AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND, N-1A, 2000-04-18

AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND
N-1A, 2000-04-18

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<PAGE> 1
As filed with the Securities and Exchange Commission on April 17, 2000

Securities Act Registration No. 333-
---------
Investment Company Act Registration No. 811-
---------

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

PRE-EFFECTIVE AMENDMENT NO. [_]

POST-EFFECTIVE AMENDMENT NO. [_]

and/or

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]

AMENDMENT NO. [_]

(Check appropriate box or boxes)

----------------

AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND

(Exact name of registrant as specified in charter)

380 MADISON AVENUE
SUITE 2300
NEW YORK, NEW YORK 10017

(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 697-6666

ROBERT W. ANDERSON
380 MADISON AVENUE
SUITE 2300
NEW YORK, NEW YORK 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE)

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.

REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(a), MAY DETERMINE.

TITLE OF SECURITIES BEING REGISTERED....SHARES OF BENEFICIAL INTEREST,
PAR VALUE $.01 PER SHARE.

================================================================================

<PAGE> 2

[AQUILA LOGO]

AQUILA / LAFFER

S&P 500 COMPETITIVE ADVANTAGE FUND

PROSPECTUS

CAP-WEIGHTED FUND
EQUAL-WEIGHTED FUND

CLASS A SHARES XXXXX XX, 2000
CLASS C SHARES

THE AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND consists of two separate
Funds: the CAP-WEIGHTED FUND and the EQUAL-WEIGHTED FUND. The objective of both
Funds is capital appreciation. Each Fund seeks to achieve its objective mainly
through a proprietary method developed by Dr. Arthur B. Laffer of investing in
common stocks of companies selected from among those included in the S&P 500
Index, which includes primarily large-cap U.S. companies. The Funds are not
index funds.

The CAP-WEIGHTED FUND allocates its investments among the industries that
the Sub-Adviser selects in accordance with the market capitalization of
companies within those industries.

The EQUAL-WEIGHTED FUND allocates its investments equally among the
industries selected for investment. Within those industries, however, the Fund
allocates its investments in accordance with the market capitalization of
companies within those industries.

The Securities and Exchange Commission has not approved or disapproved the
Funds' securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.

<PAGE> 3

THE FUNDS' OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS

"WHAT IS EACH FUND'S OBJECTIVE?"

Each Fund's investment objective, which is a fundamental policy of the
Fund, is capital appreciation. This means we seek investments whose price will
increase over time. While we make every effort to achieve each Fund's investment
objective, we can't guarantee success.

"WHAT IS EACH FUND'S INVESTMENT STRATEGY?"

Each Fund seeks to achieve its objective by investing at least 80% of its
total assets in equity securities of companies included in the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index), which includes primarily
large-cap U.S. companies from a variety of industries. Each Fund's portfolio
management style focuses on general economic trends first, then moves to
industries and within industries, to companies that are considered beneficiaries
of positive economic trends. Using this top-down approach, each Fund purchases
the securities of companies that fall within industry groups that the
Sub-Adviser believes have at least a 60% probability of outperforming the S&P
500 Index. From this point, the investment strategy for each Fund differs.

The CAP-WEIGHTED FUND allocates its investments among the industries that
the Sub-Adviser selects in accordance with the market capitalization of
companies within those industries.

The Equal-Weighted Fund thus gives more weight to the smaller
capitalization stocks than does the Cap-Weighted Fund, and thus has a smaller
stock capitalization bias relative to the S&P 500 Index.

For more information on how we select each Fund's investments, see "How do
we choose each Fund's investments?"

The S&P 500 Index is an unmanaged, market-value weighted index of 500
stocks selected by S&P on the basis of their market size, liquidity and industry
group representation. The S&P 500 Index is composed of stocks representing more
than 80% of the total market value of all publicly traded U.S. common stocks and
is widely regarded as representative of the performance of the U.S. stock market
as a whole.

"Standard & Poor's Corporation," "Standard & Poor's(R)," "S&P(R)" "S&P 500(R)",
"Standard & Poor's 500(R)", and "500(R)" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Aquila Management Corporation,
on behalf of the Aquila/Laffer S&P 500 Competitive Advantage Fund, for use by
the Funds. These Funds are not sponsored, endorsed, sold, or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability

<PAGE> 4

of investing in either Fund.

"WHAT ARE THE MAIN RISKS OF INVESTING IN EACH FUND?"

All investments involve risk. Because each Fund is not an index fund, each
Fund's performance will not necessarily correspond to the performance of the S&P
500 Index. The econometric model we use may not yield results that we expect,
causing a Fund's return to be lower than that of the S&P 500 Index.

Because each Fund invests primarily in common stocks, the value of each
Fund's shares depends on the value of the stocks and other securities it owns.
The value of the individual securities each Fund owns will go up or down
depending on the performance of companies that issue them, general market and
economic conditions, and investor confidence. Even political news can influence
marketwide trends, the outcome of which may be positive or negative, short-term
or long-term. Other factors may be ignored by the market as a whole but may
cause movements in the price of one company's stock or the stocks of one or more
industries (for example, rising oil prices may lead to a decline in airline
stocks).

A Fund could lose money if the stocks selected for the Fund's portfolio are
experiencing financial difficulty, or are out of favor in the market because of
weak performance, poor earnings forecasts, negative publicity or
industry-specific market cycles. Also, the Sub-Adviser's investment advice could
lead a Fund to concentrate or invest over 25% of its assets in a single
industry. If so, the Fund could be subject to risks that are particular to that
industry.

Like any mutual fund, an investment in a Fund could lose value and you
could lose money. For more detailed information about the risks associated with
each Fund, see "What are the main risk factors and special considerations of
investing in each Fund?"

3
<PAGE> 5

FEES AND EXPENSES OF THE FUNDS

This table describes the fees and expenses that you may pay if you buy and hold
shares of either Fund. The sales charges, fees and expenses of a class are the
same for each Fund.

<TABLE>
<CAPTION>
Class A Class C
Shares Shares
------- -------
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)

Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price)... x.xx% None

Maximum Deferred Sales Charge (Load)
(as a percentage of the lesser of
redemption value or purchase price)..... None(1) 1.00%(2)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and
Distributions.............................. None None
Redemption Fee........................... None None
Exchange Fee............................. None None

Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)

Management Fees.......................... 0.xx% 0.xx%
Distribution (12b-1) Fee ................. 0.xx% 0.75%
All Other Expenses:
Service Fees......... None 0.25%
Other Expenses(3).. 0.29% 0.29%
Total All Other Expenses......... 0.29% 0.54%
Total Annual Fund
Operating Expenses...................... x.xx% x.xx%
</TABLE>

(1) If you buy Class A shares in transactions of $1 million or more, there is
no initial sales charge but you will be subject to a contingent deferred
sales charge of up to 1% if you redeem your shares during the first two
years after purchase and 0.50 of 1% during the third and fourth years after
purchase.

(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds or original purchase price, if lower, of the shares if redeemed
during the first 12 months after purchase.

(3) Expenses may vary in future years. Because each Fund is new and has no
operating history, "Other Expenses" reflect estimates of the transfer agent
fees, custodial expenses, and accounting and legal expenses, based on the
Adviser's projections of what those expenses will be in each Fund's first
fiscal year.

<PAGE> 6

Example

This Example is intended to help you compare the cost of investing in either
Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in either Fund for the time periods
indicated and then redeem (sell) all of your shares at the end of those periods.
The Example also assumes that your investment has a 5% return each year, you
reinvest all dividends and distributions, and that each Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:

<TABLE>
<CAPTION>
1 year 3 years
------ -------
<S> <C> <C>
Class A Shares....................... $xxx $xxx

Class C Shares....................... $xxx $xxx

You would pay the following
expenses if you did not redeem your

Class C Shares....................... $xxx $xxx
</TABLE>

The shares offered by this Prospectus are Class A and Class C shares. Each Fund
offers one other class of shares, primarily to institutional investors, that has
a different fee structure than Class A and Class C shares. The difference in the
fee structure among the classes is the result of their separate arrangements for
shareholder and distribution services and not the result of any difference in
amounts charged by the Adviser or Sub-Adviser for core investment advisory
services. Accordingly, the core investment advisory services do not vary by
class. A difference in fees will result in different performance for those
classes. For further information about the various classes, see the Funds'
Statement of Additional Information, which can be obtained as indicated on the
back cover of this Prospectus.

<PAGE> 7

INVESTMENT OF THE FUNDS' ASSETS

"ARE THE FUNDS RIGHT FOR ME?"

Each Fund's investment objective is capital appreciation. To achieve this
objective, each Fund will invest at least 80% of its total assets in the common
stocks and other equity securities of companies included in the S&P 500 Index.
The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and
industry group representation. It is a market-value weighted index (stock price
times number of shares outstanding), with each stock's weight in the Index
proportionate to its market value. S&P, which maintains the Index, has
identified over 100 major industry categories and then allocates a
representative sample of stocks to them. For more information on how each Fund
selects its investments, see "How do we choose each Fund's investments?"

Each Fund's shares are designed to be a suitable investment for investors
who:

- seek capital appreciation from their investment;

- are comfortable with a Fund's potential price volatility; and

- are comfortable with the risks associated with the Fund's investment
strategy.

Each Fund seeks to outperform the S&P 500 Index rather than to simply
achieve results that correspond to the price and yield performance of the Index.
Thus, each Fund is not what is commonly referred to as an "index fund," which
would generally try to replicate the performance of a given index through
passive investment techniques (for example, by investing in securities of that
index in the same proportions as those of the index).

Our Funds are actively managed by a portfolio manager that makes decisions
based on Dr. Laffer's econometric (that is, statistical and mathematical) model.
The difference between the two Funds results from how we allocate their
investments. The CAP-WEIGHTED FUND allocates its investments in industries that
the Sub-Adviser selects in accordance with the market capitalization of
companies within those industries. On the other hand, the EQUAL-WEIGHTED FUND
allocates its investments equally among industries selected by the Sub-Adviser
but then, within those industries, allocates its investments in accordance with
a company's market capitalization. Thus, the EQUAL-WEIGHTED FUND gives more
weight to smaller capitalization stocks than does the CAP-WEIGHTED FUND and,
therefore, has a smaller stock bias relative to the S&P 500 Index. For more
information on Dr. Laffer's model and the Funds, see "How do we choose each
Fund's investments?"

Although certain of each Fund's investments may produce dividends or
interest income, current income should not be a consideration in selecting
either Fund as an investment.

<PAGE> 8

"WHAT ARE EQUITY SECURITIES?"

Under normal conditions, it is anticipated that each Fund will invest at
least 80%, and possibly up to 100%, of its total assets in equity securities. In
addition to common stocks, the term "equity securities" includes preferred
stocks, notes convertible into common stocks and S&P Depositary Receipts
(SPDRs).

SPDR shares trade on the American Stock Exchange at approximately one-tenth
the value of the S&P 500 Index. SPDR shares are relatively liquid and, because
they exactly replicate the S&P 500 Index, any price movement away from the value
of the underlying stocks is generally quickly eliminated by professional
traders. Thus, the Adviser believes that the movement of SPDR share prices
should closely track the movement of the S&P 500 Index.

"WHAT ARE SHORT-TERM DEBT SECURITIES?"

Under normal circumstances, each Fund intends to invest no more than 5% of
its total assets in short-term debt securities. These include high quality money
market instruments such as certain U.S. Treasury and agency obligations;
commercial paper (short-term, unsecured, negotiable promissory notes of a
domestic or foreign company); short-term debt obligations of corporate issuers;
certificates of deposit; bankers' acceptances; or shares of money market funds.

"HOW DO WE CHOOSE EACH FUND'S INVESTMENTS?"

We use a "top-down" investment approach. This approach focuses on general
economic trends first, and then finds the sectors or industries that are
expected to be beneficiaries of positive economic trends.

In selecting investments for each Fund, the Adviser will rely on the
econometric model developed and maintained by the Sub-Adviser. Using its model,
the Sub-Adviser first assigns to almost every industry group represented in the
S&P 500 Index a probability as to their producing a return exceeding that of the
Index. Then, from among those industries that it believes will beat the
performance of the Index, the Sub-Adviser identifies those industries that it
believes have at least a 60% chance of beating the Index. (We sometimes refer to
these as preferred industries). The Sub-Adviser does not use in its model
industries that do not include enough earnings history to yield, in the
Sub-Adviser's opinion, statistically accurate results. Traditionally, the
Sub-Adviser's econometric model has included about 83 industry groups out of
over 100 included by S&P.

At the beginning of each quarter, the Adviser uses the Sub-Adviser's
analysis to purchase stocks that are included in the S&P 500 Index and that are

7
<PAGE> 9

issued by companies within the preferred industry groups identified by the
Sub-Adviser. Although each Fund invests in the same industries and the same
stocks within each industry, each Fund allocates a different portion of its
assets to these investments. The CAP-WEIGHTED FUND allocates its investments
among the industries that the Sub-Adviser selects in accordance with the market
capitalization of companies within those industries. The EQUAL-WEIGHTED FUND
allocates its investments equally among the industries selected for investment.
The Fund, however, will allocate its investments among companies within those
industries in accordance with their market capitalization of.

For example:

For the CAP-WEIGHTED FUND, the Adviser gives the industries that the
Sub-Adviser selects a weight based upon their market capitalization. For
example, if in the Sub-Adviser's judgment, four industries have a probability of
60% or better of outperforming the Index, and contain one company each with a
market capitalization of $400 million, $300 million, $200 million and $100
million, respectively, then the Fund would invest 40%, 30%, 20% and 10% of its
assets, respectively, in those companies.

For the EQUAL-WEIGHTED FUND, the Adviser gives the industries that the
Sub-Adviser selects equal weights. So, if in the judgment of the Sub-Adviser,
four industries have a probability of 60% or better of outperforming the Index,
the Adviser will allocate approximately 25% of the Fund's assets to each
industry. Then, the Fund invests in companies within those preferred industries
in accordance with their market capitalization. So, if a company's market cap
represents 100% of the industry's market cap and the Sub-Adviser has selected
four industries for investment, the Fund will invest approximately 25% of its
assets in that company's stock. Therefore, the construction of the Fund's
portfolio gives more weight to smaller capitalization stocks than does the
CAP-WEIGHTED FUND.

The econometric model selects industries, not industry weights. Some
investors may prefer capitalization-weighted industry groupings and other
investors may prefer equal-weighted industry groupings. That is why we created
each of the Funds.

At the beginning of each quarter, the Adviser sells any portfolio
securities issued by companies that are not within the Sub-Adviser's preferred
industries.

The Funds intend to adhere to the econometric model developed by Dr. Laffer
regardless of the performance of the economy or the stock market. The Funds will
not engage in market-timing investment strategies, nor will the Adviser
intervene in operation of the model for speculative, defensive or short-term
profit-taking reasons.

"WHAT ARE THE MAIN RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN THE
FUNDS?"

<PAGE> 10

- - Stock markets rise and fall daily. As with any investment whose performance
relates to these markets, the value of your investment in either Fund will
fluctuate. Therefore, loss of money is a risk of investing in the Funds.

- - Your investment in the Funds reflects the large-cap portion of the U.S.
stock market, as measured by the S&P 500 Index. Both Funds follow these
stocks during upturns as well as downturns. Therefore, there is the risk
that a particular stock a Fund owns could go down.

- - DESCRIBE THE RISK OF INVESTING IN EQUAL-WEIGHTED VS. CAP-WEIGHTED FUND. [TO
BE FILLED IN.]

- - The proprietary econometric model may not perform as expected - the Funds'
Sub-Adviser may be wrong about which industries will outperform the S&P 500
Index.

- - Changes in economic or political conditions, both domestic and
international, may result in a decline in value of a Fund's investments.

- - It is possible, as a result of the Sub-Adviser's econometric model, that a
Fund may invest, more than 25% of its assets in a single industry. So, the
Fund could be subject to risks that are particular to that industry.

- - The Funds could engage in frequent trading. If the Sub-Adviser's model
indicates that an industry previously thought to have at least a 60% chance
of beating the Index no longer does, the Adviser will sell each Fund's
investments in companies within that industry. A high portfolio turnover
rate (above 100%) can result in high brokerage commissions and other
transaction costs, which are borne directly by each Fund. High portfolio
turnover also may mean that a greater amount of shareholder distributions
will be taxed as ordinary income rather than long-term capital gains.

- - The Funds also may invest in short-term debt securities. The value of these
securities may fall when interest rates rise (this is known as interest
rate risk) and there is the risk that the default of an issuer would leave
the Funds with unpaid interest or principal (this is known as credit risk).
Also, investing in these securities limits potential for capital
appreciation.

The Funds are designed for long-term investors. The Funds are not intended
for investors seeking assured income or preservation of capital.

Before you invest, please read the entire prospectus.

An investment in the Funds is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government

9
<PAGE> 11

agency.

FUND MANAGEMENT

"HOW ARE THE FUNDS MANAGED?"

The Board of Trustees oversees the actions of the Adviser, the Sub-Adviser
and the Distributor and decides on general policies. The Board also oversees the
officers, who conduct and supervise the daily business operations of the Funds.

Aquila Management Corporation, 380 Madison Avenue, Suite 2300, New York, NY
10017, founder and manager of the Funds, is the Funds' investment adviser under
an Advisory and Administration Agreement. The Adviser is responsible for the
day-to-day investment advisory duties, including portfolio management. The
Adviser also is responsible for supervising the Funds' Sub-Adviser. The Adviser
is founder and manager and/or administrator to the Aquila(sm) Group of Funds,
which consists of tax-free municipal bond funds, money market funds and equity
funds. As of December 31, 1999, these funds had aggregate assets of
approximately $3.0 billion. For the year ending March 31, 2001, each Fund will
pay the Adviser an annual advisory fee of xx% of each Fund's average net assets.

Laffer Investments, Inc., 5405 Morehouse Drive, Suite 340, San Diego,
California, 92121, the Funds' Sub-Adviser, provides economic, financial and
statistical analyses to the Adviser and helps monitor the investment program and
composition of each of the Funds' portfolios. The Sub-Adviser is a newly-formed
investment adviser. However, Laffer Associates, an affiliated company of the
Sub-Adviser, has performed economic and financial consulting for over 20 years.
Laffer Investments, Inc. and Laffer Associates are 100% controlled by Dr. Laffer
and his family. The principal officers and investment personnel of the
Sub-Adviser are the same as that of Laffer Associates. Dr. Arthur B. Laffer is
Chairman of the Sub-Adviser and Laffer Associates. For the year ending March 31,
2001, the Adviser will pay the Sub-Adviser an annual sub-advisory fee of xx% of
each Fund's average net assets.

Dr. Laffer, who created the model on which the Adviser bases its investment
decisions, was a member of President Reagan's Economic Policy Advisory Board
from 1981 to 1988. Dr. Laffer is currently a member of the Congressional Policy
Advisory Board (CPAB), which seeks to bring to Congress new and fresh ideas
about the role of government. Dr. Laffer received a BA in economics from Yale
University. He received an MBA and PhD in economics from Stanford University.
Dr. Laffer formerly was Distinguished University Professor at Pepperdine
University, and a member of the Pepperdine Board of Directors. He was the
Charles B. Thorton Professor of Business Economics at the University of Southern
California from 1976 to 1984. He was one of four Visiting Fellows at the
University of Chicago in the academic year 1984-1985, Associate Professor of
business economics at the University of Chicago from 1970 to 1976. Dr. Laffer
has over 30 years experience in the investment industry.

<PAGE> 12

Ms. Barbara S. Walchli, CFA, is the Funds' portfolio manager. Ms. Walchli
will execute the investment decisions in accordance with the results of Dr.
Laffer's model. For more information on how each Fund selects its investments,
see "How do we choose each Fund's investments?"

Ms. Walchli is a Senior Vice President of the Adviser and has been each
Fund's portfolio manager since its inception. She also has been the portfolio
manager of the Aquila Rocky Mountain Equity Fund since July, 1999. From 1996 to
1997, Ms. Walchli was co-manager of Banc One Investment Advisors' $1.4 billion
Large Company Growth Fund and $300 million Income Equity Fund. From 1995 to
1996, Ms. Walchli was Senior Vice President/Director of Equity Research for
First Interstate Capital Management. She brings to the Funds 18 years of
analytical experience, including 12 years developing short- and long-term equity
strategy. She received an AB in economics from Smith College and an MBA in
finance from Arizona State University.

NET ASSET VALUE PER SHARE

The net asset value, or NAV, of the Funds' shares is determined as of 4:00
p.m., New York time, on each day that the New York Stock Exchange is open
(business day), by dividing the value of each Fund's net assets (that is, the
value of the assets less liabilities) allocable to each class by the total
number of shares of such class then outstanding. The price at which a purchase
or redemption of shares is effected is based on the next calculated NAV after
your purchase or redemption order is considered received in proper form. (See
"What price will I pay for the Funds' shares?" under "Alternate Purchase
Plans.") The New York Stock Exchange annually announces the days on which it
will not be open. The most recent announcement indicates that it will not be
open on the following days: New Year's Day, Martin Luther King Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

PURCHASES

Initial Offering of Shares

After the registration statement for the Funds is declared effective, the
Distributor will solicit subscriptions for Class A and Class C shares of each
Fund during a subscription period beginning xxxxxx, 2000 and expected to end
xxxxxx, 2000. Fund shares subscribed for during this time will be issued at a
net asset value of $xx.xx per share on a closing date expected to occur on
xxxxx, 2000. An initial sales charge of x.xx% (x.xx% of the net amount invested)
is imposed on each transaction in Class A shares. This initial shares charge may
be reduced depending on the amount of the purchase as shown in the table under,
"What are the sales charges for purchases of Class A shares?" An initial sales
charge of 1% (x.xx% of the net amount invested) is imposed on each transaction
in Class C shares. The minimum initial investment for each class is $1,000.

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<PAGE> 13

If you subscribe for shares, you will not have any rights as a shareholder
of a Fund until your shares are paid for and their issuance has been reflected
in the Fund's books. We reserve the right to withdraw, modify or terminate the
initial offering without notice and to refuse any order in whole or in part. We
anticipate that continuous offering of the Funds' shares will begin xxxxx, 2000.

The Funds will be closed for purchases and exchanges from on or about
xxxxxxx, 2000 to xxxxxx, 2000, while the Adviser invests the proceeds of the
offering in accordance with each Fund's investment objective and policies (the
closing period). During the closing period, shareholders may redeem existing
positions or exchange out of a Fund, but the Funds will be closed to new
purchases and no exchanges into a Fund will be accepted.

"ARE THERE ALTERNATE PURCHASE PLANS?"

Each Fund provides individuals with alternate ways to purchase shares
through two separate classes of shares (Class A and Class C). Although the
classes have different sales charge structures and ongoing expenses, they both
represent interests in the same portfolio of securities. You should choose the
class that best suits your own circumstances and needs.

"HOW MUCH MONEY DO I NEED TO INVEST?"

Option 1

- Initially, $1,000.

- Subsequently, any amount (for investments in shares of the same
class).

Option 2

- $50 or more if you establish an Automatic Investment Program.

- Subsequently, any amount you specify ($50 or more).

You are not permitted to maintain both an Automatic Investment Program and
an Automatic Withdrawal Plan simultaneously. See "Automatic Withdrawal
Plan."

Your investment must be drawn in United States dollars on a United States
commercial bank, savings bank or credit union or United States branch of a
foreign commercial bank (each of which we call a Financial Institution).

"HOW DO I PURCHASE SHARES?"

You may purchase a Fund's shares:

<PAGE> 14

- through a broker, a bank or a financial intermediary that has a sales
agreement with the Funds' Distributor, Aquila Distributors, Inc., in
which case that institution will take action on your behalf, and you
will not personally perform the steps indicated below; or

- directly through the Distributor, by mailing payment to the Funds'
Agent, PFPC Inc., at the following address:

PFPC Inc.
Attn: Aquila(sm) Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809

The price you will pay for the shares you purchase is NAV plus a sales charge
for Class A shares and NAV for Class C shares. See "What price will I pay for
the Funds' shares?"

Opening an Account Adding to an Account
- ------------------ --------------------

- - Make out a check for Make out a check for
the investment amount the investment amount
payable to the appropriate payable to the
Fund. appropriate Fund.

- - Complete the Application Fill out the pre-printed
included with this Prospectus, stub attached
indicating the features to the Funds'
you wish to authorize. Confirmations or supply the name(s)
of account owner(s),
the account number, and
the name of the Fund.

- - Send your check and Send your check and
completed application completed application
to your dealer or to your broker or
to the Funds' to the Funds'
Agent, PFPC Inc., at the Agent, PFPC Inc., at the
address shown above. address shown above.

Unless you indicate otherwise, your investment will be made in Class A
shares.

<PAGE> 15

"CAN I TRANSFER FUNDS ELECTRONICALLY?"

You can have funds transferred electronically, in amounts of $50 or more,
from your Financial Institution if it is a member of the Automated Clearing
House. You may make investments through the following two electronic transfer
features:

- AUTOMATIC INVESTMENT: You can authorize a pre-determined amount to be
regularly transferred from your account.

- TELEPHONE INVESTMENT: You can make single investments of up to $50,000
by telephone instructions to the Agent.

Before you can transfer funds electronically, the Funds' Agent must have
your completed Application authorizing these features. If you initially decide
not to choose these conveniences and then later wish to do so, you must complete
a Ready Access Features Form which is available from the Distributor or Agent,
or if your account is set up so that your broker or dealer makes these sorts of
changes, ask your broker or dealer to make them. The Funds may modify or
terminate these investment methods or charge a fee for this service, upon 30
days' written notice to shareholders.

