Aquila
Cascadia Equity Fund
A Regional Capital Appreciation Fund
380 Madison Avenue
Suite 2300
New York, New York 10017
888-3-CASCADIA (888) 322-7223
212-697-6666
[LOGO]
Prospectus
Class A Shares
Class C Shares [July 23, 1996]
Aquila Cascadia Equity Fund (the "Fund") is a mutual fund
whose objective is capital appreciation. (See "Investment of the
Fund's Assets.") It seeks to achieve its objective through
investment in securities (primarily common stock or other equity
securities) of companies having a significant business presence
in the region of our country, termed in this Prospectus the
Investment Region, consisting of Oregon, Washington, Idaho, Utah,
Nevada, Alaska and Hawaii. See "Investment of the Fund's Assets."
This Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information dated July 23, 1996 about the Fund (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request
to Administrative Data Management Corp., the Fund's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement
contains information about the Fund and its management not
included in this Prospectus. The Additional Statement is
incorporated by reference in its entirety in this Prospectus.
Only when you have read both the Prospectus and the Additional
Statement are all material facts about the Fund available to you.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY ANY BANK. SHARES OF THE FUND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY OR GOVERNMENT-SPONSORED AGENCY OF THE FEDERAL GOVERNMENT
OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
FOR PURCHASE, REDEMPTION OR ACCOUNT INQUIRIES CONTACT
THE FUND'S TRANSFER AGENT:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
CALL 888-322-7224 TOLL FREE OR 908-855-5731
FOR GENERAL INQUIRIES
CALL 888-322-7223 TOLL FREE OR 212-697-6666
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
Aquila Cascadia Equity Fund (the "Fund") is a diversified,
open-end mutual fund which continuously offers to sell or redeem
its shares on any business day. (See "Alternative Purchase Plans"
and "How to Redeem Your Investment"). The Fund's shares are
designed to be a suitable investment for investors who seek
capital appreciation, primarily through the common stocks or
other equity securities of companies having a significant
business presence in certain states of our country called in the
Prospectus the "Investment Region."
The Fund's investment objective is capital appreciation. The
Fund seeks to achieve this objective by investing primarily in
growth oriented common stocks or other equity securities of
companies having a significant business presence in the region of
our country, termed in this Prospectus the Investment Region,
consisting of Oregon, Washington, Idaho, Utah, Nevada, Alaska and
Hawaii. It is anticipated that under normal circumstances, the
Fund will invest at least 65%, and possibly up to 100%, of its
total assets in equity securities issued by such companies.
Companies with a significant business presence in the Investment
Region are defined as those companies (i) whose principal
executive offices are located in the Investment Region, (ii)
which have more than 50% of their assets located in the
Investment Region or (iii) which derive more than 50% of their
revenues or profits from the Investment Region. In the Prospectus
these companies are called "Investment Region companies." Since
the Fund's objective is capital appreciation, it is not expected
to provide any significant current income to investors from
dividend or interest payments and during its first fiscal year it
is not expected to provide any such distributions. (See "Table of
Expenses" and "Investment of the Fund's Assets.")
Investment Selection Criteria - The Fund will acquire only
those equity securities which, at the time of purchase, the Sub-
Adviser considers to be issues of financially sound companies
possessing good growth characteristics and solid management,
reasonably priced relative to their growth rate and anticipated
future values. The Fund may also make other types of investments.
(See "Investment of the Fund's Assets".)
Regional Portfolio Management - Ferguson, Wellman, Rudd,
Purdy & Van Winkle, Inc. ("Ferguson, Wellman" or the
"Sub-Adviser") serves as the Fund's regionally-located portfolio
management organization. The firm provides professional
investment advisory services to a broad base of clients and
currently manages over $1 billion of clients assets of which
approximately $400 million consists of equity investments. The
advisory facilities for the Fund are located in Portland, Oregon.
Ferguson, Wellman is an employee owned full service investment
firm, with 66% of all employees holding equity in the company. It
serves both institutional and individual investors. The firm
currently provides professional investment advisory services to a
broad base of clients. Incorporated in 1975, Ferguson, Wellman
has one central office in Portland, Oregon and is a registered
investment adviser under the Investment Advisers Act of 1940.
Aquila Management Corporation, the Fund's founder, Adviser
and Administrator, is a registered investment adviser under the
Investment Advisers Act of 1940. It administers 14 mutual funds,
including the Fund, with assets as of June 30, 1996 of
approximately $2.6 billion. It is the founder of and serves as
administrator for three other funds oriented to the Investment
Region: Tax-Free Trust of Oregon with assets of $303 million,
Hawaiian Tax-Free Trust with assets of $651 million and Tax-Free
Fund For Utah with assets of $29 million, all as of June 30,
1996.
Diversification - The Fund will invest its assets in a
number of different securities. Additionally, investments will be
spread over a reasonably broad range of industries. Only the most
affluent investors can achieve such diversification on their own
among securities of Investment Region companies. In general, a
diversified portfolio, such as is provided by the Fund, can be
used to reduce your investment risk as compared to less
diversified portfolios. See "Investment of the Fund's Assets."
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of
$50 or more, through the convenience of having your investment
electronically transferred from your financial institution
account into the Fund by Automatic Investment or Telephone
Investment. (See "How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time
of purchase, much as goods can be purchased on an installment
plan. For this purpose the Fund offers the following classes of
shares, which differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A Shares") are
offered to anyone at net asset value plus a sales
charge, paid at the time of purchase, at the maximum
rate of 4.25% of the public offering price, with lower
rates for larger purchases. (See "How to Purchase Class
A Shares.") Class A Shares are subject to an asset
retention service fee under the Fund's Distribution
Plan at the rate of 0.25 of 1% of the average annual
net assets represented by the Class A Shares. (See
"Distribution Plan.")
* Level-Payment Class Shares ("Class C Shares") are
offered to anyone at net asset value with no sales
charge payable at the time of purchase but with a level
charge for service and distribution fees for six years
after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Class C
Shares. (See "Distribution Plan" and "Shareholder
Services Plan for Class C Shares.") Six years after the
date of purchase Class C Shares are automatically
converted to Class A Shares. In addition, Class C
Shares are subject to a contingent deferred sales
charge ("CDSC") if redeemed before they have been held
for 12 months from the date of purchase; this charge is
1%, calculated on the net asset value of the redeemed
Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after
Class C Shares have been held beyond the applicable
period. (See "Alternative Purchase Plans," "Computation
of Holding Periods for Class C Shares" and "How to
Purchase Class C Shares.")
The Fund also issues Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors.
Class Y Shares are not offered by this Prospectus.
Liquidity - Redemption - You may redeem all or part of your
account on any business day at the next determined net asset
value by telephone, FAX or mail request, with proceeds being sent
to a predesignated financial institution, if you have elected
Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or
will be mailed. For these and other redemption procedures see
"How to Redeem Your Investment." There are no penalties or
redemption fees for redemption of Class A Shares. However, there
is a contingent deferred sales charge with respect to certain
Class A Shares which have been purchased in amounts of $1 million
or more (see "Purchases of $1 Million or More"). If you redeem
Class C Shares before you have held them for 12 months from the
date of purchase you will pay a contingent deferred sales charge
at the rate of 1%. (See "Alternative Purchase Plans"-"Class C
Shares.")
Distributions from the Fund - Distribution of any income net
of operating expenses or any net realized capital gains will be
made annually. The Fund's net income and short-term capital gains
are taxed as ordinary income, while long-term capital gains
distributions are taxed to you as long-term capital gains,
regardless of how long you have held your shares. See "Dividend
and Tax Information."
Exchanges - You may exchange Class A or Class C Shares of
the Fund into corresponding classes of shares of the
Aquila-sponsored tax-free municipal bond mutual funds or another
Aquila-sponsored equity fund. You may also exchange them into
shares of the Aquila-sponsored money market funds. The exchange
prices will be the respective net asset values of the shares.
(See "Exchange Privilege.")
Convenience - Through ownership of a single security
consisting of shares of the Fund, you achieve investment
participation in a variety of Investment Region companies
and you are relieved of all the various inconveniences
including selecting, purchasing or selling, continuously
monitoring, handling, and safekeeping associated with direct
investment in individual securities of those companies. The
Fund handles all paperwork involved with share ownership,
advising you of the Federal tax status of dividends and capital
gains, and providing you with simplified records. You receive
statements of your account quarterly as well as each time you
add to your investment or redeem part or all of it. Additionally,
you receive a semi-annual report and an audited annual report.
Management Fee Arrangements - The Fund can pay management
fees at an annual rate of up to 0.80 of 1% of average annual net
assets to its Adviser and Administrator and up to 0.70 of 1% of
average annual net assets to its Sub-Adviser (for total
management fees at a rate of up to 1.50% of the first $15
million of average annual net assets). The overall rates of
these management fees decline as the asset size of the Fund
increases. See "Management Arrangements." Some or all of these
management fees may be waived in the early development phase of
the Fund.
Risk Factors - The Fund seeks to provide you with capital
appreciation over a period of time. The value of the Fund's
shares will fluctuate due to changes in the equity markets and
the proceeds of redemptions may be more or less than your cost.
The Fund's assets, being primarily or entirely invested in the
securities of Investment Region companies, are subject to
economic and other conditions affecting that area. (See "Risks
and Special Considerations Regarding the Investment Region.")
In addition, the Fund may have less diversification than funds
without this investment policy. The fund may invest in small
capitalization securities in a market value range of $100
million to $700 million per issue. Smaller companies may
experience different growth rates and higher failure rates
than those of larger companies having longer operating histories.
Moreover, the stock price movements of smaller companies may
experience more volatility than those of larger and more mature
companies. (See "Risk Factors and Special Considerations.") The
Fund may also to a limited degree buy put options and buy and
sell call options; there may be risks associated with these
practices. (See "Options Transactions.")
<PAGE>
<TABLE>
<CAPTION>
AQUILA CASCADIA EQUITY FUND
TABLE OF EXPENSES
Class A
Class C
Shares
Shares
Shareholder Transaction Expenses
<S> <C>
<C>
Maximum Sales Charge Imposed on Purchases 4.25%
None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None
None
Deferred Sales Charge None(1)
1.00%(2)
Redemption Fees None
None
Exchange Fee None
None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (4) 1.50%
1.50%
12b-1 Fee 0.25%
0.75%
All Other Expenses (3)(4) 0.35%
0.60%
Service Fee None 0.25%
Other Expenses 0.35% 0.35%
Total Fund Operating Expenses (4) 2.10%
2.85%
Example (5)
You would pay the following expenses on a $ 1,000 investment,
assuming a 5% annual return and redemption at the end of each
time period:
<CAPTION>
1 year 3 years 5 years 10
years
<S> <C> <C> <C>
<C>
Class A Shares $63 $105 $151
$275
Class C Shares
With complete redemption
at end of period $39 $88 $150
$284 (6)
With no redemption $29 $88 $150
$284 (6)
<FN>
(1) Certain shares purchased in transactions of $1 million or more
without a sales charge may be subject to a contingent deferred
sales
charge of 1% upon redemption during the first two years after
purchase and of 0.50 of 1% upon redemption during the third and
fourth
years after purchase. See "Purchase of $1 Million or More."
</FN>
<FN>
(2) A contingent deferred sales charge of 1% of the redemption
proceeds (or on the original price, whichever is lower)
of shares redeemed during the first 12 months after purchase.
</FN>
<FN>
(3) Based upon estimated expenses to be incurred during the first
fiscal year of the Fund.
</FN>
<FN>
(4) For the first fiscal year of the Fund, investment income is
estimated to
be 1.50% of average net assets. It is anticipated that certain
fees may be
waived according to a predetermined formula. The Adviser and
Administrator
(the "Adviser") and the Sub-Adviser have undertaken to waive some
or all of
their management fees for the first fiscal year of the Fund ending
March 31,
1997 (as required) in order to achieve the objective that (on an
annualized
basis for the fiscal year) the excess, if any, of Total Fund
Operating
Expenses over investment income be not greater than 1.50% of
average net
assets, provided that if the waiver of all of such fees has been
insufficient to achieve that objective, then expenses will exceed
that
level. No fee waivers are currently in effect. If the Adviser and
Sub-
Adviser determine that it would be advisable in the future to waive
some or
all of their management fees, it is anticipated that as the asset
size of
the Fund increases, waivers would be progressively reduced so that
when
total net assets exceed approximately $25 million a substantial
portion
or all of these management fees would be paid.
