The Pacific Capital Funds
of
CASH ASSETS TRUST
Pacific Capital Cash Assets Trust
Pacific Capital Tax-Free Cash Assets Trust
Pacific Capital U.S. Treasuries Cash Assets Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
212-697-6666
800-CATS-4-YOU (800-228-7496)
[LOGO]
Statement of Additional Information July 31, 1996
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. It relates to Cash Assets Trust
(the "Trust") which has three separate funds, Pacific Capital Cash
Assets Trust, Pacific Capital Tax-Free Cash Assets Trust
and Pacific Capital U.S. Treasuries Cash Assets Trust. There are
two Prospectuses for these funds dated July 31, 1996, each of which
pertains to a single class -- the Original Class or the Service
Class -- of shares of the Funds. References in the Additional
Statement to "the Prospectus" may be regarded as applying to either
of these Prospectuses, each of which addresses the indicated topic.
The Additional Statement 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
Fund's transfer agent, Administrative Data Management Corp., by
writing to it at: 581 Main Street, Woodbridge, NJ 07095-1198, or by
calling the following numbers:
800-255-2287 toll free or 908-855-5731
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to it at 380 Madison Avenue, Suite 2300, New York, New York
10017; or by calling:
800-228-7496 toll free
or 212-697-6666
The Annual Report of the Funds for the fiscal year ended March
31, 1996 will be delivered with the Additional Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . . .3
Yield Information . . . . . . . . . . . . . . . . . . . . . . .8
Investment Restrictions . . . . . . . . . . . . . . . . . . . .9
Loans of Portfolio Securities . . . . . . . . . . . . . . . . 10
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 10
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 16
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 16
Additional Information as to Management Arrangements . . . . . 23
Amortized Cost Valuation . . . . . . . . . . . . . . . . . . . 27
Computation of Daily Dividends . . . . . . . . . . . . . . . . 28
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 28
General Information . . . . . . . . . . . . . . . . . . . . . 29
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 31
INVESTMENT OF THE TRUST'S ASSETS
The Pacific Capital Funds of Cash Assets Trust are Pacific
Capital Cash Assets Trust (the "Cash Fund"), Pacific Capital
Tax-Free Cash Assets Trust (the "Tax-Free Fund") and Pacific
Capital U.S. Treasuries Cash Assets Trust (the "Treasuries Fund").
They are collectively referred to as the "Funds." Each Prospectus
contains information as to the purchase and redemption of one class
of the Funds' shares. The investment objective and policies of each
Fund are described in the Prospectus, which refers to the
investments and investment methods described below.
Information on Variable Amount Master Demand Notes
The Cash Fund may buy variable amount master demand notes. The
nature and terms of these obligations are as follows. They permit
the investment of fluctuating amounts by the Fund at varying rates
of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. They permit daily changes in the amounts
borrowed. The Cash Fund has the right to increase the amount under
the note at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may prepay
up to the full amount of the note without penalty. Because these
notes are direct lending arrangements between the lender and
borrower, it is not generally contemplated that they will be
traded, and there is no secondary market for them. They are
redeemable (and thus repayable by the borrower) at principal
amount, plus accrued interest, at any time on not more than thirty
days' notice. Except for those notes which are payable at principal
amount plus accrued interest within seven days after demand, such
notes fall within the Fund's overall 10% limitation on securities
with possible limited liquidity. There is no limitation on the type
of issuer from which these notes will be purchased; however, all
such notes must be First Tier Securities and in connection with
such purchases and on an ongoing basis, Hawaiian Trust Company,
Limited (the "Adviser") will consider the earning power, cash flow
and other liquidity ratios of the issuer, and its ability to pay
principal and interest on demand, including a situation in which
all holders of such notes make demand simultaneously. Master demand
notes as such are not typically rated by credit rating agencies and
if not so rated the Fund may, under its minimum rating standards,
invest in them only if at the time of an investment they are
determined to be comparable in quality to rated issues in which the
Fund can invest.
Information On Insured Bank Obligations
The Federal Deposit Insurance Corporation ("FDIC") insures the
deposits of Federally insured banks and, effective August 9, 1989,
savings institutions (collectively herein, "banks") up to $100,000.
On that date the FDIC assumed the insurance functions of the
Federal Savings and Loan Insurance Corporation, which was
abolished. The Cash Fund may purchase bank obligations which are
fully insured as to principal by the FDIC. To remain fully insured
as to principal, these investments must currently be limited to
$100,000 per bank; if the principal amount and accrued interest
together exceed $100,000 then the excess accrued interest will not
be insured. Insured bank obligations may have limited
marketability; unless the Board of Trustees determines that a
readily available market exists for such obligations, the Cash Fund
and the Tax-Free Fund will invest in them only within the 10% limit
of each Fund mentioned in the Prospectus unless such obligations
are payable at principal amount plus accrued interest on demand or
within seven days after demand.
Information about Certain Other Obligations
The Cash Fund may purchase obligations other than those listed
in categories 1 through 5 under "The Cash Fund and its
Investments," in the Prospectus, but only if such other obligations
are guaranteed as to principal and interest by either a bank in
whose obligations the Cash Fund may invest or a corporation in
whose commercial paper it may invest. If any such guarantee is
unconditional and is itself an Eligible Security, the obligation
may be purchased based on the guarantee; if any such guarantee is
not unconditional, purchase of the obligation can only be made if
the underlying obligation is an Eligible Security and meets all
other applicable requirements of Rule 2a-7 (the "Rule") of the
Securities and Exchange Commission. See "Effect of the Rule on
Portfolio Management" in the Prospectus. As of the date of the
Additional Statement the Cash Fund does not own any such
obligations and has no present intention of purchasing any. Such
obligations can be any obligation of any kind so guaranteed,
including, for example, obligations created by "securitizing"
various kinds of assets such as credit card receivables or
mortgages. If the Cash Fund invests in these assets, they will be
identified in the Prospectuses and described in the Additional
Statement.
Additional Information Regarding Municipal Obligations
Which The Tax-Free Fund May Purchase
Municipal Notes
The Tax-Free Fund may invest in municipal notes. Municipal
notes include, but are not limited to, tax anticipation notes
("TANs"), bond anticipation notes ("BANs"), revenue anticipation
notes ("RANs"), and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or
receipt of other revenues are usually general obligations of the
issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a
rise in delinquencies could adversely affect the issuer's ability
to meet its obligations on outstanding TANs. Furthermore, some
municipal issuers mix various tax proceeds into a general fund that
is used to meet obligations other than those of the outstanding
TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its
obligations on its BANs is primarily dependent on the issuer's
adequate access to the longer term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay
the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could
adversely affect an issuer's ability to meet its obligations on
outstanding RANs. In addition, the possibility that the revenues
would, when received, be used to meet other obligations could
affect the ability of the issuer to pay the principal of, and
interest on, RANs.
Municipal Bonds
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit
and unlimited taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or projects or,
in a few cases, from the proceeds of a special excise or other tax,
but are not supported by the issuer's power to levy unlimited
general taxes. There are, of course, variations in the security of
municipal bonds, both within a particular classification and
between classifications, depending on numerous factors. The yields
of municipal bonds depend on, among other things, general financial
conditions, general conditions of the municipal bond market, size
of a particular offering, the maturity of the obligation and rating
of the issue.
Other Information
Since the Tax-Free Fund may invest in industrial development
bonds or private activity bonds, the Tax-Free Fund may not be an
appropriate investment for entities which are "substantial users"
of facilities financed by those industrial development bonds or
private activity bonds or for investors who are "related persons"
of such users. Generally, an individual will not be a "related
person" under the Internal Revenue Code unless such investor or his
or her immediate family (spouse, brothers, sisters and lineal
descendants) own directly or indirectly in the aggregate more than
50 percent of the equity of a corporation or is a partner of a
partnership which is a "substantial user" of a facility financed
from the proceeds of "industrial development bonds" or "private
activity bonds". A "substantial user" of such facilities is defined
generally as a "non-exempt person who regularly uses a part of [a]
facility" financed from the proceeds of industrial development
bonds or private activity bonds.
As indicated in the Prospectus, under the Tax Reform Act of
1986, there are certain Municipal Obligations the interest on which
is subject to the Federal alternative minimum tax on individuals.
While the Tax-Free Fund may purchase these obligations, it may, on
the other hand, refrain from purchasing them due to this tax
consequence. Also, as indicated in the Prospectus, the Tax-Free
Fund will not purchase Municipal Obligations the interest on which
is not exempt from regular Federal income taxes. The foregoing may
narrow the number of Municipal Obligations available to the
Tax-Free Fund.
Ratings
The ratings assigned by the nationally recognized statistical
rating organizations ("NRSROs") represent their opinions of the
quality of the debt securities which they undertake to rate.
Ratings are general and not absolute standards of quality;
consequently, obligations with the same maturity, stated interest
rate and rating may have different yields, while obligations of the
same maturity and stated interest rate with different ratings may
have the same yield. See Appendix A to this Additional Statement
for further information about the ratings of the NRSROs as to the
various rated Municipal Obligations and Taxable Obligations which
the Tax-Free Fund may purchase.