REDEEMING YOUR INVESTMENT

You may redeem some or all of your shares by a request to the Agent. Shares
will be redeemed at the next NAV determined after your request has been received
in proper form.

There is no minimum period for investment in the Funds, except for shares
recently purchased by check or by Automatic or Telephone Investment as discussed
above.

If you own both Class A and C shares and do not specify which class you
wish to redeem, we will redeem your Class A shares first.

Certain shares are subject to a contingent deferred sales charge, or CDSC. These
are:

- Class C shares held for less than 12 months (from the date of
purchase). (See "Alternate Purchase Plans.")

- Certain Class A shares. (See "Sales Charges for Purchases of $1
Million or More.")

Upon redemption, enough additional shares will be redeemed to pay for any
applicable CDSC.

A redemption may result in a tax liability for you.

<PAGE> 16

"HOW CAN I REDEEM MY INVESTMENT?"

By mail, send instructions to:

PFPC Inc.
Attn: Aquila(sm) Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809

By telephone, call:

800-xxx-xxxx

By FAX, send
instructions to:

302-791-3055

For liquidity and convenience, the Funds offers expedited redemption.

EXPEDITED REDEMPTION METHODS
(NON-CERTIFICATE SHARES ONLY)

You may request expedited redemption for any shares not issued in certificate
form in two ways:

1. BY TELEPHONE. The Agent will take instructions from anyone by telephone
(800-xxx-xxxx) to redeem shares and make payments:

- to a Financial Institution account you have previously specified; or

- by check in the amount of $50,000 or less, mailed to the same name and
address (which has been unchanged for the past 30 days) as the account from
which you are redeeming. You may only redeem by check via telephone request
once in any 7-day period.

Telephoning the Agent

Whenever you telephone the Agent, please be prepared to supply:

- account name(s) and number

- name of the caller

<PAGE> 17

- the social security number registered to the account

- personal identification.

Note: Check the accuracy of your confirmation statements immediately. The
Funds, the Agent, and the Distributor are not responsible for losses resulting
from unauthorized telephone transactions if the Agent follows reasonable
procedures designed to verify a caller's identity. The Agent may record calls.

2. BY FAX OR MAIL. You may request redemption payments to a predesignated
Financial Institution account by a letter of instruction sent to the Agent,
PFPC Inc., by FAX at 302-791-3055 or by mail to 400 Bellevue Parkway,
Wilmington, DE 19809. The letter, signed by the registered shareholder(s)
(no signature guarantee is required), must indicate:

- account name(s)

- account number

- amount to be redeemed

- any payment directions.

To have redemption proceeds sent directly to a Financial Institution
account, you must complete the Expedited Redemption section of the Application
or a Ready Access Features Form. You will be required to provide (1) details
about your Financial Institution account, (2) signature guarantees and (3)
possible additional documentation.

The name(s) of the shareholder(s) on the Financial Institution account must
be IDENTICAL to those on the Funds' records of your account.

You may change your designated Financial Institution account at any time by
completing and returning a revised Ready Access Features Form.

REGULAR REDEMPTION METHOD
(CERTIFICATE AND NON-CERTIFICATE SHARES)

1. CERTIFICATE SHARES. Mail to the Funds' Agent: (a) BLANK (UNSIGNED)
certificates for Class A shares to be redeemed, (b) redemption instructions and
(c) a stock assignment form.

- To be in "proper form," your letter must be signed by the registered
shareholder(s) exactly as the account is registered. For a joint account,
both shareholder signatures are necessary.

<PAGE> 18

- For your protection, mail certificates separately from signed
redemption instructions. We recommend that certificates be sent by
registered mail, return receipt requested.

- We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or executors, or
if redemption is requested by someone other than the shareholder of record.
The Agent may require signature guarantees if insufficient documentation is
on file.

- We do not require a signature guarantee for redemptions up to $50,000,
payable to the record holder, and sent to the address of record. In all
other cases, signatures must be guaranteed.

Your signature may be guaranteed by any:

- member of a national securities exchange

- U.S. bank or trust company

- state-chartered savings bank

- federally chartered savings and loan association

- foreign bank having a U.S. correspondent bank

- participant in the Securities Transfer Association Medallion Program
("STAMP"), Stock Exchanges Medallion Program ("SEMP"), or New York Stock
Exchange, Inc. Medallion Signature Program ("MSP").

A notary public is not an acceptable signature guarantor.

2. NON-CERTIFICATE SHARES. You must use the Regular Redemption Method if
you have not chosen Expedited Redemption to a predesignated Financial
Institution account. To redeem by this method, send a letter of instruction to
the Funds' Agent, which includes:

- account name(s)

- account number

- dollar amount or number of shares to be redeemed or a statement that
all shares held in the account are to be redeemed

- payment instructions (we normally mail redemption proceeds to your

17
<PAGE> 19

address as registered with the Funds)

- signature(s) of the registered shareholder(s)

- signature guarantee(s), if required, as indicated above.

"WHEN WILL I RECEIVE THE PROCEEDS OF MY REDEMPTION?"

Redemption proceeds are normally sent on the next business day following
receipt of your redemption request in proper form. Except as described below,
payments will normally be sent to your address of record within 7 days.

Redemption Method of Payment Charges

Under $1,000 Check None

$1,000 or more Check or, if and None
as you requested on your
Application or Ready
Access Features Form,
wired or transferred
through the Automated
Clearing House to your
Financial Institution
account

Through a broker/dealer Check or wire, to your None; but
broker/dealer your broker/dealer
may charge a fee

Although the Funds currently do not intend to, they can charge up to $5.00
per wire redemption, after written notice to shareholders who have elected this
redemption procedure. Upon 30 days' written notice to shareholders, the Funds
may modify or terminate the use of the Automated Clearing House to make
redemption payments at any time or charge a fee for this service, although no
fee is presently contemplated. If any changes are made, this Prospectus will be
supplemented to reflect them.

The Funds may delay payment for redemption of shares recently purchased by
check (including certified, cashier's or official bank check) or by Automatic
Investment or Telephone Investment up to 15 days after purchase; however,
redemption will not be delayed after (1) the check or transfer of funds has been
honored, or (2) the Agent receives satisfactory assurance that your Financial
Institution will honor the check or transfer of funds. You can eliminate
possible delays by paying for purchased shares with wired funds or Federal
Reserve drafts.

<PAGE> 20

The Funds have the right to postpone payment or suspend redemption rights
during certain periods. These periods may occur (1) when the New York Stock
Exchange is closed for other than weekends and holidays, (2) when the Securities
and Exchange Commission (SEC) restricts trading on the New York Stock Exchange,
(3) when the SEC determines an emergency exists that causes disposal of, or
determination of the value of, the portfolio securities to be unreasonable or
impracticable, and (4) during other periods as the SEC may permit.

The Funds can redeem your shares if their value totals less than $500 as a
result of redemptions or failure to meet and maintain the minimum investment
level under an Automatic Investment program. Before this type of redemption is
made, we will send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.

Redemption proceeds may be paid in whole or in part by distribution of a
Fund's portfolio securities (redemptions in kind) in conformity with SEC rules.
This method would only be used if the Funds' Trustees determine that partial or
whole cash payments would be detrimental to the best interests of the remaining
shareholders.

"ARE THERE ANY REINVESTMENT PRIVILEGES?"

If you reinvest proceeds of a redemption within 120 days of the redemption,
you will not have to pay any additional sales charge on the reinvestment. You
must reinvest in the same class as the shares redeemed. You may exercise this
privilege only once a year, unless otherwise approved by the Distributor.

"IS THERE AN AUTOMATIC WITHDRAWAL PLAN?"

Yes, but it is only available for Class A shares. Under an Automatic
Withdrawal Plan, you can arrange to receive a monthly or quarterly check in a
stated amount of not less than $50.

ALTERNATE PURCHASE PLANS

"HOW DO THE DIFFERENT ARRANGEMENTS FOR CLASS A SHARES AND CLASS C SHARES AFFECT
THE COST OF BUYING, HOLDING AND REDEEMING SHARES, AND WHAT ELSE SHOULD I KNOW
ABOUT THE TWO CLASSES?"

The Funds provide you with two alternative ways to invest through two
separate classes of shares. All classes represent interests in the same
portfolio of securities. The classes of shares offered to individuals differ in
their sales charge structures and ongoing expenses, as described below. You
should choose the class that best suits your own circumstances and needs.

Class A Shares Class C Shares

<PAGE> 21

"Front-Payment Shares" "Level-Payment Shares"

Initial Sales Class A shares are None. Class C shares
Charge offered at NAV are offered at NAV
plus a maximum with no sales charge
sales charge of x.xx%, payable at the time
paid at the time of of purchase.
purchase. Thus,
your investment is
reduced by the
applicable sales
charge.

Contingent None, except for A maximum CDSC of 1%
Deferred Sales certain purchases of is imposed upon the
Charge (CDSC) $1 million or more. redemption of Class C
See, "Sales charges shares held for less than
for purchases of 12 months. No CDSC
$1 million or more." applies to Class C
shares acquired through
the reinvestment of
dividends or distributions
or that are held for more
than 12 months.

Distribution and An annual distribution Level charge for
Service Fees fee of 0.xx of 1% distribution and
is imposed on service for 6
the average years after the date
net assets of purchase at the
represented by the aggregate annual
Class A shares. rate of 1% of the
average net assets
represented by the
Class C shares.

Other Information The initial sales Class C shares,
charge is waived or together with a pro-
reduced in some rata portion of all
cases. Larger Class C shares
purchases qualify acquired through
for lower sales reinvestment of
charges. See dividends or other
"What are the distributions paid

<PAGE> 22

sales charges for in additional Class
purchases of Class C shares,
A shares?" automatically
convert to Class A
shares after 6 years.

FACTORS TO CONSIDER IN CHOOSING CLASSES OF SHARES

Class A shares or Class C shares are intended to be suitable for long-term
investment. Over time, the cumulative total cost of the 1% annual service and
distribution fees on the Class C shares will equal or exceed the total cost of
the initial x.xx% maximum initial sales charge and 0.xx of 1% annual
distribution fee payable on Class A shares. Consult "Fees and Expenses of the
Funds" to see the effect of the Funds' expenses for both classes if a
hypothetical investment is held for 1 and 3 years. You should consider the total
cost of an investment in Class A shares as compared with a similar investment in
Class C shares if you expect to redeem your shares within a reasonably short
time after purchase.

SYSTEMATIC PAYROLL INVESTMENTS

You can make systematic investments into either Class A or C shares each
pay period if your employer has established a Systematic Payroll Investment Plan
with the Funds. To participate in the Payroll Plan, you must make your own
arrangements with your employer's payroll department, which may include
completing special forms. Also, the Funds require that you complete the
Application included with this Prospectus. Once your Application is received by
the Funds and a new account is opened, under the Payroll Plan your employer will
deduct a preauthorized amount from each payroll check. This amount will then be
sent directly to the Funds for purchase of shares at the then current offering
price, which includes applicable sales charge. You will receive a confirmation
from the Funds for each transaction. Should you wish to change the dollar amount
or end future systematic payroll investments, you must notify your employer
directly. Changes may take up to 10 days.

"WHAT PRICE WILL I PAY FOR THE FUNDS' SHARES?"

Class A Shares Offering Price Class C Shares Offering Price

NAV per share plus the NAV per share
applicable sales charge

You will receive that day's offering price on purchase orders, including
Telephone Investments and investments by mail, received in proper form prior to
4:00 p.m. New York time. Brokers have the added flexibility of transmitting
orders received prior to 4:00 p.m. New York time to the Distributor before its
close of business that day (normally, 5:00 p.m. New York time) and you still
receive that

<PAGE> 23

day's offering price. Otherwise, orders will be filled at the next determined
offering price. Brokers are required to submit orders promptly. Purchase orders
received on a non-business day, including those for Automatic Investment, will
be executed on the next succeeding business day. The sale of shares will be
suspended (1) during any period when NAV determination is suspended, or (2) when
the Distributor judges it is in the Funds' best interest to do so.

"WHAT ARE THE SALES CHARGES FOR PURCHASES OF CLASS A SHARES?"

The following table shows the sales charge incurred by a single purchaser of
Class A shares. A "single purchaser" is:

- - an individual;

- - an individual, together with her or his spouse, and/or any children under
21 years of age purchasing shares for their account;

- - a trustee or other fiduciary purchasing shares for a single trust estate or
fiduciary account; or

- - a tax-exempt organization as detailed in Section 501(c)(3) or (13) of the
Internal Revenue Code.

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
PERCENTAGE OF APPROXIMATE
PUBLIC PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED
- ------------------ -------------- ---------------
<S> <C> <C>
Less than $50,000 x.xx% x.xx%

$50,000 but less
than $100,000 x.xx% x.xx%

$100,000 but less
than $250,000 x.xx% x.xx%

$250,000 but less
than $500,000 x.xx% x.xx%

$500,000 but less
than $1,000,000 x.xx% x.xx%
</TABLE>

For purchases of $1 million or more, see "Sales Charges for Purchases of $1
Million or More."

<PAGE> 24

For example:

If you pay $10,000, your sales charge would be x.xx% or $xxx. ($10,000 x .x =
$x)

The value of your account, after deducting the sales charge from your payment,
would be $x,xxx. ($10,000 - $xxx = $x,xxx).

The sales charge as a percentage of the value of your account would be x.xx%
($xxx / $x,xxx = .x or x%).

SALES CHARGES FOR PURCHASES OF $1 MILLION OR MORE

You will not pay a sales charge at the time of purchase when you purchase
"CDSC Class A shares." These are Class A shares issued under the following
circumstances:

- Class A shares issued in a single purchase of $1 million or more
by a single purchaser; and

- all Class A shares issued to a single purchaser in a single
purchase when the value of the purchase, together with the value
of the purchaser's other CDSC Class A shares and Class A shares
on which a sales charge has been paid, equals or exceeds $1
million.

If you redeem all or part of your CDSC Class A shares during the 4 years
after you purchase them, you must pay a special contingent deferred sales charge
upon redemption.

You will pay 1% of the Redemption Value if you redeem within the first two
years after purchase, and 0.50 of 1% of the Redemption Value if you redeem
within the third or fourth year.

The "Redemption Value" of your shares is the lesser of: (1) the NAV when
you purchased the CDSC Class A shares you are redeeming; or (2) the NAV at the
time of your redemption.

BROKER COMPENSATION - CLASS A SHARES

Upon notice to all selected brokers, the Distributor may distribute up to
the full amount of the applicable sales charge. Under the Securities Act of
1933, broker/dealers may be deemed to be underwriters during periods when they
receive all, or substantially all, of the sales charge.

REDUCED SALES CHARGES FOR CERTAIN PURCHASES OF CLASS A SHARES

<PAGE> 25

RIGHT OF ACCUMULATION

Single purchasers may qualify for a reduced sales charge in accordance with
the above schedule when making subsequent purchases of Class A shares combined
with the value of your Fund shares you already own. (You must notify the Agent
if you qualify for Rights of Accumulation.)

LETTERS OF INTENT

Single purchasers may also qualify for reduced sales charges, in accordance
with the above schedule, after a written Letter of Intent (included in the
Application) is received by the Distributor.

GENERAL

Class A shares may be purchased without a sales charge by certain classes
of purchasers.

CERTAIN INVESTMENT COMPANIES

If you redeem shares of an investment company (not a member of the
Aquila(sm) Group of Funds) on which you have paid a sales charge, within 120
days you can invest the proceeds in Class A shares of a Fund without paying a
sales charge. You can get additional information from the Distributor.

"WHAT ARE THE SALES, SERVICE AND DISTRIBUTION CHARGES FOR CLASS C SHARES?"

- - no sales charge at time of purchase;

- - fees for service and distribution at a combined annual rate of 1% of
average net assets of each Fund represented by Class C shares;

- - after 6 years, Class C shares automatically convert to Class A shares,
which bear lower distribution fees and no service fees.

REDEMPTION OF CLASS C SHARES

- - 1% charge if redeemed within the first 12 months after purchase. This CDSC
is calculated based on the lesser of the NAV at the time of purchase or at
the time of redemption;

- - no CDSC applies if Class C shares are held for 12 months after purchase;

- - shares acquired by reinvestment of dividends or distributions are not
subject to any CDSC.

<PAGE> 26

BROKER COMPENSATION - CLASS C SHARES

The Distributor will pay any broker executing a Class C share purchase 1%
of the sales price.

"WHAT ABOUT CONFIRMATIONS?"

A statement will be mailed to you confirming each purchase of shares in the
Funds. Additionally, your account at the Agent will be credited in full and
fractional shares (rounded to the nearest 1/1000th of a share).

General

The Funds (through their Agent) and the Distributor may reject any order
for the purchase of shares. In addition, the offering of shares may be suspended
at any time and resumed at any time thereafter.

"IS THERE A DISTRIBUTION PLAN OR A SERVICES PLAN?"

Each Fund has adopted a Distribution Plan (the Plan) under Rule 12b-1 of
the Investment Company Act of 1940 to:

(1) permit the Fund to finance activities primarily intended to result in
the sale of its shares;

(2) permit the Adviser, out of its own funds, to make payment for
distribution expenses; and

(3) protect the Fund against any claim that some of the expenses which it
pays or may pay might be considered to be sales-related and therefore
come within the purview of the Rule.

For any fiscal year, payments under item (1), which are made through the
Distributor or Agent, may not exceed 0.xx of 1% for Class A shares and 0.75 of
1% for Class C shares of the average daily net assets represented by each such
class.

SHAREHOLDER SERVICES PLAN FOR CLASS C SHARES

Each Fund's Shareholder Services Plan authorizes it to pay a service fee to
"Qualified Recipients" with respect to Class C shares. For any fiscal year,
those fees, paid through the Distributor or Agent, may not exceed 0.25 of 1% of
the average annual net assets represented by Class C shares. Also, payment will
be made only out of the Fund's assets represented by Class C shares. Qualified
Recipients means broker/dealers or others selected by the Distributor who have
entered into written agreements with the Fund or the Distributor and who have

<PAGE> 27

agreed to provide personal services to Class C shareholders and/or maintain
their accounts. Service fees with respect to Class C shares will be paid to the
Distributor during the first year after purchase and thereafter to other
Qualified Recipients.

"TRANSFER ON DEATH" REGISTRATION (BOTH CLASSES OF SHARES)

The Funds generally permits "transfer on death" registration of shares
(TOD), so that on the death of the shareholder the shares are transferred to a
designated beneficiary or beneficiaries. Ask the Agent or your broker-dealer for
the TOD Registration Request Form. With it, you will receive a copy of the TOD
Rules of the Aquila(sm) Group of Funds, which specify how the registration
becomes effective and operates. By opening a TOD Account, you agree to be bound
by the TOD Rules.

DIVIDENDS AND DISTRIBUTIONS

"HOW ARE DIVIDENDS AND DISTRIBUTIONS DETERMINED?"

Each Fund distributes dividends of its net investment income, if any, on an
annual basis following the end of its fiscal year, which is December 31. Because
the Funds invest primarily in equity securities, distributions from the Funds,
if any, will consist mostly of capital gains, which may be long- or short-term
depending upon the length of time the Fund has held the securities it then
sells. If a Fund has had net long-term capital gains or net short-term capital
gains for the year, it makes those distributions in December. Short-term capital
gains include the gains from the disposition of securities held one year or
less. If required by tax laws to avoid excise or other taxes, dividends and/or
capital gains distributions may be made more frequently. Dividends and other
distributions paid by a Fund with respect to each class of its shares are
calculated at the same time and in the same manner. The per share dividends on
Class C shares will be lower than the per share dividends on the Class A shares
as a result of the higher service and distribution fees applicable to Class C
shares.

"HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?"

Dividends and distributions will automatically be reinvested in full and
fractional shares of each Fund of the same class at NAV on the record date for
the dividend or distribution, unless you elect otherwise.

You may choose to have all or any part of the payments for dividends or
distributions paid in cash. You can elect to have the cash portion of your
dividends or distributions deposited, without charge, by electronic funds
transfers into your account at a financial institution, if it is a member of the
Automated Clearing House.

<PAGE> 28

You can make any of these elections on the Application, by a Ready Access
Features Form or by a letter to the Agent. Your election to receive some or all
of your dividends and distributions in cash will be effective as of the next
payment of dividends after it has been received in proper form by the Agent. It
will continue in effect until the Agent receives written notification of a
change.

All shareholders, whether their dividends and distributions are received in
cash or reinvested, will receive a monthly statement indicating the current
status of their investment account with the Funds.

If you do not comply with laws requiring you to furnish taxpayer
identification numbers and report dividends, the Funds may be required to impose
backup withholding at a rate of 31% upon payment of redemptions to shareholders,
and from capital gains distributions (if any).

TAX INFORMATION

Distributions from the Funds' net income and net short-term capital gains
are taxed as ordinary income. If a Fund has net long-term capital gains that are
greater than its net short-term capital losses, it will distribute the excess
and such distribution will be taxed to you as long-term capital gains,
regardless of how long you have held your shares.

Distributions from a Fund, whether ordinary income or capital gain in
nature, will be taxable to you whether you take them in cash or have them
automatically reinvested in shares of the Fund. Distributions from the Funds
also are subject to applicable state income taxes. Consult your tax adviser.

27
<PAGE> 29

APPENDIX 1
Information on Laffer Cap-Weighted Model Portfolio

Because the Cap-Weighted Fund is new, it has no performance history. The
following bar chart shows the performance results of the Laffer Cap-Weighted
Model Portfolio (the Cap-Weighted Model) and the S&P 500 Index. The results of
the Cap-Weighted Model do not represent actual trading. How the Cap-Weighted
Model performed in the past is not necessarily an indication of how the
Cap-Weighted Fund will perform in the future. Like any mutual fund, an
investment in the Cap-Weighted Fund could lose value, and you could lose money.

The investment objective of the Cap-Weighted Model is to outperform the
results of the S&P 500 Index. The Cap-Weighted Model relates expectations of
future economic conditions to the future investment performance of individual
S&P 500 Index industries. The Cap-Weighted Model identifies those industries
that are expected to outperform the overall S&P 500 Index. The selected
industries are then broken down into their respective stock components to create
the final portfolio.

[BAR CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cap-Weighted
Model Portfolio 31% 18% 15% 5% 40% 21% 34% 36% 17%

S&P 500 Index 30% 8% 10% 2% 38% 22% 33% 29% 20%
</TABLE>
The Sub-Adviser is a newly-formed investment adviser. However, Laffer
Associates, an affiliate of the Sub-Adviser, has performed economic and
financial consulting for more than 20 years. Since January 1991, Laffer
Associates has been advising clients and publishing investment papers based on
the Cap-Weighted Model. Laffer Investments, Inc. and Laffer Associates are 100%
controlled by Dr. Laffer and his family. The principal officers and investment
personnel of the Sub-Adviser are the same as that of Laffer Associates. The
Cap-Weighted Model's results may not reflect the impact that material economic
and market factors may have had on Laffer Associates had it actually been
managing clients' money. The Model's returns are presented net of transaction
costs (32 basis points per year) and net of management

28
<PAGE> 30

fees (60 basis points per year).

Since the Fund is not an index fund, the Fund will not track the S&P 500
Index and may be more or less volatile than the Index.

During the period shown in the bar chart, the highest return for a quarter
was 20.67% (quarter ended December 31, 1998) and the lowest return for a quarter
was -8.14% (quarter ended September 30, 1998).

Average Annual Total Returns

<TABLE>
<CAPTION>
Since
For the Period Ended 1-Year 5-Year Inception*
December 31, 1999
<S> <C> <C> <C>
Laffer Cap-Weighted Model 18.04% 30.00% 24.65%

S & P 500 Index** 21.04% 28.56% 20.85%
</TABLE>

* Since inception of the Cap-Weighted Model in 1991.

** The S&P 500 Index is an unmanaged index of the 500 largest company stocks
throughout the United States.

<PAGE> 31

APPENDIX 2
Information on Laffer Equal-Weighted Model Portfolio

Because the Equal-Weighted Fund is new, it has no performance history. The
following bar chart shows the performance results of the Laffer Equal-Weighted
Model Portfolio (the Equal-Weighted Model) and the Equal-Weighted S&P 500
Index1. The results of the Equal-Weighted Model do not represent actual trading.
How the Equal-Weighted Model performed in the past is not necessarily an
indication of how the Equal-Weighted Fund will perform in the future. Like any
mutual fund, an investment in the Equal-Weighted Fund could lose value, and you
could lose money.

The investment objective of the Equal-Weighted Model is to outperform the
results of the Equal-Weighted S&P 500 Index. The Equal-Weighted Model relates
expectations of future economic conditions to the future investment performance
of individual S&P 500 Index industries. The Equal-Weighted Model identifies
those industries that are expected to outperform the overall S&P 500 Index. The
selected industries are then broken down into their respective stock components
to create the final portfolio.

[BAR CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equal-Weighted
Model Portfolio 35% 19% 19% 2% 36% 21% 33% 30% 10%

Equal-Weighted
S&P 500 Index 35% 15% 15% 1% 32% 20% 28% 12% 11%
</TABLE>

____________

1 The S&P 500 Index is a stock cap-weighted index. However, the Sub-Adviser
has created a stock Equal-Weighted S&P 500 Index to provide you with a more
accurate benchmark with which to measure the performance of the
Equal-Weighted Model.

<PAGE> 32

same as that of Laffer Associates. The Equal-Weighted Model's results may not
reflect the impact that material economic and market factors may have had on
Laffer Associates had it actually been managing clients' money. The
Equal-Weighted Model's returns are presented net of transaction costs (32 basis
points per year) and net of management fees (60 basis points per year).

Since the Fund is not an index fund, the Fund will not track the S&P 500
Index and may be more or less volatile than the Index.