</FN>
<FN>
(5) The expense example is based upon the above shareholder
transaction
expenses (in the case of Class A Shares, this includes a sales
charge
of $42.50 for a $1,000 investment) and estimated annual Fund
operating
expenses. It is also based upon amounts at the beginning of each
year
which includes the prior year's assumed results. A year's results
consist of an assumed 5% annual return less total operating
expenses;
the expense ratio was applied to an assumed average balance (the
year's
starting investment plus one-half the year's results). Each figure
represents the cumulative expenses so determined for the period
specified.
</FN>
<FN>
(6) Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES
THAT ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES
OF PREPARING THE ABOVE EXAMPLE. THE ASSUMED 5% ANNUAL RETURN
SHOULD
NOT BE INTERPRETED AS A PREDICTION OF AN ACTUAL RETURN, WHICH MAY
BE
HIGHER OR LOWER. THE EXAMPLE ALSO REFLECTS THE MAXIMUM SALES
CHARGE.
SEE "HOW TO INVEST IN THE FUND."
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will
bear directly or indirectly. Although not obligated to do so,
those entitled to management fees expect to waive a portion or all
of those fees in the early stages of the Fund's existence and
Aquila
Management Corporation, the organizer and Adviser of the Fund, may
reimburse the Fund for various expenses; the above table reflects
one possible such arrangement and should not be considered as a
commitment or prediction that any fees, or that any particular
portion of fees, will be waived, or that any particular expenses
will be reimbursed. (See "Management Arrangements" for a more
complete description of the various investment advisory and
administration fees.)
<PAGE>
AQUILA CASCADIA EQUITY FUND
INTRODUCTION
Aquila Cascadia Equity Fund is a diversified, open- end
mutual fund which continuously offers to purchase or redeem its
shares on any business day (see sections of Prospectus on
"Alternative Purchase Plans" and "How to Redeem Your
Investment.") The Fund's shares are designed to be a suitable
investment for investors who seek capital appreciation primarily
through the common stocks or other equity securities of companies
operating in the Investment Region of the country.
The Fund provides you with the opportunity to have the
benefits of a diversified and professionally managed portfolio of
securities intended to allow participation in the economic
development of the Investment Region. Through the convenience of
a single security consisting of shares of the Fund, you are
relieved of all the various inconveniences -- including
selecting, purchasing or selling, continuously monitoring,
handling, and safekeeping -- associated with direct investment in
individual securities of various companies in the Investment
Region.
The Fund was organized by Aquila Management Corporation,
which has provided administrative and/or investment advisory
services to various mutual funds founded by it since 1984. It
currently acts as administrator to fourteen Aquila-sponsored
funds, including the Fund, with combined net assets as of June
30, 1996 of approximately $2.6 billion. Continuous and active
local portfolio management of the Fund is provided by its
regionally-located sub-adviser, Ferguson, Wellman, Rudd, Purdy &
Van Winkle, Inc. (the "Sub-Adviser").
INVESTMENT OF THE FUND'S ASSETS
The Fund's investment objective, which is a fundamental
policy of the Fund, is to purchase and hold securities for
capital appreciation. There is no assurance that the Fund will
achieve its objective. The Fund does not expect to receive
dividends of sufficient size to enable it to provide investors
with any significant amount of current income and during at least
its first fiscal year expects to apply all of such income to Fund
operating expenses so that none will be available for
distribution to shareholders.
As used in the Prospectus and Additional Statement, the
general area consisting of Oregon, Washington, Idaho, Utah,
Nevada, Alaska and Hawaii is called in the Prospectus the
"Investment Region." The Fund seeks to achieve its objective by
investing primarily in equity securities of companies
("Investment Region companies") having a significant business
presence in the Investment Region. It is anticipated that under
normal circumstances, the Fund will invest at least 65%, and
possibly up to 100%, of its total assets in securities issued by
such companies.
For purposes of this Prospectus, companies with a
significant business presence in the Investment Region are
defined as those companies (i) whose principal executive offices
are located in the Investment Region, (ii) which have more than
50% of their assets located in the Investment Region or (iii)
which derive a significant portion of their revenues or profits
from the Investment Region. In determining which companies have a
significant business presence in the Investment Region, the Sub-
Adviser may rely on any publicly available information about
those companies that it considers reliable. There may be risks
associated with this investment policy. (See "Risk Factors and
Special Considerations.")
As used in the Prospectus, the term "equity securities"
means (i) common stocks and (ii) preferred stocks, bonds,
debentures and notes convertible into common stocks. Under normal
conditions, it is anticipated that the Fund will invest at least
65%, and possibly up to 100%, of its total assets in such
securities of companies in the Investment Region. The Fund may
also, to a limited extent make certain other types of
investments. (See below.)
Since the practice of many growth-oriented companies in
which the Fund will invest is to reinvest most or all of their
earnings in the development of their business, the Fund does not
expect to receive dividends enabling it to provide investors with
any significant amount of current income. In addition, during at
least the first fiscal year of the Fund, it is anticipated that
all of such income will be applied to payment of Fund operating
expenses so that none will be available for distribution to
shareholders.
In general, the Fund will take a long-term approach toward
investing. Accordingly, the turnover rate will normally be
consistent with this approach. (See "Portfolio Turnover.") At
times the Fund may make investments for short-term purposes.
Also, under changing market conditions, the Fund may dispose of
portfolio securities whenever the Sub-Adviser deems such action
advisable without regard to the length of time the securities
have been held.
In selecting investments for the Fund, the Sub-Adviser will
generally employ the investment philosophy of seeking to invest
in established, financially sound, well-managed Investment Region
companies whose securities it considers to be selling at a
reasonable price relative to their growth rate and anticipated
future values. Emphasis will be placed upon selection of
Investment Region companies whose securities the Sub-Adviser
believes are selling at lower prices relative to comparable
investments; other securities may be selected whose issuers the
Sub-Adviser believes are experiencing better growth relative to
comparable investments. It is anticipated that a number of
factors will be considered in investment selection, including but
not limited to: product characteristics and market potential,
operating ratios, management abilities, intrinsic value of
securities, securities' market action, and the overall economic,
monetary, political and market environment. The Sub-Adviser
currently focuses on approximately 200-500 Investment Region
companies from which it selects investments for the Fund's
portfolio.
Although the Fund may invest in large capitalization
companies, it is anticipated that the companies represented in
the Fund's portfolio may also include those companies, having
market capitalization of middle to smaller size, which the
Sub-Adviser believes offer the potential of capital appreciation
due to their overall characteristics. These companies are likely
to be less well known because they are smaller in size, have
smaller capitalizations, and have a lesser number of shares
traded. The prices of securities of such companies may be more
volatile than the prices of securities of issuers which are more
mature, have larger capitalizations and whose securities are more
actively traded.
In unusual market conditions when the Sub-Adviser believes a
defensive posture for the Fund's investments is warranted, the
Fund may temporarily invest a portion or all of its assets in
high quality fixed-income securities such as U.S. Treasury
securities, corporate bonds or high grade short-term money-market
securities, without geographic or percentage limitation. Only
corporate securities rated "A" or equivalent by a nationally
recognized statistical rating organization will be purchased. See
the Additional Statement for a description of these organizations
and an explanation of their ratings.
Convertible Securities
The Fund may invest up to 25% of its assets in convertible
securities of Investment Region companies, if the Sub-Adviser
believes there is potential of capital growth through the
conversion option and greater investment income prior to
conversion. Only convertible securities rated investment grade by
a nationally-recognized statistical rating organization will be
purchased. In general, there are nine separate credit ratings,
ranging from the highest to the lowest quality standards for debt
obligations; obligations rated within the four highest ratings
are considered "investment grade." Not more than 5% of the
convertible securities purchased by the Fund can have the lowest
of the four investment grade ratings. Obligations rated in the
fourth such credit rating are considered by the rating agencies
to be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. See the Additional Statement for
a description of these organizations and an explanation of their
ratings.
A convertible security is a fixed-income security (a bond or
preferred stock) which may be converted at a stated price within
a specified period of time into a certain quantity of the common
stock of the same or a different issuer. Convertible securities
are senior to common stocks in a corporation's capital structure,
but are usually subordinated to similar nonconvertible
securities. While providing a fixed income stream (generally
higher in yield than the dividends received from a common stock
but lower than that afforded by a similar nonconvertible
security), a convertible security also affords the opportunity
through its conversion feature to participate in the capital
appreciation attendant upon a market price advance in the
convertible security's underlying common stock.
In general, the market value of a convertible security is at
least the higher of its "investment value" (i.e., its value as a
fixed-income security) or its "conversion value" (i.e., its value
upon conversion into its underlying common stock). As a fixed-
income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a
convertible security is also influenced by the market value of
the security's underlying common stock. The price of a
convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines. While no
securities investment is without some risk, investments in
convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Warrants
The Fund may also invest up to 5% of its net assets, as
determined at time of purchase, in warrants of Investment Region
companies. Warrants entitle the holder to purchase a fixed number
of shares of the common stock of the issuer at a fixed price
during certain specified times. The value of the warrants from
time to time depends upon the market evaluation of the likelihood
that exercise of the warrants would be economically advantageous
before they expire. The market price of warrants tends to be more
volatile than that of the underlying common stock.
Options Transactions
The Fund may purchase put and write (i.e., sell) call
options and purchase call options for hedging purposes or in
order to generate additional income or for taking a position in a
security deemed attractive by the Sub-Adviser. The Fund will
purchase or write options only on equity securities that are
traded on national securities exchanges or that are listed on
NASDAQ (NASDAQ options). The Fund may purchase put and write call
options only on equity securities which are held in the Fund's
investment portfolio or to close out positions. Additionally, the
Fund may purchase calls on securities which are not in the Fund's
portfolio or to close out positions.
The Fund will not (a) write call options if immediately
after any such transaction, the aggregate value of the securities
underlying the calls would exceed 20% of the Fund's net assets,
or (b) purchase put or call options if, immediately after such
purchases, the premiums paid for all such options owned at the
time would exceed 5% of the Fund's net assets. The Fund will not
write put options except to close out positions. See the
Additional Statement for a description of these instruments and
their uses.
While the Fund may engage in puts and calls to a limited
extent, there are certain risks associated with this activity
that are different than investing in the underlying securities
directly (see the Additional Statement). Option transactions
involve risks and transaction costs which the Fund would not
incur if it did not engage in option transactions. If the
Sub-Adviser's predictions of movements in the direction of the
securities markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options
include dependence upon the Sub-Adviser's ability to predict
correctly movements in the direction of securities prices and the
possible absence of a liquid secondary market for any particular
instrument at any time. See the Additional Statement for a
description of these and other risks with respect to option
transactions.
Lending of Portfolio Securities
In order to generate additional income, the Fund may lend
portfolio securities, up to 25% of its total assets, to
broker-dealers, banks or other financial borrowers of securities.
As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, the Fund
will enter into loan arrangements only with broker-dealers,
banks, or other institutions which the Sub-Adviser has determined
are creditworthy under guidelines established by the Fund's Board
of Trustees and will receive collateral in the form of cash or
short-term U.S. Government securities equal at least to 100% of
the value of the securities loaned. The value of the collateral
and the securities loaned will be marked to market on a daily
basis. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or
interest paid on the securities and the Fund may invest the cash
collateral and earn additional income or receive an agreed upon
amount of interest income from the borrower. However, the amounts
received by the Fund may be reduced by any finders' fee paid to
broker-dealers and any other related expenses.
Borrowings by the Fund
The Fund can borrow money for temporary or emergency
purposes from a bank. The Fund will not borrow amounts in excess
of 10% of total assets and will not purchase securities if
borrowings are equal to or greater than 5% of total assets. The
Fund intends primarily to exercise such borrowing authority to
meet any abnormal level of shareholder redemptions and under
circumstances where redemptions exceed available cash.