U.S. Government Securities
All of the Funds may invest in U.S Government Securities
(i.e., obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities), which include securities issued
by the U.S. Government, such as Treasury Bills (which mature within
one year of the date they are issued) and Treasury Notes and Bonds
(which are issued with longer maturities). All Treasury securities
are backed by the full faith and credit of the United States. These
types of U.S. Government securities are the only type in which the
Treasuries Fund invests.
The Cash Fund and the Tax-Free Fund may invest in securities
of U.S. Government agencies and instrumentalities that issue or
guarantee securities. These include, but are not limited to, the
Farmers Home Administration, Federal Farm Credit System, Federal
Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Housing Administration, Federal National Mortgage Association,
Financing Corporation, Government National Mortgage Association,
Resolution Funding Corporation, Small Business Administration,
Student Loan Marketing Association and the Tennessee Valley
Authority.
Securities issued or guaranteed by U.S. Government agencies
and instrumentalities are not always supported by the full faith
and credit of the United States. Some, such as securities issued by
the Federal Home Loan Banks, are backed by the right of the agency
or instrumentality to borrow from the Treasury. Others, such as
securities issued by the Federal National Mortgage Association, are
supported only by the credit of the instrumentality and not by the
Treasury. If the securities are not backed by the full faith and
credit of the United States, the owner of the securities must look
principally to the agency issuing the obligation for repayment and
may not be able to assert a claim against the United States in the
event that the agency or instrumentality does not meet its
commitment. The Cash Fund and the Tax-Free Fund will invest in
government securities, including securities of agencies and
instrumentalities only if Hawaiian Trust Company, Limited (the
"Adviser"), acting under procedures approved by the Board of
Trustees, is satisfied that these obligations present minimal
credit risks.
Turnover
In general, the Funds will purchase securities with the
expectation of holding them to maturity. However, the Funds may to
some degree engage in short-term trading to attempt to take
advantage of short-term market variations. The Funds may also sell
securities prior to maturity to meet redemptions or as a result of
a revised management evaluation of the issuer. The Funds will have
a high portfolio turnover due to the short maturities of the
securities held, but this should not affect net asset value or
income, as brokerage commissions are not usually paid on the
securities in which the Funds invest. (In the usual calculation of
portfolio turnover, securities of the type in which the Funds
invests are excluded; consequently, the high turnover which the
Funds will have is not comparable to the turnover of non-money -
market investment companies.)
When-Issued and Delayed Delivery Securities
The Cash Fund and the Tax-Free Fund may purchase securities on
a when-issued or delayed delivery basis. For example, delivery and
payment may take place a month or more after the date of the
transaction. The purchase price and the interest rate payable on
the securities are fixed on the transaction date. At the time that
either Fund makes a commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the
transaction and thereafter reflect the value of such securities
each day in determining its net asset value. The Cash Fund and the
Tax-Free Fund will make commitments for such when-issued
transactions only when they have the intention of actually
acquiring the securities. The Cash Fund and the Tax-Free Fund will
each maintain with the Custodian and mark to market every business
day a separate account with portfolio securities in an amount at
least equal to such commitments. On delivery dates for such
transactions, the Cash Fund and the Tax-Free Fund will each meet
their obligations from maturities or sales of the securities held
in the separate account and/or from cash flow. If the Cash Fund or
the Tax-Free Fund chooses to dispose of any right to acquire a
when-issued security prior to its acquisition, they could, as with
the disposition of any other portfolio obligation, incur a gain or
loss due to market fluctuation. Neither the Cash Fund nor the
Tax-Free Fund may enter into when-issued commitments exceeding in
the aggregate 15% of the market value of their respective total
assets, less liabilities other than the obligations created by
when-issued commitments.
Diversification and Certain Industry Requirements
The Cash Fund has a rule, set forth in the Prospectus, under
which it cannot buy the securities of issuers in any one industry
if more than 25% of its total assets would then be invested in
securities of issuers of that industry. In applying this rule to
commercial paper issued by finance subsidiaries or affiliates of
operating companies, if the business of the issuer consists
primarily of financing the activities of the related operating
company, the Fund considers the industry of the issuer to be that
of the related operating company.
YIELD INFORMATION
There are two methods by which the yields for any Fund's two
classes of shares for a specified period of time are calculated.
The first method, which results in an amount referred to as
the "current yield," assumes an account containing exactly one
share of the class at the beginning of the period. (The net asset
value of this share will be $1.00 except under extraordinary
circumstances.) The net change in the value of the account during
the period is then determined by subtracting this beginning value
from the value of the account at the end of the period; however,
excluded from the calculation are capital changes, i.e., realized
gains and losses from the sale of securities and unrealized
appreciation and depreciation.
This net change in the account value is then divided by the
value of the account at the beginning of the period (i.e., normally
$1.00 as discussed above) and the resulting figure (referred to as
the "base period return") is then annualized by multiplying it by
365 and dividing it by the number of days in the period; the result
is the "current yield." Normally a seven-day period will be used in
determining yields (both the current and the effective yield
discussed below) in published or mailed advertisements.
The second method results in an amount referred to as the
"compounded effective yield." This represents an annualization of
the current yield with dividends reinvested daily. This compounded
effective yield for a seven-day period would be computed by
compounding the unannualized base period return by adding one to
the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result.
Since calculations of both kinds of yields do not take into
consideration any realized or unrealized gains or losses on any
Fund's portfolio securities which may have an effect on dividends,
the dividends declared during a period may not be the same on an
annualized basis as either kind of yield for that period.
Yield information may be useful to investors in reviewing a
Fund's performance. However, a number of factors should be taken
into account before using yield information as a basis for
comparison with alternative investments. An investment in any Fund
is not insured and its yields are not guaranteed. They normally
will fluctuate on a daily basis. The yields for any given past
period are not an indication or representation by any Fund of
future yields or rates of return on its shares and, therefore, they
cannot be compared to yields on savings accounts or other
investment alternatives which often provide a guaranteed fixed
yield for a stated period of time, and may be insured by a
government agency. In comparing the yields of one money market fund
to another, consideration should be given to each fund's investment
policy, portfolio quality, portfolio maturity, type of instruments
held and operating expenses.
Because a given class of a Fund's shares may bear certain
expenses allocated only to that class, it is expected that yields,
which are affected in part by expenses, will differ as between the
two classes of any Fund's shares. See "Dividend and Tax
Information" in the Prospectus.
INVESTMENT RESTRICTIONS
Each Fund has a number of policies concerning what it can and
cannot do. Those policies, which are called "fundamental policies,"
may not be changed unless the holders of a majority, as defined in
the Investment Company Act of 1940 (the "1940 Act"), of the Trust's
outstanding shares vote to change them. Under the 1940 Act, the
vote of the holders of a majority of the outstanding shares of a
Fund 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 its 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 voting securities, any commodities or
commodity contracts, any mineral related programs or leases, any
shares of other investment companies or any warrants, puts, calls
or combinations thereof, except that the Tax-Free Fund may purchase
Municipal Obligations with put rights in order to maintain
liquidity and may purchase shares of other investment companies.
The Cash Fund and the Tax-Free Fund cannot purchase or hold
the securities of any issuer if, to their knowledge, Trustees,
Directors or officers of the either or their Adviser individually
owning beneficially more than 0.5% of the securities of that issuer
together own in the aggregate more than 5% of such securities.
The Cash Fund and the Tax-Free Fund cannot buy real estate or
any non-liquid interests in real estate investment trusts; however,
they can buy any securities which they could otherwise buy even
though the issuer invests in real estate or interests in real
estate.
2. Almost all of the Cash Fund's assets must be in established
companies.
Only 5% of the Cash Fund's total assets may be in issuers less
than three years old, that is, which have not been in continuous
operation for at least three years. This includes the operations of
predecessor companies.
3. The Funds do not buy for control.
The Funds cannot invest for the purpose of exercising control
or management of other companies. This restriction is not
applicable to the Treasuries Fund.
4. The Funds do not sell securities they do not own or borrow from
brokers to buy securities.
Thus, they cannot sell short or buy on margin.
5. The Funds are not an 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 reasons.
LOANS OF PORTFOLIO SECURITIES
Any Fund may, to increase its income, lend its securities on
a short- or long-term basis to broker-dealers, banks or certain
other financial institutions (see below) if (i) the loan is
collateralized in accordance with applicable regulatory
requirements (the "Guidelines") and if (ii) after any loan, the
value of the securities loaned does not exceed 10% of the value of
its total assets. As of the date of this Additional Statement, none
of the Funds foresee lending securities if after any loan the value
of loaned securities exceeds 5% of the value of its total assets.