During the period shown in the bar chart, the highest return for a quarter
was 23.23% (quarter ended December 31, 1998) and the lowest return for a quarter
was -12.76% (quarter ended September 30, 1998).

Average Annual Total Returns

<TABLE>
<CAPTION>
Since
For the Period Ended 1-Year 5-Year Inception*
December 31, 1999
<S> <C> <C> <C>
Laffer Equal-Weighted Model 10.03% 25.52% 22.01%
Equal-Weighted S&P 500 Index** 11.77% 20.68% 18.64%
</TABLE>

* Since inception of the Equal-Weighted Model in 1991.

** The S&P 500 Index is a cap-weighted index. However, the Sub-Adviser has
created a stock Equal-Weighted S&P 500 Index to provide you with a more
accurate benchmark to measure the performance of the Equal-Weighted Model.

<PAGE> 33

[Inside back cover]

ADVISER and ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017

SUB-ADVISER
Laffer Investments
5405 Morehouse Drive, Suite 340
San Diego, California 92121

BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Diana P. Herrmann

OFFICERS
Diana P. Herrmann, President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer

DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017

TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809

CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271

[Left column-Back Cover]

This Prospectus concisely states information about the Funds that you
should know before investing. A Statement of Additional Information about the
Fund dated xxxx xx, 2000,

42
<PAGE> 34

(the SAI) has been filed with the Securities and Exchange Commission. The SAI
contains information about the Funds and its management not included in this
Prospectus. The SAI is incorporated by reference in its entirety in this
Prospectus. Only when you have read both this Prospectus and the SAI are all
material facts about the Funds available to you. For information or shareholder
questions, you can contact the Funds by calling 1-800-xxx-xxxx.

You can get additional information about the Funds' investments in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during its last
fiscal year. You can get the SAI and the Funds' annual and semi-annual reports
without charge, upon request.

In addition, you can review and copy information about the Funds (including
the SAI) at the Public Reference Room of the SEC in Washington, D.C. You can get
information on the operation of the SEC's public reference room by calling the
SEC at (202) 942-8090. You can get other information about the Fund at the SEC's
Internet site at http://www.sec.gov. You can get copies of this information,
upon payment of a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009.

The file number under which the Funds are registered with the SEC under the
Investment Company Act of 1940 is xxx-xxxx.

TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund's Objective, Investment Strategies
and Main Risks.....................................
Fees and Expenses of the Funds.....................
Investment of the Funds' Assets....................
Fund Management....................................
Net Asset Value Per Share..........................
Purchases .........................................
Redeeming Your Investment..........................
Alternate Purchase Plans...........................
Dividends and Distributors.........................
Tax Information....................................
Appendix 1 - Information on Laffer Cap-Weighted
Asset Model Portfolio..............................
Appendix 2 - Information on Laffer Equal-Weighted
Asset Model Portfolio..............................
Application........................................
</TABLE>

[Right column-Back Cover]

AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND
Consists of:

<PAGE> 35

THE CAP-WEIGHTED FUND
THE EQUAL-WEIGHTED FUND
[LOGO]
One of The
Aquila(sm) Group Of Funds

PROSPECTUS

To receive a free copy of the Funds' SAI, annual or semi-annual report, or other
information about the Funds, or to make shareholder inquiries call:

PFPC Inc.* 400 Bellevue Parkway * Wilmington, DE 19809
888-xxx-xxx (888-xxx-xxxx) toll free

For General Inquiries & Yield Information
888-xxx-xxxx (888-xxx-xxxx) toll free or 212-697-6666

This Prospectus Should Be Read and Retained For Future Reference

<PAGE> 36

[LOGO] AQUILA / LAFFER
S&P 500 COMPETITIVE ADVANTAGE FUND

PROSPECTUS

CAP-WEIGHTED FUND
EQUAL-WEIGHTED FUND

CLASS Y SHARES XXXXX XX, 2000

The CAP-WEIGHTED FUND allocates its investments among the industries
that the Sub-Adviser selects in accordance with the market capitalization of
companies within those industries.

The Securities and Exchange Commission has not approved or disapproved the
Funds' securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.

<PAGE> 37

THE FUNDS' OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS

"WHAT IS EACH FUND'S OBJECTIVE?"

"WHAT IS EACH FUND'S INVESTMENT STRATEGY?"

The CAP-WEIGHTED FUND allocates its investments among the industries that
the Sub-Adviser selects in accordance with the market capitalization of
companies within those industries.

The Equal-Weighted Fund thus gives more weight to the smaller
capitalization stocks than does the Cap-Weighted Fund, and thus has a smaller
stock capitalization bias relative to the S&P 500 Index.

For more information on how we select each Fund's investments, see "How do
we choose each Fund's investments?"

<PAGE> 38

of investing in either Fund.

"WHAT ARE THE MAIN RISKS OF INVESTING IN EACH FUND?"

<PAGE> 39

FEES AND EXPENSES OF THE FUNDS

This table describes the fees and expenses that you may pay if you buy and hold
Class Y shares of either Fund. The sales charges, fees and expenses of Class Y
shares of each Fund are the same.

<TABLE>
<CAPTION>
Class Y
Shares
-------
<S> <C>
Shareholder Fees
(fees paid directly from your investment)

Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price)............ None

Maximum Deferred Sales Charge (Load)
(as a percentage of the lesser of
redemption value or purchase price)............ None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and
Distributions.................................. None
Redemption Fee................................... None
Exchange Fee..................................... None

Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)

Management Fees.................................. 0.xx%
All Other Expenses (1)........................... 0.29%
Total Annual Fund Operating Expenses 0.xx%
</TABLE>

(1) Expenses may vary in future years. Because each Fund is new and has no
operating history, "All Other Expenses" reflect estimates of the transfer
agent fees, custodial expenses, and accounting and legal expenses, based on
the Adviser's projections of what those expenses will be in each Fund's
first fiscal year.

Example

This Example is intended to help you compare the cost of investing in either
Fund with the cost of investing in other mutual funds.

<PAGE> 40

all dividends and distributions, and that each Fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:

<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class Y Shares............ $xx $xxx
</TABLE>

The shares offered by this Prospectus are Class Y shares and hve no up-front or
deferred sales charges, commissions or 12b-1 (distribution) fees. Each Fund
offers two other classes of shares, primarily to retail investors, that have a
different fee structure than Class Y shares. The difference in the fee structure
among the classes is the result of their separate arrangements for shareholder
and distribution services and not the result of any difference in amounts
charged by the Adviser or Sub-Adviser for core investment advisory services.
Accordingly, the core investment advisory services do not vary by class. A
difference in fees will result in different performance for those classes. For
further information about the various classes, see the Funds' Statement of
Additional Information, which can be obtained as indicated on the back cover of
this Prospectus.

<PAGE> 41

INVESTMENT OF THE FUNDS' ASSETS

"ARE THE FUNDS RIGHT FOR ME?"

Each Fund's shares are designed to be a suitable investment for investors
who:

- seek capital appreciation from their investment;

- are comfortable with a Fund's potential price volatility; and

- are comfortable with the risks associated with the Fund's investment
strategy.

Although certain of each Fund's investments may produce dividends or
interest income, current income should not be a consideration in selecting
either Fund as an investment.

<PAGE> 42

"WHAT ARE EQUITY SECURITIES?"

"WHAT ARE SHORT-TERM DEBT SECURITIES?"

"HOW DO WE CHOOSE EACH FUND'S INVESTMENTS?"

At the beginning of each quarter, the Adviser uses the Sub-Adviser's
analysis to purchase stocks that are included in the S&P 500 Index and that are

<PAGE> 43

For example:

At the beginning of each quarter, the Adviser sells any portfolio
securities issued by companies that are not within the Sub-Adviser's preferred
industries.

"WHAT ARE THE MAIN RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN THE
FUNDS?"

<PAGE> 44

- - DESCRIBE THE RISK OF INVESTING IN EQUAL-WEIGHTED VS. CAP-WEIGHTED FUND. [TO
BE FILLED IN.]

- - The proprietary econometric model may not perform as expected - the Funds'
Sub-Adviser may be wrong about which industries will outperform the S&P 500
Index.

- - Changes in economic or political conditions, both domestic and
international, may result in a decline in value of a Fund's investments.

The Funds are designed for long-term investors. The Funds are not intended
for investors seeking assured income or preservation of capital.

Before you invest, please read the entire prospectus.

An investment in the Funds is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government

<PAGE> 45

agency.

FUND MANAGEMENT

"HOW ARE THE FUNDS MANAGED?"

<PAGE> 46

NET ASSET VALUE PER SHARE

The net asset value, or NAV, of the Funds' shares is determined as of 4:00
p.m., New York time, on each day that the New York Stock Exchange is open
(business day), by dividing the value of each Fund's net assets (that is, the
value of the assets less liabilities) allocable to each class by the total
number of shares of such class then outstanding. The price at which a purchase
or redemption of shares is effected is based on the next calculated NAV after
your purchase or redemption order is considered received in proper form. (See
"What price will I pay for the Funds' shares?") The New York Stock Exchange
annually announces the days on which it will not be open. The most recent
announcement indicates that it will not be open on the following days: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

PURCHASES
Initial Offering of Shares

After the registration statement for the Funds is declared effective, the
Distributor will solicit subscriptions for Class Y shares of each Fund during a
subscription period beginning xxxxxx, 2000 and expected to end xxxxxx, 2000.
Fund shares subscribed for during this time will be issued at a net asset value
of $xx.xx per share on a closing date expected to occur on xxxxx, 2000. The
minimum initial investment for each class is $x.

<PAGE> 47

"CAN I PURCHASE SHARES OF THE FUNDS?"

Class Y shares are offered only to institutional investors for investments
held in a fiduciary, advisory, agency, custodial or similar capacity or through
them for their clients, and are not offered directly to retail customers. Class
Y shares are offered at net asset value with no sales charge, redemption fee,
contingent deferred sales charge or distribution fee.

"HOW MUCH MONEY DO I NEED TO INVEST?"

- $x. Subsequent investments can be in any amount.

"HOW DO I PURCHASE SHARES?"

You may purchase a Fund's Class Y shares:

- through a broker, a bank or financial intermediary which has a sales
agreement with the Funds' Distributor, Aquila Distributors, Inc., in
which case that institution will take action on your behalf, and you
will not personally perform the steps indicated below; or

- directly through the Distributor, by mailing payment to the Funds'
Agent, PFPC Inc., at the following address:

PFPC Inc.
Attn: Aquila(sm) Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809

The price you will pay for Class Y shares is their NAV. See "What price will I
pay for the Funds' shares?"

Opening an Account Adding to an Account
- ------------------ --------------------

<PAGE> 48

- - Make out a check for Make out a check for
the investment amount the investment amount
payable to the appropriate payable to the
Fund. appropriate Fund.

"CAN I TRANSFER FUNDS ELECTRONICALLY?"

- AUTOMATIC INVESTMENT: You can authorize a pre-determined amount to be
regularly transferred from your account.

- TELEPHONE INVESTMENT: You can make single investments of up to $50,000
by telephone instructions to the Agent.

REDEEMING YOUR INVESTMENT

13
<PAGE> 49

You may redeem some or all of your shares by a request to the Agent. Shares
will be redeemed at the next NAV determined after your request has been received
in proper form.

There is no minimum period for investment in the Funds, except for shares
recently purchased by check or by Automatic or Telephone Investment as discussed
above.

A redemption may result in a tax liability for you.

"HOW CAN I REDEEM MY INVESTMENT?"

By mail, send instructions to:

PFPC Inc.
Attn: Aquila(sm) Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809

By telephone, call:

800-xxx-xxxx

By FAX, send
instructions to:

302-791-3055

For liquidity and convenience, the Funds offer expedited redemption.

EXPEDITED REDEMPTION METHODS

You may request expedited redemption in two ways:

1. BY TELEPHONE. The Agent will take instructions from anyone by telephone
(800-xxx-xxxx) to redeem shares and make payments:

- to a Financial Institution account you have previously specified; or

- by check in the amount of $50,000 or less, mailed to the same name
and address (which has been unchanged for the past 30 days) as the account
from which you are redeeming. You may only redeem by check via telephone
request once in any 7-day period.

Telephoning the Agent

<PAGE> 50

Whenever you telephone the Agent, please be prepared to supply:

- account name(s) and number

- name of the caller

- the social security number registered to the account

- personal identification.

- account name(s)

- account number

- amount to be redeemed

- any payment directions.

The name(s) of the shareholder(s) on the Financial Institution account must
be IDENTICAL to those on the Funds' records of your account.

You may change your designated Financial Institution account at any time by
completing and returning a revised Ready Access Features Form.

REGULAR REDEMPTION METHOD

To redeem by the regular redemption method, send a letter of instruction to
the Funds' Agent, which includes:

15
<PAGE> 51

- account name(s)

- account number

- dollar amount or number of shares to be redeemed or a statement that
all shares held in the account are to be redeemed

- payment instructions (we normally mail redemption proceeds to your
address as registered with the Funds)

- signature(s) of the registered shareholder(s)

- signature guarantee(s), if required, as indicated below.

To be in "proper form," your letter must be signed by the registered
shareholder(s) exactly as the account is registered. For a joint account, both
shareholder signatures are necessary.

We may require additional documentation for certain types of shareholders
such as corporations, partnerships, trustees or executors, or if redemption is
requested by someone other than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on file.

We do not require a signature guarantee for redemptions up to $50,000,
payable to the record holder, and sent to the address of record. In all other
cases, signatures must be guaranteed.

Your signature may be guaranteed by any:

- member of a national securities exchange

- U.S. bank or trust company

- state-chartered savings bank

- federally chartered savings and loan association

- foreign bank having a U.S. correspondent bank

- participant in the Securities Transfer Association Medallion Program
("STAMP"), Stock Exchanges Medallion Program ("SEMP"), or New York Stock
Exchange, Inc. Medallion Signature Program ("MSP").

A notary public is not an acceptable signature guarantor.

<PAGE> 52

"WHEN WILL I RECEIVE THE PROCEEDS OF MY REDEMPTION?"

Redemption Method of Payment Charges
- ---------- ----------------- -------

Under $1,000 Check None

Through a broker/dealer Check or wire, to your None; but
broker/dealer your broker/dealer
may charge a fee

<PAGE> 53

Exchange, (3) when the SEC determines an emergency exists that causes disposal
of, or determination of the value of, the portfolio securities to be
unreasonable or impracticable, and (4) during other periods as the SEC may
permit.

"IS THERE AN AUTOMATIC WITHDRAWAL PLAN?"

Yes, under an Automatic Withdrawal Plan, you can arrange to receive a
monthly or quarterly check in a stated amount of not less than $50.

"WHAT PRICE WILL I PAY FOR THE FUNDS' SHARES?"

The offering price for Class Y shares is the net asset value per share. You
will receive that day's offering price on purchase orders, including Telephone
Investments and investments by mail, received in proper form prior to 4:00 p.m.
New York time. Brokers have the added flexibility of transmitting orders
received prior to 4:00 p.m. New York time to the Distributor before its close of
business that day (normally, 5:00 p.m. New York time) and you still receive that
day's offering price. Otherwise, orders will be filled at the next determined
offering price. Brokers are required to submit orders promptly. Purchase orders
received on a non-business day, including those for Automatic Investment, will
be executed on the next succeeding business day. The sale of shares will be
suspended (1) during any period when NAV determination is suspended, or (2) when
the Distributor judges it is in the Funds' best interest to do so.

"WHAT ABOUT CONFIRMATIONS AND SHARE CERTIFICATES?"

A statement will be mailed to you confirming each purchase of shares of
Class Y shares in the Funds. Additionally, your account at the Agent will be
credited in full and fractional shares (rounded to the nearest 1/1000th of a
share). The Funds will not issue certificates for Class Y shares.

General

The Funds (through their Agent) and the Distributor may reject any order
for

<PAGE> 54

the purchase of shares. In addition, the offering of shares may be suspended at
any time and resumed at any time thereafter.

"IS THERE A DISTRIBUTION PLAN OR A SERVICES PLAN?"

Each Fund has adopted a Distribution Plan (the Plan) under Rule 12b-1 of
the Investment Company Act of 1940 to:

(1) permit the Fund to finance activities primarily intended to result in
the sale of its shares;

(2) permit the Adviser, out of its own funds, to make payment for
distribution expenses; and

(3) protect the Fund against any claim that some of the expenses which it
pays or may pay might be considered to be sales-related and therefore
come within the purview of the Rule.

No payments are made with respect to assets represented by Class Y shares.

"TRANSFER ON DEATH" REGISTRATION

DIVIDENDS AND DISTRIBUTIONS

"HOW ARE DIVIDENDS AND DISTRIBUTIONS DETERMINED?"

<PAGE> 55

manner.

"HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?"

TAX INFORMATION

20
<PAGE> 56

APPENDIX 1
Information on Laffer Cap-Weighted Model Portfolio

[BAR CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cap-Weighted
Model Portfolio 31% 18% 15% 5% 40% 21% 34% 36% 17%

S&P 500 Index 30% 8% 10% 2% 38% 22% 33% 29% 20%
</TABLE>

The Sub-Adviser is a newly-formed investment adviser. However, Laffer
Associates, an affiliate of the Sub-Adviser, has performed economic and
financial consulting for more than 20 years. Since January 1991, Laffer
Associates has been advising clients and publishing investment papers based on
the Cap-Weighted Model. Laffer Investments, Inc. and Laffer Associates are 100%
controlled by Dr. Laffer and his family. The principal officers and investment
personnel of the Sub-Adviser are the same as that of Laffer Associates. The
Cap-Weighted Model's results may not reflect the impact that material economic
and market factors may have had on Laffer Associates had it actually been
managing clients' money. The Model's returns are presented net of transaction
costs (32 basis points per year) and net of management

<PAGE> 57

fees (60 basis points per year).

Since the Fund is not an index fund, the Fund will not track the S&P 500
Index and may be more or less volatile than the Index.

Average Annual Total Returns
<TABLE>
<CAPTION>
Since
For the Period Ended 1-Year 5-Year Inception*
December 31, 1999
<S> <C> <C> <C>
Laffer Cap-Weighted Model 18.04% 30.00% 24.65%

S & P 500 Index** 21.04% 28.56% 20.85%
</TABLE>

* Since inception of the Cap-Weighted Model in 1991.

** The S&P 500 Index is an unmanaged index of the 500 largest company stocks
throughout the United States.

<PAGE> 58

APPENDIX 2
Information on Laffer Equal-Weighted Model Portfolio

[BAR CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equal-Weighted
Model Portfolio 35% 19% 19% 2% 36% 21% 33% 30% 10%

Equal-Weighted
S&P 500 Index 35% 15% 15% 1% 32% 20% 28% 12% 11%
</TABLE>

____________

23
<PAGE> 59

Since the Fund is not an index fund, the Fund will not track the S&P 500
Index and may be more or less volatile than the Index.

Average Annual Total Returns

* Since inception of the Equal-Weighted Model in 1991.

24
<PAGE> 60

[Inside back cover]

ADVISER and ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017

SUB-ADVISER
Laffer Investments
5405 Morehouse Drive, Suite 340
San Diego, California 92121

BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Diana P. Herrmann

OFFICERS
Diana P. Herrmann, President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer

DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017

TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809

CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271

[Left column-Back Cover]

This Prospectus concisely states information about the Funds that you
should know before investing. A Statement of Additional Information about the
Fund dated xxxx xx, 2000, (the SAI) has been filed with the Securities and
Exchange Commission. The SAI contains information about the Funds and its
management not included in this Prospectus. The SAI is incorporated by reference
in its entirety in this Prospectus. Only when you have read both this

<PAGE> 61

Prospectus and the SAI are all material facts about the Funds available to you.
For information or shareholder questions, you can contact the Funds by calling
1-800-xxx-xxxx.

The file number under which the Funds are registered with the SEC under the
Investment Company Act of 1940 is xxx-xxxx.

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund's Objective, Investment Strategies
and Main Risks...................................
Fees and Expenses of the Funds...................
Investment of the Funds' Assets..................
Fund Management..................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributors.......................
Tax Information..................................
Appendix 1 - Information on Laffer Cap-Weighted
Asset Model Portfolio...........................
Appendix 2 - Information on Laffer Equal-Weighted
Asset Model Portfolio...........................
Application......................................
</TABLE>

[Right column-Back Cover]
AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND
Consists of:
THE CAP-WEIGHTED FUND
THE EQUAL-WEIGHTED FUND
[LOGO]

<PAGE> 62

One of The
Aquila(sm) Group Of Funds

PROSPECTUS

To receive a free copy of the Funds' SAI, annual or semi-annual report, or other
information about the Funds, or to make shareholder inquiries call:

PFPC Inc.* 400 Bellevue Parkway * Wilmington, DE 19809
888-xxx-xxx (888-xxx-xxxx) toll free

For General Inquiries & Yield Information
888-xxx-xxxx (888-xxx-xxxx) toll free or 212-697-6666

This Prospectus Should Be Read and Retained For Future Reference

<PAGE> 63

[AQUILA LOGO]
AQUILA / LAFFER
S&P 500 COMPETITIVE ADVANTAGE FUND
380 MADISON AVENUE, SUITE 2300
NEW YORK, NEW YORK 10017
888-XXX-XXXX (888-XXX-XXXX)
212-697-6666

STATEMENT OF ADDITIONAL INFORMATION
XXXX XX, 2000

This Statement of Additional Information, or SAI, is not a Prospectus.
There are two Prospectuses for the Aquila/Laffer S&P 500 Competitive Advantage
Fund (the Company) dated xxxx xx, 2000: one Prospectus describes the Company's
Class A shares (on which a sales charge is imposed at the time of purchase) and
Class C shares (on which investors may have to pay a deferred sales charge while
the other prospectus describes Class Y shares, which are available only to
institutional investors. The Company consists of two separate portfolios: the
Cap-Weighted Fund and the Equal-Weighted Fund. The objective of both Funds is
capital appreciation. References in the SAI to "the Prospectus" refer to either
of these Prospectuses. The SAI should be read in conjunction with the Prospectus
for the class of shares in which you are considering investing. Either or both
Prospectuses may be obtained from the Funds' Shareholder Servicing Agent, PFPC
Inc., by writing to it at: 400 Bellevue Parkway, Wilmington, DE 19809 or by
calling the following number:

888-XXX-XXXX TOLL FREE

or from Aquila Distributors, Inc., the Company's Distributor, by writing to it
at

380 Madison Avenue, Suite 2300, New York, New York 10017;
or by calling:
888-XXX-XXXX
or 212-697-6666

TABLE OF CONTENTS

<TABLE>
<S> <C>
COMPANY HISTORY
INVESTMENT STRATEGIES AND RISKS
FUND POLICIES
MANAGEMENT OF THE FUNDS
</TABLE>

<PAGE> 64

<TABLE>
<S> <C>
OWNERSHIP OF SECURITIES
INVESTMENT ADVISORY AND OTHER SERVICES
BROKERAGE ALLOCATION AND OTHER PRACTICES
CAPITAL STOCK
PURCHASE, REDEMPTION, AND PRICING OF SHARES
ADDITIONAL TAX INFORMATION
UNDERWRITERS
PERFORMANCE
</TABLE>

<PAGE> 65

AQUILA/LAFFER
S&P 500 COMPETITIVE ADVANTAGE FUND

STATEMENT OF ADDITIONAL INFORMATION

COMPANY HISTORY

The Aquila/Laffer S&P 500 Competitive Advantage Fund was established as a
Massachusetts business trust on xxxxx xx, 2000.

INVESTMENT STRATEGIES AND RISKS

The Company is a diversified, open-end management investment company
consisting of two separate funds: the Cap-Weighted Fund and the Equal-Weighted
Fund. Each Fund's investment objective is capital appreciation. Each Fund's
investment objective is fundamental and may not be changed without shareholder
approval. To achieve this objective, each Fund relies on a proprietary method,
developed by Dr. Arthur B. Laffer, of investing in common stocks of companies
selected from among those included in the Standard & Poor's 500 Composite Stock
Price Index (S&P 500 Index). Under normal circumstances, each Fund will invest
at least 80% of its total assets in the common stocks and other equity
securities of these companies. The S&P 500 Index consists of 500 stocks chosen
for market size, liquidity, and industry group representation. It is a
market-value weighted index (stock price times number of shares outstanding),
with each stock's weight in the Index proportionate to its market value.

TEMPORARY INVESTMENTS

The Adviser may take a temporary defensive position when it believes the
securities trading markets or the economy generally are experiencing excessive
volatility or a prolonged general decline, or other adverse conditions exist.
Although each Fund can invest up to 20% of its assets in high-quality,
short-term money market instruments, under normal circumstances, each Fund
intends to invest no more than 5% of its assets in short-term debt instruments
(including U.S. government securities and commercial paper), money-market funds
and other money market equivalents.

DEBT SECURITIES

A debt security typically has a fixed payment schedule which obligates the
issuer to pay interest to the lender and to return the lender's money over a
certain period of time. A company typically meets its payment obligations
associated with its outstanding debt securities before it declares and pays any

<PAGE> 66

dividends to holders of its equity securities. Bonds, notes, and commercial
paper differ in the length of the issuer's payment schedule, with bonds carrying
the longest repayment schedule and commercial paper the shortest.

The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of these
securities generally declines. To the extent a Fund invests in debt securities,
these changes in market value will be reflected in its net asset value.