Repurchase Agreements
The Fund may purchase securities subject to repurchase
agreements, provided that such securities consist entirely of
U.S. Government securities or securities that, at the time the
repurchase agreement is entered into, are rated in the highest
rating category by at least one nationally recognized statistical
rating organization. Repurchase agreements may be entered into
only with commercial banks or broker-dealers. Subject to the
control of the Board of Trustees, the Sub-Adviser will regularly
review the financial strength of all parties to repurchase
agreements with the Fund.
Under a repurchase agreement, at the time the Fund purchases
a security, the Fund also resells it to the seller and must
deliver the security (or securities substituted for it) to the
seller on an agreed-upon date in the future. (The securities so
resold or substituted are referred to herein as the "Resold
Securities.") The resale price is in excess of the purchase price
in that it reflects an agreed-upon interest rate effective for
the period of time during which the Fund's money is invested in
the Resold Securities. The majority of these transactions run
from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase.
Repurchase agreements can be considered as loans
"collateralized" by the Resold Securities, such agreements being
defined as "loans" in the Investment Company Act of 1940 (the
"1940 Act"). The return on such "collateral" may be more or less
than that from the repurchase agreement. The Resold Securities
under any repurchase agreement will be marked to market every
business day so that the value of the "collateral" is at least
equal to the resale price provided in the agreement, including
the accrued interest earned thereon, plus sufficient additional
market value as is considered necessary to provide a margin of
safety. During the term of the repurchase agreement, the Fund or
its custodian either has actual physical possession of the Resold
Securities or, in the case of a security registered in book entry
system, the book entry is maintained in the name of the Fund or
its custodian.
The Fund retains an unqualified right to possess and sell
the Resold Securities in the event of a default by the other
party. However, in the event of bankruptcy or other default by
the other party, there may be possible delays and expenses in
liquidating the Resold Securities, decline in their value and
loss of interest.
Shares of Investment Companies
The Fund may purchase shares of investment companies with
money market portfolios which are any of the money-market funds
in the Aquilasm Group of Funds. As of the date of the Prospectus,
these funds are Capital Cash Management Trust, Pacific Capital
Cash Assets Trust (Original Shares), Pacific Capital Tax-Free
Cash Assets Trust (Original Shares), Pacific Capital U.S.
Treasuries Cash Assets Trust (Original Shares) and Churchill Cash
Reserves Trust. The Fund will not purchase shares of an
investment company which imposes a sales or redemption charge of
any sort; however, an investment company in which the Fund
invests may have a distribution plan under which it may pay for
distribution expenses or services. Such investments will
ordinarily be made to provide additional liquidity and at the
same time to earn higher yields than are usually associated
with the overnight or short-term obligations in which the Fund
might otherwise invest for this purpose. While higher yields than
those of alternative investments may be obtainable, these yields
will reflect management fees and operating and distribution
expenses of the investment companies and will result in
duplication of management fees with respect to assets of the Fund
so invested. The Fund may not invest in the shares of investment
companies if immediately thereafter it has invested more than 10%
of the value of its total assets in such companies or more than
5% of the value of its total assets in any one such company; it
may not invest in such a company if immediately thereafter it
owns more than 3% of the total outstanding voting stock of such a
company.
Risk Factors and Special Considerations
While the Fund will be actively managed to seek growth of
your capital, the value of the Fund's shares will fluctuate as a
result of equity market factors. Accordingly, the proceeds of
redemptions may be more or less than your original cost
There are two types of risk generally associated with owning
equity securities: market risk and financial risk. Market risk is
the risk associated with the movement of the stock market in
general. Financial risk is associated with the financial
conditions and profitability of the underlying company.
The Fund may invest in small capitalization securities in a
market value range of $100 million to $700 million per issue.
Smaller companies may experience different growth rates and
higher failure rates than those of larger companies having longer
operating histories. Moreover, the stock price movements of
smaller companies may experience more volatility than those of
larger and more mature companies.
There are two types of risk associated with owning debt
securities: interest rate risk and credit risk. Interest rate
risk relates to fluctuations in market value arising from changes
in interest rates. If interest rates rise, the value of debt
securities will normally decline and if interest rates fall, the
value of debt securities will normally increase. All debt
securities, including U.S. Government securities, which are
generally considered to be the most creditworthy of all debt
obligations, are subject to interest rate risk. Securities with
longer maturities generally have a more pronounced reaction to
interest rate changes than shorter term securities. Credit risk
relates to the ability of the issuer to make periodic interest
payments as scheduled and ultimately repay principal at maturity.
The Fund does not intend to hold corporate debt securities unless
the opportunities for capital appreciation and income, combined,
remain attractive.
Risks and Special Considerations regarding
the Investment Region
The Fund's assets, being primarily or entirely invested in
the securities of Investment Region companies, are subject to
economic and other conditions affecting the various states which
comprise the Investment Region.
Continental States
The continental states of the Investment Region are
characterized by wide differences in climate, great distances and
diverse population density. In some areas, availability of water
is a factor of considerable importance in economic development
and water issues will likely affect the growth and prosperity of
much of those states in the future. Originally heavily oriented
toward the exploitation of natural resources, in recent years the
economies of the continental states of the Investment Region have
shifted toward more diversity with increases in tourism, high
technology and the service sector. Those states have been
characterized in recent years by population growth and
immigration from other areas of the United States. Some of the
states in the Investment Region have experienced growth rates
above the national averages.
Hawaii
As of the date of this Prospectus, economic data available
indicate that 1995 was a year of mild expansion in Hawaii, with
lingering areas of weakness and not enough economic growth to do
more than halt the slide in employment. Local economic sources
expect that the economy will gain some further strength this
year. Despite the lower unemployment rate and strong growth in
tourism, business activity in the state remained sluggish.
Disinflation has accompanied the lower growth rate.
Tourism is Hawaii's principal industry. Tourist arrivals and
spending provided a needed boost to the Hawaiian economy in 1995.
The decline in construction, underway since mid-1991, continued.
Job loss also accompanied the closure or announcement of
timetables for closure of several sugar plantations.
Combined with more gradual reductions in the number of
military personnel stationed on the islands and civilian military
employees in the military, during 1995, Hawaii was able to create
only slightly more jobs than it lost, leaving the job count
between 1993 and 1995 virtually unchanged.
The prolonged weakness has resulted in pressures for
Hawaiian state government to achieve a balanced budget by
significant cuts in expenditures. These reductions will pressure
government to operate in a much leaner and more efficient manner.
General Considerations
Because of the large geographic size of the Investment
Region, the above factors may have varying importance from one
state to another. It is not possible to predict what effect they
may individually or collectively have on any particular company
in which the Fund may choose to invest.
In addition, companies with headquarters in the Investment
Region or with a significant business presence in the Region may
also have significant business interests, sales and assets
outside of the Region and may thus be subject to other economic
influences. Because the Fund will invest most, and may invest
all, of its assets in Investment Region companies, it may have
less diversification than funds without this investment policy.
Portfolio Turnover
Given the Fund's value orientation to capital appreciation,
it is not expected that the Fund's annual portfolio turnover rate
will exceed 60%. See the Additional Statement.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and Additional Statement as "fundamental policies,"
cannot be changed unless the holders of a "majority," as defined
in the 1940 Act, of the Fund's outstanding shares vote to change
them. All other policies can be changed from time to time by the
Board of Trustees without shareholder approval. Some of the more
important of the Fund's fundamental policies, not otherwise
identified in the Prospectus, are set forth below; others are
listed in the Additional Statement.
1. The Fund has industry investment requirements.
The Fund cannot buy securities in any one industry if more
than 25% of its total assets would then be invested in securities
of that industry.
2. The Fund can make loans only by lending securities or entering
into repurchase agreements.
The Fund can lend its portfolio securities (see "Lending
Portfolio Securities") and can enter into repurchase agreements
(see "Repurchase Agreements") but cannot otherwise make loans.
The Fund can buy debt securities as described above (see
"Investment of the Fund's Assets"); this is investing, not making
a loan.
3. The Fund can borrow only in limited amounts for special
purposes.
The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage
or pledge its assets only in connection with such borrowing and
only up to the lesser of the amounts borrowed or 5% of the value
of its total assets. Interest on borrowings would reduce the
Fund's income. Except in connection with borrowings, the Fund
will not issue senior securities. The Fund will not purchase any
security while it has any outstanding borrowings which exceed 5%
of the value of its total assets.
NET ASSET VALUE PER SHARE
The Fund's net asset value and offering price per share are
determined as of 4:00 p.m. New York time on each day that the New
York Stock Exchange is open (a "business day"). The close of the
principal exchanges or other markets on which some of the Fund's
portfolio securities are traded may be later than 4:00 p.m. The
net asset value per share is determined by dividing the value of
the net assets (i.e., the value of the assets less liabilities)
by the total number of shares outstanding. Determination of the
value of the Fund's assets is subject to the direction and
control of the Fund's Board of Trustees. Securities listed on a
national securities exchange or designated as national market
system securities are valued at the last prior sale price or, if
there has been no sale that day, at the bid price. The value of
other securities is in general based on market value, except that
short-term investments maturing in 60 days or less are generally
valued at amortized cost; see the Additional Statement for
further information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus, the Fund provides individual investors
with the option of two alternative ways to purchase shares,
through two separate classes of shares. All classes represent
interests in the same portfolio of securities. The primary
distinction among the classes of shares offered to individuals
lies in their sales charge structures and ongoing expenses, as
described below. You should choose the class that best suits your
own circumstances and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you will pay a sales charge over a
period of six years after purchase but without paying anything at
time of purchase, much as goods can be purchased on an
installment plan. You are subject to a conditional deferred sales
charge, described below, but only if you redeem your Class C
Shares before they have been held 12 months from your purchase.
(See "Computation of Holding Periods for Class C Shares.")
* Class A Shares, "Front-Payment Class Shares," are
offered to anyone at net asset value plus a sales
charge, paid at the time of purchase, at the maximum
rate of 4.25% of the public offering price, with lower
rates for larger purchases. When you purchase Class A
Shares, the amount of your investment is reduced by the
applicable sales charge. Under the Fund's Distribution
Plan, Class A Shares are subject to a fee of 0.25 of 1%
of the average annual net assets of the Class A Shares.
Certain Class A Shares purchased in transactions of $1
million or more are subject to a contingent deferred
sales charge. (See "Purchases of $1 Million or More.")
* Class C Shares, "Level-Payment Class Shares," are
offered to anyone at net asset value with no sales
charge payable at purchase but with a level charge for
distribution fees and service fees for six years after
the date of purchase at the aggregate annual rate of 1%
of the average annual net assets of the Class C Shares.