The financial institutions other than broker-dealers or banks to
which a Fund can lend its securities are limited to "accredited
investors," as that term is defined in Section 2(15) of the
Securities Act of 1933. (In general, such institutions are
insurance companies, investment companies and certain employee
benefit plans.) Under the present Guidelines (which are subject to
change) the loan collateral must, on each business day, at least
equal the value of the loaned securities and must consist of cash,
bank letters of credit or U.S. Government securities. To be
acceptable as collateral, a letter of credit must obligate a bank
to pay amounts demanded by the Fund if the demand meets the terms
of the letter. Such terms and the issuing banks would have to be
satisfactory to the Fund. Any loan might be secured by any one or
more of the three types of collateral. In addition, any such
investment must meet the applicable requirements of the Rule. See
"Effect of the Rule on Portfolio Management" in the Prospectus.
A Fund receives amounts equal to the interest or other
distributions on loaned securities and also receives one or more of
the negotiated loan fees, interest on securities used as collateral
or interest on the securities purchased with such collateral,
either of which types of interest may be shared with the borrower.
A Fund may also pay reasonable finder's, custodian and
administrative fees but only to persons not affiliated with the
Fund. The terms of each Fund's loans will meet certain tests under
the Internal Revenue Code and permit the Fund to terminate the loan
and thus reacquire loaned securities on five days' notice.
DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan under Rule 12b-1
("Rule 12b-1") under the 1940 Act, which have substantially the
same terms. In the following material the "Plan" means the Plan of
any of the Funds. Rule 12b-1 provides in substance that an
investment company may not engage directly or indirectly in
financing any activity which is primarily intended to result in the
sale of its shares except pursuant to a plan adopted under Rule
12b-1. The Plan is in two parts.
The Plan states that while it is in effect, the selection and
nomination of those Trustees of any Fund who are not "interested
persons" of the Fund shall be committed to the discretion of such
disinterested Trustees but that nothing in the Plan shall prevent
the involvement of others in such selection and nomination if the
final decision on any such selection and nomination is approved by
a majority of such disinterested Trustees.
Part I of the Plan
Part I of the Plan is designed to protect against any claim
involving the Fund that the administration fee and some of the
expenses which the Fund pays or may pay come within the purview of
Rule 12b-1. No Fund considers such fee or any payment enumerated in
Part I of the Plan as so financing any such activity. However, it
might be claimed that such fee and some of the expenses a Fund pays
come within the purview of Rule 12b-1. If and to the extent that
any payments (including fees) specifically listed in Part I of the
Plan are considered to be primarily intended to result in or are
indirect financing of any activity which is primarily intended to
result in the sale of a Fund's shares, these payments are
authorized under the Plan.
As used in Part I of the Plan, "Qualified Recipients" means
(i) any principal underwriter or underwriters of a Fund (other than
a principal underwriter which is an affiliated person, or an
affiliated person of an affiliated person, of the Administrator)
and (ii) broker-dealers or others selected by Aquila Management
Corporation (the "Administrator") with which it or a Fund has
entered into written agreements ("Plan Agreements") and which have
rendered assistance (whether direct, administrative or both) in the
distribution and/or retention of a Fund's shares or servicing
shareholder accounts. "Qualified Holdings" means, as to any
Qualified Recipient, all Fund shares beneficially owned by such
Qualified Recipient or by one or more customers (brokerage or
other) or other contacts and/or its investment advisory or other
clients, if the Qualified Recipient was, in the sole judgment of
the Administrator, instrumental in the purchase and/or retention of
such Fund shares and/or in providing administrative assistance in
relation thereto.
The Plan permits the Administrator to make payments
("Administrator's Permitted Payments") to Qualified Recipients.
These Administrator's Permitted Payments are made by the
Administrator and are not reimbursed by the Fund to the
Administrator. Permitted Payments may not exceed, for any fiscal
year of a Fund (pro-rated for any fiscal year which is not a full
fiscal year), in the case of the Cash Fund, 0.15 of 1% of the
average annual net assets of the Fund, and in the case of the
Tax-Free Fund and the Treasuries Fund 0.10 of 1% of their
respective average annual net assets. The Administrator shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) to determine the amount of Administrator's Permitted
Payments, if any, to each Qualified Recipient, provided that the
total Administrator's Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Administrator 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; 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 below) may remove any person as a Qualified Recipient.
The Plan states that whenever the Administrator bears the costs,
not borne by a Fund's Distributor, of printing and distributing all
copies of the Fund's prospectuses, statements of additional
information and reports to shareholders which are not sent to the
Fund's shareholders, or the costs of supplemental sales literature
and advertising, such payments are authorized.
Part I of the Plan recognizes that, in view of the
Administrator's Permitted Payments and bearing by the Administrator
of certain distribution expenses, the profits, if any, of the
Administrator are dependent primarily on the administration fees
paid by the Fund to the Administrator and that its profits, if any,
would be less, or losses, if any, would be increased due to such
Administrator's Permitted Payments and the bearing by it of such
expenses. If and to the extent that any such administration fees
paid by the Fund might, in view of the foregoing, be considered as
indirectly financing any activity which is primarily intended to
result in the sale of shares issued by the Fund, the payment of
such fees is authorized by Part I of the Plan.
Part I of the Plan also states that if and to the extent that
any of the payments listed below are considered to be "primarily
intended to result in the sale of" shares issued by the Fund within
the meaning of Rule 12b-1, such payments are authorized under the
Plan: (i) the costs of the preparation of all reports and notices
to shareholders and the costs of printing and mailing such reports
and notices to existing shareholders, irrespective of whether such
reports or notices contain or are accompanied by material intended
to result in the sale of shares of the Fund or other funds or other
investments; (ii) the costs of the preparation and setting in type
of all prospectuses and statements of additional information and
the costs of printing and mailing all prospectuses and statements
of additional information to existing shareholders; (iii) the costs
of preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement includes
any item relating to, or directed toward, the sale of the Fund's
shares; (iv) all legal and accounting fees relating to the
preparation of any such reports, prospectuses, statements of
additional information, proxies and proxy statements; (v) all fees
and expenses relating to the registration or qualification of the
Fund and/or its shares under the securities or "Blue-Sky" laws of
any jurisdiction; (vi) all fees under the Securities Act of 1933
and the 1940 Act, including fees in connection with any application
for exemption relating to or directed toward the sale of the Fund's
shares; (vii) all fees and assessments of the Investment Company
Institute or any successor organization, irrespective of whether
some of its activities are designed to provide sales assistance;
(viii) all costs of the preparation and mailing of confirmations of
shares sold or redeemed or share certificates, and reports of share
balances; and (ix) all costs of responding to telephone or mail
inquiries of investors or prospective investors.
Part I of the Plan states that while Part I is in effect, the
Fund's Administrator shall report at least quarterly to the Fund's
Trustees in writing for its review on the following matters: (i)
all Administrator's Permitted Payments made to Qualified
Recipients, the identity of the Qualified Recipient of each Payment
and the purpose for which the amounts were expended; (ii) all costs
of each item specified in the second preceding paragraph (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Fund to the Administrator paid or accrued during such quarter.
Part I of the Plan defines as the Fund's Independent Trustees
those Trustees who are not "interested persons" of the Fund as
defined in the 1940 Act and who have no direct or indirect
financial interest in the operation of the Plan or in any
agreements related to the Plan. Part I of the Plan, unless
terminated as hereinafter provided, continues in effect from year
to year only so long as such continuance is specifically approved
at least annually by the Fund's Trustees and its Independent
Trustees with votes cast in person at a meeting called for the
purpose of voting on such continuance. In voting on the
implementation or continuance of Part I of the Plan, those Trustees
who vote to approve such implementation or continuance must
conclude that there is a reasonable likelihood that Part I of the
Plan will benefit the Fund and its shareholders. Part I of the Plan
may be terminated at any time by 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. Part I of the Plan may not be amended to increase
materially the amount of payments to be made without shareholder
approval, and all amendments must be approved in the manner set
forth above as to continuance of Part I of the Plan.
Part I of the Plan states that in the case of a Qualified
Recipient which is a principal underwriter of the Fund the 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. The Plan also states that in the case of Qualified
Recipients which are not principal underwriters of the Fund, the
Plan Agreements with them shall be the agreements with the
Administrator with respect to payments under Part I of the Plan.
Under Rule 12b-1, all agreements related to implementation of
a plan must be in writing and must contain specified adoption and
continuance requirements, including a requirement that they
terminate automatically on their "assignment," as that term is
defined in the 1940 Act. The other adoption and continuance
requirements as to such agreements are the same as those described
above as to Part I of the Plan itself except that: (i) no
shareholder action is required for the approval of such agreements,
and (ii) termination by Trustee or shareholder action as there
described may be on not more than 60 days' written notice. The Plan
Agreement between the Fund and the Administrator is governed by the
foregoing requirements.
During the Funds' fiscal year ended March 31, 1996 only
immaterial Administrator's Permitted Payments (under $1,000) were
made by the Administrator to Qualified Recipients.
