that
no dollar value can be placed on such research services or on
execution services and that such research services may or may not
be useful to the Trust and may be used for the benefit of the
Sub-Adviser or its other clients.
The Sub-Advisory Agreement provides that the Sub-Adviser
agrees to maintain, and to preserve for the periods prescribed,
such books and records with respect to the portfolio transactions
of the Trust as are required by applicable law and regulation,
and agrees that all records which it maintains for the Trust on
behalf of the Manager shall be the property of the Trust and
shall be surrendered promptly to the Trust or the Manager upon
request. The Sub-Adviser agrees to furnish to the Manager and to
the Board of Trustees of the Trust such periodic and special
reports as each may reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall bear all of the expenses it incurs in fulfilling its
obligations under the Agreement. In particular, but without
limiting the generality of the foregoing: the Sub-Adviser shall
furnish the Trust, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for
carrying out its duties under the Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Trust 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 Trust. The Sub-Adviser will also pay all
compensation of the Trust's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement provides that the Manager agrees
to pay the Sub-Adviser, and the Sub-Adviser agrees to accept as
full compensation for all services rendered by the Sub-Adviser as
such, a management fee payable monthly and computed on the net
asset value of the Trust as of the close of business each
business day at the annual rate of 0.33 of 1% of such net asset
value.
The Sub-Advisory Agreement provides that it will become
effective upon approval by the shareholders of the Trust and
shall, unless terminated as thereinafter provided, continue in
effect until the April 30 next preceding the first anniversary of
the effective date of the 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 Trust's Board of
Trustees, including a vote of a majority of the Trustees who are
not parties to the 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 Trust and by such a vote of
the Trustees.
The Sub-Advisory Agreement provides that it may be
terminated by the Sub-Adviser at any time without penalty upon
giving the Manager and the Trust sixty days' written notice
(which notice may be waived). It may be terminated by the Manager
or the Trust at any time without penalty upon giving the Sub-
Adviser sixty days' written notice (which notice may be waived by
the Sub-Adviser), provided that such termination by the Trust
shall be directed or approved by a vote of a majority of its
Trustees in office at the time or by a vote of the holders of a
majority (as defined in the Act) of the voting securities of the
Trust outstanding and entitled to vote. The Sub-Advisory
Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act) or the termination of the
Advisory and Administration Agreement.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE PROPOSED SUB-
ADVISORY AGREEMENT DESCRIBED ABOVE BE APPROVED. See "Background
and Reasons for Proposals No. 2 and No. 3" for the reasons.
Vote Required
The favorable vote of the holders of a majority (as defined
in the 1940 Act) of the outstanding shares of the Trust, is
required for the approval of this Proposal No. 3. See Proposal
No. 2 for a description of such a majority.
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
Trust's proxy statement and proxy card for a particular annual
meeting. One of these conditions relates to the timely receipt by
the Trust of any such proposal. Under these rules, proposals
submitted for inclusion in the proxy material for the Trust's
next annual meeting after the meeting to which this Proxy
Statement relates must be received by the Trust not less than 120
days before the anniversary of the date stated on the first page
of this Proxy Statement relating to 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 Trust will so advise you.
The fact that the Trust receives a shareholder proposal in a
timely manner does not insure its inclusion in the Trust's proxy
material, since there are other requirements in the proxy rules
relating to such inclusion.
OTHER BUSINESS
The Trust 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 the proxy cards entitle them to vote in accordance
with their judgment on such matter or matters. That is, by
signing and returning your proxy card, you give the proxy holders
discretionary authority as to any such matter or matters.
<PAGE>
CHURCHILL CASH RESERVES TRUST
PROXY FOR SHAREHOLDERS MEETING JUNE 5, 1998
PROXY SOLICITED ON BEHALF OF THE TRUSTEES
The undersigned shareholder of CHURCHILL CASH RESERVES TRUST
(the "Trust") 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 Trust to be held
on June 5, 1998, at the offices of the Trust, 380 Madison Avenue,
Suite 2300, New York, NY 10017, at 10:00 a.m. local time, and at
all adjournments thereof, and thereat to vote the shares held in
the name of the undersigned on the record date for said meeting
on the matters listed below.
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.
Management recommends a vote FOR all nominees listed below
and FOR the proposals listed below. The shares represented
hereby will be voted as indicated below or FOR if no choice is
indicated.
As to any other matter said attorneys shall vote in
accordance with their best judgment.
Please indicate your vote by an "X" in the appropriate box
below.
Election of Trustees---.
__
[__] FOR all nominees listed below
__
[__] VOTE WITHHELD for all nominees listed
below
(Instructions: To withhold authority to vote for any one or more
of the nominees, strike a line through the name of that nominee
or the names of such nominees in the list below.)
LACY B. HERRMANN, THOMAS A. CHRISTOPHER, DOUGLAS DEAN,
DIANA P. HERRMANN, THEODORE T. MASON,
ANNE J. MILLS, WILLIAM J. NIGHTINGALE, JAMES R. RAMSEY
Action on selection of KPMG Peat
Marwick LLP as independent auditors
__ __ __
(Proposal No. 1) FOR [__] AGAINST [__] ABSTAIN [__]
Action on proposed Investment
Advisory and Administration Agreement with
Aquila Management Corporation
__ __ __
(Proposal No. 2) FOR [__] AGAINST [__] ABSTAIN [__]
Action on proposed Sub-Advisory
Agreement with Banc One Investment
Advisers Corporation
__ __ __
(Proposal No. 3) FOR [__] AGAINST [__] ABSTAIN [__]
Dated: ____________ ______, 1998
Month Day
__________________________________
SIGNATURE(S)
__________________________________
SIGNATURE(S)
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing
as a custodian, attorney, executor, administrator, trustee,
guardian, etc., please sign your full title as such. Joint
owners should each sign.