(See "Distribution Plan" and "Shareholder Services Plan
for Class C Shares.") Six years after the date of
purchase, Class C Shares, including Class C Shares
acquired in exchange for other Class C Shares under the
Exchange Privilege (see "Exchange Privilege"), are
automatically converted to Class A Shares. In addition,
if you redeem Class C Shares before you have held them
for 12 months from the date of purchase you will pay a
contingent deferred sales charge ("CDSC") at the rate
of 1%, calculated on the net asset value of the
redeemed Class C Shares at the time of purchase or of
redemption, whichever is less. The amount of any CDSC
will be paid to the Distributor. The CDSC does not
apply to shares acquired through the reinvestment of
dividends on Class C Shares or to any Class C Shares
held for more than 12 months after purchase. In the
Prospectus, 12-month and six-year holding periods are
considered modified by up to one month depending upon
when during a month your purchase of such shares is
made. (See "Computation of Holding Periods for Class C
Shares" and "How to Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions,
second of any Class C Shares you have held for more than 12
months from the date of purchase and finally of those Class C
Shares as to which the CDSC is payable which you have held the
longest. This will result in your paying the lowest possible
CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that
month. The 12-month CDSC holding period will end on the first
business day of the 12th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your Class C Shares may be up to one
month less than the full 12 months depending upon when your
actual purchase was made during a month. Running of the 12-month
CDSC holding period will be suspended for one month for each
period of thirty days during which you have held shares of a
money market fund you have received in exchange for Class C
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a pro-
rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class
C Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day
of the month following that in which the sixth anniversary of
your purchase of the Class C Shares occurred, except as noted
below. Accordingly, the holding period applicable to your Class C
Shares may be up to one month more than the six years depending
upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of
Class C Shares at the time of conversion, you may receive fewer
Class A Shares than the number of Class C Shares converted. If
you have made one or more exchanges of Class C Shares among the
Aquila-sponsored tax-free municipal bond funds or equity funds
under the Exchange Privilege, the six-year holding period is
deemed to have begun on the date you purchased your original
Class C Shares of the Fund or of another of the Aquila bond or
equity funds. The six-year holding period will be suspended by
one month for each period of thirty days during which you hold
shares of a money market fund you have received in exchange for
Class C Shares under the Exchange Privilege. (See "Exchange
Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares:
<TABLE>
<S> <C> <C>
Class A Class C
Initial Sales Maximum of 4.25% None
Charge of the Public
Offering Price
Contingent None (except Maximum CDSC
Deferred for certain of 1% if shares
Sales Charge purchases over redeemed before
$1 million) 12 months; 0%
after 12 months
Distribution and 0.25 of 1% Distribution fee
Service Fees of 0.75 of 1% and
a service fee of
0.25 of 1% for a
total of 1%,
payable for six
years
Other Information Initial Sales Shares convert
Charge waived to Class A Shares
or reduced in after six years
some cases
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Fund be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual
service and distribution fees on the Class C Shares will equal or
exceed the total cost of the initial 4.25% maximum initial sales
charge and 0.25 of 1% annual fee payable for Class A Shares. For
example, if equal amounts were paid at the same time for Class A
Shares (where the amount invested is reduced by the amount of the
sales charge) and for Class C Shares (which carry no sales charge
at the time of purchase) and the net asset value per share
remained constant over time, the total of such costs for Class C
Shares would equal the total of such costs for Class A Shares
after approximately five and two-thirds years. This example
assumes no redemptions and disregards the time value of money.
Purchasers of Class C Shares have all of their investment dollars
invested from the time of purchase, without having their
investment reduced at the outset by the initial sales charge
payable for Class A Shares. If you invest in Class A Shares you
will pay the entire sales charge at the time of purchase.
Accordingly, if you expect to redeem your shares after purchase,
you should consider the total cost of such an investment in Class
A Shares compared with a similar investment in Class C Shares.
The example under "Table of Expenses" shows the effect of Fund
expenses for both classes if a hypothetical investment in each of
the classes is held for 1, 3, 5 and 10 years. (See the Table of
Expenses.)
Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends
of each class can vary because each class will bear certain other
class-specific charges. For example, each class will bear the
costs of printing and mailing annual reports to its own
shareholders.
HOW TO INVEST IN THE FUND
The Fund's shares may be purchased through any investment
broker or dealer (a "selected dealer") which has a sales
agreement with Aquila Distributors, Inc. (the "Distributor") or
through the Distributor. There are two ways to make an initial
investment: (i) order the shares through your investment broker
or dealer, if it is a selected dealer; or (ii) mail the
Application with payment to Administrative Data Management Corp.
(the "Agent") at the address on the Application. If you purchase
Class A Shares, the applicable sales charge will apply in either
instance. Subsequent investments are also subject to the
applicable sales charges. You are urged to complete an
Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be
made in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus
or Additional Statement. You may also make an initial investment
by establishing an Automatic Investment Program. To do this you
must open an account for automatic investment of at least $50
each month and make an initial investment of at least $50. (See
below and "Automatic Investment Program" in the Application.)
Such investment must be drawn in United States dollars on a
United States commercial or savings bank, credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution"). You may make subsequent
investments in the same class of shares in any amount (unless you
have an Automatic Withdrawal Plan). Your subsequent investment
may be made through a selected dealer or by forwarding payment to
the Agent, with the name(s) of account owner(s), the account
number, the name of the Fund and the class of shares to be
purchased. With subsequent investments, please send the
pre-printed stub attached to the Fund's confirmations.
Subsequent investments of $50 or more in shares of the same
class as your initial investment can be made by electronic funds
transfer from your demand account at a Financial Institution. To
use electronic funds transfer for your purchases, your Financial
Institution must be a member of the Automated Clearing House and
the Agent must have received your completed Application
designating this feature, or, after your account has been opened,
a Ready Access Features form available from the Distributor or
the Agent. A pre-determined amount can be regularly transferred
for investment ("Automatic Investment"), or single investments
can be made upon receipt by the Agent of telephone instructions
from anyone ("Telephone Investment"). The maximum amount of each
Telephone Investment is $50,000. Upon 30 days' written notice to
shareholders, the Fund may modify or terminate these investment
methods at any time or charge a service fee, although no such fee
is currently contemplated.
The offering price is the net asset value per share for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent from selected dealers that day, except that orders
received by it after 4:00 p.m. New York time will receive that
day's offering price only if such orders were received by
selected dealers from customers prior to such time and
transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Dealers are required to transmit orders promptly.
Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Fund's best interest to do
so.
How to Purchase Class A Shares (Front-Payment Class Shares)
The following table shows the amount of the sales charges to
a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions"):
<TABLE>
Sales Sales Commis-
Charge Charge sions
as as as
Percentage Approximate Percentage
of Public Percentage of
Amount of Offering of Amount Offering
Purchase Price Invested Price
<S> <C> <C> <C>
Less than $50,000...... 4.25% 4.43% 3.75%
$50,000 but less
than $100,000....... 4.00% 4.17% 3.50%
$100,000 but less
than $250,000....... 3.50% 3.63% 3.25%
$250,000 but less
than $500,000....... 2.50% 2.56% 2.25%
$500,000 but less
than $1,000,000..... 1.50% 1.52% 1.25%
</TABLE>
For purchases of $1 million or more see "Purchase of $1 Million
or More," below.
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing shares for his or their
own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; and (d)
a tax-exempt organization enumerated in Section 501(c)(3) or (13)
of the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the
entire sales charge is reallowed, such selected dealers may be
deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Purchase of $1 Million or More
Shares issued under the following circumstances are called
"CDSC Class A Shares": (i) shares issued in a single purchase of
$1 million or more by a single purchaser; (ii) all shares
subsequently purchased by a single purchaser if the value of the
CDSC Class A Shares and Class A Shares on which a sales charge
has been paid, owned at the time of the subsequent purchase, is
equal to or greater than $1 million; (iii) all shares issued in a
single purchase to a single purchaser the value of which, when
added to the value of the CDSC Class A Shares and Class A Shares
on which a sales charge has been paid, already owned at the time
of such purchase, equals or exceeds $1 million. CDSC Class A
Shares also include certain Arrangements," below. CDSC Class A
Shares do not include (i) Class A Shares purchased without sales
charge pursuant to the terms described under "General," below and
(ii) Class A Shares purchased in transactions of less than $1
million and when certain special dealer arrangements are not in
effect under "Certain Investment Companies" set forth under
"Reduced Sales Charges," below.
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will
pay to any dealer effecting such a purchase an amount equal to 1%
of the sales price of the shares purchased for purchases of $1
million but less than $2.5 million, 0.50 of 1% for purchases of
$2.5 million but less than $5 million, and 0.25 of 1% for
purchases of $5 million or more.
If you redeem all or part of your CDSC Class A Shares during
the four years after your purchase of such shares, at the time of
redemption you will be required to pay to the Distributor a
special contingent deferred sales charge based on the "Applicable
Value," which is the lesser of (i) the net asset value of your
redeemed CDSC Class A Shares at the time of purchase or (ii) the
net asset value of your redeemed CDSC Class A Shares at the time
of redemption. The special charge will be an amount equal to 1%
of the Applicable Value if the redemption occurs within the first
two years after purchase, and 0.50 of 1% of the Applicable Value
if the redemption occurs within the third or fourth year after
purchase. The special charge will apply to redemptions of CDSC
Class A Shares purchased without a sales charge pursuant to a
Letter of Intent, as described below under "Reduced Sales
Charges." The special charge does not apply to shares acquired
through the reinvestment of dividends on CDSC Class A Shares or
to any CDSC Class A Shares held for more than four years after
purchase. In determining whether the special charge is
applicable, it will be assumed that the CDSC Class A Shares you
have held the longest are the first CDSC Class A Shares to be
redeemed, unless you instruct the Agent otherwise. It will also
be assumed that if you have both CDSC Class A Shares and non-
CDSC Class A Shares the non-CDSC Class A Shares will be redeemed
first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Reduced Sales Charges for Certain Purchases
of Class A Shares
Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance
with the above schedule for subsequent purchases of Class A
Shares if the cumulative value (at cost or current net asset
value, whichever is higher) of Class A Shares you have previously
purchased with a sales charge, together with subsequent purchase
of Class A Shares with such a charge, amounts to $50,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchases, within a thirteen-month period, of
Class A Shares of the Fund through a single selected dealer or
through the Distributor. Class A Shares of the Fund which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Fund's Trustees and officers,
by the Trustees and officers of any other fund in the Aquilasm
Group of Funds, by the directors, officers and certain employees,
retired employees and representatives of the Sub-Adviser and its
affiliates, the Adviser and the Distributor, by selected dealers
and brokers and their officers and employees, by a pension,
profit-sharing or other employee benefit plan qualified or
non-qualified under Section 401 of the Code, by tax-exempt
organizations enumerated in Section 501(c)(3) or (13) of the
Code, by certain persons connected with firms providing legal,
advertising or public relations assistance, by certain family
members of, and plans for the benefit of, the foregoing, and for
the benefit of trust or similar clients of banking institutions
over which these institutions have full investment authority if
the Distributor has entered into an agreement relating to such
purchases. Except for the last category, purchasers must give
written assurance that the purchase is for investment and that
the Class A Shares will not be resold except through redemption.
There may be tax consequences of these purchases. Such purchasers
should consult their own tax counsel. Class A Shares may also be
issued at net asset value in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund
is a party. If you own shares of any other fund in the Aquilasm
Group of Funds (see "Exchange Privilege") and have an account in
the Fund, arrangements may be made to have dividends paid by that
other fund automatically invested in shares of the Fund at net
asset value.
The Fund permits the sale of its Class A Shares at prices
that reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group (i) is a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer), which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing shares; (iii) gives its endorsement or
authorization (if it is a group or association) to an investment
program to facilitate solicitation of its membership by a broker
or dealer; and (iv) complies with the conditions of purchase that
are set forth in any agreement entered into between the Fund and
the group, representative or broker or dealer. At the time of
purchase you must furnish the Distributor with information
sufficient to permit verification that the purchase qualifies for
a reduced sales charge, either directly or through a broker or
dealer.
Certain Investment Companies: Class A Shares of the Fund may
be purchased at net asset value without sales charge (except as
set forth below under "Special Dealer Arrangements") to the
extent that the aggregate net asset value of such Class A Shares
does not exceed the proceeds from a redemption (a "Qualified
Redemption"), made within 120 days prior to such purchase, of
shares of another investment company on which a sales charge
(either upon purchase or redemption) has been paid. Additional
information is available from the Distributor.
To qualify, the following special procedures must be
followed:
1. A completed Application (included in the Prospectus) and
payment for the shares to be purchased must be sent to the
Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
Suite 2300, New York, NY 10017 and should not be sent to the
Shareholder Servicing Agent of the Fund, Administrative Data
Management Corp. (This instruction replaces the mailing
address contained on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective
shareholder has made a Qualified Redemption in an amount at
least equal to the net asset value of the Class A Shares to
be purchased. Satisfactory evidence includes a confirmation
of the date and the amount of the redemption from the
investment company, its transfer agent or the investor's
broker or dealer, or a copy of the investor's account
statement with the investment company reflecting the
redemption transaction.
3. You must complete and return to the Distributor a
Transfer Request Form, which is available from the
Distributor.