The Funds may invest in mortgage securities issued or guaranteed by the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). A mortgage security is an interest in a pool of
mortgage loans. FNMA and FHLMC issue mortgage securities from pools of
conventional and federally insured and/or guaranteed residential mortgages
obtained from various entities, including savings and loan associations, savings
banks, commercial banks, credit unions, and mortgage bankers. Mortgage
securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. government. FNMA guarantees full and timely payment of all interest and
principal, and FHLMC guarantees timely payment of interest and the ultimate
collection of principal. Securities issued by FNMA are supported by the agency's
right to borrow money from the U.S. Treasury under certain circumstances.
Securities issued by FHLMC are supported only by the credit of the agency. There
is no guarantee that the government would support government agency securities
and, accordingly, they may involve a risk of non-payment of principal and
interest. Nonetheless, because FNMA and FHLMC are instrumentalities of the U.S.
government, these securities are generally considered to be high quality
investments having minimal credit risks.

REPURCHASE AGREEMENTS

Each Fund generally will have a portion of its assets in cash or cash
equivalents for a variety of reasons, including waiting for a special investment
opportunity or taking a defensive position. To earn income on this portion of
its assets, each Fund may enter into certain types of repurchase agreements.
Under these repurchase agreements, a Fund agrees to buy securities guaranteed as
to payment of principal and interest by the U.S. government or its agencies from
a qualified bank or broker-dealer and then to sell the securities back to the
bank or broker-dealer after a short period of time (generally, less than seven
days) at a higher price. The bank or broker-dealer must transfer to the Funds'
custodian securities with an initial

<PAGE> 67

market value of at least 102% of the dollar amount invested by each Fund in each
repurchase agreement. The Funds' Adviser will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price.

Repurchase agreements may involve risks in the event of default or
insolvency of the bank or broker-dealer, including possible delays or
restrictions upon a Fund's ability to sell the underlying securities. The Funds
will enter into repurchase agreements only with parties who meet certain
creditworthiness standards, that is, banks or broker-dealers that the Funds'
Adviser has determined present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.

SHARES OF MONEY-MARKET FUNDS

The Funds may purchase shares of investment companies with money market
portfolios which are any of the money-market funds in the Aquila(sm) Group of
Funds. As of the date of this SAI, these funds are Capital Cash Management
Trust, Pacific Capital Cash Assets Trust (Original Shares), Pacific Capital
Tax-Free Cash Assets Trust (Original Shares), Pacific Capital U.S. Government
Securities Cash Assets Trust (Original Shares) and Churchill Cash Reserves
Trust. The Funds will not purchase shares of an investment company which imposes
a sales or redemption charge of any sort; however, an investment company in
which a Fund invests may have a distribution plan under which it may pay for
distribution expenses or services. Such investments will ordinarily be made to
provide additional liquidity and at the same time to earn higher yields than are
usually associated with the overnight or short-term obligations in which the
Funds might otherwise invest for this purpose. While higher yields than those of
alternative investments may be obtainable, these yields will reflect management
fees and operating and distribution expenses of the investment companies and
will result in duplication of management fees with respect to assets of the
Funds so invested. The Funds may not invest in the shares of investment
companies if immediately thereafter it has invested more than 10% of the value
of its total assets in such companies or more than 5% of the value of its total
assets in any one such company; it may not invest in such a company if
immediately thereafter it owns more than 3% of the total outstanding voting
stock of such a company.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Funds may lend portfolio
securities, in amounts up to 25% of their net assets, to broker-dealers, banks
or other financial borrowers of securities. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in the collateral

5
<PAGE> 68

should the borrower of the securities fail financially. However, the Funds will
enter into loan arrangements only with broker-dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Funds' Board of Trustees and will receive collateral in the
form of cash or short-term U.S. Government securities equal at least to 100% of
the value of the securities loaned. The value of the collateral and the
securities loaned will be marked to market on a daily basis. During the time
portfolio securities are on loan, the borrower pays the Funds an amount
equivalent to any dividends or interest paid on the securities and the Funds may
invest the cash collateral and earn additional income or receive an agreed upon
amount of interest income from the borrower. However, the amounts received by
the Funds may be reduced by any finders' fee paid to broker-dealers and any
other related expenses.

BORROWINGS BY THE FUNDS

The Funds can borrow money for temporary or emergency purposes from a bank.
No Fund will borrow amounts in excess of 10% of total assets nor will it
purchase securities if borrowings are equal to or greater than 5% of total
assets. The Funds intend primarily to exercise such borrowing authority to meet
any abnormal level of shareholder redemptions and under circumstances where
redemptions exceed available cash.

PORTFOLIO TURNOVER

A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average value of such securities during the year, excluding
certain short-term securities. Since the turnover rate of the Funds will be
affected by a number of factors, the Funds are unable to predict what rate a
Fund will have in any particular period or periods, although such rate is not
expected to exceed XX%. The factors which may affect the rate include (1) the
Adviser's sale of portfolio securities in reliance on the econometric model
developed by the Funds' Sub-Adviser; (2) the possible necessary sales of
portfolio securities to meet redemptions; and (3) the possibility of purchasing
or selling portfolio securities without regard to the length of time they have
been held to attempt to take advantage of market opportunities and to avoid
market declines. Short-term trading may lead to a high (over 100%) portfolio
turnover rate, which can result in increased transaction costs that are borne
directly by the applicable Fund.

<PAGE> 69

FUND POLICIES

INVESTMENT RESTRICTIONS

Each Fund has a number of policies concerning what they can and cannot do.
Those that are called fundamental policies cannot be changed unless the holders
of a "majority" (as defined in the Investment Company Act of 1940 (the 1940
Act)) of the Fund's outstanding shares vote to change them. Under the 1940 Act,
the vote of the holders of a "majority" of a Fund's outstanding shares means the
vote of the holders of the lesser of (a) 67% or more of the Fund's shares
present at a meeting or represented by proxy if the holders of more than 50% of
its shares are so present or represented; or (b) more than 50% of the Fund's
outstanding shares. Those fundamental policies not set forth in the Prospectus
are set forth below:

1. THE FUNDS INVEST ONLY IN CERTAIN LIMITED SECURITIES.

The Funds cannot buy any securities other than those discussed under
"Investment of the Funds' Assets" in the Prospectus and "Investment Strategies
and Risks" in the SAI; therefore the Funds cannot buy any commodities or
commodity contracts, any mineral related programs or leases or combinations
thereof.

The Funds cannot buy real estate or any non-liquid interests in real estate
investment trusts; however, they can buy any securities which they can otherwise
buy even though the issuer invests in real estate or has interests in real
estate.

2. THE FUNDS DO NOT BUY FOR CONTROL.

The Funds cannot invest for the purpose of exercising control or management
of other companies.

3. THE FUNDS DO NOT SELL SECURITIES THEY DO NOT OWN OR BORROW FROM BROKERS TO
BUY SECURITIES.

Thus, the Funds cannot sell short or buy on margin; however, the Funds can
make margin deposits in connection with the purchase or sale of options and can
pay premiums on these options.

4. THE FUNDS ARE NOT UNDERWRITERS.

The Funds cannot engage in the underwriting of securities, that is, the
selling of securities for others. Also, they cannot invest in restricted
securities. Restricted securities are securities which cannot freely be sold for
legal or contractual

<PAGE> 70

reasons.

5. THE FUNDS CAN MAKE LOANS ONLY BY LENDING SECURITIES OR ENTERING INTO
REPURCHASE AGREEMENTS.

The Funds can buy debt securities as described above; this is investing,
not making a loan.

6. THE FUNDS CAN BORROW ONLY IN LIMITED AMOUNTS FOR SPECIAL PURPOSES.

Each Fund can borrow from banks for temporary or emergency purposes but
only up to 10% of its total assets. Each Fund can mortgage or pledge its assets
only in connection with such borrowing and only up to the lesser of the amounts
borrowed or 5% of the value of its total assets. Interest on borrowings would
reduce each Fund's income.

Except in connection with borrowings, the Funds will not issue senior
securities.

Neither Fund will purchase any security while it has any outstanding
borrowings which exceed 5% of the value of its total assets.

MANAGEMENT OF THE FUNDS

THE BOARD OF TRUSTEES

The business and affairs of the Funds are managed under the direction and
control of its Board of Trustees. The Board of Trustees has authority over every
aspect of the Funds' operations, including approval of the advisory and
sub-advisory agreements and their annual renewal, the contracts with all other
service providers and payments under each Fund's Distribution Plan and
Shareholder Services Plan.

TRUSTEES AND OFFICERS

The Trustees and officers of the Company, their ages, their affiliations,
if any, with the Adviser or the Distributor and their principal occupations
during at least the past five years are set forth below. None of the Trustees or
officers of the Company is affiliated with the Sub-Adviser. Mr. Herrmann is an
interested person of the Company as that term is defined in the 1940 Act as an
officer of the Company and a director, officer and shareholder of the Adviser
and the Distributor. Ms. Herrmann is an interested person of the Company as an
officer of the Company and of the Adviser and as a shareholder of the
Distributor. Each is also an interested person as a member of the immediate
family

8
<PAGE> 71

of the other. They are so designated by an asterisk.

In the following material Pacific Capital Cash Assets Trust, Churchill Cash
Reserves Trust, Pacific Capital U.S. Government Securities Cash Asset Trust,
Pacific Capital Tax-Free Cash Assets Trust, each of which is a money market
fund, are together with Capital Cash Management Trust ("CCMT"), 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"; and Aquila Cascadia Equity Fund, Aquila Rocky Mountain Equity Fund and
Aquila/Laffer S&P 500 Competitive Advantage Fund are called the "Aquila Equity
Funds."

(1) (2) (3)
Name, Address, Age Positions(s) Principal
Held with Occupation(s)
Company During
Past 5 Years

Lacy B. Herrmann* Chairman Founder and Chairman of
380 Madison Avenue of the the Board of Aquila
New York, New York Board of Management Corporation,
10017 Trustees the sponsoring
Age: 70

organization and Manager or
Administrator and/or Adviser or
Sub-Adviser to the Aquila
Money-Market Funds, the Aquila Bond
Funds and the Aquila Equity Funds,
and Founder, Chairman of the Board
of Trustees and (currently or until
1998) President of each since its
establishment, beginning in 1984;
Vice President and Director, and
formerly Secretary, of Aquila
Distributors, Inc., distributor of
the above funds, since 1981;
President and a Director of STCM
Management Company, Inc., sponsor
and sub-adviser to CCMT; Founder
and Chairman of

<PAGE> 72

several other money market funds;
Director or Trustee of OCC Cash
Reserves, Inc. and Quest For Value
Accumulation Trust, and Director or
Trustee of Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest
Global Value Fund, Inc. and
Oppenheimer 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.

Diana P. Herrmann* Trustee, President and Chief
380 Madison Avenue President Operating Officer of
York, New York the Adviser since 1997, a
10017 Director since 1984,
Age: 41 Secretary since 1986 and previously
its Executive Vice President,
Senior Vice President or Vice
President, 1986-1997; President of
various Aquila Bond and
Money-Market Funds since 1998;
Assistant Vice President, Vice
President, Senior Vice President or
Executive Vice President of Aquila
Money-Market, Bond and Equity Funds
since 1986; Trustee of a number of
Aquila Money-Market, Bond and
Equity Funds since 1995; Trustee of
Reserve Money-Market Funds since
1999 and Reserve Private Equity
Series since 1998; Assistant Vice
President

10
<PAGE> 73

and formerly Loan Officer of
European American Bank, 1981-1986;
daughter of the Company's Chairman;
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.

Rose F. Marotta Chief Chief Financial Officer
380 Madison Avenue, Financial of the Aquila Money-
New York, New York Officer Market, Bond and Equity
10017 Funds since 1991 and
Age: 75 Treasurer, 1981-1991;
Treasurer of the predecessor of
CCMT, 1974-1977; 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
Adviser since 1984 and of the
Distributor since 1985.

Richard F. West Treasurer Treasurer of the Aquila
380 Madison Avenue, Money-Market, Bond and
New York, New York Equity Funds and of
10017 Aquila Distributors,Inc.
Age: 63 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

11
<PAGE> 74

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.

TRUSTEE COMPENSATION

The Funds do not currently pay fees to any of the Company's officers or to
Trustees affiliated with the Adviser or the Sub-Adviser. No other compensation
or remuneration of any type, direct or contingent, was paid by the Funds to such
interested Trustees.

The Company is one of the 16 funds in the Aquila(sm) Group of Funds, which
consist of tax-free municipal bond funds, money market funds and equity funds.
The following table lists the compensation of all Trustees who will receive
compensation from the Funds and the compensation they received during the
calendar year ended December 31, 1999 from other funds in the Aquila(sm) Group
of Funds. None of such Trustees has any pension or retirement benefits from the
Funds or any of the other funds in the Aquila group.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION NUMBER OF
AGGREGATE FROM ALL BOARDS ON
COMPENSATION FUNDS IN THE WHICH THE
NAME AND FROM THE AQUILA(SM) TRUSTEE
TITLE FUND GROUP NOW SERVES
<S> <C> <C> <C>

</TABLE>

Class A shares may be purchased without a sales charge by certain of the
Company's Trustees and officers. (See "Reduced Sales Charges for Certain
Purchases of Class A Shares," below.)

OWNERSHIP OF SECURITIES

Until its initial public offering, all shares of the Funds will be held by
the Adviser, Aquila Management Corporation, which

12
<PAGE> 75

may be deemed to control the Funds. The Adviser, which was founded in 1984, is
controlled by Mr. Lacy B. Herrmann, directly, through a trust and through share
ownership by his wife.

INVESTMENT ADVISORY AND OTHER SERVICES

INFORMATION ABOUT THE ADVISER, THE SUB-ADVISER AND THE DISTRIBUTOR

Aquila Management Corporation, 380 Madison Avenue, Suite 2300, New York, NY
10017, founder and manager of the Funds, is the Funds' investment adviser (the
"Adviser") under Advisory and Administration Agreements (together the "Advisory
and Administration Agreements"). The Adviser is responsible for the day-to-day
investment advisory duties, including portfolio management.

The Funds' Adviser is founder and Manager and/or administrator to the
Aquila(sm) Group of Funds, which consists of tax-free municipal bond funds,
money market funds and equity funds. As of December 31, 1999, these funds had
aggregate assets of approximately $3.2 billion. The Adviser, which was founded
in 1984, is controlled by Mr. Lacy B. Herrmann, directly, through a trust and
through share ownership by his wife.

Mr. Herrmann and his daughter, Ms. Herrmann, are affiliated with the Funds
as officers and Trustees. Mr. Herrmann controls the Adviser, as described above,
and Ms. Herrmann is an officer and a director of the Adviser.

Under the Advisory and Administration Agreements, each Fund will pay to the
Adviser a fee payable monthly and computed based on the net assets of each Fund
as of the close of business each business day at the annual rate of x.xx of 1%.

Laffer Investments, 5405 Morehouse Drive, Suite 340, San Diego, California,
92121, the Funds' sub-adviser (the "Sub-Adviser"), provides economic, financial
and statistical analyses to the Adviser relying in large part on the investment
model developed by Dr. Laffer and helps monitor the investment program and
composition of each Fund's portfolio. Dr. Arthur B. Laffer is Chairman of Laffer
Investments, an investment management firm. Laffer Investments is 100%
controlled by Dr. Laffer and his family. Dr. Laffer was a member of President
Reagan's Economic Policy Advisory Board from 1981 to 1988. Dr. Laffer is
currently a member of the Congressional Policy Advisory Board (CPAB) which seeks
to bring to Congress new and fresh ideas about the role of government.

The Sub-Advisory Agreements for the Funds provide that the Adviser agrees
to pay the Sub-Adviser, and the Sub-Adviser agrees

<PAGE> 76

to accept as full compensation for all services rendered by the Sub-Adviser as
such, a management fee payable monthly and computed based on the net assets of
each Fund as of the close of business each business day at the annual rate of
x.xx of 1%.

Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300, New York, NY
10017 is the Funds' distributor (the "Distributor"). The Distributor currently
handles the distribution of the shares of 16 funds (five money market funds,
seven tax-free municipal bond funds and three equity funds), including the
Funds. Under the Distribution Agreements for the Funds, 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 72% by Mr. Herrmann and other
members of his immediate family, 24% by Diana P. Herrmann and the balance by an
officer of the Distributor.

THE ADVISORY AND ADMINISTRATION AGREEMENTS

The Advisory and Administration Agreements for the Funds provide that
subject to the direction and control of the Board of Trustees, the Adviser
shall:

(1) supervise continuously the investment program of each Fund and the
composition of its portfolio;

(2) determine what securities shall be purchased or sold by each Fund;

(3) arrange for the purchase and the sale of securities held in the
portfolio of each Fund; and

(4) at its expense provide for pricing of each 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 each Fund's portfolio at least
quarterly using another such source satisfactory to the Fund.

The Advisory and Administration Agreements of the Funds provide that,
subject to the termination provisions described below, the Adviser may at its
own expense delegate to a qualified organization, affiliated or not affiliated
with the Adviser, any or all of the above duties. Any such delegation of the
duties set forth in (1), (2) or (3) above shall be by a written agreement
approved as provided in Section 15 of the 1940 Act. The Adviser has entered into
written agreements with the Sub-Adviser (the

14
<PAGE> 77

"Sub-Advisory Agreements") pursuant to which the Sub-Adviser also will have the
duties set forth in (1) above and makes investment recommendations to the
Adviser based on the investment model developed by Dr. Laffer.

The Advisory and Administration Agreements of the Funds also provide that
subject to the direction and control of the Board of Trustees, the Adviser shall
provide all administrative services to the Funds other than those relating to
their investment portfolio which have been delegated to the Sub-Adviser under
the Sub-Advisory Agreements; as part of such administrative duties, the Adviser
shall:

(1) provide office space, personnel, facilities and equipment for the
performance of the following functions and for the maintenance of the
headquarters of the Funds;

(2) oversee all relationships between the Funds 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 Funds and
for the sale, servicing or redemption of the Funds' shares;

(3) either keep the accounting records of the Funds, 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 Funds;

(4) maintain the Funds' books and records, and prepare (or assist counsel
and auditors in the preparation of) all required proxy statements,
reports to the Funds' 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 Funds;

(5) prepare, on behalf of the Funds and at the Funds' expense, such
applications and reports as may be necessary to make notice filings
for the Funds and/or its shares under the securities or "Blue-Sky"
laws of all such jurisdictions as may be required from time to time;
and

(6) respond to any inquiries or other communications of shareholders of
the Funds and broker-dealers, or if any such inquiry or communication
is more properly to be responded to by the Funds' shareholder
servicing and transfer agent or

<PAGE> 78

distributor, oversee such shareholder servicing and transfer agent's
or distributor's response thereto.

The Advisory and Administration Agreements contain provisions relating to
compliance of the investment program, responsibility of the Adviser for any
investment program managed by it, and responsibility for errors that are
substantially the same as the corresponding provisions in the Sub-Advisory
Agreements.

The Advisory and Administration Agreements provide that the Adviser shall,
at its own expense, pay all compensation of Trustees, officers, and employees of
the Company who are affiliated persons of the Adviser.

Each Fund bears 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 Adviser under the Advisory and Administration Agreement with the
Fund or otherwise by the Adviser, administrator or principal underwriter or by
the Sub-Adviser shall be paid by the Fund, including, but not limited to (1)
interest and taxes; (2) brokerage commissions; (3) insurance premiums; (4)
compensation and expenses of its Trustees other than those affiliated with the
Adviser or the Sub-Adviser, administrator or principal underwriter; (5) legal
and audit expenses; (6) custodian and transfer agent, or shareholder servicing
agent, fees and expenses; (7) expenses incident to the issuance of its shares
(including issuance on the payment of, or reinvestment of, dividends); (8) fees
and expenses incident to the registration or notice filings under Federal or
State securities laws of the Fund or its shares; (9) expenses of preparing,
printing and mailing reports and notices and proxy material to shareholders of
the Fund; (10) all other expenses incidental to holding meetings of the Fund's
shareholders; and (11) 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.

Each Advisory and Administration Agreement provides that it may be
terminated by the Adviser at any time without penalty upon giving the Fund sixty
days' written notice and may be terminated by the Fund at any time without
penalty upon giving the Adviser sixty days' written notice (which notice may be
waived by the Adviser), provided that such termination by the Fund shall be
directed or approved by a vote of a majority of the 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 Fund

<PAGE> 79

outstanding and entitled to vote. The specific portions of the Advisory and
Administration 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 and Administration Agreement, but all other provisions
relating to providing services other than investment advisory services will not
terminate. Each Advisory and Administration Agreement contains a provision under
which the Adviser agrees that it will not exercise its termination rights for at
least five years from the effective date of the Agreement except for regulatory
reasons.

[The expense limitation referred to in the Prospectus, if in effect, is
implemented monthly so that at no time is there any unpaid liability under the
limitation, subject to readjustment during the year.]

The Advisory and Administration Agreements provide that the Adviser shall
not be liable for any error in judgment or for any loss suffered by the Funds in
connection with the matters to which the Advisory and Administration Agreements
relate, except a loss resulting from willful misfeasance, bad faith or gross
negligence of the Adviser in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the Advisory and
Administration Agreements. The Funds agree to indemnify the Adviser to the full
extent permitted by the Declaration of Trust.

THE SUB-ADVISORY AGREEMENTS

The services of the Sub-Adviser are rendered under the Sub-Advisory
Agreements, which provide, subject to the control of the Board of Trustees, for
investment supervision. The Sub-Advisory Agreements state that the Sub-Adviser
shall, at its expense, provide to the Funds all office space and facilities,
equipment and clerical personnel necessary for the carrying out of the
Sub-Adviser's duties under the Sub-Advisory Agreements.

Each 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 1940 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 Company as amended from time to time;
(4) any policies and determinations of the Board of Trustees; and (5) the
fundamental policies of the Fund, as reflected in the registration statement
under the 1940 Act or as amended by the shareholders of the Fund.

The Sub-Advisory Agreements provide that the Sub-Adviser shall give to the
Adviser, as defined therein, and to the Funds the benefit of its best judgment
and effort in rendering services thereunder, but the Sub-Adviser shall not be
liable for any loss

17
<PAGE> 80

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 (1) its own investigation and research or
(2) 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. Nothing therein contained shall, however, be construed to
protect the Sub-Adviser against any liability to the Funds or their security
holders by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under the Sub-Advisory Agreements.

Each 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 Funds.
It is agreed that the Sub-Adviser shall have no responsibility or liability for
the accuracy or completeness of the Funds' Registration Statement under the 1940
Act and the Securities Act of 1933, except for information reviewed or supplied
by the Sub-Adviser for inclusion therein. The Sub-Adviser shall promptly inform
the Funds 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 1940 Act) of
the Sub-Advisory Agreements. To the extent that the Adviser is indemnified under
the Funds' Declaration of Trust with respect to the services provided by the
Sub-Adviser, the Adviser agrees to provide the Sub-Adviser the benefits of such
indemnification.

The Sub-Advisory Agreements provide that the Sub-Adviser shall bear all of
the expenses it incurs in fulfilling its obligations under the Sub-Advisory
Agreements. In particular, but without limiting the generality of the foregoing,
the Sub-Adviser shall supply, or cause to be supplied, to any investment
adviser, administrator or principal underwriter of the Funds 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 Funds. The Sub-Adviser will also
pay all compensation of the Company's officers, employees, and Trustees, if any,
who are affiliated persons of the Sub-Adviser.

18
<PAGE> 81

Each Sub-Advisory Agreement provides that it may be terminated by the
Sub-Adviser at any time without penalty upon giving the Adviser and the Fund
sixty days' written notice. It may be terminated by the Adviser or the Fund at
any time without penalty upon giving the Sub-Adviser sixty days' written notice,
provided that such termination by the Fund shall be directed or approved by a
vote of a majority of the Company's 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's outstanding and entitled to vote. Each Sub-Advisory Agreement will
automatically terminate in the event of its assignment (as defined in the Act)
or the termination of the Investment Advisory Agreement with the Fund to which
the Sub-Advisory Agreement relates. The Sub-Adviser agrees that it will not
exercise its termination rights for at least five years from the effective date
of the Sub-Advisory Agreements, except for regulatory reasons.

UNDERWRITING COMMISSIONS

In connection with sales of Class A shares of each Fund, the Distributor
pays a portion of the sales charge on such shares to dealers in the form of
discounts and to brokers in the form of agency commissions (together,
"Commissions"), in amounts that vary with the size of the sales charge as
follows:

<TABLE>
<CAPTION>
Sales Charge as Commissions as
Percentage of Public Percentage of
Amount of Purchase Offering Price Offering Price
- ------------------ -------------- --------------
<S> <C> <C>
Less than $50,000 x.xx% x.xx%

$50,000 but less
than $100,000 x.xx% x.xx%

$100,000 but less
than $250,000 x.xx% x.xx%

$250,000 but less
than $500,000 x.xx% x.xx%

$500,000 but less
than $1,000,000 x.xx% x.xx%
</TABLE>

DISTRIBUTION PLANS

Each Fund has adopted a Distribution Plan under Rule 12b-1 ("Rule 12b-1")
which has three parts, relating respectively to distribution payments with
respect to Class A shares (Part I, below), to distribution payments relating to
Class C shares (Part

<PAGE> 82

II, below) and to certain defensive provisions (Part III, below).

PROVISIONS RELATING TO CLASS A SHARES (PART I)

The Distributor will consider shares which are not Qualified Holdings of
such unrelated broker-dealers to be Qualified Holdings of the Distributor and
will authorize Permitted Payments to the Distributor with respect to such shares
whenever Permitted Payments are being made under the Plans.

Part I of each Fund's Plan applies only to the Class A shares of the Fund
(regardless of whether such class is so designated or is redesignated by some
other name).