The formula under which the payments described above may be
made under Part I of the Plan by the Administrator was arrived at
by considering a number of factors. One of such factors is that
such payments are designed to provide incentives for Qualified
Recipients (i) in the case of Qualified Recipients which are
principal underwriters, to act as such and (ii) in the case of all
Qualified Recipients, to devote substantial time, persons and
effort to the sale of the shares of the Fund. Another factor is
that such payments by the Administrator to Qualified Recipients may
provide the only incentive for Qualified Recipients to do so; there
is no sales charge on the sale of the Fund's shares and, although
Part II of the Plan, as discussed below, permits certain payments
by the Fund to persons providing distribution and/or shareholder
service assistance, those payments are permitted only in connection
with one of the Fund's two classes of shares. Another factor is
that the Fund is one of a group of funds having certain common
characteristics. Each such fund (i) is a money market fund; and
(ii) has as its investment adviser a banking institution or an
affiliate which invests assets over which it has investment
authority in money market funds advised by other banking
institutions or affiliates. The marketing of the Fund's shares may
be facilitated since each such institution can, due to these common
characteristics, be fully and currently informed as to the quality
of the investments of and other aspects of the operations of each
of the other funds and if such an investment is otherwise
appropriate, can, although not required to do so, invest assets
over which it has investment authority in one or more of the other
funds.
Part II of the Plan
Part II of the Plan authorizes payment of certain distribution
or service fees by the Fund in connection with Service Shares of
the Fund.
As used in Part II of the Plan, "Designated Payees" means (i)
any principal underwriter or underwriters of the Fund and (ii)
broker-dealers or others selected by Aquila Distributors, Inc. (the
"Distributor") with which it or the Fund has entered into written
agreements ("Distributor's Plan Agreements") and which have
rendered assistance (whether direct, administrative or both) in the
distribution and/or retention of shares of the specified class or
servicing shareholder accounts with respect to those shares.
"Qualified Holdings" means, as to any Designated Payee, all Service
Shares beneficially owned by such Designated Payee or by one or
more customers (brokerage or other) or other contacts and/or its
investment advisory or other clients, if the Designated Payee was,
in the sole judgment of the Distributor, instrumental in the
purchase and/or retention of such shares and/or in providing
administrative assistance in relation thereto.
Part II of the Plan permits the Fund to make payments ("Fund's
Permitted Payments") to Designated Payees. These Fund's Permitted
Payments are made by the Fund directly or through the Distributor
and may not exceed, for any fiscal year of the Fund (pro-rated 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 to the Service
Shares class of Fund shares. Such payments are to be made out of
the Fund assets allocable to Service Shares. The Distributor shall
have sole authority (i) as to the selection of any Designated Payee
or Payees; (ii) not to select any Designated Payee; and (iii) to
determine the amount of Fund's Permitted Payments, if any, to each
Designated Payee, provided that the total Fund's Permitted Payments
to all Designated Payees 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
Designated Payee; (b) the extent to which the Designated Payee has,
at its expense, taken steps in the shareholder servicing area; and
(c) the possibility that the Qualified Holdings of the Designated
Payee would be redeemed in the absence of its selection or
continuance as a Designated Payee. Notwithstanding the foregoing
two sentences, a majority of the Independent Trustees (as defined
below) may remove any person as a Designated Payee.
Part II of the Plan states that while Part II is in effect,
the Distributor shall report at least quarterly to the Fund's
Trustees in writing for its review on the following matters: (i)
all Fund's Permitted Payments made to Designated Payees, the
identity of the Designated Payee of each Payment and the purpose
for which the amounts were expended; and (ii) all fees of the Fund
to the Distributor, sub-adviser or Administrator paid or accrued
during such quarter.
Part II of the Plan, unless terminated as hereinafter
provided, continues in effect from year to year only so long as
such continuance is specifically approved at least annually by the
Fund's Trustees and its Independent Trustees with votes cast in
person at a meeting called for the purpose of voting on such
continuance. In voting on the implementation or continuance of Part
II of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that Part II of the Plan will benefit the
Fund and its shareholders. Part II of the Plan may be terminated at
any time by 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 Service Shares
class. Part II of the Plan may not be amended to increase
materially the amount of payments to be made without shareholder
approval, and all amendments must be approved in the manner set
forth above as to continuance of Part II of the Plan.
Part II of the Plan states that in the case of a Designated
Payee, which is a principal underwriter of the Fund, the
Distributor's 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. The Plan also states that in the case of Designated
Payees which are not principal underwriters of the Fund, the
Distributor's Plan Agreements with them shall be the agreements
with the Distributor with respect to payments under Part II of the
Plan.
During the fiscal year ended March 31, 1996, the following
payments were made by each of the Funds to Designated Payees: Cash
Fund, $42,078; Tax-Free Fund, $27,786; Treasuries Fund, $13,511.
LIMITATION OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the 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 the Fund during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such
limitation, the 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.
TRUSTEES AND OFFICERS
The Trustees and officers of the Funds, their affiliations, if
any, with the Adviser or Distributor and their principal
occupations during at least the past five years are set forth
below. Each of the Trustees and officers of the Funds holds the
same position with all of the Funds. Each of the Trustees of the
Funds is also a Trustee of Hawaiian Tax-Free Trust, a tax-free
municipal bond fund which has the same Adviser and Administrator as
the Funds. Mr. Herrmann is an interested person of each of the
Funds, as that term is defined in the 1940 Act, as an officer of
the Funds, as a Director and officer of Aquila Distributors, Inc.
(the "Distributor") and as a shareholder of the Distributor. Mr.
Philpotts is an interested person as a director of the Adviser.
They are so designated by an asterisk. As of the date of this
Additional Statement, the Trustees and officers of the Funds owned
less than 1% of the outstanding shares of any of them.
Lacy B. Herrmann*, President and Chairman of the Board of Trustees,
380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila Management
Corporation since 1984, the sponsoring organization and
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: Churchill Cash Reserves Trust
since 1985; a money market fund, which together with Capital Cash
Management Trust ("CCMT") and the three Funds of this Trust are
called the Aquila Money-Market Funds; and Hawaiian Tax-Free Trust
since 1984; Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987 ; Churchill
Tax-Free Fund of Kentucky since 1987; Tax-Free Fund For Utah since
1992; and Narragansett Insured Tax-Free Income Fund since 1992;
each of which is a tax-free municipal bond fund, and two equity
funds, Aquila Rocky Mountain Equity Fund since 1993 and Aquila
Cascadia Equity Fund, since 1996, which together are called the
Aquila Bond and Equity Funds; Vice President, Director, Secretary
and formerly Treasurer of Aquila Distributors, Inc. since 1981,
distributor of the above funds; President and Chairman of the Board
of Trustees of CCMT, a money market fund since 1981, and an Officer
and Trustee/Director of its predecessors since 1974; Chairman of
the Board of Trustees, and President of Prime Cash Fund 1982-1996
and Short term asset Reserves 1984-1996; President and a Director
of STCM Management Company, Inc., sponsor and sub-adviser to CCMT;
Chairman, President, and a Director since 1984, of InCap Management
Corporation, formerly sub-adviser and administrator of Prime Cash
Fund and Short Term Asset Reserves, and Founder and Chairman of
several other money market funds; Director or Trustee of OCC Cash
Reserves, Inc., Oppenheimer Quest Global Value Fund, Inc.,
Oppenheimer Quest Value Fund, Inc., and Trustee of Quest For Value
Accumulation Trust, The Saratoga Advantage Trust, and of the
Rochester Group of Funds, each of which is an open-end investment
company; Trustee of Brown University 1990-1996 and currently
Trustee Emeritus; actively involved for many years in leadership
roles with university, school and charitable organizations.
Vernon R. Alden, Trustee, 420 Boylston Street, Suite 403, Boston,
Massachusetts 02116
Director of Colgate Palmolive Company since 1974, Digital Equipment
Corporation, a computer manufacturing corporation, since 1959,
Intermet Corporation, an independent foundry, since 1986, and
Sonesta International Hotels Corporation since 1978; Chairman of
the Board and Executive Committee of The Boston Company, Inc., a
financial services company, 1969-1978; Trustee of Tax-Free Trust of
Oregon since 1988 , of Hawaiian Tax-Free Trust since 1989, of
Cascades Cash Fund, 1989-1994, of Narragansett Insured Tax-Free
Income Fund since 1992, and of Aquila Cascadia Equity Fund since
1996; Associate Dean and member of the faculty of Harvard
University Graduate School of Business Administration, 1951-1962;
member of the faculty and Program Director of Harvard Business
School - University of Hawaii Advanced Management Program, summer
of 1959 and 1960; President of Ohio University, 1962-1969; Chairman
of The Japan Society of Boston, Inc., and member of several
Japan-related advisory councils; Chairman of the Massachusetts
Business Development Council and the Massachusetts Foreign Business
Council, 1978-1983; Trustee of the Boston Symphony Orchestra since
1975; Chairman of the Massachusetts Council on the Arts and
Humanities, 1972-1984; Member of the Board of Fellows of Brown
University, 1969-1986; Trustee and member of the Executive
Committee, Plimoth Plantation; trustee of various other cultural
and educational organizations; Honorary Consul General of the Royal
Kingdom of Thailand.