The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Fund)
will pay to any dealer effecting a purchase of Class A Shares of
the Fund using the proceeds of a Qualified Redemption the lesser
of (i) 1% of such proceeds or (ii) the same amounts described
under "Purchase of $1 Million or More," above, on the same terms
and conditions. Class A Shares of the Fund issued in such a
transaction will be CDSC Class A Shares and if you thereafter
redeem all or part of such shares during the four-year period
from the date of purchase you will be subject to the special
contingent deferred sales charge described under "Purchase of $1
Million or More," above, on the same terms and conditions.
Whenever the Special Dealer Arrangements are in effect the
Prospectus will be supplemented.
How to Purchase Class C Shares (Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered at
net asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Fund represented by
the Class C Shares. In addition, Class C Shares are subject to a
contingent deferred sales charge ("CDSC") if you redeem them
before you have held them for 12 months from the date of
purchase. The CDSC is charged at the rate of 1%, calculated on
the net asset value of the redeemed Class C Shares at the time of
purchase or of redemption, whichever is less. There is no CDSC
after Class C Shares have been held beyond the applicable period.
The CDSC does not apply to shares acquired through the
reinvestment of dividends on Class C Shares.
The Distributor will pay to any dealer effecting a purchase
of Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through a Payroll Plan.
Investments can be made in either Class A Shares or Class C
Shares. In order to participate in a Payroll Plan, you should
make arrangements with your own employer's payroll department,
and you must complete and sign any special application forms
which may be required by your employer. You must also complete
the Application included in the Prospectus. Once your application
is received and put into effect, under a Payroll Plan the
employer will make a deduction from payroll checks in an amount
you determine, and will remit the proceeds to the Fund. An
investment in the Fund will be made for you at the offering
price, which includes applicable sales charges determined as
described above, when the Fund receives the funds from your
employer. The Fund will send a confirmation of each transaction
to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you
so request in writing to the Agent. No certificates will be
issued for fractional Class A shares or if you have elected
Automatic Investment or Telephone Investment for Class A Shares
(see "How to Invest in the Fund" above) or Expedited Redemption
(see "How to Redeem Your Investment" below). If certificates for
Class A Shares are issued at your request, Expedited Redemption
Methods described below will not be available. In addition, you
may incur delay and expense if you lose the certificates.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule 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 written
plan adopted under the Rule. The Plan has three parts.
Under one part of the Plan, the Fund is authorized to make
payments with respect to Class A Shares ("Class A Permitted
Payments") to Qualified Recipients, which payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent, and may not exceed, for any fiscal year of the
Fund (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year), 0.25 of 1% of the average
annual net assets represented by the Class A Shares of the Fund.
Such payments shall be made only out of the Fund's assets
allocable to the Class A Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including
but not limited to any principal underwriter of the Fund, with
which the Distributor or the Fund has entered into written
agreements and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Fund's Class A Shares or servicing of accounts of
shareholders owning Class A Shares.
Under another part of the Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year), 0.75 of 1%
of the average annual net assets represented by the Class C
Shares of the Fund. Such payments shall be made only out of the
Fund's assets allocable to the Class C Shares. "Qualified
Recipients" means broker-dealers or others selected by the
Distributor or the Fund, including but not limited to any
principal underwriter of the Fund, with which the Distributor has
entered into written agreements and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Class C Shares or
servicing of accounts of shareholders owning Class C Shares.
Payments with respect to Class C Shares during the first year
after purchase are paid to the Distributor and thereafter to
other Qualified Recipients.
Another part of the Plan is designed to protect against any
claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for Permitted Payments it is not financing any such
activity and does not consider any payment enumerated in this
part of the Plan as so financing any such activity. However, it
might be claimed that some of the expenses the Fund pays come
within the purview of the Rule. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Fund shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. See the Additional Statement.
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Service Fees") to
Qualified Recipients. Service Fees shall be paid through the
Distributor or shareholder servicing agent as disbursing agent,
and may not exceed, for any fiscal year of the Fund (as adjusted
for any part or parts of a fiscal year during which payments
under the Plan are not accruable or for any fiscal year which is
not a full fiscal year), 0.25 of 1% of the average annual net
assets represented by the Class C Shares of the Fund. Such
payments shall be made only out of the Fund's assets represented
by the Class C Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including
but not limited to any principal underwriter of the Fund, with
which the Distributor or the Fund has entered into written
agreements and which have agreed to provide personal services to
holders of Class C Shares and/or maintenance of Class C
shareholder accounts. See the Additional Statement. Service Fees
with respect to Class C Shares will be paid to the Distributor.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net
asset value next determined after acceptance of your redemption
request at the Agent (subject to any applicable contingent
deferred sales charge for redemptions of Class C Shares and CDSC
Class A Shares). For redemptions of Class C Shares and CDSC Class
A Shares, at the time of redemption a sufficient number of
additional shares will be redeemed to pay for any applicable
contingent deferred sales charge. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Fund, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. Except for CDSC Class A Shares (see "Purchase of
$1 Million or More") there are no redemption fees or withdrawal
penalties for Class A Shares. Class C Shares are subject to a
contingent deferred sales charge if redeemed before they have
been held 12 months from the date of purchase. (See "Alternative
Purchase Plans.") A redemption may result in a transaction
taxable to you. If you own both Class A Shares and Class C Shares
and do not specify which you wish to redeem, it will be assumed
that you wish to redeem Class A Shares.
For your convenience the Fund offers expedited redemption
for all classes of shares to provide you with a high level of
liquidity for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your
address of record during the 30 days preceding your
redemption request. You can make only one request for
telephone redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
888-322-7224 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
2. By FAX or Mail. You may also request redemption payments
to a predesignated Financial Institution account by a letter of
instruction sent to: Administrative Data Management Corp., Attn:
Aquilasm Group of Funds, by FAX at 908-855-5730 or by mail at 581
Main Street, Woodbridge, NJ 07095-1198, indicating account
name(s), account number, amount to be redeemed, and any payment
directions, signed by the registered holder(s). Signature
guarantees are not required. See "Redemption Payments" below for
payment methods.
If you wish to use the above procedures you should so elect
on the Expedited Redemption section of the Application or the
Ready Access Features form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s) of
the shareholder(s) as registered with the Fund. You may change
the designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed should be sent in blank (unsigned) to
the Fund's Shareholder Servicing Agent: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main
Street, Woodbridge, NJ 07095-1198, with payment
instructions. A stock assignment form signed by the
registered shareholder(s) exactly as the account is
registered must also be sent to the Shareholder Servicing
Agent.
For your own protection, it is essential that certificates
be mailed separately from signed redemption documentation.
Because of possible mail problems, it is also recommended that
certificates be sent by registered mail, return receipt
requested.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), the Stock Exchanges
Medallion Program (SEMP) or the New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the Fund, and you have not
elected Expedited Redemption to a predesignated Financial
Institution account, you must use the Regular Redemption
Method. Under this redemption method you should send a
letter of instruction to: Administrative Data Management
Corp., Attn: Aquilasm Group of Funds, 581 Main Street,
Woodbridge, NJ 07095-1198, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Fund may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
it may charge you a fee for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or valuation of the
net asset value of, portfolio securities to be unreasonable or
impracticable; or (iii) for such other periods as the Securities
and Exchange Commission may permit. Payment for redemption of
shares recently purchased by check (irrespective of whether the
check is a regular check or a certified, cashier's or official
bank check) or by Automatic Investment or Telephone Investment
may be delayed up to 15 days or until (i) the purchase check or
Automatic Investment or Telephone Investment has been honored or
(ii) the Agent has received assurances by telephone or in writing
from the Financial Institution on which the purchase check was
drawn, or from which the funds for Automatic Investment or
Telephone Investment were transferred, satisfactory to the Agent
and the Fund, that the purchase check or Automatic Investment or
Telephone Investment will be honored. Possible delays in payment
of redemption proceeds can be eliminated by using wire payments
or Federal Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. See the Additional Statement for details.
The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of
a redemption of shares in shares of the Fund of the same class as
the shares redeemed at the net asset value next determined after
the Agent receives your reinvestment order. In the case of Class
C Shares or CDSC Class A Shares on which a contingent deferred
sales charge was deducted at the time of redemption, the
Distributor will refund to you the amount of such sales charge,
which will be added to the amount of the reinvestment. The Class
C Shares or CDSC Class A Shares issued on reinvestment will be
deemed to have been outstanding from the date of your original
purchase of the redeemed shares, less the period from redemption
to reinvestment. The reinvestment privilege for any class may be
exercised only once a year, unless otherwise approved by the
Distributor. If you have realized a gain on the redemption of
your shares, the redemption transaction is taxable, and
reinvestment will not alter any capital gains tax payable. If
there has been a loss on the redemption, some or all of the loss
may be tax deductible, depending on the amount reinvested and the
length of time between the redemption and the reinvestment. You
should consult your own tax advisor on this matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the Fund having a net asset value of
at least $5,000. The Automatic Withdrawal Plan is not available
for Class C Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
Class A Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. See the
Automatic Withdrawal Plan provisions of the Application included
in the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, you may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases. While an occasional lump sum investment may be made,
such investment should normally be an amount at least equal to
three times the annual withdrawal or $5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
The Advisory and Administration Agreement
Aquila Management Corporation, founder of the Fund, serves
as Adviser and Administrator (the "Adviser") for the Fund under
an Advisory and Administration Agreement (the "Advisory and
Administration Agreement"). The Adviser is the founder and serves
as administrator for three other funds oriented to the Investment
Region: Tax-Free Trust of Oregon with assets of $303 million,
Hawaiian Tax-Free Trust with assets of $651 million and Tax-Free
Fund For Utah with assets of $29 million, all as of June 30,
1996.
At its own expense, the Adviser provides office space,
personnel, facilities and equipment for the performance of its
functions thereunder and as is necessary in connection with the
maintenance of the headquarters of the Fund and pays all
compensation of the Fund's Trustees, officers and employees who
are affiliated persons of the Adviser.
Under the advisory and administration agreement, subject to
the control of the Fund's Board of Trustees, the Adviser provides
such advisory services to the Fund, in addition to those services
provided by the Sub-Adviser, as the Adviser deems appropriate.
Under the Advisory and Administration Agreement, subject to
the control of the Fund's Board of Trustees, the Adviser provides
all administrative services to the Fund other than those relating
to its investment portfolio handled by the Sub-Adviser under the
Sub-Advisory Agreement. Such administrative services include, but
are not limited to, overseeing all relationships between the Fund
and its various support organizations including the transfer
agent, custodian, legal counsel, auditors and principal
underwriter. Its services include 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. Additionally, the Adviser either
keeps the accounting and other books and records of the Fund,
including the computation of net asset value per share and the
dividends (utilizing daily pricing of the securities in the
Fund's portfolio performed by the Sub-Adviser under the
Sub-Advisory Agreement) or, at its expense and responsibility,
delegates such duties in whole or in part to a company
satisfactory to the Fund. See the Additional Statement for a
further description of functions listed in the Advisory and
Administration Agreement as part of such duties.
Under the Advisory and Administration Agreement, subject to
the control of the Fund's Board of Trustees, the Adviser provides
advisory services to the Fund, which include review of the
investment activities of the Fund, and may include providing the
Sub-Adviser and the Fund with material relevant to the investment
in securities of issuers in various states. Although such event
is not anticipated, if the Sub-Advisory Agreement were
terminated, the Adviser would assume the duties of managerial
investment adviser, in addition to continuing its duties as
adviser and administrator, subject to and in compliance with the
1940 Act and the rules thereunder. In such event, it would be
paid an additional fee at the rate currently paid to the
Sub-Adviser. See the Additional Statement.
The Advisory and Administration Agreement contains
provisions as to the Adviser's allocation of the portfolio
transactions of the Fund similar to those in the Sub-Advisory
Agreement; see the Additional Statement.
Under the Advisory and Administration Agreement, the Fund
pays an advisory and administration fee computed on the net asset
value of the Fund as described in the table below.
The Sub-Advisory Agreement
Ferguson, Wellman, Rudd, Purdy & Van Winkle, Inc. (the
"Sub-Adviser") supervises the investment program of the Fund and
the composition of its portfolio.