As used in Part I of each Plan, "Qualified Recipients" shall mean
broker-dealers or others selected by the Distributor, including but not limited
to any principal underwriter of a Fund, with which the Company or the
Distributor have entered into written agreements in connection with Part I
("Class A Plan Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of the Fund's
Class A shares or servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient, all Class A
shares beneficially owned by such Qualified Recipient, or beneficially owned by
its brokerage customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the sole judgment
of the Distributor, instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services in relation
thereto.

Subject to the direction and control of the Company's Board of Trustees,
each Fund may make payments ("Class A Permitted Payments") to Qualified
Recipients, which Class A Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing agent, which may
not exceed, for any fiscal year of the Fund (as adjusted for any part or parts
of a fiscal year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), 0.xx of 1% of the average
annual net assets of the Fund represented by the Class A shares. Such payments
shall be made only out of the Fund's assets allocable to the Class A shares.

The Distributor shall have sole authority (1) as to the selection of any
Qualified Recipient or Recipients; (2) not to select any Qualified Recipient;
and (3) as to the amount of Class A Permitted Payments, if any, to each
Qualified Recipient provided that the total Class A Permitted Payments to all
Qualified Recipients do not exceed the amount set forth above. The Distributor
is authorized, but not directed, to take into account, in addition to any other
factors deemed relevant by it, the following: (a) the amount of the Qualified
Holdings of the

20
<PAGE> 83

Qualified Recipient; (b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with respect to holders
of Class A shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status and history,
and the manner in which purchases and redemptions of shares of each Fund may be
effected; assisting shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel and facilities
to establish and maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for the wiring of
funds; transmitting and receiving funds in connection with customer orders to
purchase or redeem shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with other reports
sent to a shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on behalf of the
Funds, proxy statements, annual reports, updating prospectuses and other
communications from each Fund to its shareholders; receiving, tabulating and
transmitting to each Fund proxies executed by shareholders with respect to
meetings of shareholders of the Fund; and providing such other related services
as the Distributor or a shareholder may request from time to time; and (c) the
possibility that the Qualified Holdings of the Qualified Recipient would be
redeemed in the absence of its selection or continuance as a Qualified
Recipient. Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined under "Shareholder Services Plans" below) may
remove any person as a Qualified Recipient. Amounts within the above limits
accrued to a Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all Qualified Recipients,
the difference will not be carried over to subsequent years.

While Part I of each Fund's Plan is in effect, the Fund's Distributor shall
report at least quarterly to the Company's Trustees in writing for their review
on the following matters: (1) all Class A Permitted Payments made under the
Plan, the identity of the Qualified Recipient of each payment, and the purposes
for which the amounts were expended; and (2) all fees of the Fund to the
Distributor, Sub-Adviser or Adviser paid or accrued during such quarter. In
addition, if any such Qualified Recipient is an affiliated person, as that term
is defined in the 1940 Act, of the Company, the Adviser, the Sub-Adviser or the
Distributor, such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of Trustees to make
the determinations of the fairness of the compensation paid to such affiliated
person, not less often than annually.

<PAGE> 84

Part I of each Fund's Plan originally went into effect when it was approved
by a vote of the Trustees, including the Independent Trustees, with votes cast
in person at a meeting called for the purpose of voting on Part I of the Plan.
Part I of each Fund's Plan will, unless terminated as hereinafter provided,
continue in effect, until the xxxx,xx next succeeding such effectiveness, and
from year to year thereafter only so long as such continuance is specifically
approved at least annually by the Company's Trustees and its Independent
Trustees with votes cast in person at a meeting called for the purpose of voting
on such continuance. Part I of each Fund's Plan may be terminated at any time by
the vote of a majority of the Independent Trustees or by the vote of the holders
of a "majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Fund to which Part I applies. Part I may not be amended to
increase materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by Part I as set forth in
(2) above, and all amendments must be approved in the manner set forth in (1)
above.

In the case of a Qualified Recipient which is a principal underwriter of
the Funds, the Class A Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be approved in
accordance with, and contain the provisions required by, Rule 12b-1. In the case
of Qualified Recipients which are not principal underwriters of the Funds, the
Class A Plan Agreements with them shall be (1) their agreements with the
Distributor with respect to payments under each Fund's Distribution Plan in
effect prior to xxxx, xx, 2000 or (2) Class A Plan Agreements entered into
thereafter.

PROVISIONS RELATING TO CLASS C SHARES (PART II)

Part II of each Fund's Plan applies only to the Class C shares of the Fund
(regardless of whether such class is so designated or is redesignated by some
other name).

As used in Part II of each Fund's Plan, "Qualified Recipients" shall mean
broker-dealers or others selected by the Distributor, including but not limited
to any principal underwriter of the Fund, with which the Company or the
Distributor has entered into written agreements in connection with Part II
("Class C Plan Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of the Fund's
Class C shares or servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient, all Class C
shares beneficially owned by such Qualified Recipient, or beneficially owned by
its brokerage customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the sole judgment
of the Distributor, instrumental in the purchase and/or retention of such shares
and/or in providing administrative

<PAGE> 85

assistance or other services in relation thereto.

Subject to the direction and control of the Company's Board of Trustees,
each Fund may make payments ("Class C Permitted Payments") to Qualified
Recipients, which Class C Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing agent, which may
not exceed, for any fiscal year of the Fund (as adjusted for any part or parts
of a fiscal year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), 0.75 of 1% of the average
annual net assets of the Fund represented by the Class C shares. Such payments
shall be made only out of the Fund's assets allocable to the Class C shares. The
Distributor shall have sole authority (1) as to the selection of any Qualified
Recipient or Recipients; (2) not to select any Qualified Recipient; and (3) the
amount of Class C Permitted Payments, if any, to each Qualified Recipient
provided that the total Class C Permitted Payments to all Qualified Recipients
do not exceed the amount set forth above. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors deemed relevant
by it, the following: (a) the amount of the Qualified Holdings of the Qualified
Recipient; (b) the extent to which the Qualified Recipient has, at its expense,
taken steps in the shareholder servicing area with respect to holders of Class C
shares, including without limitation, any or all of the following activities:
answering customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Funds may be
effected; assisting shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel and facilities
to establish and maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for the wiring of
funds; transmitting and receiving funds in connection with customer orders to
purchase or redeem shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with other reports
sent to a shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on behalf of the
Funds, proxy statements, annual reports, updating prospectuses and other
communications from each Fund to its shareholders; receiving, tabulating and
transmitting to each Fund proxies executed by shareholders with respect to
meetings of shareholders of the Fund; and providing such other related services
as the Distributor or a shareholder may request from time to time; and (c) the
possibility that the Qualified Holdings of the Qualified Recipient would be
redeemed in the absence of its selection or continuance as a Qualified
Recipient. Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees may remove any person as a Qualified Recipient. Amounts
within the above limits accrued to a Qualified Recipient but not paid

<PAGE> 86

during a fiscal year may be paid thereafter; if less than the full amount is
accrued to all Qualified Recipients, the difference will not be carried over to
subsequent years.

While Part II of each of the Fund's Plans is in effect, the Fund's
Distributor shall report at least quarterly to the Company's Trustees in writing
for their review on the following matters: (1) all Class C Permitted Payments
made under the Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (2) all fees of the
Fund to the Distributor, Sub-Adviser or Adviser paid or accrued during such
quarter. In addition, if any such Qualified Recipient is an affiliated person,
as that term is defined in the 1940 Act, of the Company, the Adviser, the
Sub-Adviser or the Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Company an
accounting, in form and detail satisfactory to the Board of Trustees, to enable
the Board of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than annually.

Part II of each Fund's Plan originally went into effect when it was
approved (1) by a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting on Part II of
each Plan. Part II of each Fund's Plan will, unless terminated as hereinafter
provided, continue in effect, until the xxx, xx next succeeding such
effectiveness, and from year to year thereafter only so long as such continuance
is specifically approved at least annually by the Company's Trustees and its
Independent Trustees with votes cast in person at a meeting called for the
purpose of voting on such continuance. Part II of each Fund's Plan may be
terminated at any time by the vote of a majority of the Independent Trustees or
by the vote of the holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Funds to which Part II of the Plan applies.
Part II may not be amended to increase materially the amount of payments to be
made without shareholder approval of the class or classes of shares affected by
Part II of the Plan as set forth in (2) above, and all amendments must be
approved in the manner set forth in (1) above.

In the case of a Qualified Recipient which is a principal underwriter of
the Funds, the Class C Plan Agreements shall be the agreements contemplated by
Section 15(b) of the 1940 Act since each such agreement must be approved in
accordance with, and contain the provisions required by, Rule 12b-1. In the case
of Qualified Recipients which are not principal underwriters of a Fund, the
Class C Plan Agreements with them shall be their agreements with the Distributor
with respect to payments under Part II of the Fund's Plan.

SHAREHOLDER SERVICES PLANS

<PAGE> 87

The Funds have adopted Shareholder Services Plans (together the "Services
Plans") to provide for the payment with respect to Class C shares of the Funds
of "Service Fees" within the meaning of Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc. The Services Plans apply only
to the Class C shares of the Funds.

As used in each Fund's Services Plan, "Qualified Recipients" shall mean
broker-dealers or others selected by the Distributor, including but not limited
to the Distributor and any other principal underwriter of the Fund, who have,
pursuant to written agreements with the Company or the Distributor, agreed to
provide personal services to shareholders of Class C shares and/or maintenance
of Class C shares shareholder accounts. "Qualified Holdings" shall mean, as to
any Qualified Recipient, all Class C shares beneficially owned by such Qualified
Recipient's customers, clients or other contacts. "Administrator" shall mean
Aquila Management Corporation or any successor serving as adviser or
administrator of the Fund.

Subject to the direction and control of the Company's Board of Trustees,
each Fund may make payments ("Service Fees") to Qualified Recipients, which
Service Fees (1) may be paid directly or through the Distributor or shareholder
servicing agent as disbursing agent and (2) may not exceed, for any fiscal year
of the Fund (as adjusted for any part or parts of a fiscal year during which
payments under the Services Plans are not accruable or for any fiscal year which
is not a full fiscal year) 0.25 of 1% of the average annual net assets of the
Fund represented by the Class C shares. Such payments shall be made only out of
the Fund's assets allocable to the Class C shares. The Distributor shall have
sole authority with respect to the selection of any Qualified Recipient or
Recipients and the amount of Service Fees, if any, paid to each Qualified
Recipient, provided that the total Service Fees paid to all Qualified Recipients
may not exceed the amount set forth above and provided, further, that no
Qualified Recipient may receive more than 0.25 of 1% of the average annual net
asset value of shares sold by such Recipient. The Distributor is authorized, but
not directed, to take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified Recipient has, at
its expense, taken steps in the shareholder servicing area with respect to
holders of Class C shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding account status and
history, and the manner in which purchases and redemptions of shares of the
Funds may be effected; assisting shareholders in designating and changing
dividend options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption transactions; arranging
for the wiring of funds; transmitting and receiving

25
<PAGE> 88

funds in connection with customer orders to purchase or redeem shares; verifying
and guaranteeing shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and providing such
other related services as the Distributor or a shareholder may request from time
to time. Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees may remove any person as a Qualified Recipient. Amounts
within the above limits accrued to a Qualified Recipient but not paid during a
fiscal year may be paid thereafter; if less than the full amount is accrued to
all Qualified Recipients, the difference will not be carried over to subsequent
years.

While each Fund's Services Plan is in effect, the Fund's Distributor shall
report at least quarterly to the Company's Trustees in writing for their review
on the following matters: (1) all Service Fees paid under the Services Plans,
the identity of the Qualified Recipient of each payment, and the purposes for
which the amounts were expended; and (2) all fees of the Fund to the Distributor
paid or accrued during such quarter. In addition, if any Qualified Recipient is
an "affiliated person," as that term is defined in the 1940 Act, of the Company,
the Adviser, the Sub-Adviser or the Distributor, such person shall agree to
furnish to the Distributor for transmission to the Board of Trustees of the
Company an accounting, in form and detail satisfactory to the Board of Trustees,
to enable the Board of Trustees to make the determinations of the fairness of
the compensation paid to such affiliated person, not less often than annually.

The Services Plans have been approved by a vote of the Trustees, including
those Trustees who, at the time of such vote, were not "interested persons" (as
defined in the 1940 Act) of the Company and had no direct or indirect financial
interest in the operation of the Services Plans or in any agreements related to
the Services Plans (the "Independent Trustees"), with votes cast in person at a
meeting called for the purpose of voting on the Services Plans. The Services
Plans will continue in effect for a period of more than one year from such date
only so long as such continuance is specifically approved at least annually as
set forth in the preceding sentence. It may be amended in like manner and may be
terminated at any time by vote of the Independent Trustees.

The Services Plans shall also be subject to all applicable terms and
conditions of Rule 18f-3 under the 1940 Act as now in force or hereafter
amended.

TRANSFER AGENT, CUSTODIAN AND AUDITORS

The Funds' Shareholder Servicing Agent (transfer agent) is PFPC Inc., 400
Bellevue Parkway, Wilmington, DE 19809.

<PAGE> 89

The Funds' Custodian, Bank One Trust Company, N.A., 100 East Broad Street,
Columbus, Ohio 43271, is responsible for holding the Funds' assets.

The Funds' auditors, xxxxx, perform an annual audit of the Funds' financial
statements.

BROKERAGE ALLOCATION AND OTHER PRACTICES

Each Fund's Advisory Agreement contains the following provisions as to the
Fund's portfolio transactions. In connection with its duties to arrange for the
purchase and sale of the Fund's portfolio securities, the Adviser shall select
such broker-dealers ("dealers") as shall, in the Adviser's judgment, implement
the policy of the Fund to achieve "best execution," that is, the most favorable
price and efficient execution, and accordingly shall seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. 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 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 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 Adviser's overall
responsibilities. If, on the foregoing basis, the transaction in question could
be allocated to two or more dealers, the Adviser is authorized, in making such
allocation, to consider (1) whether a dealer has provided research services, as
further discussed below; and (2) 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 Adviser
or its other clients.

CAPITAL STOCK

Each Fund has three classes of shares.

* FRONT-PAYMENT CLASS SHARES (CLASS A SHARES) are offered to anyone at net
asset value plus a sales charge, paid at the

27
<PAGE> 90

time of purchase, at the maximum rate of x.xx% of the public offering
price, with lower rates for larger purchases. However, certain purchases of
Class A shares will not be subject to a sales charge (See "Purchase,
Redemption and Pricing of Shares" below). Class A shares are subject to an
asset retention service fee under each Fund's Distribution Plans at the
rate of x.xx of 1% of the average annual net assets represented by the
Fund's Class A shares.

* LEVEL-PAYMENT CLASS SHARES (CLASS C SHARES) are offered to anyone at net
asset value with no sales charge payable at the time of purchase but with a
level charge for service and distribution fees for six years after the date
of purchase at the aggregate annual rate of 1% of the average annual net
assets of the Class C shares. Six years after the date of purchase, Class C
shares are automatically converted to Class A shares. If you redeem Class C
shares before you have held them for 12 months from the date of purchase
you will pay a contingent deferred sales charge ("CDSC"); this charge is
1%, calculated on the net asset value of the Fund's Class C shares at the
time of purchase or at redemption, whichever is less. There is no CDSC
after Class C shares have been held beyond the applicable period. For
purposes of applying the CDSC and determining the time of conversion, the
12-month and six-year holding periods are considered modified by up to one
month depending upon when during a month your purchase of such shares is
made.

* INSTITUTIONAL CLASS SHARES (CLASS Y SHARES) are offered only to
institutions acting for investors in a fiduciary, advisory, agency,
custodial or similar capacity, and are not offered directly to retail
customers. Class Y shares are offered at net asset value with no sales
charge, no redemption fee, no contingent deferred sales charge and no
distribution fee.

The Funds' classes of shares differ in their different sales charge
structures and ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All three classes of each
Fund represent interests in the same portfolio of securities and have the same
rights, except that each class bears the separate expenses, if any, of its
participation in the Fund's Distribution Plan and Services Plan and has
exclusive voting rights with respect to such participation.

At any meeting of shareholders, shareholders are entitled to one vote for
each dollar of net asset value (determined as of the record date for the
meeting) per share held (and proportionate fractional votes for fractional
dollar amounts). Shareholders will vote on the election of Trustees and on other
matters submitted to the vote of shareholders. Shares of each Fund vote by
classes on any matter specifically affecting one or more

<PAGE> 91

classes, such as an amendment of an applicable part of the Fund's Distribution
Plan. No amendment, whether or not affecting the rights of the shareholders, may
be made to the Company's Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the Funds, except that
the Company's Board of Trustees may change the name of the Company.

The Company is authorized to issue an unlimited number of shares of
beneficial interest, $0.01 par value per share divided into two series (the
Funds). The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares and to divide or combine the shares of a
series into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in each Fund. Each share of a Fund represents
an equal proportionate interest in the Fund with each other share of its class;
shares of the respective classes represent proportionate interests in each Fund
in accordance with their respective net asset values. Upon liquidation of a
Fund, shareholders are entitled to share pro-rata in the net assets of the Fund
available for distribution to shareholders, in accordance with the respective
net asset values of the shares of each of the classes at that time. All shares
are presently divided into three classes; however, if they deem it advisable and
in the best interests of shareholders, the Board of Trustees of the Company may
create additional classes of shares, which may differ from each other as
provided in rules and regulations of the Securities and Exchange Commission or
by exemptive order. The Board of Trustees may, at its own discretion, create
additional series of shares, each of which may have separate assets and
liabilities. Shares are fully paid and non-assessable, except as set forth in
the next paragraph; the holders of shares have no pre-emptive or conversion
rights, except that Class C shares automatically convert to Class A shares after
being held for six years.

The Company is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust such as the
Company, may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. For shareholder protection, however, an
express disclaimer of shareholder liability for acts or obligations of the
Company (and each Fund) is contained in the Declaration of Trust, which requires
that notice of such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by the Company (including on behalf of a
Fund) or the Trustees. The Declaration of Trust provides for indemnification out
of the Company's property of any shareholder held personally liable for the
obligations of the Company. The Declaration of Trust also provides that the
Company shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Company and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring

29
<PAGE> 92

financial loss on account of shareholder liability is limited to the relatively
remote circumstances in which the Company itself would be unable to meet its
obligations. If either Fund is unable to meet the obligations attributable to
it, the other Fund will be subject to such obligations, with a corresponding
increase in the risk of the shareholder liability mentioned in the prior
sentence.

PURCHASE, REDEMPTION, AND PRICING OF SHARES

The following is in addition to the information about purchase, redemption
and pricing of shares set forth in the Prospectus.

SALES CHARGES FOR PURCHASES OF $1 MILLION OR MORE OF CLASS A SHARES

You will not pay a sales charge at the time of purchase when you purchase
"CDSC Class A shares." CDSC Class A shares are Class A shares issued under the
following circumstances:

(1) Class A shares issued in a single purchase of $1 million or more by a
single purchaser; and

(2) all Class A shares issued to a single purchaser in a single purchase
when the value of the purchase, together with the value of the purchaser's
other CDSC Class A shares and Class A shares on which a sales charge has
been paid, equals or exceeds $1 million.

See "Special Dealer Arrangements" for other circumstances under which Class
A shares are considered CDSC Class A shares. CDSC Class A shares do not include:
(1) Class A shares purchased without a sales charge as described under "General"
in the Prospectus and (2) Class A shares purchased in transactions of less than
$1 million when certain special dealer arrangements are not in effect under
"Certain Investment Companies" set forth under "Reduced Sales Charges for
Certain Purchases of Class A shares," below.

BROKER/DEALER COMPENSATION - CLASS A SHARES

Upon notice to all selected dealers, the Distributor may distribute up to
the full amount of the applicable sales charge to broker/dealers. Under the
Securities Act of 1933, broker/dealers may be deemed to be underwriters during
periods when they receive all, or substantially all, of the sales charge.

REDEMPTION OF CDSC CLASS A SHARES

If you redeem all or part of your CDSC Class A shares during the four years
after you purchase them, you must pay a special contingent deferred sales charge
upon redemption.

<PAGE> 93

You will pay 1% of the Redemption Value if you redeem within the first two
years after purchase, and 0.50 of 1% of the Redemption Value if you redeem
within the third or fourth year.

This charge is based on the "Redemption Value" of your shares which is the
lesser of: (1) the net asset value when you purchased the CDSC Class A shares
you are redeeming; or (2) the net asset value at the time of your redemption.

This special charge also applies to CDSC Class A shares purchased without a
sales charge pursuant to a Letter of Intent (see "Reduced Sales Charges for
Certain Purchases of Class A Shares"). This special charge will not apply to
shares acquired through the reinvestment of dividends or distributions on CDSC
Class A shares or to CDSC Class A shares held for longer than four years. When
redeeming shares, the Agent will redeem the CDSC Class A shares held the
longest, unless otherwise instructed. If you own both CDSC and non-CDSC Class A
shares, the latter will be redeemed first.

The Funds will treat all CDSC Class A shares purchases made during a
calendar month as if they were made on the first business day of that month at
the average cost of all purchases made during that month. Therefore, the
four-year holding period will end on the first business day of the 48th calendar
month after the date of those purchases. Accordingly, the holding period may, in
fact, be one month less than the full 48 months depending on when your actual
purchase was made. If you exchange your CDSC Class A shares for shares of an
Aquila money-market fund (see "Exchange Privilege" below), running of the
48-month holding period for those exchanged shares will be suspended.

BROKER/DEALER COMPENSATION - CDSC CLASS A SHARES

The Distributor currently intends to pay any dealer executing a purchase of CDSC
Class A shares as follows:

<TABLE>
<CAPTION>
Amount of Purchase Amount Distributed
to Broker/Dealer as a %
of Purchase Price

<S> <C>
$1 million but less than $2.5 million 1%

$2.5 million but less than $5 million 0.50 of 1%

$5 million or more 0.25 of 1%
</TABLE>

REDUCED SALES CHARGES FOR CERTAIN PURCHASES OF CLASS A SHARES

RIGHT OF ACCUMULATION

<PAGE> 94

"Single purchasers" may qualify for a reduced sales charge in accordance
with the above schedule when making subsequent purchases of Class A shares. A
reduced sales charge applies if the cumulative value (based on purchase cost or
current net asset value, whichever is higher) of Class A shares previously
purchased with a sales charge, together with Class A shares of your subsequent
purchase, also with a sales charge, amounts to $25,000 or more.

LETTERS OF INTENT

"Single purchasers" may also qualify for reduced sales charges, in
accordance with the above schedule, after a written Letter of Intent (included
in the Application) is received by the Distributor. The Letter of Intent
confirms that you intend to purchase, within a thirteen month period, Class A
shares of a Fund through a single selected dealer or the Distributor. Class A
shares of the Fund which you previously purchased within 90 days prior to the
Distributor's receipt of your Letter of Intent and which you still own may also
be included in determining the applicable reduction. For more information,
including escrow provisions, see Letter of Intent provisions of the Application.

GENERAL

Class A shares may be purchased without a sales charge by:

* the Company's Trustees and officers,

* the directors, officers and certain employees, retired employees and
representatives of the Adviser, Sub-Adviser, Distributor, and their
parents and/or affiliates,

* selected dealers and brokers and their officers and employees,

* certain persons connected with firms providing legal, advertising or
public relations assistance,

* certain family members of, and plans for the benefit of, the
foregoing,

* and plans for the benefit of trust or similar clients of banking
institutions over which these institutions have full investment
authority, if the Distributor has an agreement relating to such
purchases.

Except for the last category, purchasers must give written assurance that
the purchase is for investment and that the Class A shares will not be resold
except through redemption. Since there may be tax consequences of these
purchases, your tax advisor should be consulted.

Class A shares may also be issued without a sales charge in a merger,
acquisition or exchange offer made pursuant to a plan of reorganization to which
the Funds are a party.

<PAGE> 95

Each Fund permits the sale of its Class A shares at prices that reflect the
reduction or elimination of the sales charge to investors who are members of
certain qualified groups.

A qualified group is a group or association, or a category of purchasers
who are represented by a fiduciary, professional or other representative (other
than a registered broker-dealer), which

(1) satisfies uniform criteria which enable the Distributor to realize
economies of scale in its costs of distributing shares;

(2) gives its endorsement or authorization (if it is a group or
association) to an investment program to facilitate solicitation of
its membership by a broker or dealer; and

(3) complies with the conditions of purchase that make up an agreement
between the Funds and the group, representative or broker or dealer.

At the time of purchase, the Distributor must receive information
sufficient to permit verification that the purchase qualifies for a reduced
sales charge, either directly or through a broker or dealer.

CERTAIN INVESTMENT COMPANIES

Class A shares of the Funds may be purchased without sales charge (except
as stated below under "Special Dealer Arrangements") from proceeds of a
redemption, made within 120 days prior to such purchase, of shares of an
investment company (not a member of the Aquila(sm) Group of Funds) on which a
sales charge, including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.

To qualify, follow these special procedures:

1. Send a completed Application (included with the Prospectus) and
payment for the shares to be purchased directly to the Distributor,
Aquila Distributors, Inc., 380 Madison Avenue, Suite 2300, New York,
NY 10017-2513. Do not send this material to the address indicated on
the Application.

2. Your completed Application must be accompanied by evidence
satisfactory to the Distributor that you, as the prospective
shareholder, have made a Qualifying Redemption in an amount at least
equal to the net asset value of the Class A shares to be purchased.

Satisfactory evidence includes a confirmation of the

<PAGE> 96

date and the amount of the redemption from the investment company, its
transfer agent or the investor's broker or dealer, or a copy of the
investor's account statement with the investment company reflecting
the redemption transaction.