Arthur K. Carlson, Trustee, 8702 North Via La Serena, Paradise
Valley, Arizona 85253
Retired; Advisory Director of the Renaissance Companies (design and
construction companies of commercial, industrial and upscale
residential properties) since 1996; Senior Vice President and
Manager of the Trust Division of The Valley National Bank of
Arizona, 1977-1987; Trustee of Tax-Free Fund of Colorado, Hawaiian
Tax-Free Trust and Tax-Free Trust of Arizona since 1987 and of
Aquila Rocky Mountain Equity Fund since 1993; previously Vice
President of Investment Research at Citibank, New York City, and
prior to that Vice President and Director of Investment Research
of Irving Trust Company, New York City; past President of The New
York Society of Security Analysts and currently a member of the
Phoenix Society of Financial Analysts; formerly Director of the
Financial Analysts Federation; past Chairman of the Board and,
currently, Director of Mercy Healthcare of Arizona, Phoenix,
Arizona since 1990; Director of Northern Arizona University
Foundation since 1990; present or formerly an officer and/or
director of various other community and professional organizations.
William M. Cole, Trustee, 852 Ramapo Way, Westfield, New Jersey
07090
President of Cole International, Inc., financial and shipping
consultants, since 1974; President of Cole Associates, shopping
center and real estate developers, 1974-1976; President of Seatrain
Lines, Inc., 1970-1974; former General Partner of Jones & Thompson,
international shipping brokers; Trustee of Hawaiian Tax-Free Trust
since 1985 and of Tax-Free Fund of Colorado since 1987; Chairman of
Cole Group, a financial consulting and real estate firm, since
1985.
Thomas W. Courtney, C.F.A., Trustee, P.O. Box 8186, Naples, Florida
33941
President of Courtney Associates, Inc., a venture capital firm,
since 1988; General Partner of Trivest Venture Fund, 1983-1988;
President of Federated Investment Counseling Inc., 1975-1982;
President of Boston Company Institutional Investors, Inc.,
1970-1975; formerly a Director of the Financial Analysts
Federation; Trustee of Hawaiian Tax-Free Trust since 1984 and of
Tax-Free Trust of Arizona since 1986; Director or Trustee of OCC
Cash Reserves, Inc., Oppenheimer Quest Global Value Fund, Inc.,
Oppenheimer Quest Value Fund, Inc., and Trustee of Quest For Value
Accumulation Trust and of the Rochester Group of Funds, each of
which is an open-end investment company.
Richard W. Gushman, II, Trustee, 700 Bishop Street, Suite 200,
Honolulu, Hawaii 96813
President and Chief Executive Officer of OKOA, INC., a private
Hawaii corporation involved in real estate; adviser to RAMPAC,
Inc., a wholly-owned subsidiary of the Bank of Hawaii, involved
with commercial real estate finance; Trustee of Hawaiian Tax-Free
Trust since 1992; Trustee of Pacific Capital Funds, which includes
bond and stock funds, since 1993; Member of the Boards of Aloha
United Way, Downtown Improvement Association, Boys and Girls Club
of Honolulu and Oceanic Cablevision, Inc.
Stanley W. Hong, Trustee, 4976 Poola Street, Honolulu, Hawaii 96821
President and Chief Executive Officer of The Chamber of Commerce
of Hawaii since 1996; Business consultant since 1994; Senior Vice
President of McCormack Properties, Ltd., 1993-1994; President and
Chief Executive of the Hawaii Visitors Bureau, 1984-1993; Vice
President, General Counsel and Corporate Secretary at TheoDavies &
Co., Ltd., a multiple business company, 1973-1984; formerly
Legislative Assistant to U.S. Senator Hiram L. Fong; member of the
Boards of Directors of several community organizations; Trustee of
Hawaiian Tax-Free Trust since 1992; Trustee of Pacific Capital
Funds, which includes bond and stock funds, since 1993; Director of
Capital Investment of Hawaii, Inc. 1995 (Real Estate and Wholesale
Bakery); Director Central Pacific Bank since 1995; Trustee of
Nature Conservancy of Hawaii since 1990; Regent of Chaminade
University of Honolulu since 1990.
Theodore T. Mason, Trustee, 26 Circle Drive, Hastings-on-Hudson,
New York 10706
Managing Director of EastWind Power Partners, Ltd. since 1994;
Director of Cogeneration Development of Willamette Industries,
Inc., a forest products company, 1991-1993; Vice President of
Corporate Development of Penntech Papers, Inc., 1978-1991; Vice
President of Capital Projects for the same company, 1977-1978; Vice
Chairman of the Board of Trustees of CCMT since 1981; Trustee and
Vice President, 1976-1981, and formerly Director of its
predecessor; Director of STCM Management Company, Inc.; Vice
Chairman of the Board of Trustees and Trustee of Prime Cash Fund
since 1982; Trustee of Short Term Asset Reserves, 1984-1986 and
1989-1996, of Hawaiian Tax-Free Trust since 1984, of Churchill Cash
Reserves Trust since 1985 and of Churchill Tax-Free Fund of
Kentucky since 1992; Vice President and Trustee of Oxford Cash
Management Fund, 1983-1989; Vice President of Trinity Liquid Assets
Trust, 1983-1985; President and Director of Ted Mason Venture
Associates, Inc., a venture capital consulting firm, 1972-1980;
Advisor to the Commander, U.S. Maritime Defense Zone Atlantic,
1984-1988; National Vice President, Surface/Subsurface, Naval
Reserve Association, 1985-1987; National Vice President, Budget and
Finance, for the same Association, 1983-1985; Commanding Officer of
four Naval Reserve Units, 1974-1985; Captain, USNR, 1978-1988.
Russell K. Okata, Trustee, 888 Mililani Street, Suite 601,
Honolulu, Hawaii 96813-298
Executive Director, Hawaii Government Employees Association AFSCME
Local 152, AFL-CIO; Trustee of Hawaiian Tax-Free Trust since 1992;
Trustee of Pacific Capital Funds, which includes bond and stock
funds, since 1993; Chairman of the Royal State Insurance Group
since 1988; Trustee of several charitable organizations.
Douglas Philpotts*, Trustee, Financial Plaza of the Pacific, P.O.
Box 3170, Honolulu, Hawaii, 96802
Retired; Director of Hawaiian Trust Company, Limited since 1986,
Chairman of the Board, 1992-1994 and President, 1986-1992; Director
of Victoria Ward, Limited; Trustee of Hawaiian Tax-Free Trust since
1992; Trustee of Pacific Capital Funds, which includes bond and
stock funds, since 1993; Trustee of the Strong Foundation; present
or former director or trustee of a number of civic and charitable
organizations in Hawaii.
Oswald K. Stender, Trustee, P.O. Box 3466, Honolulu, Hawaii 96801
Trustee of the Bernice Pauahi Bishop Estate since 1990; Director of
Hawaiian Electric Industries, Inc., a public utility holding
company, since 1993; Senior Advisor to the Trustees of The Estate
of James Campbell, 1987-1989 and Chief Executive Officer,
1976-1988; Director of several housing and real estate
associations; Director, member or trustee of several community
organizations; Trustee of Hawaiian Tax-Free Trust since 1992;
Trustee of Pacific Capital Funds, which includes bond and stock
funds, since 1993.
William C. Wallace, Vice President, 380 Madison Avenue, New York,
New York 10017
Vice President of Capital Cash Management Trust since 1984; Senior
Vice President of Hawaiian Tax-Free Trust since 1985 and Vice
President, 1984-1985; Senior Vice President of Tax-Free Trust of
Arizona since 1989 and Vice President, 1986-1988; Vice President of
Tax-Free Trust of Oregon since 1986, of Churchill Tax-Free Fund of
Kentucky and Tax-Free Fund of Colorado since 1987 and of
Narragansett Insured Tax-Free Income Fund since 1992; Secretary and
Director of STCM Management Company, Inc. since 1974; President of
the Distributor since 1995 and formerly Vice President of the
Distributor, 1986-1992; Member of the Panel of Arbitrators,
American Arbitration Association, since 1978; Assistant Vice
President, American Stock Exchange, Market Development Division,
and Director of Marketing, American Gold Coin Exchange, a
subsidiary of the American Stock Exchange, 1976-1984.
Diana P. Herrmann, Senior Vice President, 380 Madison Avenue, New
York, New York 10017
Senior Vice President and Secretary and formerly Vice President of
the Administrator since 1986 and Director since 1984; Trustee of
Tax-Free Trust of Arizona and Tax-Free Trust of Oregon since 1994
and of Churchill Tax-Free Fund of Kentucky and Churchill Cash
Reserves Trust since 1995; Vice President of InCap Management
Corporation since 1986 and Director since 1983; Vice President and
formerly Assistant Vice President of the Money Funds since 1986;
Assistant Vice President of Oxford Cash Management Fund, 1986-1988;
Assistant Vice President and formerly Loan Officer of European
American Bank, 1981-1986; daughter of the Trust's President;
Trustee of the Leopold Schepp Foundation (academic scholarships)
since 1995; actively involved in mutual fund and trade associations
and in college and other volunteer organizations.