The services of the Sub-Adviser are rendered under an
Investment Sub-Advisory Agreement (the "Sub-Advisory Agreement")
which provides, subject to the control of the Board of Trustees,
for investment supervision. The Sub-Advisory Agreement states
that the Sub-Adviser shall, at its expense, provide to the Fund
all office space and facilities, equipment and clerical personnel
necessary for the carrying out of the Sub-Adviser's duties under
the Sub-Advisory Agreement. At the Sub-Adviser's expense the Sub-
Adviser shall provide for pricing of the Fund's portfolio daily
using a pricing service or other source of pricing information
satisfactory to the Fund and, unless otherwise directed by the
Board of Trustees, for pricing of the Fund's portfolio at least
quarterly using another such source satisfactory to the Fund.
Under the Sub-Advisory Agreement, the Sub-Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Sub-Adviser.
Under the Sub-Advisory Agreement, the Fund bears the cost of
preparing and setting in type its prospectuses, statements of
additional information, and reports to shareholders and the costs
of printing or otherwise producing and distributing those copies
of such prospectuses, statements of additional information and
reports as are sent to its shareholders. Under the Sub-Advisory
Agreement, all costs and expenses not expressly assumed by the
Sub-Adviser or by the Adviser under the Advisory and
Administration Agreement or by the Fund's Distributor (principal
underwriter) are paid by the Fund. The Sub-Advisory Agreement
lists examples of such expenses borne by the Fund, the major
categories of such expenses being: legal and audit expenses,
custodian and transfer agent, or shareholder servicing agent fees
and expenses, stock issuance and redemption costs, certain
printing costs, registration costs of the Fund and its shares
under Federal and State securities laws, interest, taxes and
brokerage commissions, and non-recurring expenses, including
litigation.
Under the Sub-Advisory Agreement, the Fund pays a
Sub-Advisory fee computed on the net asset value of the Fund as
set forth in the table that appears below.
The Sub-Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. In general, the primary consideration in
effecting transactions for the Fund is obtaining the most
favorable prices and efficient execution. This means that the
Sub-Adviser will seek to execute each transaction at a price and
commission, if any, which provide the most favorable total cost
or proceeds reasonably attainable in the circumstances. While the
Sub-Adviser generally seeks reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest
spread or commission available. The Sub-Adviser has complete
freedom as to the markets in which and the broker-dealers through
whom (acting on an agency basis or as principal) it operates to
seek this result. The Sub- Adviser may consider a number of
factors in determining which broker-dealers to use. These
factors, which are more fully discussed in the Additional
Statement, include, but are not limited to, research services,
the reasonableness of commissions and quality of services and
execution. The Sub-Adviser is authorized to consider sales of
shares of the Fund.
Advisory and Administration and Sub-Advisory Fees
Under the Advisory and Administration Agreement and the Sub-
Advisory Agreement, the Fund pays fees to the Adviser and Sub-
Adviser which are payable monthly and computed on the net asset
value of the Fund at the end of each business day at different
levels, depending on the net assets of the Fund. The aggregate
annual rate of the fees payable with respect to net assets at
different levels are set forth in the following table:
<TABLE>
Aggregate Annual Rates
Advisory and Sub-
Fund Net Assets Administration Advisory Fee
Total Fees
Fee
<S> <C> <C>
<C>
Up to $15 million..... 0.80 of 1% 0.70 of 1%
1.50%
$15 million up to
$50 million........ 0.65 of 1% 0.55 of 1%
1.20%
Above $50 million..... 0.50 of 1% 0.40 of 1%
0.90%
</TABLE>
The Adviser and the Sub-Adviser may each waive all or part
of their respective fees during the early development phase of
the Fund. The combined fees paid by the Fund to the Adviser and
the Sub-Adviser are higher than those paid by most other
investment companies. In authorizing such fees, the Board of
Trustees considered a number of factors including the
difficulties of managing a portfolio oriented primarily to the
Investment Region, and the expertise with respect to that area
possessed by both the Adviser and the Sub-Adviser.
The Adviser and Sub-Adviser have each agreed that their
respective fees shall be reduced, but not below zero, by an
amount equal to their respective pro-rata portions (based upon
the aggregate fees of the Adviser and the Sub-Adviser) of the
amount, if any, by which the total expenses of the Fund in any
fiscal year, exclusive of taxes, interest, and brokerage fees,
exceed the most restrictive expense limitation imposed upon the
Fund in the states in which shares are then eligible for sale. At
the present time none of the states in which the Fund's shares
will be sold have any such limitation.
Information about the Adviser and Administrator,
the Sub-Adviser and the Distributor
The Fund's founder, Adviser and Administrator is
administrator to the Aquilasm Group of Funds, which consists of
14 funds: seven tax-free municipal bond funds, five money market
funds and two equity funds including the Fund. As of June 30,
1996, these funds had aggregate assets of approximately $2.6
billion, of which approximately $700 million consisted of assets
of money market funds and $1.9 billion consisted of assets of the
tax-free bond funds.
The Adviser and Administrator, which was founded in 1984, is
controlled by Mr. Lacy B. Herrmann (directly, through a trust and
through share ownership by his wife). See the Additional
Statement for information on Mr. Herrmann.
The Sub-Adviser is Ferguson, Wellman, Rudd, Purdy & Van
Winkle, Inc., is the Fund's local investment adviser. It
provides professional investment advisory services to a broad
base of clients and currently manages over $1 billion in clients'
assets, of which approximately $400 million consists of equity
investments. Ferguson, Wellman is a full service investment
advisory firm serving institutional and individual investors with
investments in publicly traded stocks, bonds and cash securities.
Founded in 1975, Ferguson, Wellman operates as a private
corporation from their offices in Portland, Oregon. The
Sub-Adviser is employee owned, with over two-thirds of the
company's employees owning stock. The Sub-Adviser manages a
conservative mix of publicly traded stocks, government and
corporate bonds as well as other fixed income investments and
cash management securities for a diversified group of investors
including corporate, union, public and individual retirement
funds, taxable corporate and individual investors, family trusts,
endowments, foundations and special investment accounts. The
Sub-Adviser has enjoyed consistent, controlled growth of assets
managed since beginning operations twenty years ago.
Ferguson, Wellman implements a team-oriented equity
investment process utilizing the collective experience and
knowledge of each of five equity portfolio managers/analysts. The
equity team divides research by industry classification and each
manager/analyst prepares both industry research and research and
recommendations on individual issues within the industry and
presents all research at regular meetings of the equity team. Two
Senior Vice Presidents and Portfolio Managers, George W.
Hosfield, CFA and Dean M. Dordevic, share final responsibility
for implementation of the investment process for the Fund. Mr.
Hosfield joined Ferguson, Wellman in 1991. He holds a B.S. in
management and MBA in finance from the University of Oregon. He
is a Chartered Financial Analyst and a member and past president
of the Portland Society of Financial Analysts. Prior to joining
Ferguson, Wellman, Mr. Hosfield served as Vice President and
Portfolio Manager with Qualivest Capital Management and an
account executive with Smith Barney, Harris Upham & Co. Mr.
Dordevic came to Ferguson, Wellman in 1994 after serving eleven
years as Senior Vice President and Portfolio Manager with Kidder
Peabody Asset Management in New York City. Mr. Dordevic holds a
B.A. in finance from Trinity University in San Antonio, Texas and
is a member of the New York Society of Securities Analysts. Mr.
Dordevic began his career as a consultant for high- net-worth
individuals with E.F. Hutton & Co. in New York.
The Distributor currently handles the distribution of the
shares of fourteen funds: five money market funds, seven tax-free
municipal bond funds, another regionally-oriented equity fund and
the Fund. Under the Distribution Agreement, the Distributor is
responsible for the payment of certain printing and distribution
costs relating to prospectuses and reports as well as the costs
of supplemental sales literature, advertising and other
promotional activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned by Mr. Herrmann, will be owned by certain
directors and/or officers of the Adviser and/or the Distributor
including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
The Fund distributes dividends from net investment income,
if any, on an annual basis, generally in December. If the Fund
has net long-term capital gains or net short-term capital gains
that must be distributed pursuant to Federal income tax law, it
distributes those amounts at the same time. Short-term capital
gains include the gains from the disposition of securities held
less than one year, the premiums from expired call options
written by the Fund and net gains from closing transactions with
respect to such options. If required by tax laws to avoid excise
or other taxes, dividends and/or capital gains distributions may
be made more frequently. Dividends and other distributions paid
by the Fund with respect to each class of its shares are
calculated at the same time and in the same manner. The per-share
dividends of Class C Shares will be lower than the per-share
dividends on the Class A Shares as a result of the higher service
and distribution fees applicable to those shares. In addition,
the dividends of each class can vary because each class will bear
certain other class-specific charges.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Fund at net asset value on the record date for the dividend or
distribution or other date fixed by the Board of Trustees. An
election to receive cash will continue in effect until written
notification of a change is received by the Agent. All
shareholders, whether their dividends are received in cash or are
being reinvested, will receive a quarterly account summary
indicating the current status of their investment. There is no
fixed dividend rate.
Tax Information
The Fund intends to qualify for taxation as a regulated
investment company under the provisions of Subchapter M of the
Internal Revenue Code. As such, the Fund will not be taxed on its
net investment income or its net realized capital gains, if any,
to the extent they have been distributed to the Fund's
shareholders. Distribution from the Fund's net income and net
short-term capital gains are taxed as ordinary income. If the
Fund has net long-term capital gains which are greater than its
net short-term capital losses, it will distribute the excess and
such distribution will be taxed to you as long-term capital
gains, regardless of how long you have held your shares.
For purposes of Federal income tax, certain options, if any,
held by the Fund at the end of its fiscal year generally will be
treated as having been sold at market value. As a general rule
any gain or loss on such contracts will be treated as 60%
long-term and 40% short-term. See the Additional Statement for
more detail on the tax aspects of options. Dividends paid by the
Fund will qualify for the dividends received deduction for
corporations only to the extent that they represent payment of
qualifying dividend income received by the Fund. Shortly after
the end of each calendar year, the Fund will send you a statement
of the amount and nature of net income and capital gains.
Distributions from the Fund, whether ordinary income or
capital gain in nature, will be taxable to you whether you take
them in cash or have them automatically reinvested in shares of
the Fund.
The Fund will be obliged to withhold certain percentages of
distributions and pay over the amounts to the Internal Revenue
Service in either of two instances:
(1) if you do not supply the Fund or the institution
through which you receive distributions with your correct
taxpayer identification number, which for most individuals is
their Social Security number, the Fund will have to withhold 31%
on ordinary income dividends, capital gains dividends and
redemption payments; and
(2) if you are a non-resident alien or foreign entity, the
Fund will have to withhold 30% (or lower rate provided by treaty
with the country in which the alien or entity resides).
As of the date of the Prospectus, Congress is considering a
number of changes affecting taxation. It is not possible to
predict which, if any, of such changes will become law.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. If you are required to pay a conditional deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. The gain or loss will be long-term
if you held the redeemed shares for over a year, and short-term,
if for a year or less. However, if shares held for six months or
less are redeemed and you have a loss, two special rules apply:
the loss is reduced by the amount of exempt-interest dividends,
if any, which you received on the redeemed shares, and any loss
over and above the amount of such exempt-interest dividends is
treated as a long- term loss to the extent you have received
capital gains dividends on the redeemed shares.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Fund or its shareholders upon such conversions;
each shareholder's adjusted tax basis in the Class A Shares
received upon conversion will equal the shareholder's adjusted
tax basis in the Class C Shares held immediately before the
conversion; and each shareholder's holding period for the Class A
Shares received upon conversion will include the period for which
the shareholder held as capital assets the converted Class C
Shares immediately before conversion.
The above information is a summary of the tax treatment that
will be applied to the Fund and its distributions. If you have
any questions, you should contact your tax adviser, particularly
in connection with state and local taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and an equity fund
(the "Bond or Equity Funds") and certain money market funds (the
"Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have
the same Administrator and Distributor as the Fund. All exchanges
are subject to certain conditions described below. As of the date
of the Prospectus, the Aquila Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust, Tax-
Free Trust of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund of
Colorado, Churchill Tax-Free Fund of Kentucky, Tax-Free Fund For
Utah and Narragansett Insured Tax-Free Income Fund; the Aquila
Money-Market Funds are Capital Cash Management Trust, Pacific
Capital Cash Assets Trust (Original Shares), Pacific Capital Tax-
Free Cash Assets Trust (Original Shares), Pacific Capital U.S.