3. Complete and return to the Distributor a Transfer Request Form, which
is available from the Distributor.

The Funds reserve the right to alter or terminate this privilege at any
time without notice. The Prospectus will be supplemented to reflect such
alteration or termination.

SPECIAL DEALER ARRANGEMENTS

During certain periods determined by the Distributor, the Distributor (not
the Funds) will pay, to any dealer effecting a purchase of Class A shares of the
Funds using the proceeds of a qualifying redemption of an investment company
(that is not a member of the Aquila(sm) Group of Funds), up to 1% of the
proceeds. The shareholder, however, shall not be subject to any sales charge.
These arrangements will be in effect through xxxx xx, 2000 unless extended or
earlier terminated by a supplement of the Prospectus.

Dealer payments shall be made in up to 4 payments of 0.25 of 1% of the
proceeds over a four year period. The first payment will be made subsequent to
receipt of the proper documentation detailed above. Future payments, over the
remaining years, will be made at the end of the quarter of the anniversary month
that the purchase of Class A shares took place, provided that any part of the
investment remains in the Fund during the entire time period. No payments will
be made with respect to any shares redeemed during the four-year period.

Additional Compensation for Broker/Dealers

The Distributor may compensate broker/dealers, above the normal sales
commissions, in connection with sales of any class of shares. However,
broker/dealers may receive levels of compensation which differ as between
classes of shares sold.

The Distributor, not the Funds, will pay these additional expenses.
Therefore, the price you pay for shares and the amount that a Fund receives from
your payment will not be affected.

Additional compensation may include full or partial payment for:

* advertising of a Fund's shares;

* payment of travel expenses, including lodging, for attendance at sales
seminars by qualifying registered

<PAGE> 97

representatives; and/or

* other prizes or financial assistance to broker/dealers conducting
their own seminars or conferences.

Such compensation may be limited to broker/dealers whose representatives
have sold or are expected to sell significant amounts of a Fund's shares.
However, broker/dealers may not use sales of the Fund's shares to qualify for
additional compensation to the extent such may be prohibited by the laws of any
state or self-regulatory agency, such as the National Association of Securities
Dealers, Inc.

The cost to the Distributor of such promotional activities and such
payments to participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Funds effected
through such participating dealers, whether retained by the Distributor or
reallowed to participating dealers. Any of the foregoing payments to be made by
the Distributor may be made instead by the Adviser out of its own funds,
directly or through the Distributor.

AUTOMATIC WITHDRAWAL PLAN

You may establish an Automatic Withdrawal Plan if you own or purchase Class
A shares or Class Y shares of the Funds having a net asset value of at least
$5,000. The Automatic Withdrawal Plan is not available for Class C shares.

Under an Automatic Withdrawal Plan you will receive a monthly or quarterly
check in a stated amount, not less than $50. If such a plan is established, all
dividends and distributions must be reinvested in your shareholder account.
Redemption of Class A shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. (See the Automatic
Withdrawal Plan provisions of the Application included in the Prospectus.)

Purchases of additional Class A shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made. Accordingly, you
may not maintain an Automatic Withdrawal Plan while simultaneously making
regular purchases. While an occasional lump sum investment may be made, such
investment should normally be an amount at least equal to three times the annual
withdrawal or $5,000, whichever is less.

SHARE CERTIFICATES

You may obtain share certificates for full Class A shares only if you make
a written request to the Agent. If you lose the certificates, you may incur
delay and expense when redeeming shares or having the certificates reissued.

Share certificates will not be issued:

<PAGE> 98

* for fractional Class A shares;

* for full or fractional Class C shares;

* if you have selected Automatic Investment or Telephone Investment for
Class A shares;

* if you have selected Expedited Redemption. However, if you
specifically request, Class A share certificates will be issued with a
concurrent automatic suspension of Expedited Redemption on your
account.

REINVESTMENT PRIVILEGE

If you reinvest proceeds of redemption within 120 days of a redemption you
will not have to pay any additional sales charge on the reinvestment. You must
reinvest in the same class as the shares redeemed. You may exercise this
privilege only once a year, unless otherwise approved by the Distributor.

The Distributor will refund to you any CDSC deducted at the time of
redemption by adding it to the amount of your reinvestment. The Class C or CDSC
Class A shares purchased upon reinvestment will be deemed to have been
outstanding from the date of your original purchase of the redeemed shares, less
the period from redemption to reinvestment.

Reinvestment will not alter the tax consequences of your original
redemption.

EXCHANGE PRIVILEGE

There is an exchange privilege as set forth below among these Funds,
certain tax-free municipal bond funds and equity funds (together with the Funds,
the "Bond or Equity Funds") and certain money market funds (the "Money-Market
Funds"), all of which are sponsored by Aquila Management Corporation and Aquila
Distributors, Inc., and have the same Manager or administrator and Distributor
as the Funds. All exchanges are subject to certain conditions described below.
As of the date of the SAI, the Aquila-sponsored Bond or Equity Funds are these
Funds, Aquila Cascadia Equity Fund, Aquila Rocky Mountain Equity Fund, Hawaiian
Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, Churchill
Tax-Free Fund of Kentucky, Tax-Free Fund of Colorado, Tax-Free Fund For Utah and
Narragansett Insured Tax-Free Income Fund; the Aquila Money-Market Funds are
Capital Cash Management Trust, Pacific Capital Cash Assets Trust (Original
Shares), Pacific Capital Tax-Free Cash Assets Trust (Original Shares), Pacific
Capital U.S. Government Securities Cash Assets Trust (Original Shares) and
Churchill Cash Reserves Trust.

Generally, you can exchange shares of a given class of a

36
<PAGE> 99

Bond or Equity Fund including the Funds for shares of the same class of any
other Bond or Equity Fund, or for shares of any Money-Market Fund, without the
payment of a sales charge or any other fee, and there is no limit on the number
of exchanges you can make from fund to fund.

The following important information should be noted:

(1) CDSCs Upon Redemptions of Shares Acquired Through Exchanges. If you
exchange shares subject to a CDSC, no CDSC will be imposed at the time of
exchange, but the shares you receive in exchange for them will be subject to the
applicable CDSC if you redeem them before the requisite holding period
(extended, if required) has expired.

If the shares you redeem would have incurred a CDSC if you had not made any
exchanges, then the same CDSC will be imposed upon the redemption regardless of
the exchanges that have taken place since the original purchase.

(2) Extension of Holding Periods by Owning Money-Market Funds. Any period
of 30 days or more during which Money-Market Fund shares received on an exchange
of CDSC Class A shares or Class C shares are held is not counted in computing
the applicable holding period for CDSC Class A shares or Class C shares.

(3) Originally Purchased Money-Market Fund Shares. Shares of a Money-Market
Fund (and any shares acquired as a result of reinvestment of dividends and/or
distributions on these shares) acquired directly in a purchase (or in exchange
for Money-Market Fund shares that were themselves directly purchased), rather
than in exchange for shares of a Bond or Equity Fund, may be exchanged for
shares of any class of any Bond or Equity Fund that the investor is otherwise
qualified to purchase, but the shares received in such an exchange will be
subject to the same sales charge, if any, that they would have been subject to
had they been purchased rather than acquired in exchange for Money-Market Fund
shares. If the shares received in exchange are shares that would be subject to a
CDSC if purchased directly, the holding period governing the CDSC will run from
the date of the exchange, not from the date of the purchase of Money-Market Fund
shares.

The Funds, as well as the Money-Market Funds and other Bond or Equity
Funds, reserve the right to reject any exchange into its shares, if shares of
the fund into which exchange is desired are not available for sale in your state
of residence. The Funds may also modify or terminate this exchange privilege at
any time. In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect on less than
60 days' written notice to shareholders.

<PAGE> 100

All exercises of the exchange privilege are subject to the conditions that
(1) the shares being acquired are available for sale in your state of residence;
(2) the aggregate net asset value of the shares surrendered for exchange is at
least equal to the minimum investment requirements of the investment company
whose shares are being acquired and (3) the ownership of the accounts from which
and to which the exchange is made are identical.

The Agent will accept telephone exchange instructions from anyone. To make
a telephone exchange telephone:

888-xxx-xxxx toll free

Note: The Funds, the Agent, and the Distributor will not be responsible for
any losses resulting from unauthorized telephone transactions if the Agent
follows reasonable procedures designed to verify the identity of the caller. The
Agent will request some or all of the following information: account name(s) and
number, name of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You should verify
the accuracy of confirmation statements immediately upon receipt.

Exchanges will be effected at the relative exchange prices of the shares
being exchanged next determined after receipt by the Agent of your exchange
request. The exchange prices will be the respective net asset values of the
shares, unless a sales charge is to be deducted in connection with an exchange
of shares, in which case the exchange price of shares of a Bond or Equity Fund
will be their public offering price. Prices for exchanges are determined in the
same manner as for purchases of the Funds' shares.

An exchange is treated for Federal tax purposes as a redemption and
purchase of shares and may result in the realization of a capital gain or loss,
depending on the cost or other tax basis of the shares exchanged and the holding
period (see "Tax Effects of Redemptions"); no representation is made as to the
deductibility of any such loss should such occur.

Dividends paid by the Money-Market Funds are taxable, except to the extent
that a portion or all of the dividends paid by Pacific Capital Tax-Free Cash
Assets Trust (a tax-free money-market Fund) are exempt from regular Federal
income tax, and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Government Securities Cash Assets Trust (which invests in
U.S. Government obligations) are exempt from state income taxes. Dividends paid
by Aquila Rocky Mountain Equity Fund, Aquila Cascadia Equity Fund and the Funds
are

<PAGE> 101

taxable. If your state of residence is not the same as that of the issuers of
obligations in which a tax-free municipal bond fund or a tax-free money-market
fund invests, the dividends from that fund may be subject to income tax of the
state in which you reside. Accordingly, you should consult your tax adviser
before acquiring shares of such a bond fund or a tax-free money-market fund
under the exchange privilege arrangement.

If you are considering an exchange into one of the funds listed above, you
should send for and carefully read its Prospectus.

CONVERSION OF CLASS C SHARES

Conversion of Class C shares into Class A shares will be effected at
relative net asset values on the first business day of the month following that
in which the sixth anniversary of your purchase of the Class C shares occurred,
except as noted below. Accordingly, the holding period applicable to your Class
C Shares may be up to one month more than the six years depending upon when your
actual purchase was made during a month. Because the per share value of Class A
shares may be higher than that of Class C shares at the time of conversion, you
may receive fewer Class A shares than the number of Class C shares converted. If
you have made one or more exchanges of Class C Shares among the Aquila-sponsored
Bond Funds or Equity Funds under the Exchange Privilege, the six-year holding
period is deemed to have begun on the date you purchased your original Class C
shares of the Funds or of another of the Aquila bond or equity funds. The
six-year holding period will be suspended by one month for each period of thirty
days during which you hold shares of a Money-Market Fund you have received in
exchange for Class C shares under the Exchange Privilege.

"TRANSFER ON DEATH" REGISTRATION

Each of the funds in the Aquila(sm) Group of Funds now permits registration
of its shares in beneficiary form, subject to the funds' rules governing
Transfer on Death ("TOD") registration, if the investor resides in a state that
has adopted the Uniform Transfer on Death Security Registration Act (a "TOD
State"; for these purposes, Missouri is deemed to be a TOD State). This form of
registration allows you to provide that, on your death, your shares are to be
transferred to the one or more persons (to a maximum of three) that you specify
as beneficiaries. To register shares of the Funds in TOD form, complete the
special TOD Registration Request Form and review the Rules Governing TOD
Registration; both are available from the Agent. The Rules, which are subject to
amendment upon 60 days' notice to TOD account owners, contain important
information regarding TOD accounts with the Funds; by opening such an account
you agree to be bound by

<PAGE> 102

them, and failure to comply with them may result in your shares' not being
transferred to your designated beneficiaries. If you open a TOD account with the
Funds that is otherwise acceptable but, for whatever reason, neither the Fund
nor the Transfer Agent receives a properly completed TOD Registration Request
Form from you prior to your death, the Funds reserve the right not to honor your
TOD designation, in which case your account will become part of your estate.

YOU ARE ELIGIBLE FOR TOD REGISTRATION ONLY IF, AND AS LONG AS, YOU RESIDE
IN A TOD STATE. If you open a TOD account and your account address indicates
that you do not reside in a TOD State, your TOD registration will be ineffective
and the Funds may, in their discretion, either open the account as a regular
(non-TOD) account or redeem your shares. Such a redemption may result in a loss
to you and may have tax consequences. Similarly, if you open a TOD account while
residing in a TOD State and later move to a non-TOD State, your TOD registration
will no longer be effective. In both cases, should you die while residing in a
non-TOD State the Funds reserve the right not to honor your TOD designation. At
the date of this SAI, most states are TOD States.

COMPUTATION OF NET ASSET VALUE

The net asset value of the shares of each Fund's classes is determined as
of 4:00 p.m., New York time, on each day that the New York Stock Exchange is
open, by dividing the value of the Fund's net assets allocable to each class by
the total number of its shares of such class then outstanding. The close of the
principal exchanges or other markets on which some of the Fund's portfolio
securities are traded may be later than 4:00 p.m. New York time. Debt securities
having a remaining maturity of less than sixty days when purchased and
securities originally purchased with maturities in excess of sixty days but
which currently have maturities of sixty days or less are valued at cost
adjusted for amortization of premiums and accretion of discounts.

As indicated above, the net asset value per share of each Fund's shares
will be determined on each day that the New York Stock Exchange is open. That
Exchange annually announces the days on which it will not be open.

REASONS FOR DIFFERENCES IN PUBLIC OFFERING PRICE

There are a number of instances in which the Funds' Class A shares are sold
or issued on a basis other than the maximum public offering price, that is, the
net asset value plus the highest sales charge. Some of these relate to lower or
eliminated sales charges for larger purchases, whether made at one time or

40
<PAGE> 103

over a period of time as under a Letter of Intent or right of accumulation. (See
the table of sales charges in the Prospectus.) The reasons for these quantity
discounts are, in general, that (1) they are traditional and have long been
permitted in the industry and are therefore necessary to meet competition as to
sales of shares of other funds having such discounts; and (2) they are designed
to avoid an unduly large dollar amount of sales charge on substantial purchases
in view of reduced selling expenses. Quantity discounts are made available to
certain related persons ("single purchasers") for reasons of family unity and to
provide a benefit to tax-exempt plans and organizations.

The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales without sales charge are permitted to Trustees, officers
and certain others due to reduced or eliminated selling expenses and/or since
such sales may encourage incentive, responsibility and interest and an
identification with the aims and policies of the Funds. Limited reinvestments of
redemptions of Class A shares and Class C shares at no sales charge are
permitted to attempt to protect against mistaken or incompletely informed
redemption decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and since, in some
cases, such issuance is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in which there
is a reduced or eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Funds receive the net
asset value per share of all shares sold or issued.

LIMITATION OF REDEMPTIONS IN KIND

The Funds have elected to be governed by Rule 18f-1 under the 1940 Act,
pursuant to which each Fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1 percent of the net asset value of each Fund during
any 90-day period for any one shareholder. Should redemptions by any shareholder
exceed such limitation, each Fund will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming shareholder
might incur brokerage costs in converting the assets into cash. The method of
valuing securities used to make redemptions in kind will be the same as the
method of valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of the same time
the redemption price is determined.

ADDITIONAL TAX INFORMATION

<PAGE> 104

CERTAIN EXCHANGES

If you incur a sales commission on a purchase of shares of one mutual fund
(the original fund) and then sell such shares or exchange them for shares of a
different mutual fund without having held them at least 91 days, you must reduce
the tax basis for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or later acquiring
shares of the original fund or another fund is reduced because of the
shareholder's having owned the original fund shares. The effect of the rule is
to increase your gain or reduce your loss on the original fund shares. The
amount of the basis reduction on the original fund shares, however, is added on
the investor's basis for the fund shares acquired in the exchange or later
acquired.

TAX STATUS OF THE FUNDS

Each Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986 (the "Code"). A regulated investment company is
not liable for federal income taxes on amounts paid by it as dividends and
distributions.

The Code, however, contains a number of complex qualifying tests.
Therefore, it is possible, although not likely, that the Funds might not meet
one or more of these tests in any particular year. If a Fund fails to qualify,
it would be treated for tax purposes as an ordinary corporation. As a
consequence, each Fund would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends and distributions which would
qualify as "capital gains dividends."

TAX EFFECTS OF REDEMPTIONS

Normally, when you redeem shares of the Funds you will recognize capital
gain or loss measured by the difference between the proceeds received in the
redemption and the amount you paid for the shares. If you are required to pay a
contingent deferred sales charge at the time of redemption, the amount of that
charge will reduce the amount of your gain or increase the amount of your loss
as the case may be. For redemptions made, your gain or loss will be long-term if
you held the redeemed shares for over one year and short-term if for a year or
less. Long-term capital gains are currently taxed at a maximum rate of 20% and
short-term gains are currently taxed at ordinary income tax rates.

TAX EFFECT OF CONVERSION

When Class C shares automatically convert to Class A shares, approximately
six years after purchase, you will recognize no gain or loss. Your adjusted tax
basis in the Class A shares you

<PAGE> 105

receive upon conversion will equal your adjusted tax basis in the Class C shares
you held immediately before conversion. Your holding period for the Class A
shares you receive will include the period you held the converted Class C
shares.

UNDERWRITERS

Aquila Distributors, Inc. acts as the Funds' principal underwriter in the
continuous public offering of all of the Funds' classes of shares. The
Distributor is not obligated to sell a specific number of shares. 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.

PERFORMANCE

As noted in the Prospectus, each Fund may from time to time quote various
performance figures to illustrate its past performance.

Performance quotations by investment companies are subject to rules of the
Securities and Exchange Commission ("SEC"). These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Funds be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual compounded total return quotations used by the Funds are based on
these standardized methods. Each of these and other methods that may be used by
the Funds are described in the following material.

TOTAL RETURN

Average annual total return of a Fund is determined by finding the average
annual compounded rates of return over a 1-year period and a period since the
inception of the operations of the Fund that would equate an initial
hypothetical $1,000 investment to the value such an investment would have if it
were completely redeemed at the end of each such period. The calculation assumes
the maximum sales charge, if any, is deducted from the hypothetical initial
$1,000 purchase, that on each reinvestment date during each such period any
capital gains are reinvested at net asset value, and all income dividends are
reinvested at net asset value, without sales charge (because the Fund does not
impose any sales charge on reinvestment of dividends). The computation further
assumes that the entire hypothetical account was completely redeemed at the end
of each such period.

<PAGE> 106

In the case of Class A shares, the calculation assumes the maximum sales
charge is deducted from the hypothetical initial $1,000 purchase. In the case of
Class C shares, the calculation assumes the applicable CDSC imposed on a
redemption of Class C shares held for the period is deducted. In the case of
Class Y shares, the calculation assumes that no sales charge is deducted and no
CDSC is imposed. For all classes, it is assumed that on each reinvestment date
during each such period any capital gains are reinvested at net asset value, and
all income dividends are reinvested at net asset value, without sales charge
(because the Fund does not impose any sales charge on reinvestment of dividends
for any class). The computation further assumes that the entire hypothetical
account was completely redeemed at the end of each such period.

Investors should note that the maximum sales charge (4.25%) reflected in
the following quotations is a one-time charge, paid at the time of initial
investment. The greatest impact of this charge is during the early stages of an
investment in the Funds. Actual performance will be affected less by this one
time charge the longer an investment remains in the Fund. Sales charges at the
time of purchase are payable only on purchases of Class A shares.

AVERAGE ANNUAL COMPOUNDED RATES OF RETURN:

These figures will be calculated according to the following SEC formula:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1- and 5-year periods or the
period since inception, at the end of each such period.

As discussed in the Prospectus, each Fund may quote total rates of return
in addition to its average annual total return for each of its classes of
shares. Such quotations are computed in the same manner as the Fund's average
annual total return, except that such quotations will be based on the Fund's
actual return for a specified period as opposed to its average return over the
periods described above. In general, actual total rate

44
<PAGE> 107

of return will be lower than average annual rate of return because the average
annual rate of return reflects the effect of compounding. See discussion of the
impact of the sales charge on quotations of rates of return, above.

Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to shareholders
only for the limited historical period used.

<PAGE> 108

AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND
PART C: OTHER INFORMATION

ITEM 23. Exhibits

(a) Declaration of Trust.*

(b) By-laws.*

(d) (1) Investment Advisory and Administration Agreement for the
Equal-Weighted Fund.**
(2) Investment Advisory and Administration Agreement for the
Cap-Weighted Fund.**
(3) Sub-Advisory Agreement for the Equal-Weighted Fund.**
(4) Sub-Advisory Agreement for the Cap-Weighted Fund.**

(e) (1) Distribution Agreement for the Equal-Weighted Fund.**
(2) Distribution Agreement for the Cap-Weighted Fund.**
(3) Sales Agreement (for brokerage firms).**
(4) Sales Agreement (for financial institutions).**

(g) Custody Agreement.**

(h) (1) Transfer Agency Agreement.**
(2) Shareholder Servicing Agreement for the Equal-Weighted Fund.**
(3) Shareholder Servicing Agreement for the Cap-Weighted Fund.**
(4) Shareholder Services Plan for the Equal-Weighted Fund.**
(5) Shareholder Services Plan for the Cap-Weighted Fund.**

(i) Opinion and consent of counsel to the Fund.**

(j) Consent of Independent Accountants.**

(l) Initial Capital Agreement.**

(m) (1) Distribution Plan for the Equal-Weighted Fund.**
(2) Distribution Plan for the Cap-Weighted Fund.**

(n) Rule 18f-3 Plan.**

(p) (1) Fund Code of Ethics.**
(2) Investment Adviser and Distributor Code of Ethnics.**
(3) Sub-Adviser Code of Ethnics.**

- --------------------------
*Filed herewith.
**To be filed by amendment.

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<PAGE> 109

ITEM 24. Persons Controlled by or Under Common Control with the Fund

None

ITEM 25. Indemnification

Subdivisions (c) through (g) of Section 13 of Article SEVENTH of the Fund's
Declaration of Trust, are incorporated herein by reference.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, officers, and controlling persons of the Fund
pursuant to the foregoing provisions, or otherwise, the Fund has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Fund of expenses incurred or
paid by a Trustee, officer, or controlling person of the Fund in the successful
defense of any action, suit, or proceeding) is asserted by such Trustee,
officer, or controlling person in connection with the securities being
registered, the Fund will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

[Description of indemnification provisions in Advisory and Sub-Advisory
Agreements to come]

ITEM 26. Business and Other Connections of the Investment Adviser

The business and other connections of Aquila Management Corporation, the Fund's
Investment Adviser and Administrator is set forth in the prospectuses (Part A);
the business and other connections of Mr. Lacy B. Herrmann, its controlling
shareholder are set forth in the Statement of Additional Information (Part B).
For information as to the business, profession, vocation, or employment of a
substantial nature of its Directors and officers, reference is made to the Form
ADV filed by it under the Investment Advisers Act of 1940 (File No.
801-_______).

[Description of business connections of Sub-Adviser to come]

ITEM 27. Principal Underwriters

(a) Aquila Distributors, Inc. serves as principal underwriter to Aquila Rocky
Mountain Equity Fund, Capital Cash Management Trust, Capital Cash U.S.
Government Securities Trust, Churchill Cash Reserves Trust, Churchill Tax-Free
Fund of Kentucky, Hawaiian Tax-Free Trust, Narragansett Insured Tax-Free Income
Fund, Pacific Capital Cash Assets Trust, Pacific Capital Tax-Free Cash Assets
Trust, Pacific Capital U.S. Government Securities Cash Assets Trust, Tax-Free
Fund for Utah, Tax-Free Fund of Colorado, Tax-Free Trust of Arizona, and
Tax-Free Trust of Oregon, in addition to serving as the Fund principal
underwriter.

C-2

<PAGE> 110

(b) For information about the Directors and officers of Aquila Distributors,
Inc., reference is made to the Form BD filed by it under the Securities Exchange
Act of 1934.

ITEM 28. Location of Accounts and Records

All such accounts, books, and other documents are maintained by the
administrator and the custodian, whose addresses appear on the back cover pages
of the Prospectus and Statement of Additional Information, and by the fund
accounting service of the Registrant, which is Bank of Boston, 150 Royall
Street, Canton, Massachusetts 02021.

ITEM 29. Management Services

Not applicable.

ITEM 30. Undertakings

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<PAGE> 111

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Fund has duly caused this Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City of New York and State of
New York, on the 17th day of April, 2000.

AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND
(Fund)

By /s/ Diana P. Herrmann
--------------------------------
Diana P. Herrmann, President

Pursuant to the requirements of the Securities Act, this Registration
Statement or Amendment has been signed below by the following persons in the
capacities and on the date indicated.

SIGNATURE TITLE DATE

/s/ Lacy B. Herrmann Chairman of the 4/17/00
------------------------- Board and Trustees
Lacy B. Herrmann

/s/ Diana P. Herrmann President and Trustee 4/17/00
-------------------------
Diana P. Herrmann

/s/ Rose F. Marotta Chief Financial Officer 4/17/00
------------------------- (Principal Financial and
Rose F. Marotta Accounting Officer)

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<PAGE> 112

Index to Exhibits

Exhibit 99.a Declaration of Trust
Exhibit 99.b By-laws

<PAGE> 1

EXHIBIT 99(a)

AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND

DECLARATION OF TRUST

DECLARATION OF TRUST (this "Declaration" or this "Declaration of Trust"),
dated as of April 4, 2000, of AQUILA/LAFFER S&P 500 COMPETITIVE ADVANTAGE FUND.