Charles E. Childs, III, Vice President, 380 Madison Avenue, New
York, New York 10017
Vice President - Administration and formerly Assistant Vice
President and Associate of the Administrator since 1987; Vice
President or Assistant Vice President of the Money Funds since
1988; Northeastern University, 1986-1987 (M.B.A., 1987); Financial
Analyst, Unisys Corporation, 1986; Associate Analyst at National
Economic Research Associates, Inc. (NERA), a micro-economic
consulting firm, 1979-1985.
John M. Herndon, Vice President and Assistant Secretary, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Sherri Foster, Assistant Vice President, 100 Ridge Road, Suite
1813-15, Lahaina, Hawaii 96761
Senior Vice President of Hawaiian Tax-Free Trust since 1993, Vice
President, 1988-1992 and Assistant Vice President, 1985-1988;
Registered Representative of the Distributor since 1985;
Realtor-Associate of Sherrian Bender Realty, successor to John
Wilson Enterprises, 1983-1994; Executive Secretary of the Hyatt
Regency, Maui, 1981-1983.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-1991;
formerly Treasurer of the predecessor of CCMT; Treasurer and
Director of STCM Management Company, Inc., since 1974; Treasurer of
Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash
Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Administrator since 1984 and of the
Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New York
10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond and
Equity Funds and of Aquila Distributors, Inc. since 1992; Associate
Director of Furman Selz Incorporated, 1991-1992; Vice President of
Scudder, Stevens & Clark, Inc. and Treasurer of Scudder
Institutional Funds, 1989-1991; Vice President of Lazard Freres
Institutional Funds Group, Treasurer of Lazard Freres Group of
Investment Companies and HT Insight Funds, Inc., 1986-1988; Vice
President of Lehman Management Co., Inc. and Assistant Treasurer of
Lehman Money Market Funds, 1981-1985; Controller of Seligman Group
of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New York
10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines & Mone
LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary of the
Aquila Money-Market Funds and the Aquila Bond and Equity Funds
since 1982; Secretary of Trinity Liquid Assets Trust, 1982-1985 and
Trustee of that Trust, 1985-1986; Secretary of Oxford Cash
Management Fund, 1982-1988.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the Aquila
Bond and Equity Funds since 1995; Counsel to the Administrator and
the Distributor since 1995; formerly a Legal Associate for
Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Funds do not pay fees to Trustees affiliated with the
Administrator or Adviser or to any of the Fund's officers. During
the fiscal year ended March 31, 1996, the Cash Fund, the Tax-Free
Fund and the Treasuries Fund paid, respectively $102,486, $44,880
and $28,696, in compensation and reimbursement of expenses to its
other Trustees. The Funds are among the 14 funds in the Aquilasm
Group of Funds, which consists of tax-free municipal bond funds,
money market funds and two equity funds. The following tables list
the compensation of all Trustees who received compensation from the
Funds, the compensation each received during each Fund's fiscal
year from all funds in the Aquilasm Group of Funds and the number
of such funds. None of such Trustees has any pension or retirement
benefits from the Fund or any of the other funds in the Aquila
group.
<PAGE>
<TABLE>
<CAPTION>
Compensation Compensation Compensation
Name from CAT from TFCAT from USTCAT
<S> <C> <C> <C>
Vernon R. $7,514 $4,099 $2,136
Alden
Arthur K. $7,467 $3,428 $2,269
Carlson
William M. $7,106 $3,219 $2,161
Cole
Thomas W. $8,674 $3,317 $2,200
Courtney
Richard W. $7,437 $3,456 $2,307
Gushman
Stanley W. $7,055 $3,375 $2,238
Hong
Theodore T. $7,877 $3,292 $2,187
Mason
Russell K. $7,531 $3,226 $2,165
Okata
Douglas $2,686 $1,422 $1,093
Philpotts
Oswald K. $6,439 $3,088 $2,026
Stender
<CAPTION>
Compensation from Number of Aquila Group
from all funds in boards on which the
Name the Aquila Group Trustee serves
<S> <C> <C>
Vernon R. $47,210 7
Alden
Arthur K. $39,290 7
Carlson
William M. $31,403 5
Cole
Thomas W. $32,871 5
Courtney
Richard W. $23,650 4
Gushman
Stanley W. $23,967 4
Hong
Theodore T. $43,015 8
Mason
Russell K. $23,070 4
Okata
Douglas $10,307 4
Philpotts
Oswald K. $20,302 4
Stender
</TABLE>
<PAGE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreements
The Investment Advisory Agreement (the "Advisory Agreement")
between each of the Funds and Hawaiian Trust Company, Limited (the
"Adviser") contains the provisions described below, in addition to
those described in the Prospectus.
Each Advisory Agreement 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,
provided that such termination by the Fund shall be directed or
approved by the vote of a majority of all its Trustees in office at
the time or by the vote of the holders of a majority (as defined in
the 1940 Act) of its voting securities at the time outstanding and
entitled to vote; it automatically terminates in the event of its
assignment (as so defined).
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.
Each Advisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the Adviser is not liable
for any loss sustained by the adoption of any investment policy or
the purchase, sale or retention of any security and permits the
Adviser to act as investment adviser for any other person, firm or
corporation. Each Fund agrees to indemnify the Adviser to the full
extent permitted under the Business Trust's Declaration of Trust.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the accuracy
or completeness of the Fund's Registration Statement under the
Securities Act of 1933 and the 1940 Act, except for the information
supplied by the Adviser for inclusion therein.
Each 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," i.e., prompt,
efficient and reliable execution of orders at the most favorable
net price. The Adviser shall cause the Fund to deal directly with
the selling or purchasing principal or market maker without
incurring brokerage commissions unless the Adviser determines that
better price or execution may be obtained by paying such
commissions; the Fund expects that most transactions will be
principal transactions at net prices and that the Fund will incur
little or no brokerage costs. The Fund understands that purchases
from underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions placed
through dealers include a spread between the bid and asked prices.
In allocating transactions to dealers, the 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 as
to the accounts as to which it exercises investment discretion. 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 (i) whether a dealer has
provided research services, as further discussed below; and (ii)
whether a dealer has sold shares of the Fund or any other
investment company or companies having the Adviser as its
investment adviser or having the same sub-adviser, Administrator or
principal underwriter as 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,
that such research services may or may not be useful to the Fund
and/or other accounts of the Adviser and that research received by
such other accounts may or may not be useful to the Fund.
The Adviser has been advised by legal counsel that in its
opinion, as a subsidiary of Bank of Hawaii, the Adviser is
permitted under current Federal banking laws to perform the
services for each of the Funds required by each Advisory Agreement,
provided that the Adviser remains in compliance with applicable
statutes and regulations. However, such counsel has pointed out
that future changes in federal or state statutes and regulations
relating to the permissible activities of bank and bank holding
companies, including their bank and non-bank subsidiaries, as well
as future judicial or administrative decisions and interpretations
of present and future statutes and regulations, might prevent the
Adviser from continuing to serve as the investment adviser to the
Funds.
In the event the Adviser is prohibited from acting as any
Fund's investment adviser, it is expected that the Fund's Board of
Trustees would probably recommend to the shareholders the selection
of another qualified adviser or, if that course of action then
appeared impractical, that the Fund be liquidated.
During each Fund's fiscal year ended March 31, 1995, all of
its transactions were principal transactions and no brokerage
commissions were paid.
For each Fund's fiscal year ended March 31, 1996, The Cash
Fund, the Tax-Free Fund and the Treasuries Fund paid or accrued to
the Adviser fees of $1,353,593, $394,009 and $210,982 respectively,
and paid or accrued to the Administrator fees of $597,533, $152,543
and $88,287, respectively under the Advisory and Administration
Agreements. For the Treasury Fund, the Adviser waived $44,372 and
the Administrator waived $14,790 of such fees.
For the fiscal year ended March 31, 1995, the Cash Fund, the
Tax-Free Fund and the Treasuries Fund paid or accrued to the
Adviser fees of $1,515,705, $412,599 and $215,004, respectively,
and paid or accrued to the Administrator fees of $624,649, $156,612
and $89,228, respectively under the Advisory and Administration
Agreements. For the Treasury Fund, the Adviser waived $30,974 and
the Administrator waived $10,325 of such fees.
For the fiscal year ended March 31, 1994 fees of $1,018,616
were paid or accrued to the Adviser by the Cash Fund under a former
advisory agreement in effect from until November 1, 1993 and under
the Advisory Agreement in effect thereafter. For the fiscal year
ended March 31, 1994 respectively, fees of $509,942 and $821,369
were paid or accrued to Aquila Management Corporation by the Cash
Fund under a former administration agreement in effect until
November 1, 1993 and under the Administration Agreement in effect
thereafter.