Treasuries Cash Assets Trust (Original Shares) and Churchill Cash
Reserves Trust.
Class A Shares of the Fund can be exchanged only into Class
A Shares of any Bond or Equity Fund or into shares of the Money-
Market Funds. Class C Shares can be exchanged only into Class C
Shares of any Bond or Equity Fund, or into shares of the
Money-Market Funds.
Class A Shares Exchange Privilege
Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A Shares of any
Bond or Equity Fund, those shares (and any shares acquired as a
result of reinvestment of dividends and/or distributions) may be
exchanged any number of times between Money-Market Funds and Bond
or Equity Funds without the payment of any additional sales
charge.
CDSC Class A Shares of the Fund (see "Purchase of $1 Million
or More" and "Special Dealer Arrangements") can be exchanged for
CDSC Class A Shares of a Bond or Equity Fund or into a
Money-Market Fund. The CDSC Class A Shares will not be subject to
a contingent deferred sales charge at the time of exchange, but
the contingent deferred sales charge will be payable upon a
redemption which occurs before the expiration of the applicable
holding period of any CDSC Class A Shares or any shares of a
Money-Market Fund received on exchange for CDSC Class A Shares.
(The contingent deferred sales charge does not apply to any
shares acquired as a result of reinvestment of dividends and/or
distributions.) For purposes of computing the time period for the
applicable contingent deferred sales charge, the length of time
of ownership of CDSC Class A Shares will be determined by the
time of original purchase and not by the time of the exchange.
Any period of 30 days or more during which any Money-Market
shares received on an exchange of CDSC Class A Shares are held is
not counted in computing the period of ownership of CDSC Class A
Shares. (See "Alternative Purchase Plans.")
Class C Shares Exchange Privilege
Under the Class C Shares exchange privilege, Class C Shares
(and any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and for Class C Shares of Bond or
Equity Funds. Class C Shares will not be subject to a contingent
deferred sales charge at the time of exchange, but the contingent
deferred sales charge will be payable upon redemption which
occurs before the expiration of the applicable holding period of
any Class C Shares or any shares of a Money-Market Fund received
on exchange for Class C Shares. (The contingent deferred sales
charge does not apply to any shares acquired as a result of
reinvestment of dividends and/or distributions.) For purposes of
computing the time period for the applicable contingent deferred
sales charge or for the conversion of Class C Shares into Class A
Shares, the length of time of ownership of Class C Shares will be
determined by time of original purchase and not by the time of
the exchange. Any period of 30 days or more during which any
Money-Market shares received on an exchange of Class C Shares are
held is not counted in computing the period of ownership of Class
C Shares. (See "Alternative Purchase Plans.")
Eligible Shares
The "Class A Eligible Shares" of any Bond or Equity Fund are
those Class A Shares which were (a) acquired by direct purchase
with payment of any applicable sales charge, or which were
received in exchange for shares of another Bond or Equity Fund on
which any applicable sales charge was paid; (b) acquired by
exchange for shares of a Money-Market Fund with payment of the
applicable sales charge; (c) acquired in one or more exchanges
between shares of a Money-Market Fund and a Bond or Equity Fund
so long as the shares of the Bond or Equity Fund were originally
purchased as set forth in (a) or (b); (d) acquired on conversion
of Class C Shares or (e) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class A Eligible
Shares.
The "CDSC Class A Eligible Shares" of any Bond or Equity
Fund are those CDSC Class A Shares which were (a) acquired by
direct purchase in the amount of $1 million or more without a
sales charge or in certain purchases when Special Dealer
Arrangements are in effect or which were received in exchange for
CDSC Class A Shares of another Bond or Equity Fund acquired under
the same conditions; (b) acquired by exchange for shares of a
Money-Market Fund under the same conditions; (c) acquired in one
or more exchanges between shares of a Money-Market Fund and a
Bond or Equity Fund so long as the shares of the Bond or Equity
Fund were originally purchased as set forth in (a) or (b); or (d)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise CDSC Class A Eligible Shares.
The "Class C Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange from a Money-Market Fund, or which were received in
exchange for shares of Class C Shares of another Bond or Equity
Fund; or (b) acquired as a result of reinvestment of dividends
and/or distributions on otherwise Class C Eligible Shares.
If you own Class A or Class C Eligible Shares of any Bond or
Equity Fund, you may exchange them for shares of any Money Market
Fund or the Class A or Class C Shares, respectively, of any other
Bond or Equity Fund without payment of any sales charge or CDSC.
The shares received will continue to be Class A or Class C
Eligible shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for Class A Shares of any Bond or
Equity Fund without payment of any sales charge.
If you own shares of a Money-Market Fund which you have
acquired by exchange for CDSC Class A Eligible Shares of any Bond
or Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for CDSC Class A shares of any
Bond or Equity Fund but you will be required to pay the
applicable contingent deferred sales charge if you redeem such
shares before you have held CDSC Class A Shares for four years.
You will also be required to pay the applicable contingent
deferred sales charge if you redeem such shares of a Money-Market
Fund before you have held CDSC Class A Shares for four years. The
running of the four-year period is suspended during the period
you hold shares of a Money-Market Fund received in exchange for
CDSC Class A Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for Class C Shares of any Bond or
Equity Fund, but you will be required to pay the applicable
contingent deferred sales charge if you redeem such Class C
Shares before you have held Class C Shares for 12 months. You
will also be required to pay the applicable contingent deferred
sales charge if you redeem such shares of a Money-Market Fund
before you have held Class C Shares for 12 months. The running of
the 12-month CDSC period and the six-year conversion period for
Class C Shares is suspended during the period you hold shares of
a Money-Market Fund received in exchange for Class C Shares. (See
"Alternative Purchase Plans.")
Shares of a Money-Market Fund may be exchanged for shares of
another Money-Market Fund or for Class A Shares or Class C Shares
of a Bond or Equity Fund; however, if the shares of a
Money-Market Fund were not acquired by exchange of Eligible
Shares of a Bond or Equity Fund or of shares of a Money-Market
Fund acquired in such an exchange, they may be exchanged for
Class A Shares of a Bond or Equity Fund only upon payment of the
applicable sales charge.
This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence. The Fund
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal
to the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
888-322-7224 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
Exchanges will be effected at the relative exchange prices
of the shares being exchanged next determined after receipt by
the Agent of your exchange request. The exchange prices will be
the respective net asset values of the shares, unless a sales
charge is to be deducted in connection with an exchange of
shares, in which case the exchange price of shares of a Bond or
Equity Fund will be their public offering price. Prices for
exchanges are determined in the same manner as for purchases of
the Fund's shares. See "How to Invest in the Fund."
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see the Additional Statement); no representation is made as to
the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
Money-Market Fund) are exempt from regular Federal income tax,
and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Treasuries Cash Assets Trust (which invests
in U.S. Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund are taxable.
If your state of residence is not the same as that of the issuers
of obligations in which a tax-free municipal bond fund or a
tax-free money-market fund invests, the dividends from that fund
may be subject to income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of such a bond fund or a tax-free Money-Market Fund under
the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including various expressions of total return.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes the applicable sales charge) for 1- and 5-year periods
and for a period since the inception of the Fund, to the extent
applicable, through the end of such periods, assuming
reinvestment (without sales charge) of all distributions. The
Fund may also furnish total return quotations for other periods
or based on investments at various applicable sales charge levels
or at net asset value. For such purposes total return equals the
total of all capital gains and income paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a
percentage of the purchase price. See the Additional Statement.
Performance figures are based upon past performance, reflect
as appropriate all recurring charges against Fund income net of
fee waivers and reimbursement of expenses, if any, and will
assume the payment of the maximum sales charge on the purchase of
shares, but not on reinvestment of income dividends for which the
Fund does not impose a sales charge.
The investment results of the Fund, like those of all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's total return may be in
any future period.
Description of the Fund and its Shares
The Fund is an open-end, diversified management investment
company originally organized in 1982 under the name Short Term
Asset Reserves, as a Massachusetts business trust. From that date
until 1993 it operated as a money-market fund. In 1993 it ceased
operations. In 1996, its name was changed to Aquila Cascadia
Equity Fund. The Fund's Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares and to
divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial
interests in the Fund. Each share represents an equal
proportionate interest in the Fund with each other share. Upon
liquidation of the Fund, shareholders are entitled to share pro
rata in the net assets of the Fund available for distribution to
shareholders. The Fund's shares are presently divided into three
classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Fund may
create additional classes of shares which may differ from each
other as provided in applicable rules and regulations of the
Securities and Exchange Commission or by exemptive order. The
Board of Trustees may also, at its own discretion, create
additional series of shares, each of which may have separate
assets and liabilities (in which case any such series will have a
designation including the word "Series"). See the Additional
Statement for further information about possible additional
series. Shares are fully paid and non-assessable, except as set
forth under the caption "General Information" in the Additional
Statement; the holders of shares have no pre-emptive or
conversion rights.
In addition to Class A and Class C Shares, which are offered
by this Prospectus, the Fund also has Institutional Class Shares
("Class Y Shares"), which are offered only to institutions acting
for investors in a fiduciary, advisory, agency, custodial or
similar capacity and are not offered directly to retail
customers. Class Y Shares are offered by means of a separate
prospectus, which can be obtained by calling the Fund at 888-322-
7223.
The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
investment performance. All three classes represent interests in
the same portfolio of securities and have the same rights, except
that each class bears the separate expenses, if any, of its
Distribution Plan and has exclusive voting rights with respect to
its Plan.
See the notes to the "Statement of Assets and Liabilities"
in the Additional Statement for information as to the
amortization of the Fund's organizational and start-up expenses.
Voting Rights
At any meeting of shareholders, shareholders of the Fund are
entitled to one (1) vote for each dollar of net asset value
(determined as of the record date for such meeting) per share
held (and proportionate fractional votes for fractional dollar
amounts). Shareholders will vote on the election of Trustees and
on other matters submitted to the vote of shareholders. See the
Additional Statement for information about shareholder voting if
the Fund were in the future to have more than one portfolio
(series). No amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of a majority of the
outstanding shares of the Fund except that the Fund's Board of
Trustees may change the name of the Fund. The Fund may be
terminated (i) upon the sale of its assets to another issuer, or
(ii) upon liquidation and distribution of the assets of the Fund,
in either case if such action is approved by the vote of the
holders of a majority of the outstanding shares of the Fund. If
not so terminated, the Fund will continue indefinitely.
<PAGE>
Application for Aquila Cascadia Equity Fund
For Class A or Class C Shares only
Please complete steps 1 through 4 and mail to:
ADM, Attn: AquilaSM Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198
Tel.# 1-888-322-7224
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the
name(s)
of Trustees in which account will be registered and the name and
date
of the Trust Instrument. Account for a Pension or Profit Sharing
Plan
or Trust may be registered in the name of the Plan or Trust
itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:_____________________
___
Employer's
Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you
are a non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate method of payment (For either method, make check
payment to: Aquila Cascadia Equity Fund)
Indicate class of shares:
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE
IN CLASS A SHARES.
__ Initial Investment $_________ (Minimum $1,000)
__ Automatic Investment $________ (Minimum $50)
For Automatic Investments of at least $50 per month, you must
complete Step 3, Section A, Step 4, Sections A & B and ATTACH
A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are
automatically reinvested in additional shares at Net Asset
Value unless otherwise indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in
cash*
* For cash dividends, please choose one of the following
options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing
the
Financial Institution account where I/we would like you to
deposit
the dividend. (A Financial Institution is a commercial bank,
savings bank or credit union.)
___ Mail check to my/our address listed in Step 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and
invested
in your Aquila Cascadia Equity Fund account. To establish
this program, please complete Step 4, Sections A & B of this
Application.