W I T N E S S E T H T H A T:

WHEREAS, the Trustees desire to establish a trust fund under the laws of
The Commonwealth of Massachusetts, for the investment and reinvestment of funds
contributed thereto;

NOW THEREFORE, the Trustees declare that all money and property contributed
to the trust fund hereunder shall be held and managed under this Declaration of
Trust IN TRUST as herein set forth below: FIRST: Until changed as provided in
Article EIGHTH, the name of the trust established hereby (the "Trust") shall be
"Aquila/Laffer S&P 500 Competitive Advantage Fund." The location of the
registered office of the Trust in The Commonwealth of Massachusetts shall be c/o
Corporation Service Company, 84 State Street, Boston, Massachusetts 02109. The
Trust's Registered Agent at such address shall be Corporation Service Company.
The location of the principal place of business of the Trust shall be 380
Madison Avenue, New York, New York, 10017, or such other place as the Trustees
shall from time to time select.

SECOND: Whenever used herein, unless otherwise required by the context or
specifically provided:

1. All terms used in this Declaration of Trust without definition which are
defined in the 1940 Act shall have the meanings given to them in the 1940 Act.
In the event of any inconsistency between any such term as used herein and as
used in the 1940 Act, the definition of such term in the 1940 Act shall apply
and be controlling.

2. The "Trust" refers to Aquila/Laffer S&P 500 Competitive Advantage Fund.

3. "Shareholder" means a record owner of Shares of the Trust.

4. The "Trustees" refers to the individual trustees in their capacity as
trustees hereunder of the Trust and their successor or successors for the time
being in office as such trustees.

5. "Shares" means the units of interest into which the beneficial interest
in the Trust shall be divided from time to time and includes fractions of Shares
as well as whole Shares.

6. The "1940 Act" refers to the Investment Company Act of 1940, as amended
from time to time.

<PAGE> 2

7. "Commission" means the Securities and Exchange Commission.

8. "Board" or "Board of Trustees" means the Board of Trustees of the Trust.

9. The terms "indemnitee," "covered proceeding," "disabling conduct,"
covered expenses" and "adjudication of liability" are defined in paragraph 13(c)
of Article SEVENTH.

10. The term "net asset value" is defined in paragraph 14(a) of Article
SEVENTH.

11. In this instrument and in any amendment hereto or in any amendment
hereof or supplement hereto, references to this instrument, and all expressions
like "herein," "hereof" and "hereunder" shall be deemed to refer to this
instrument as a whole as amended or affected by any such amendment or
supplement.

THIRD: The purpose for which the Trust is formed and the business to be
transacted, carried on and promoted by it is to engage in the business of being
an investment company, and in furtherance of such purpose and in the conduct of
such business:

1. To hold, invest and reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase or otherwise acquire,
hold for investment or otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize upon, securities
(which term "securities" shall for the purposes of this Declaration of Trust,
without limitation of the generality thereof, be deemed to include any stocks,
shares, bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase or subscribe for the same, or evidencing or representing any
other rights or interests therein, or in any property or assets) created or
issued by any issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality thereof be deemed to
include any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments, or subdivisions thereof); and to
exercise, as owner or holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value of any or all
such securities.

2. To borrow money and pledge assets in connection with any of the objects
or purposes of the Trust, and to issue notes or other obligations evidencing
such borrowings, to the extent permitted by the 1940 Act and by the Trust's
fundamental investment policies under the 1940 Act.

3. To issue and sell its Shares in such amounts and on such terms and
conditions, for such purposes and for such amount (not less than the par value
thereof) or kinds of

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<PAGE> 3

consideration or property (including without limitation thereto, cash or
securities of any kind), as the Trustees may determine.

4. To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue or cancel (all without the vote or consent of the Shareholders of the
Trust) its Shares, in any manner and to the extent now or hereafter permitted by
this Declaration of Trust and not prohibited by the laws of The Commonwealth of
Massachusetts.

5. To conduct its business in all its branches at one or more offices in
The Commonwealth of Massachusetts and elsewhere in any part of the world,
without restriction or limit as to extent.

6. To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates or as a partner in or a member
of, or as the owner or holder of any stock of, or share of interest in, any
corporation, partnership, association, limited liability company, trust or other
form of business organization, whether or not constituting a legal entity under
local law, and in connection therewith to make or enter into such deeds or
contracts with any such business organization and to do such acts and things and
to exercise such powers, as a natural person could lawfully make, enter into, do
or exercise.

7. To do any and all such further acts and things and to exercise any and
all such further powers as may be necessary, incidental, relative, conducive,
appropriate or desirable for the accomplishment, carrying out or attainment of
the purpose of the Trust, as provided in this Article THIRD.

The foregoing powers shall, except as otherwise expressly provided, be in
no way limited or restricted by reference to, or inference from, the terms of
any other clause of this or any other Articles of this Declaration of Trust, and
shall each be regarded as independent and separate powers, and the enumeration
of specific powers shall not be construed to limit or restrict in any manner the
meaning of general terms or the general powers of the Trust which are not
inconsistent with the laws of The Commonwealth of Massachusetts, nor shall the
expression of one thing be deemed to exclude another, though it be of like
nature, not expressed; provided, however, that the Trust shall not carry on any
business, or exercise any powers, in any state, territory, district or country
except to the extent that the same may lawfully be carried on or exercised under
the laws thereof.

FOURTH: The beneficial interest in the Trust shall at all times be divided
into transferable Shares of beneficial interest, par value one cent ($.01) per
Share, of which an unlimited number may be issued. Subject to the further
provisions of this Article FOURTH with respect to the establishment of separate
classes of Shares within a series, each Share shall represent an equal
proportionate interest in the assets of the Trust (or if the Shares of the Trust
shall have been divided into series, in the assets of the series to which it
pertains), with each other Share of the Trust (or of such series) then
outstanding, none having priority or preference over

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<PAGE> 4

another. The Trustees may from time to time divide or combine the Shares of a
series into a greater or lesser number without thereby changing the
proportionate beneficial interests of the holders of such Shares in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or thousandths (1/1,000ths) of a Share or integral multiples
thereof.

Subject to the further provisions of Article FOURTH, the Board of Trustees
may at any time and from time to time, without obtaining any authorization or
vote of the Shareholders, establish one or more series of Shares, each such
series to represent the beneficial interest in a separate portfolio of the
assets of the Trust. Subject to the distinctions permitted among classes of the
same series established by the Trustees and to the requirements of the 1940 Act
and any rule, regulation or order of the Commission, each Share of a series of
the Trust shall represent an equal interest in the portfolio of assets to which
such series pertains, subject to the liabilities of such portfolio, and each
holder of Shares of a series shall be entitled to receive such holder's pro rata
share of distributions of income and capital gains, if any, made with respect to
such series. A Shareholder who redeems Shares of any series shall be paid solely
out of funds and property of the portfolio to which such series pertains.

The Board of Trustees may at any time or from time to time, without
obtaining the authorization or vote of the Shareholders of any series, classify
Shares of any series or divide the Shares of any series into classes, each class
having such different dividend, liquidation, voting and other rights as the
Trustees may determine, and may establish and designate the specific classes of
Shares of each series. The fact that a series shall have initially been
established and designated without any specific establishment or designation of
classes (i.e., that all Shares of such series are initially of a single class),
or that a series shall have more than one established and designated class,
shall not limit the authority of the Trustees to establish and designate
separate classes, or one or more further classes, of said series without
approval of the holders of any previously established and designated class or
classes thereof, unless the rights of the holders of Shares of such class or
classes would be adversely affected by the establishment and designation of such
further separate class or classes.

The establishment and designation of any series or class of Shares shall be
effective upon the adoption of a resolution or resolutions by a majority of the
Trustees setting forth the establishment and designation of such series or
class. Such resolution shall also set forth any rights and preferences of such
series or class which are in addition to the rights and preferences of Shares
set forth in this Declaration. At any time that there are no Shares outstanding
of any particular series or class previously established and designated, the
Trustees may, by resolution adopted by a majority of their number, abolish that
series or class and its establishment and designation.

All references to Shares in this Declaration of Trust shall be deemed to be
to Shares of any or all series or classes thereof, as the context may require.

-4-
<PAGE> 5

Series and classes shall, subject to any applicable rule, regulation or
order of the Commission or other applicable law or regulation, have the
characteristics set forth in (a) through and including (k) below.

(a) All consideration received by the Trust for the issue or sale of Shares
of each such series, together with all income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to the
series of Shares with respect to which such assets, payments, or funds were
received by the Trust for all purposes, subject only to the rights of creditors,
and shall be so handled upon the books of account of the Trust. In addition, any
assets, income, earnings, profits or funds, or payments and proceeds with
respect thereto, which are not readily identifiable as belonging to any
particular series shall be allocated by the Trustees between and among one or
more series in such manner as the Trustees, in their sole discretion, deem fair
and equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all series for all purposes. Such assets, income, earnings,
profits and proceeds thereof, and any asset derived from any reinvestment of
such proceeds, in whatever form the same may be, are herein referred to as
"assets belonging to" such series.

(b) The assets belonging to any such series of Shares shall be charged with
the liabilities in respect to such series. Any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular series shall be allocated and charged by the
Trustees between or among any one or more series in such manner as the Trustees,
in their sole discretion, deem fair and equitable. The determination of the
Board of Trustees shall be conclusive as to the amount of liabilities, including
accrued expenses and reserves, and as to the allocation of the same as to a
given series, and as to whether the same are allocable to one or more series.
The liabilities so allocated to a series are herein referred to as "liabilities
belonging to" such series.

(c) Dividends or distributions on Shares of any such series, whether
payable in Shares or cash, shall be paid only out of earnings, surplus or other
assets belonging to such series.

(d) In the event of the liquidation or dissolution of the Trust,
Shareholders of each series shall be entitled to receive out of the assets of
the Trust available for distribution to Shareholders, but other than general
assets not belonging to any particular series, the assets belonging to such
series and, in the case of Shares of a series having more than one class,
subject to the separate rights of the shareholders of each class of such series.
In the event that there are any general assets not belonging to any particular
series of Shares and available for distribution, such assets shall be allocated
by the Trustees between or among any one or more series in such manner as the
Trustees, in their sole discretion, deem fair and equitable. The assets so
distributable to the Shareholders of any such series shall be distributed among
such Shareholders in proportion to the number of Shares of such series held by
them and recorded on

-5-

<PAGE> 6

the books of the Trust, but subject, in the case of a series having more than
one class, to the respective rights of the several classes of Shares of such
series.

(e) At all meetings of Shareholders, each Shareholder of each Share of each
such series or class of the Trust shall be entitled to one vote for each dollar
(and a proportionate fractional vote for each fractional dollar) of net asset
value represented by such Share, determined as provided in the then current
Prospectus of such series or class, as of the record date for such meeting,
irrespective of series or class, standing in his name on the books of the Trust,
except (if so provided by the Board of Trustees) for Shares redeemed prior to
the meeting; provided, however, that where a vote of the holders of the Shares
of any series or class, or of more than one series or class, voting by series or
class, is required by the 1940 Act, any rule, regulation or order of the
Commission or other applicable law or regulation as to any proposal, only the
holders of such series or series, or class or classes, voting by series or
class, shall be entitled to vote upon such proposal and the holders of any other
series or class or classes shall not be entitled to vote thereon. Any fractional
Share, if any such fractional Shares are outstanding, shall carry
proportionately all the rights of a whole Share, including the right to vote and
the right to receive dividends. There shall be no cumulative voting rights with
respect to any Shares or series or class of Shares of the Trust.

(f) The provisions of Article FIFTH relating to voting shall apply when the
Trust has only one series or class of Shares outstanding or when the Trust has
more than one series or class of Shares outstanding but which differ only as to
their dividend rights. Otherwise, the provisions of Article FIFTH shall be
subject to the provisions of this Article FOURTH and to such provisions as to
voting rights of any one or more series or classes as the Trustees shall have
established pursuant to this Article FOURTH.

(g) When the Trust has more than one series of Shares outstanding: (i) the
redemption rights provided to the holders of the Trust's Shares shall be deemed
to apply only to the assets belonging to the series of Shares in question; and
(ii) the net asset value per Share computation as provided for in Article
SEVENTH shall be applied as if each such series of Shares were the Trust as
referred to in such computation, but with its assets limited to the assets
belonging to such series and its liabilities limited to the liabilities
belonging to such series.

(h) The ownership of Shares shall be recorded in the books of the Trust or
a transfer agent. The Trustees may make such rules as they consider appropriate
for the transfer of Shares and similar matters. The record books of the Trust or
any transfer agent, as the case may be, shall be conclusive as to who are the
holders of Shares and as to the number of Shares held from time to time by each.

(i) The Trustees shall accept investments in the Trust from such persons
and on such terms as they may from time to time authorize.

-6-

<PAGE> 7

(j) Shareholders shall have no pre-emptive or other right to subscribe to
any additional Shares or other securities issued by the Trust or the Trustees.

(k) The dividends payable to Shareholders shall, subject to any applicable
rule, regulation or order of the Commission or other applicable law or
regulation, be determined by the Board and need not be individually declared but
may be declared and paid in accordance with a formula adopted by the Board.

FIFTH: The following provisions are hereby adopted with respect to voting
Shares of the Trust and certain other rights:

1. The Shareholders shall have power to vote (i) for the election of
Trustees when that issue is submitted to them, (ii) with respect to the
amendment of this Declaration of Trust, except as stated in Article EIGHTH
as to the name of the Trust, (iii) to the same extent as the shareholders
of a Massachusetts business corporation, as to whether or not a court
action, proceeding or claim should be brought or maintained derivatively or
as a class action on behalf of the Trust or the Shareholders, and (iv) with
respect to such additional matters relating to the Trust as may be required
by the 1940 Act or authorized by law, by this Declaration of Trust, or the
By-Laws of the Trust or any registration statement of the Trust with the
Commission or any State, or as the Trustees may consider desirable.

2. The presence in person or by proxy of the holders of Shares
outstanding and entitled to vote thereat representing one-third of the net
asset value of the Trust as determined in accordance with paragraph 14 of
Article SEVENTH shall constitute a quorum at any meeting of the
Shareholders, provided, that if, under any provision of this Declaration,
the By-laws or applicable law, any matter to be acted upon at such meeting
requires the affirmative vote or authorization of Shares representing a
larger fraction of the net asset value of the Trust, the presence in person
or by proxy of Shareholders representing at least such larger percentage of
the net asset value of the Trust shall be required in order to constitute a
quorum for action on such matter, and provided, further, that in the case
of any meeting of the Shareholders at which the holders of one or more
series or classes of the Trust shall be entitled to vote separately on any
matter to be voted on thereat, the presence in person or by proxy of
shareholders representing one-third (or such larger percentage) of the net
asset value of each class or series entitled to vote separately on such
matter shall be necessary to constitute a quorum for action on such matter.
If at any meeting of the Shareholders there shall be less than a quorum
present, the Shareholders present at such meeting may, without further
notice, adjourn the same from time to time until a quorum shall attend, but
no business shall be transacted at any such adjourned meeting except such
as might have been lawfully transacted had the meeting not been adjourned.

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<PAGE> 8

3. Each Shareholder, upon request to the Trust in proper form as
determined by the Trustees, shall be entitled to require the Trust to
redeem all or any part of the Shares standing in the name of such
Shareholder. The method of computing such net asset value, the time at
which such net asset value shall be computed and the time within which the
Trust shall make payment therefor, shall be determined as hereinafter
provided in paragraph 14 of Article SEVENTH of this Declaration of Trust.
Notwithstanding the foregoing, the Trustees, when permitted or required to
do so by the 1940 Act, may suspend the right of the Shareholders to require
the Trust to redeem Shares.

4. No Shareholder shall, as such holder, have any right to purchase or
subscribe for any security of the Trust which it may issue or sell, other
than such right, if any, as the Trustees, in their discretion, may
determine.

5. All persons who shall acquire Shares shall acquire the same subject
to the provisions of this Declaration of Trust.

SIXTH: The persons who shall act as initial Trustees are the Trustees
initially executing this Declaration of Trust or any counterpart thereof.
However, the By-Laws of the Trust may fix the number of Trustees at a number
greater than that of the number of initial Trustees and may authorize the
Trustees, by the vote of a majority of the entire number of Trustees, to
increase or decrease the number of Trustees fixed by this Declaration of Trust
or by the By-Laws within limits specified in the By-Laws, provided that in no
case shall the number of Trustees be less than two, and to fill the vacancies
created by any such increase in the number of Trustees. Unless otherwise
provided by the By-Laws of the Trust, the Trustees need not be Shareholders.

SEVENTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Trust and of the Trustees
and Shareholders.

1. The Trustees shall be elected by the Shareholders prior to the
effective date of the Trust's registration statement under the 1940 Act,
and the term of office of any Trustee in office before such election shall
terminate at the time of such election. Subject to the 1940 Act and to the
preceding sentence of this Section 1, the Trustees shall have the power to
set and alter the terms of office of the Trustees, and at any time to
lengthen or shorten their own terms or make their terms of unlimited
duration, to appoint their own successors; provided, that a Trustee or
Trustees shall be elected by the Shareholders at any such time or times
such action is required under the l940 Act; and provided further, that
after the initial election of Trustees by the Shareholders, the term of
office of any incumbent Trustee shall continue until the termination of
this Trust or his earlier death, resignation, retirement, bankruptcy,
adjudicated incompetency, or other incapacity or removal, or if not so
terminated, until the appointment or election of such Trustee's successor
in office has become effective.

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<PAGE> 9

2. As soon as any Trustee is duly elected by the Shareholders or the
Trustees and shall have accepted this trust, the Trust estate shall vest in
the new Trustee or Trustees, together with the continuing Trustees, without
any further act or conveyance, and he shall be deemed a Trustee hereunder.

3. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them shall not operate to annul
the Trust or to revoke any existing agency created pursuant to the terms of
this Declaration of Trust.

4. The assets of the Trust shall be held separate and apart from any
assets now or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustees. All of the assets of
the Trust shall at all times be considered as vested in the Trustees.
Except as provided in this Declaration of Trust, no Shareholder shall have,
as such holder of beneficial interest in the Trust, any authority, power or
right whatsoever to transact business for or on behalf of the Trust, or on
behalf of the Trustees, in connection with the property or assets of the
Trust, or in any part thereof, except the rights to receive the income and
distributable amounts arising therefrom as set forth herein.

5. The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall have
full power and authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider necessary or
appropriate in connection with the management of the Trust. The Trustees
shall not in any way be bound or limited by present or future laws or
customs in regard to trust investments, but shall have full authority and
power to make any and all investments which they, in their uncontrolled
discretion, shall deem proper to accomplish the purposes of this Trust.
Subject to any applicable limitation in this Declaration of Trust or in the
By-Laws of the Trust, the Trustees shall have power and authority:

(a) to adopt By-laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the
Shareholders;

(b) to elect and remove such officers and appoint and terminate such
officers as they consider appropriate with or without cause;

(c) to employ a bank or trust company as custodian of any assets of
the Trust subject to any conditions set forth in this Declaration of Trust
or in the By-Laws;

(d) to retain a transfer agent and Shareholder servicing agent, or
both;

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<PAGE> 10

(e) to provide for the distribution of Shares either through a
principal underwriter or the Trust itself or both;

(f) to set record dates in the manner provided for in the By-Laws of
the Trust;

(g) to delegate such authority as they consider desirable to any
officers of the Trust and to any agent, custodian or underwriter;

(h) to vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property held in trust hereunder;
and to execute and deliver powers of attorney to such person or persons as
the Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;

(i) to exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities held in trust hereunder;

(j) to hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either
in its own name or in the name of a custodian or a nominee or nominees,
subject in either case to proper safeguards according to the usual practice
of Massachusetts business trusts or investment companies;

(k) to consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of
which is held in the Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or concern, and to pay
calls or subscriptions with respect to any security held in the Trust;

(l) to compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;

(m) to make, in the manner provided in the By-Laws, distributions of
income and of capital gains to Shareholders;

(n) to borrow money to the extent and in the manner permitted by the
1940 Act and the Trust's fundamental policy thereunder as to borrowing; and

(o) to enter into investment advisory, sub-advisory, management,
administrative or similar contracts, subject to the 1940 Act, with any one
or more corporations, partnerships, trusts, associations or other persons;
if the other party or parties to any such contract are authorized to enter
into securities transactions on behalf of

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<PAGE> 11

the Trust, such transactions shall be deemed to have been authorized by all
of the Trustees.

6. No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred by the Trustees or
upon their order.

7. (a) No Shareholder of the Trust or of any series shall be
personally liable for the debts, liabilities, obligations and expenses
incurred by, contracted for, or otherwise existing with respect to, the
Trust or by or on behalf of any series. The Trustees shall have no power to
bind any Shareholder personally or to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription
to any Shares or otherwise. Every note, bond, contract or other undertaking
issued by or on behalf of the Trust or the Trustees relating to the Trust
shall include a recitation limiting the obligation represented thereby to
the Trust and its assets (but the omission of such a recitation shall not
operate to bind any Shareholder).

(b) Except as otherwise provided in this Declaration of Trust or the
By-Laws, whenever this Declaration of Trust calls for or permits any action
to be taken by the Trustees hereunder, such action shall mean that taken by
the Board of Trustees by vote of the majority of a quorum of Trustees as
set forth from time to time in the By-Laws of the Trust or as required
pursuant to the provisions of the 1940 Act and the rules and regulations
promulgated thereunder.

(c) The Trustees shall possess and exercise any and all such
additional powers as are reasonably implied from the powers herein
contained such as may be necessary or convenient in the conduct of any
business or enterprise of the Trust, to do and perform anything necessary,
suitable, or proper for the accomplishment of any of the purposes, or the
attainment of any one or more of the objects, herein enumerated, or which
shall at any time appear conducive to or expedient for the protection or
benefit of the Trust, and to do and perform all other acts or things
necessary or incidental to the purposes herein before set forth, or that
may be deemed necessary by the Trustees.

(d) The Trustees shall have the power to determine conclusively
whether any moneys, securities, or other properties of the Trust property
are, for the purposes of this Trust, to be considered as capital or income
and in what manner any expenses or disbursements are to be borne as between
capital and income whether or not in the absence of this provision such
moneys, securities, or other properties would be regarded as capital or
income and whether or not in the absence of this provision such expenses or
disbursements would ordinarily be charged to capital or to income.

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<PAGE> 12

8. The By-Laws of the Trust may divide the Trustees into classes and
prescribe the tenure of office of the several classes, but no class shall
be elected for a period shorter than that from the time of the election
following the division into classes until the next annual meeting and
thereafter for a period shorter than the interval between annual meetings
or for a period longer than five years, and the term of office of at least
one class shall expire each year.

9. The Shareholders shall have the right to inspect the records,
documents, accounts and books of the Trust to the same extent as the
shareholders of a Massachusetts business corporation, subject to reasonable
regulations of the Trustees as to whether and to what extent, and at what
times and places, and under what conditions and regulations, such right
shall be exercised.

10. Any Trustee, or any officer elected or appointed by the Trustees
or by any committee of the Trustees or by the Shareholders or otherwise,
may be removed at any time, with or without cause, in such lawful manner as
may be provided in the By-Laws of the Trust.

11. The Trustees shall have power to hold their meetings, to have an
office or offices and to keep the books of the Trust within or outside The
Commonwealth of Massachusetts at such places as may from time to time be
designated by them.

12. Securities held by the Trust shall be voted in person or by proxy
by the President or a Vice-President, or such officer or officers of the
Trust as the Trustees shall designate for the purpose, or by a proxy or
proxies thereunto duly authorized by the Trustees, except as otherwise
ordered by vote of the holders of a majority of the Shares outstanding and
entitled to vote in respect thereto.

13. (a) Subject to the provisions of the 1940 Act and to any contrary
determination by the Trustees, any Trustee, officer or employee,
individually, or any partnership of which any Trustee, officer or employee
may be a member, or any corporation or association of which any Trustee,
officer or employee may be an officer, director, trustee, employee or
stockholder, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Trust, and in the absence
of fraud no contract or other transaction shall be thereby affected or
invalidated; provided that in case a Trustee, officer or employee, or a
partnership, corporation or association of which a Trustee, officer or
employee is a member, officer, director, trustee, employee or stockholder
is so interested, such fact shall be disclosed or shall have been known to
the Trustees or a majority thereof; and any Trustee who is so interested,
or who is also a director, officer, trustee, employee or stockholder of
such other corporation or association or a member of such partnership which
is so interested, may be counted in determining the existence of a quorum
at any meeting of the Trustees which shall authorize any such contract or

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<PAGE> 13

transaction, and may vote thereat to authorize any such contract or
transaction, with like force and effect as if he were not such director,
officer, trustee, employee or stockholder of such other trust or
corporation or association or a member of a partnership so interested.

(b) Specifically, but without limitation of the foregoing, the Trust
may enter into a management, investment advisory, sub-advisory,
administration or underwriting contract and other contracts with, and may
otherwise do business with any manager, investment adviser, sub-adviser, or
administrator for the Trust, or principal underwriter of the Shares of the
Trust, or any subsidiary or affiliate of any such manager, investment
adviser, sub-adviser or administrator and/or principal underwriter and may
permit any such firm or corporation to enter into any contracts or other
arrangements with any other firm or corporation relating to the Trust
notwithstanding that the Board of Trustees of the Trust may be composed in
part of partners, directors, officers or employees of any such firm or
corporation, and officers of the Trust may have been or may be or become
partners, directors, officers or employees of any such firm or corporation,
and in the absence of fraud the Trust and any such firm or corporation may
deal freely with each other, and no such contract or transaction between
the Trust and any such firm or corporation shall be invalidated or in any
wise affected thereby, nor shall any Trustee or officer of the Trust be
liable to the Trust or to any Shareholder or creditor thereof or to any
other person for any loss incurred by it or him solely because of the
existence of any such contract or transaction; provided that nothing herein
shall protect any Trustee or officer of the Trust against any liability to
the Trust or to its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.