For the fiscal year ended March 31, 1994, under the advisory
and administration agreements in effect until November 1, 1993 and
under the Advisory Agreement and Administration Agreements in
effect thereafter, fees of $259,127 and $118,944 were accrued to
the Adviser and Administrator, respectively by the Tax-Free Fund,
of which $14,840 and $4,947, respectively, were waived.
For the fiscal year ended March 31, 1994, fees of $192,040 and
$83,098, respectively, were paid and/or accrued to the Adviser and
to the Administrator by the Treasuries Fund under the former
advisory and administration agreements in effect until November 1,
1993 and under the Advisory and Administration Agreements in effect
thereafter.
Additional Information as to the Administration Agreement
The Administration Agreement (the "Administration Agreement")
between Aquila Management Corporation, as Administrator, and each
Fund contains the provisions described below in addition to those
described in the Prospectus.
Subject to the control of the Fund's Board of Trustees, the
Administrator provides all administrative services to the Fund
other than those relating to its investment portfolio and the
maintenance of its accounting books and records (see below for
discussion); as part of such duties, the Administrator (i) provides
office space, personnel, facilities, and equipment for the
performance of the following functions and for the maintenance of
the Fund's headquarters; (ii) oversees all relationships between
the Fund and its 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
effective operation of the Fund and for the sale, servicing, or
redemption of the Fund's shares; (iii) provides to the Adviser and
to the Fund statistical and other factual information and advice
regarding economic factors and trends, but does not generally
furnish advice or make recommendations regarding the purchase or
sale of securities; (iv) maintains the Fund's books and records
(other than accounting books and records), and prepares (or assists
counsel and auditors in the preparation of) all required proxy
statements, reports to shareholders and Trustees, reports to and
other filings with the Securities and Exchange Commission and any
other governmental agencies, and tax returns, and oversees the
Fund's insurance relationships; (v) prepares, on the Fund's behalf
and at its expense, such applications and reports as may be
necessary to register or maintain its registration or that of its
shares under the securities or "Blue-Sky" laws of all such
jurisdictions as may be required from time to time; and (vi)
responds to any inquiries or other communications from shareholders
and broker-dealers, or if any such inquiry or communication is more
properly to be responded to by the Fund's shareholder servicing and
transfer agent or distributor, oversees such shareholder servicing
and transfer agent's or distributor's response thereto. Since each
Fund pays its own legal and audit expenses, to the extent that the
Fund's counsel and accountants prepare or assist in the preparation
of prospectuses, proxy statements and reports to shareholders, the
costs of such preparation or assistance are paid by the Fund.
The Administration Agreement may be terminated at any time
without penalty by the Administrator upon sixty days' written
notice to the Fund and the Adviser; it may be terminated by the
Fund at any time without penalty upon giving the Administrator
sixty days' written notice, 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, including a majority of the
Trustees who are not interested persons of the Fund. In either case
the notice provision may be waived.
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 Administration Agreement provides that the Administrator
shall not be liable for any error in judgement or for any loss
suffered by the Fund in connection with the matters to which the
Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Administrator in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the
Administration Agreement. The Fund agrees to indemnify the
Administrator to the full extent permitted by the Declaration of
Trust.
(References to the Fund in "ADDITIONAL INFORMATION AS TO
MANAGEMENT ARRANGEMENTS" refer to the Business Trust where the
documents being described so specify.)
AMORTIZED COST VALUATION
Each Fund operates under the Rule (Rule 2a-7 under the 1940
Act) which permits it to value its portfolio on the basis of
amortized cost. The amortized cost method of valuation is
accomplished by valuing a security at its cost and thereafter
assuming a constant amortization rate to maturity of any discount
or premium, and does not reflect the impact of fluctuating interest
rates on the market value of the security. This method does not
take into account unrealized gains or losses.
While the amortized cost method provides certainty in
valuation, there may be periods during which value, as determined
by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During periods of declining
interest rates, the daily yield on the Fund's shares may tend to be
higher than a like computation made by a fund with identical
investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its portfolio
instruments and changing its dividends based on these changing
prices. The converse would apply in a period of rising interest
rates.
Under the Rule, each Fund's Board of Trustees must establish,
and has established, procedures (the "Procedures") designed to
stabilize at $1.00, to the extent reasonably possible, the price
per share for each of each Fund's two classes as computed for the
purpose of sales and redemptions. Such procedures must include
review of the Fund's portfolio holdings by the Board of Trustees at
such intervals as it may deem appropriate and at such intervals as
are reasonable in light of current market conditions to determine
whether the Fund's per share value calculated by using available
market quotations deviates from the per share value based on
amortized cost. "Available market quotations" may include actual
market quotations (valued at the mean between bid and asked
prices), estimates of market value reflecting current market
conditions based on quotations or estimates of market value for
individual portfolio instruments or values obtained from yield data
relating to a directly comparable class of securities published by
reputable sources.
Under the Rule, if the extent of any deviation between the net
asset value per share based upon "available market quotations" (see
above) and the net asset value per share based on amortized cost
exceeds $0.005, the Board of Trustees must promptly consider what
action, if any, will be initiated. When the Board of Trustees
believes that the extent of any deviation may result in material
dilution or other unfair results to investors or existing
shareholders, it is required to take such action as it deems
appropriate to eliminate or reduce to the extent reasonably
practicable such dilution or unfair results. Such actions could
include the sale of portfolio securities prior to maturity to
realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or payment of distributions from
capital or capital gains, redemptions of shares in kind, or
establishing a net asset value per share using available market
quotations.
The Procedures include changes in the dividends payable by the
Fund under specified conditions, as described below under
"Computation of Daily Dividends." This portion of the Procedures
provides that actions that the Trustees would consider under
certain circumstances can be taken automatically.
COMPUTATION OF DAILY DIVIDENDS
Under the Procedures which each Fund's Board of Trustees has
adopted relating to amortized cost valuation, the calculation of
the Fund's daily dividends will change under certain circumstances
from that indicated in the Prospectus. If on any day the deviation
between net asset value per share of a given class determined on an
amortized cost basis and that determined using market quotations is
$0.003 or more, the amount of such deviation will be added to or
subtracted from the daily dividend for that class to the extent
necessary to reduce such deviation to within $0.003.
If on any day there is insufficient net income to absorb any
such reduction, the Board of Trustees would be required under the
Rule to consider taking other action if the deviation, after
eliminating the dividend for that day, exceeds $0.005. One of the
actions which the Board of Trustees might take could be the
elimination or reduction of dividends for more than one day.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchase shares of any Fund having a net asset
value of at least $5,000 you may establish an Automatic Withdrawal
Plan under which you will receive a monthly or quarterly check in
a stated amount, not less than $50. Stock certificates will not be
issued for shares held under an Automatic Withdrawal Plan. All
dividends must be reinvested.
Shares will be redeemed on the last business day of the month
as may be necessary to meet withdrawal payments. Shares acquired
with reinvested dividends will be redeemed first to provide such
withdrawal payments and thereafter other shares will be redeemed to
the extent necessary, and, depending upon the amount withdrawn,
your principal may be depleted.
Redemption of shares for withdrawal purposes may reduce or
even liquidate your account. Monthly or quarterly payments paid to
you may not be considered as a yield or income on investment.
GENERAL INFORMATION
Net Asset Value Per Share
As indicated in the Prospectus, the net asset value per share
for each class 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; the most recent
announcement indicates that it will not open on the following days:
New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, that Exchange may close on days not included in that
announcement.
Voting by Series of Shares
Shares of each Series of the Business Trust created by the
Board of Trustees are entitled to vote as a Series only to the
extent permitted by the 1940 Act (see below) or as permitted by the
Board of Trustees. Income and operating expenses are allocated
among Series in a manner acceptable to the Board of Trustees.
Under Rule 18f-2 under the 1940 Act, as to any investment
company which has two or more series outstanding, on any matter
required to be submitted to shareholder vote, such matter is not
deemed to have been effectively acted upon unless approved by the
holders of a majority (as defined in that Rule) of the voting
securities of each series affected by the matter. Such separate
voting requirements do not apply to the election of Trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, series. A change in
investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not
obtained as to the holders of the other affected series.
Shareholder and Trustee Indemnification
The Business Trust is an entity of the type commonly known as
a Massachusetts business trust. Under Massachusetts law,
shareholders of a trust such as the Business Trust may, under
certain circumstances, be held personally liable as partners for
the obligations of the trust. However, for the protection of
shareholders, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the
Business Trust and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or
executed by any Fund or the Trustees. The Declaration of Trust
provides for indemnification out of the Business Trust's property
of any shareholder held personally liable for the obligations of
the Business Trust. The Declaration of Trust also provides that the
Business Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the
Business Trust and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder
liability is limited to the relatively remote circumstances in
which the Business Trust itself would be unable to meet its
obligations. If any series or class is unable to meet the
obligations attributable to it (which, in the case of the Business
Trust, is a remote possibility), other series or classes would be
subject to such obligations with a corresponding increase in the
risk of the shareholder liability mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees out
of the assets of each Fund and provides that they will not be
liable for errors of judgment or mistakes of fact or law; but
nothing in the Declaration of Trust protects a Trustee against any
liability 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.
Custodian and Auditors
Each Fund's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Fund's assets.
Each Fund's auditors, KPMG Peat Marwick LLP, perform an annual
audit of the Fund's financial statements.
The financial statements of each of the Funds for the fiscal
year ended March 31, 1996, which are contained in the Annual Report
of The Pacific Capital Funds of Cash Assets Trust for that fiscal
year, are incorporated by reference into the Additional Statement.
The financial statements of the Funds for the fiscal year ended
March 31, 1996 have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is incorporated herein
by reference.
<PAGE>
APPENDIX A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS
Bond Ratings
At the date of this Additional Statement there are six
organizations considered as Nationally Recognized Statistical
Rating Organizations ("NRSROs") for purposes of Rule 15c3-1 under
the Securities Exchange Act of 1934. Their names, a brief summary
of their respective rating systems, some of the factors considered
by each of them in issuing ratings and their individual procedures
are described below.
STANDARD AND POOR'S CORPORATION
Commercial paper consists of unsecured promissory notes issued
to raise short-term funds. An S&P commercial paper rating is a
current assessment of the likelihood of timely payment of debt
having an original maturity of no more than 365 days. S&P's
commercial paper ratings are graded into several categories from
"A-1" for the highest-quality obligations (which can also have a
plus (+) sign designation) to "D" for the lowest. The two highest
categories are:
A-1: This highest category indicates the degree of safety
regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign.
A-2: Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree
of safety is not as high for issues designated A-1.
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific
obligation. The ratings are based, in varying degrees, on the
following considerations:
1) Likelihood of default -- capacity and willingness of
the obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligations;
2) Nature of and provisions of the obligation; and
3) Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
The two highest categories are:
AAA: Capacity to pay interest and repay principal is
extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in a degree.
MOODY'S INVESTORS SERVICE
Moody's short-term debt ratings are opinions of the ability of
issuers to repay punctually senior debt obligations which have an
original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters of credit and bonds of indemnity
are excluded unless explicitly rated. The two highest categories
are:
Prime-1: Issuers rated P-1 have a superior ability for
repayment of senior short-term debt obligations,
evidenced by the following characteristics:
* Leading market positions in well-established
industries.
* High rates of return on funds employed.
* Conservative capital structure with moderate
reliance on debt and ample asset protection.
* Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
* Well-established access to a range of
markets and assured sources of alternative
liquidity.
Prime-2: Issuers rated P-2 have a strong ability for
repayment of senior short-term debt obligations,
evidenced by the above-mentioned characteristics, but to
a lesser degree. Earnings trends and coverage ratios,
while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample
alternative liquidity is maintained.
Corporate bonds rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are
protected by large or exceptionally stable margin and principal is
secure. Corporate bonds rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. Aa bonds are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities, fluctuation of protective elements may
be of greater amplitude, or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa
securities.
DUFF & PHELPS, INC.
The ratings apply to all obligations with maturities of under
one year, including commercial paper, the unsecured portion of
certificates of deposit, unsecured bank loans, master notes,
bankers' acceptances, irrevocable letters of credit and current
maturities of long-term debt. The two highest categories are:
D-1+: Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
access to alternative sources of funds is outstanding and
safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
D-1 -: High certainty of timely payment. Liquidity
factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are very
small.
Long-term debt rated AAA represents the highest credit
quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt. Debt rated AA represents
high credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic
conditions.
IBCA
In determining the creditworthiness of financial institutions,
IBCA assigns ratings within the following categories: Legal,
Individual, Short and Long Term. A legal rating deals solely with
the question of whether an institution would receive support if it
ran into difficulties and not whether it is "good" or "bad". An
individual rating looks purely at the strength of a financial
institution without receiving any support. Short and long-term
ratings assess the borrowing capabilities and the capacity for
timely repayment of debt obligations. A short-term rating relates
to debt which has a maturity of less than one year, while a long-
term rating applies to a instrument of longer duration. The legal
ratings are:
1: A bank for which there is a clear legal guarantee on
the part of its home state to provide any necessary
support or a bank of such importance both internationally
and domestically that support from the state would be
forthcoming, if necessary.
2: A bank for which there is no legal obligation on the
part of its sovereign entity to provide support but for
which state support would be forthcoming, for example,
because of its importance to the total economy or its
historic relationship with the government.
The individual ratings are:
A: A bank with a strong balance sheet, favorable credit
profile and a consistent record of above average
profitability.
B: A bank with a sound credit profile and without
significant problems. The bank's performance has
generally been in line with or better than that of its
peers.
The short-term ratings are:
A-1+: Obligations supported by the highest capacity for
timely repayment.
A-1: Obligations supported by a very strong capacity for
timely repayment.
A-2: Obligations supported by a very strong capacity for
timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or
financial conditions.
The long-term ratings are:
AAA: Obligations for which there is the lowest
expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk.
AA: Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase
investment risk albeit not significantly.
Thomson BankWatch, Inc. (TBW)
The TBW short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the
entities to which the rating has been assigned. TBW's two highest
short-term ratings are:
TBW-1: Indicates a very high degree of likelihood that
principal and interest will paid on a timely basis.
TBW-2: While the degree of safety regarding timely
repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues
rated "TBW-1".
The TBW long-term rating specifically assess the likelihood of
an untimely repayment of principal or interest over the term to
maturity of the rated instrument. TBW's two highest long-term
ratings are:
AAA: Indicates ability to repay principal and interest on
a timely basis is very strong.
AA: Indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
Fitch Investors Service, Inc.
The Fitch short-term ratings apply to debt obligations that
are payable on demand which include commercial paper, certificates
of deposit, medium-term notes and municipal and investment notes.
Short-term ratings places greater emphasis than long-term ratings
on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner. Fitch short-term ratings are:
F-1+: Issues assigned this rating are regarded as having
the strongest degree of assurance for timely payment.
F-1: Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues
rated "F-1+".
The Fitch long-term rating represents their assessment of the
issuer's ability to meet the obligations of a specific debt issue
or class of debt in a timely manner. The rating takes into
consideration special features of the issue, its relationship to
other obligations of the issuer, the current and prospective
financial and operating performance of the issuer and any
guarantor, as well as the economic and political environment that
might affect the issuer's future financial strength and credit
quality. The Fitch long-term rating are:
AAA: Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which
is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay
interest and repay principal is very strong.
DESCRIPTION OF MUNICIPAL BOND AND COMMERCIAL PAPER RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other
laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher
rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
Standard & Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing the
designation SP-1 are deemed very strong or to have strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+)
designation. Notes bearing the designation SP-2 are deemed to have
a satisfactory capacity to pay principal and interest.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in
Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some
time in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's Investment
Grade as MIG 1 through MIG 4. In the case of variable rate demand
obligations (VRDOs), two ratings are assigned; one representing an
evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an
evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of
VRDOs is designated as VMIG. When no rating is applied to the long
or short-term aspect of a VRDO, it will be designated NR. Issues or
the features associated with MIG or VMIG ratings are identified by
date of issue, date of maturity or maturities or rating expiration
date and description to distinguish each rating from other ratings.
Each rating designation is unique with no implication as to any
other similar issue of the same obligor. MIG ratings terminate at
the retirement of the obligation while VMIG rating expiration will
be a function of each issuer's specific structural or credit
features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality. Margins
of protection are ample although not so large
as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access for
refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of an
investment security is present and although
not distinctly or predominantly speculative,
there is specific risk.
Commercial Paper Ratings
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations. Moody's
employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of
rated issuers: Prime 1 -- Highest Quality; Prime 2 -- Higher
Quality; Prime 3 -- High Quality.
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment. Ratings are graded
into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having
the greatest capacity for timely payment. Issues in this category
are designed with the numbers 1, 2 and 3 to indicate the relative
degree of safety. The designation A-1 indicates that the degree of
safety regarding timely payment is either overwhelming or very
strong. A "+" designation is applied to those issues rated "A-1"
which possess safety characteristics. Capacity for timely payment
on issues with the designation A-2 is strong. However, the
relative degree of safety is not as high as for issues designated
A-1. Issues carrying the designation A-3 have a satisfactory
capacity for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
<PAGE>
INVESTMENT ADVISER
Hawaiian Trust Company, Limited
111 South King Street
Honolulu, Hawaii 96813
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Arthur K. Carlson
William M. Cole
Thomas W. Courtney
Richard W. Gushman, II
Stanley W. Hong
Theodore T. Mason
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
OFFICERS
Lacy B. Herrmann, President
Diana P. Herrmann, Vice President
Charles E. Childs, III, Vice President
Sherri Foster, Assistant Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
LEGAL COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
The Pacific Capital Funds
of
Cash Assets Trust
Pacific Capital Cash Assets Trust
Pacific Capital Tax-Free Cash Assets Trust
Pacific Capital U.S. Treasuries Cash Assets Trust
A cash management
investment
[LOGO]
STATEMENT OF
ADDITIONAL INFORMATION