(i) the term "indemnitee" shall mean any present or former Trustee,
officer or employee of the Trust, including without limitation
any present or former Trustee, officer or employee of the Trust
who serves at the request of the Trust and for the benefit of the
Trust as an officer or trustee of another trust or corporation
whose securities are or were owned by the Trust or of which the
Trust is or was a creditor, and the heirs, executors,
administrators, successors and assigns of any of the foregoing;
however, whenever conduct by an indemnitee is referred to, the
conduct shall be that of the original indemnitee rather than that
of the heir, executor, administrator, successor or assignee;

(ii) the term "covered proceeding" shall mean any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which an indemnitee is or was
a

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<PAGE> 14

party or is threatened to be made a party by reason of the fact
or facts under which he or she or it is an indemnitee as defined
above;

(iii) the term "disabling conduct" shall mean willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office in question;

(iv) the term "covered expenses" shall mean expenses (including
attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by an indemnitee in connection
with a covered proceeding, and shall include the amount of any
deductible provided in any liability insurance policy maintained
by the Trust; and

(v) the term "adjudication of liability" shall mean, as to any
covered proceeding and as to any indemnitee, an adverse
determination as to the indemnitee whether by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent.

(d) The Trust shall not indemnify any indemnitee for any covered
expenses in any covered proceeding if there has been an adjudication of
liability against such indemnitee expressly based on a finding of disabling
conduct.

(e) Except as set forth in paragraph (d) above, the Trust shall
indemnify any indemnitee for covered expenses in any covered proceeding,
whether or not there is an adjudication of liability as to such indemnitee,
such indemnification by the Trust to be to the fullest extent now or
hereafter permitted by any applicable law unless the By-Laws limit or
restrict the indemnification to which any indemnitee may be entitled.

(f) The Trust or any applicable series shall advance expenses in
connection with the preparation and presentation of a defense to any
covered proceeding from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of any indemnitee that such
amount will be paid over by him to the Trust or series if it is ultimately
determined that he is not entitled to indemnification hereunder pursuant to
paragraph (d) above.

(g) Nothing herein shall be deemed to affect the right of the Trust
and/or any indemnitee to acquire and pay for any insurance covering any or
all indemnities to the extent permitted by applicable law or to affect any
other indemnification rights to which any indemnitee may be entitled to the
extent permitted by applicable law. Such rights to indemnification shall
not, except as otherwise provided by law, be deemed exclusive of any other
rights to which such indemnitee may be entitled under any statute, By-Laws,
contract or otherwise.

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<PAGE> 15

(h) No amendment or repeal of the provisions of this paragraph 13 of
Article SEVENTH shall adversely affect any right or protection hereunder of
any person in respect of any act or omission occurring prior to the time of
such amendment or repeal.

14. (a) The "net asset value" of the Trust or of any series or class
thereof shall mean that amount by which the assets of the Trust or of such
series or class exceed its liabilities, all as determined by or under the
direction of the Trustees. Such value shall be determined separately for
each series and class and shall be determined on such days and at such
times as the Trustees may determine. The Trustees, without Shareholder
approval, may alter the method of valuing portfolio securities insofar as
permitted under the 1940 Act and the rules, regulations and interpretations
thereof promulgated or issued by the Commission or insofar as permitted by
any order of the Commission applicable to the series. The Trustees may
delegate any of their powers and duties under this Section 14 with respect
to valuation of assets and liabilities. The resulting amount, which shall
represent the total net asset value of the Trust or of the particular
series or class, shall be divided by the total number of shares of the
Trust or of that series or class outstanding at the time and the quotient
so obtained shall be the net asset value per Share of the Trust or of that
series or class. At any time, the Trustees may cause the net asset value
per Share last determined to be determined again in similar manner and may
fix the time when such redetermined value shall become effective.

(b) The Trustees may determine to maintain the net asset value per
Share of any series at a designated constant dollar amount and in
connection therewith may adopt procedures not inconsistent with the 1940
Act for the continuing declaration of income attributable to that series as
dividends payable in additional Shares of that series at the designated
constant dollar amount and for the handling of any losses attributable to
that series. Such procedures may provide that in the event of any loss each
Shareholder shall be deemed to have contributed to the shares of beneficial
interest account of that series such Shareholder's ratable portion of the
total number of Shares required to be canceled in order to permit the net
asset value per Share of that series to be maintained, after reflecting
such loss, at the designated constant dollar amount. Each Shareholder of
the Trust shall be deemed to have expressly agreed, by investing in any
series with respect to which the Trustees shall have adopted any such
procedure, to make the contribution referred to in the preceding sentence
in the event of any such loss.

(c) Payment of the net asset value of Shares of the Trust properly
surrendered to it for redemption shall be made by the Trust within seven
days after tender of such Shares to the Trust for such purpose plus any
period of time during which the right of the holders of the Shares of the
Trust to require the Trust to redeem such Shares has been suspended. Any
such payment may be made in portfolio securities of the Trust and/or in
cash, as the Trustees shall deem advisable, and no Shareholder shall have a
right, other than as determined by the Trustees, to have his Shares
redeemed in kind.

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<PAGE> 16

EIGHTH:

1. In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his being or having been a
Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor)
shall be entitled out of the Trust estate to be held harmless from and
indemnified against all loss and expense arising from such liability. This
Trust shall, upon request by the Shareholder, assume the defense of any
claim made against any Shareholder for any act or obligation of the Trust
and satisfy any judgment thereon.

2. It is hereby expressly declared that a trust and not a partnership
is created hereby. No Trustee hereunder shall have any power to bind
personally either the Trust's officers or any Shareholder. All persons
extending credit to, contracting with or having any claim against the Trust
or the Trustees shall look only to the assets of the Trust for payment
under such credit, contract or claim; and neither the Shareholders nor the
Trustees, nor any of their agents, whether past, present or future, shall
be personally liable therefor. Nothing in this Declaration of Trust shall
protect a Trustee against any liability to which such Trustee would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
the office of Trustee hereunder.

3. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances
then prevailing, shall be binding upon everyone interested. Subject to the
provisions of paragraph 2 of this Article EIGHTH, the Trustees shall not be
liable for errors of judgment or mistakes of fact or law. The Trustees may
take advice of counsel or other experts with respect to the meaning and
operations of this Declaration of Trust, and subject to the provisions of
paragraph 2 of this Article EIGHTH, shall be under no liability for any act
or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor
any surety if a bond is required.

4. This Trust shall continue without limitation of time but subject to
the provisions of sub-sections (a), (b) and (c) of this paragraph 4.

(a) The Trustees, with the favorable vote of the holders of Shares
entitled to vote which represent more than 50% of the votes entitled to be
cast on such matter, and if the Trust has outstanding Shares of more than
one series or class, such vote shall be in accordance with the provisions
of Section 2 of Article FIFTH, may sell and convey the assets of the Trust
(which sale may be subject to the retention of assets for the payment of
liabilities and expenses) to another issuer for a consideration which may
be or include securities of such issuer. Upon making provision for the
payment of liabilities, by

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<PAGE> 17

assumption by such issuer or otherwise, the Trustees shall distribute the
remaining proceeds ratably among the holders of the Shares of the Trust
then outstanding.

(b) The Trustees, with the favorable vote of the holders of Shares
entitled to vote which represent more than 50% of the votes entitled to be
cast on such matter, and if the Trust has outstanding Shares of more than
one series or class, such vote shall be in accordance with the provisions
of Section 2 of Article FIFTH, may at any time sell and convert into money
all the assets of the Trust. Upon making provision for the payment of all
outstanding obligations, taxes and other liabilities, accrued or
contingent, of the Trust, the Trustees shall distribute the remaining
assets of the Trust ratably among the holders of the outstanding Shares.

(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in sub-sections (a) and (b), the Trust
shall terminate and the Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and interest of all
parties shall be cancelled and discharged.

5. The Trustees may, to the extent permitted by law then in effect,
merge or consolidate the Trust or any series with any other trust or any
corporation, partnership, or association organized under the laws of any
state of the United States, all upon such terms and conditions and for such
consideration when and as authorized by the Trustees and approved by the
affirmative vote or written consent of the holders of shares which entitle
them to cast more than 50% of the votes entitled to be cast on such matter,
or by such other vote of any series as may be established by the
designation with respect to such series.

6. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected
by any Shareholder. A copy of this instrument and of each amendment shall
be filed with the Secretary of The Commonwealth of Massachusetts, as well
as any other governmental office where such filing may from time to time be
required, but the failure to make any such filing shall not impair the
effectiveness of this instrument or any such amendment. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to
whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were
the original, may rely on a copy certified by an officer of the Trust to be
a copy of this instrument or of any such amendment. This instrument may be
executed in any number of counterparts, each of which shall be deemed an
original.

7. The trust set forth in this instrument is created under and is to
be governed by and construed and administered according to the laws of The
Commonwealth of Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business

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<PAGE> 18

trust, and without limiting the provisions hereof, the Trust may exercise
all powers which are ordinarily exercised by such a trust.

8. The Board of Trustees is empowered to cause the redemption of the
Shares held in any account if the aggregate net asset value of such Shares
(taken at cost or value, as determined by the Board) has been reduced by a
Shareholder to $500 or less upon such notice to the Shareholders in
question, with such permission to increase the investment in question and
upon such other terms and conditions as may be fixed by the Board of
Trustees in accordance with the 1940 Act.

9. In the event that any person advances the organizational expenses
of the Trust, such advances shall become an obligation of the Trust subject
to such terms and conditions as may be fixed by, and on a date fixed by, or
determined in accordance with criteria fixed by the Board of Trustees, to
be amortized over a period or periods to be fixed by the Board.

10. Whenever any action is taken under this Declaration of Trust under
any authorization to take action which is permitted by the 1940 Act, such
action shall be deemed to have been properly taken if such action is in
accordance with the construction of the 1940 Act then in effect as
expressed in "no action" letters of the staff of the Commission or any
release, rule, regulation or order under the 1940 Act or any decision of a
court of competent jurisdiction, notwithstanding that any of the foregoing
shall later be found to be invalid or otherwise reversed or modified by any
of the foregoing.

11. Whenever under this Declaration of Trust, the Board of Trustees is
permitted or required to place a value on assets of the Trust, such action
may be delegated by the Board, and/or determined in accordance with a
formula determined by the Board, to the extent permitted by the 1940 Act.

12. If authorized by vote of the Trustees and the favorable vote of
the holders of Shares entitled to vote which represent more than 50% of the
votes entitled to be cast on the matter, or by any larger vote which may be
required by applicable law in any particular case (and if the Trust has
outstanding Shares of more than one series or class, such vote shall be in
accordance with the provisions of Section 2 of Article FIFTH), the Trustees
shall amend or otherwise supplement this instrument, by making a
certificate of amendment hereto, which thereafter shall form a part hereof;
however, any such amendment may be authorized by the vote of a majority of
the Trustees then in office without any shareholder vote if the sole
purpose of such amendment is to change the name of the Trust. Any such
certificate may be executed by and on behalf of the Trust and the Trustees
by any officer or officers of the Trust. A copy of each amendment shall be
filed with the Secretary of State of The Commonwealth of Massachusetts, as
well as with any other governmental office where such filing may from time
to time be required by the laws of Massachusetts. A restated Declaration,
integrating into a single instrument all of the

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<PAGE> 19

provisions of this Declaration which are then in effect and operative, may
be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of The Commonwealth of Massachusetts, be
conclusive evidence of all amendments contained therein and may thereafter
be referred to in lieu of the original Declaration and the various
amendments thereto.

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<PAGE> 20

IN WITNESS WHEREOF, the undersigned have executed this Declaration of Trust
on behalf of the Trust as of the date first above written.

AQUILA/LAFFER S&P 500 COMPETITIVE

ADVANTAGE FUND

By /s/ LACY B. HERRMANN
----------------------------------
Lacy B. Herrmann, Trustee
380 Madison Avenue
New York, New York, 10017

By /s/ DIANA P. HERRMANN
----------------------------------
Diana P. Herrmann, Trustee
380 Madison Avenue
New York, New York, 10017

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<PAGE> 1

EXHIBIT 99(b)

AQUILA/LAFFER S&P 500
COMPETITIVE ADVANTAGE TRUST
BY-LAWS

ARTICLE I
SHAREHOLDERS

Section 1. Meetings. Meetings of the Shareholders (which term as used
herein shall, together with all other terms defined in the Declaration of Trust,
have the same meaning as in the Declaration of Trust) of the Trust shall be held
whenever called by the Trustees, the Chairman of the Board of Trustees, if any,
or the President and whenever election of a Trustee or Trustees by Shareholders
is required by the provisions of the 1940 Act. Meetings of Shareholders for any
purpose or purposes shall also be called by the Secretary upon receipt of the
request in writing signed by holders of Shares representing not less than ten
percent (10%) of the votes eligible to be cast thereat. Such request shall state
the purpose or purposes of the proposed meeting.

Section 2. Notice of Meetings of Shareholders. Not less than ten days' and
not more than ninety days' written or printed notice of every meeting of
Shareholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each Shareholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid and addressed to him at his address as it appears upon the books
of the Trust.

No notice of the time, place or purpose of any meeting of Shareholders need
be given to any Shareholder who attends in person or by proxy or to any
Shareholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.

<PAGE> 2

Section 3. Place of Meeting. All meetings of the Shareholders shall be held
at the principal office of the Trust or at such other place as may from time to
time be designated by the Board of Trustees (or by any officer of the Trust
pursuant to instructions from the Board of Trustees) and stated in the notice of
meeting.

Section 4. Record Dates. The Board of Trustees may fix, in advance, a date,
not exceeding ninety days and not less than ten days preceding the date of any
meeting of Shareholders, and not exceeding ninety days preceding any dividend
payment date or any date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to receive such dividends or rights,
as the case may be; and only Shareholders of record on such date shall be
entitled to notice of and to vote at such meeting or to receive such dividends
or rights, as the case may be.

Section 5. Voting and Inspectors. At all meetings of Shareholders every
Shareholder of record entitled to vote thereat shall be entitled to vote at such
meeting either in person or by proxy appointed by such Shareholder or his duly
authorized attorney-in-fact. Proxies may be given by any electronic or
telecommunication device except as otherwise provided in the Declaration of
Trust. A proxy shall be deemed signed by or on behalf of a Shareholder if the
Shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, facsimile, other electronic means or
otherwise) by the Shareholder or the Shareholder's attorney-in-fact. The placing
of a Shareholder's name on a proxy pursuant to telephonic or electronically
transmitted instructions obtained pursuant to procedures reasonably

2
<PAGE> 3

designed to verify that such instructions have been authorized by such
Shareholder shall constitute execution of such proxy by or on behalf of such
Shareholder.

All elections of Trustees shall be had by a plurality of the votes cast and
all other questions shall be decided by a majority of the votes cast, in each
case at a duly constituted meeting, except as otherwise provided in the
Declaration of Trust or in these By-Laws or by specific statutory provision
superseding the restrictions and limitations contained in the Declaration of
Trust or in these By-Laws.

At any election of Trustees, the Board of Trustees prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of the outstanding Shares of the Trust representing 10% of its
net asset value entitled to vote at such election shall, appoint two inspectors
of election who shall first subscribe an oath or affirmation to execute
faithfully the duties of inspectors at such election with strict impartiality
and according to the best of their ability, and shall after the election make a
certificate of the result of the vote taken. No candidate for the office of
Trustee shall be appointed such Inspector.

The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of the outstanding Shares of the Trust representing 10% of its net asset value
entitled to vote on such election or matter.

Section 6. Conduct of Shareholders' Meetings. The meetings of the
Shareholders shall be presided over by the Chairman of the Board of Trustees, if
any, or such other person as the Chairman may delegate, or if he shall not be
present, by the President, or if he shall not be present,

3
<PAGE> 4

by a Vice-President, or if neither the Chairman of the Board of Trustees, the
President nor any Vice-President is present, by a chairman to be elected at the
meeting. The Secretary of the Trust, if present, shall act as Secretary of such
meetings, or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor an Assistant Secretary is present, then the meeting
shall elect its secretary.

Section 7. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the Shareholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 5, in which event such
inspectors of election shall decide all such questions.

Section 8. Action of Shareholders by Written Consent. Subject to the
provisions of the 1940 Act and other applicable law, any action taken by
Shareholders may be taken without a meeting if Shareholders holding Shares
entitled to vote which represent more than 50% of the votes entitled to be cast
on such matter (or such larger proportion thereof or of the Shares of any
particular series or class as shall be required by the 1940 Act or by any
express provision of the Declaration or these By-Laws or as shall be permitted
by the Trustees) consent to the action in writing and if the writings in which
such consent is given are filed with the records of the meetings of
Shareholders, to the same extent and for the same period as proxies given in

4
<PAGE> 5

connection with a Shareholders' meeting. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.

ARTICLE II
BOARD OF TRUSTEES

Section 1. Number and Tenure of Office. The business and property of the
Trust shall be conducted and managed by a Board of Trustees consisting of the
number of initial Trustees, which number may be increased or decreased as
provided in Section 2 of this Article. Each Trustee shall, except as otherwise
provided herein, hold office until the termination of this Trust or his earlier
death, resignation, retirement, bankruptcy, adjudicated incompetency or other
incapacity or removal, or if not so terminated, until his successor is duly
elected and qualifies. Trustees need not be Shareholders.

Section 2. Increase or Decrease in Number of Trustees; Removal. The Board
of Trustees, by the vote of a majority of the entire Board, may increase the
number of Trustees to a number not exceeding fifteen or decrease the number of
Trustees to a number not less than two, but the tenure of office of any Trustee
shall not be affected by any such decrease. Any vacancy or anticipated vacancy
resulting from any reason, including an increase in the number of Trustees, may
(but need not unless required by the 1940 Act) be filled by a majority of the
Trustees, subject to the provisions of Section 16(a) of the 1940 Act, through
the appointment of such other individual as such remaining Trustees in their
discretion shall determine; provided, that if there shall be no Trustees in
office, such vacancy or vacancies shall be filled by vote of the Shareholders.
In the event that after proxy material has been printed for a meeting of
Shareholders

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at which Trustees are to be elected any one or more management nominees dies or
becomes incapacitated, the authorized number of Trustees shall be automatically
reduced by the number of such nominees, unless the Board of Trustees prior to
the meeting shall otherwise determine. Any Trustee at any time may be removed
either with or without cause by resolution duly adopted by the affirmative votes
of the holders of Shares entitled to vote which represent more than 50% of the
votes entitled to be cast on such matter present in person or by proxy at any
meeting of Shareholders at which such vote may be taken, provided that a quorum
is present, or by such larger vote as may be required by Massachusetts law. Any
Trustee at any time may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is contained in
the notice of such meeting and that such resolution is adopted by the vote of at
least two-thirds of the Trustees whose removal is not proposed. As used herein,
"for cause" shall mean (i) material failure or refusal to perform, or willful
misconduct or gross negligence in the performance of, the Trustee's duties and
responsibilities; (ii) breach of the Trustee's fiduciary duty to the Trust; or
(iii) commission or conviction of, or plea of guilty or nolo contendere to, a
felony or to any lesser crime or act involving fraud, theft or dishonesty.

Section 3. Place of Meeting. The Trustees may hold their meetings, have one
or more offices, and keep the books of the Trust outside Massachusetts, at any
office or offices of the Trust or at any other place as they may from time to
time by resolution determine, or, in the case of meetings, as they may from time
to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.

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Section 4. Regular Meetings. Regular meetings of the Board of Trustees
shall be held at such time and on such notice, if any, as the Trustees may from
time to time determine, provided that an annual meeting of Trustees shall be
held after the end of each fiscal year of the Trust, at such time as the
Trustees shall determine.

Section 5. Special Meetings. Special meetings of the Board of Trustees may
be held from time to time upon call of the Chairman of the Board of Trustees, if
any, the President or two or more of the Trustees, by oral or telegraphic or
written notice duly served on or sent (including by means of facsimile or
electronic mail transmission) or mailed to each Trustee not less than one day
before such meeting. No notice need be given to any Trustee who attends in
person without protesting the absence of notice or to any Trustee who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Such notice or waiver of notice
need not state the purpose or purposes of such meeting.

Section 6. Quorum. One-third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of the Board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum shall have been obtained. The act of
the majority of the Trustees present at any meeting at which there is a quorum
shall be the act of the Board, except as may be otherwise specifically provided
by statute, by the Declaration of Trust or by these By-Laws.

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Section 7. Executive Committee. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, elect from the Trustees an
Executive Committee to consist of such number of Trustees as the Board may from
time to time determine. The Board of Trustees by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When the Board of
Trustees is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Trustees in the management of the
business and affairs of the Trust (including the power to authorize the seal of
the Trust to be affixed to all papers which may require it) except as provided
by law and except the power to increase or decrease the size of, or fill
vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Trustees, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Trustees to act in the
place of such absent member.

Section 8. Other Committees. The Board of Trustees, by the affirmative vote
of a majority of the entire Board, may appoint other committees which shall in
each case consist of such number of members (not less than two) and shall have
and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Trustees

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shall otherwise provide. The Board of Trustees shall have power at any time to
change the members and powers of any such committee, to fill vacancies, and to
discharge any such committee.

Section 9. Informal Action by and Telephone Meetings of Trustees and
Committees. Subject to the requirements of the 1940 Act, any action required or
permitted to be taken at any meeting of the Board of Trustees or any committee
thereof may be taken without a meeting, if a written consent to such action is
signed by all members of the Board, or of such committee, as the case may be. To
the extent permitted by the 1940 Act, Trustees or members of a committee of the
Board of Trustees may participate in a meeting by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time; such participation shall,
except as otherwise required by the 1940 Act, have the same effect as presence
in person.

Section 10. Compensation of Trustees. Trustees shall be entitled to receive
such compensation from the Trust for their services as may from time to time be
voted by the Board of Trustees.

Section 11. Dividends. Dividends or distributions payable on the Shares
may, but need not be, declared by specific resolution of the Board as to each
dividend or distribution; in lieu of such specific resolutions, the Board may,
by general resolution, determine the method of computation thereof, the method
of determining the Shareholders to which they are payable and the methods of
determining whether and to which Shareholders they are to be paid in cash or in
additional Shares.

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ARTICLE III
OFFICERS

Section 1. Executive Officers. The executive officers of the Trust shall be
chosen by the Board of Trustees at its first meeting and thereafter at the
annual meeting of the Trustees. These may include a Chairman of the Board of
Trustees, and shall include a President, one or more Vice-Presidents (the number
thereof to be determined by the Board of Trustees), a Secretary and a Treasurer.
The Chairman of the Board of Trustees, if any, and the President may, but need
not be, selected from among the Trustees. The Board of Trustees may also in its
discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Trustees may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.

Section 2. Term of Office. The Chairman, if any, President, Treasurer and
Secretary shall hold office until the next annual meeting of the Trustees and
until their successors shall have been duly elected and qualified, and may be
removed at any time with or without cause by the affirmative vote of a majority
of the Trustees. All other officers of the Trust may be elected or appointed at
any meeting of the Trustees. Such officers shall hold office for any term, or

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indefinitely, as determined by the Trustees, and shall be subject to removal,
with or without cause, at any time by the Trustees.

Section 3. Powers and Duties. The officers of the Trust shall have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as may from time to time be conferred by the Board of
Trustees or the Executive Committee.

ARTICLE IV
SHARES

Section 1. Certificates of Shares. Each Shareholder of the Trust may be
issued a certificate or certificates for his Shares in such form as the Board of
Trustees may from time to time prescribe, but only if and to the extent and on
the conditions prescribed by the Board.

Section 2. Transfer of Shares. Shares shall be transferable on the books of
the Trust by the holder thereof in person or by his duly authorized attorney or
legal representative, upon surrender and cancellation of certificates, if any,
for the same number of Shares, duly endorsed or accompanied by proper
instruments of assignment and transfer, with such proof of the authenticity of
the signature as the Trust or its agent may reasonably require; in the case of
Shares not represented by certificates, the same or similar requirements may be
imposed by the Board of Trustees.

Section 3. Stock Ledgers. The stock ledgers of the Trust, containing the
name and address of the Shareholders and the number of Shares of each series and
class held by them respectively, shall be kept at the principal offices of the
Trust or, if the Trust employs a transfer agent, at the offices of the transfer
agent of the Trust.

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Section 4. Lost, Stolen or Destroyed Certificates. The Board of Trustees
may determine the conditions upon which a new certificate may be issued in place
of a certificate which is alleged to have been lost, stolen or destroyed; and
may, in their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety to the Trust and the
transfer agent, if any, to indemnify it and such transfer agent against any and
all loss or claims which may arise by reason of the issue of a new certificate
in the place of the one so lost, stolen or destroyed.

ARTICLE V
SEAL

The Board of Trustees shall provide a suitable seal of the Trust, in such
form and bearing such inscriptions as it may determine.

ARTICLE VI
FISCAL YEAR

The fiscal year of the Trust shall be fixed by the Board of Trustees.

ARTICLE VII
AMENDMENT OF BY-LAWS

These By-Laws may be altered, amended or repealed, in whole or in part, by
the Shareholders of the Trust or by vote of a majority of the Trustees, except
with respect to any provision hereof which by law, the Declaration of Trust or
these By-Laws requires action by the Shareholders. By-Laws adopted by the
Trustees may be altered, amended or repealed by the Shareholders.