I/We wish to make regular monthly investments of $
_________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your
account (minimum $50 and maximum $50,000) at any time you wish by
simply calling the Fund toll-free at 1-888-322-7224. To establish
this program, please complete Step 4, Sections A & B of this
Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. LETTER OF INTENT
APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this
application
___ Yes ___ No
I/We intend to invest in Class A Shares of the Fund during the
13-month period from the date of my/our first purchase pursuant
to this Letter (which purchase cannot be more than 90 days prior
to the date of this Letter), an aggregate amount (excluding any
reinvestment of dividends or distributions) of at least $50,000
which, together with my/our present holdings of Fund shares (at
public offering price on date of this Letter), will equal or
exceed the minimum amount checked below:
___ $50,000 ___ $100,000 ___ $250,000 ___ $500,000
D. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
APPLICABLE TO CLASS A SHARES ONLY.
Application must be received in good order at least 2 weeks prior
to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions
set forth below. To realize the amount stated below, Administrative
Data Management Corp. (the Agent) is authorized to redeem
sufficient
shares from this account at the then current Net Asset Value, in
accordance with the terms below:
Dollar Amount of each withdrawal $
______________beginning________________ .
Minimum: $50
Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate
Financial Institution name, address and your account number.
_______________________________
______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________
______________________________________
Street Financial Institution Street
Address
_______________________________
______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account
Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the AquilaSM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any
other
persons telephone instructions to execute the exchange of shares of
one
Aquila-sponsored fund for shares of another Aquila-sponsored fund
with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such
telephone
instructions to execute an exchange, and subject to the conditions
set
forth herein, I/we understand and agree to hold harmless the Agent,
each of the Aquila Funds, and their respective officers, directors,
trustees, employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs and
attorneys fees, resulting from acceptance of, or acting or failure
to
act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will
be mailed or wired, whenever possible, upon request, if in an
amount
of $1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________
____________________________________
Account Registration Financial Institution Account
Number
_______________________________
____________________________________
Financial Institution Name Financial Institution
Transit/Routing
Number
_______________________________
____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account
initiated
by the Agent, Administrative Data Management Corp., and to pay such
sums in accordance therewith, provided my/our account has
sufficient
funds to cover such drafts or debits. I/We further agree that your
treatment of such orders will be the same as if I/we personally
signed
or initiated the drafts or debits. I/We understand that this
authority
will remain in effect until you receive my/our written instructions
to
cancel this service. I/We also agree that if any such drafts or
debits
are dishonored, for any reason, you shall have no liabilities.
Financial Institution Account Number
_______________________________________
Name and Address where my/our account is maintained
Name of Financial
Institution______________________________________________
Street
Address__________________________________________________________
___
City___________________________________________State _________ Zip
________
Name(s) and Signature(s) of Depositor(s) as they appear where
account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted
pursuant to the above authorization shall be subject to the
provisions of the Operating Rules of the National Automated
Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer
in connection with the execution and issuance of any electronic
debit in the normal course of business initiated by the Agent
(except any loss due to your payment of any amount drawn against
insufficient or uncollected funds), provided that you promptly
notify us in writing of any claim against you with respect to
the same, and further provided that you will not settle or
pay or agree to settle or pay any such claim without the written
permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause,
any such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is
of legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment
or
Telephone Investment, if my/our account at the Financial
Institution
has insufficient funds, the Fund and its agents may cancel the
purchase
transaction and are authorized to liquidate other shares or
fractions
thereof held in my/our Fund account to make up any deficiency
resulting
from any decline in the net asset value of shares so purchased
and any
dividends paid on those shares. I/We authorize the Fund and its
agents
to correct any transfer error by a debit or credit to my/our
Financial
Institution account and/or Fund account and to charge the account
for
any related charges. I/We acknowledge that shares purchased
either
through Automatic Investment or Telephone Investment may be
subject to
applicable sales charges.
- - The Fund, the Agent and the Distributor and their Trustees,
directors,
employees and agents will not be liable for acting upon
instructions
believed to be genuine, and will not be responsible for any
losses
resulting from unauthorized telephone transactions if the Agent
follows
reasonable procedures designed to verify the identity of the
caller.
The Agent will request some or all of the following information:
account name and number; name(s) and social security number
registered
to the account and personal identification; the Agent may also
record
calls. Shareholders should verify the accuracy of confirmation
statements immediately upon receipt. Under penalties of perjury,
the
undersigned whose Social Security (Tax I.D.) Number is shown
above
certifies (i) that Number is my correct taxpayer identification
number
and (ii) currently I am not under IRS notification that I am
subject
to backup withholding (line out (ii) if under notification). If
no
such Number is shown, the undersigned further certifies, under
penalties of perjury, that either (a) no such Number has been
issued,
and a Number has been or will soon be applied for; if a Number is
not
provided to you within sixty days, the undersigned understands
that
all payments (including liquidations) are subject to 31%
withholding
under federal tax law, until a Number is provided and the
undersigned
may be subject to a $50 I.R.S. penalty; or (b) that the
undersigned is
not a citizen or resident of the U.S.; and either does not expect
to
be in the U.S. for 183 days during each calendar year and does
not
conduct a business in the U.S. which would receive any gain from
the
Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________
_________
Individual (or Custodian) Joint Registrant, if any
Date
__________________________ ____________________________
_________
Corporate Officer, Partner, Title
Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be
accompanied by proof of authority to sign, such as a certified
copy of the corporate resolution or a certificate of incumbency
under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are
effective 15 days after this form is received in good order
by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after
the Agent receives written notice from you.
- - Either the Fund or the Agent may cancel any feature, without
prior
notice, if in its judgment your use of any feature involves
unusual
effort or difficulty in the administration of your account.
- - The Fund reserves the right to alter, amend or terminate any or
all features or to charge a service fee upon 30 days written
notice
to shareholders except if additional notice is specifically
required by the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete
a Ready Access features form which may be obtained from Aquila
Distributors at 1-888-322-7223 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's
Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 3c and signing the Application, the investor
is entitled to make each purchase at the public offering price
applicable to a single transaction of the dollar amount checked
above, and agrees to be bound by the terms and conditions
applicable
to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but
if the investor's purchases within thirteen months from the date of
the investor's first purchase do not aggregate $50,000, or, if such
purchases added to the investor's present holdings do not aggregate
the minimum amount specified above, the investor will pay the
increased
amount of sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein
shall be at the rate applicable to the minimum amount of the
investor's specified intended purchases checked above. If the
investor's actual purchases do not reach this minimum amount, the
commissions previously paid to the dealer will be adjusted to the
rate applicable to the investor's total purchases. If the
investor's
purchases exceed the dollar amount of the investor's intended
purchases and pass the next commission break-point, the investor
shall receive the lower sales charge, provided that the dealer
returns to the Distributor the excess of commissions previously
allowed or paid to him over that which would be applicable to the
amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter
of Intent in placing any future purchase orders for the investor
while this Letter is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if
necessary),
3% of the dollar amount specified in the Letter of Intent
(computed
to the nearest full share) shall be held in escrow in shares of
the
Fund by the Agent. All dividends and any capital distributions
on
the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within a thirteen-month period, the escrowed shares
will be promptly released to the investor. However, shares
disposed of prior to completion of the purchase requirement
under the Letter will be deducted from the amount required to
complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the
amount specified in the Letter as the intended aggregate
purchases,
the investor must remit to the Distributor an amount equal to
the
difference between the dollar amount of sales charges actually
paid
and the amount of sales charges which would have been paid if
the
total amount purchased had been made at a single time. If such
difference in sales charges is not paid within twenty days after
receipt of a request from the Distributor or the dealer, the
Distributor will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to
realize
such difference in sales charges. Full shares and any cash
proceeds
for a fractional share remaining after such redemption will be
released to the investor. The escrow of shares will not be
released
until any additional sales charge due has been paid as stated in
this section.
4. By checking Box 3c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the
Distributor
as his attorney to surrender for redemption any or all escrowed
shares on the books of the Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who
executed the Plan authorization.
2. Certificates will not be issued for shares of the Fund purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Fund. Any share
certificates now held by the Planholder may be surrendered
unendorsed to the Agent with the application so that the shares
represented by the certificate may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the
Fund at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments
will be made at the Net Asset Value per share in effect at the
close of business on the last business day of the month or
quarter.
5. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed, at
any time, by the Planholder on written notification to the
Agent. The Planholder should allow at least two weeks time in
mailing such notification before the requested change can be
put in effect.
6. The Planholder may, at any time, instruct the Agent by written
notice (in proper form in accordance with the requirements of
the then current Prospectus of the Fund) to redeem all, or any
part of, the shares held under the Plan. In such case the Agent
will redeem the number of shares requested at the Net Asset
Value per share in effect in accordance with the Fund's usual
redemption procedures and will mail a check for the proceeds of
such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on
written notice to the Agent, or by the Agent upon receiving
directions to that effect from the Fund. The Agent will also
terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon
termination of the Plan by the Agent or the Fund, shares
remaining unredeemed will be held in an uncertificated account
in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and
until proper instructions are received from the Planholder,
his executor or guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any
action taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer
agent for the Fund, the Planholder will be deemed to have
appointed any successor transfer agent to act as his agent
in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals
are undesirable because of sales charges when purchases are
made. Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional
lump sum investment may be made, such investment should normally
be an amount equivalent to three times the annual withdrawal or
$5,000, whichever is less.
<PAGE>
INVESTMENT SUB-ADVISER
Ferguson, Wellman, Rudd, Purdy & Van Winkle Inc.
888 SW Fifth Avenue, Suite 1200
Portland, OR 97204-2026
ADVISER AND ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Sally Wilson Church, Vice President
Nancy L. Kayani, 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
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................
Table of Expenses................................
Introduction.....................................
Investment Of The Fund's Assets..................
Investment Restrictions..........................
Net Asset Value Per Share........................
Alternative Purchase Plans.......................
How To Invest In The Fund........................
How To Redeem Your Investment....................
Automatic Withdrawal Plan........................
Management Arrangements..........................
Dividend And Tax Information.....................
Exchange Privilege...............................
General Information..............................
Application and Letter of Intent
Aquila
[LOGO]
Cascadia
[LOGO]
Equity Fund
PROSPECTUS
One Of The
Aquilasm Group Of Funds
<PAGE>
Aquila
Cascadia Equity Fund
A Regional Capital Appreciation Fund
[LOGO]
380 Madison Avenue
Suite 2300
New York, New York 10017
(888)-3-CASCADIA (888) 322-7223
212-697-6666
PROSPECTUS
Institutional Class Shares
Class Y Shares July 23, 1996
Aquila Cascadia Equity Fund (the "Fund") is a mutual fund
whose objective is capital appreciation. (See "Investment of the
Fund's Assets.") It seeks to achieve its objective through
investment in securities (primarily common stock or other equity
securities) of companies having a significant business presence
in the region of our country, termed in this Prospectus the
Investment Region, consisting of Oregon, Washington, Idaho, Utah,
Nevada, Alaska and Hawaii. See "Investment of the Fund's Assets."
There are three classes of shares of the Fund: Institutional
Class Shares ("Class Y Shares") are offered only to institutions
acting for investors in a fiduciary, advisory, agency, custodial
or similar capacity, and are not offered directly to retail
customers. Class Y Shares are offered at net asset value with no
sales charge, no redemption fee, no contingent deferred sales
charge and no distribution fee. (See "How to Purchase Class Y
Shares.") The other classes, Front Payment Class Shares ("Class A
Shares") and Level Payment Class Shares ("Class C Shares"), are
not offered by this Prospectus. See "General Information -
Description of Classes."
This Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information dated July 23, 1996 about the Fund (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request
to Administrative Data Management Corp., the Fund's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement
contains information about the Fund and its management not
included in this Prospectus. The Additional Statement is
incorporated by reference in its entirety in this Prospectus.
Only when you have read both the Prospectus and the Additional
Statement are all material facts about the Fund available to you.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY ANY BANK. SHARES OF THE FUND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY OR GOVERNMENT-SPONSORED AGENCY OF THE FEDERAL GOVERNMENT
OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
FOR PURCHASE, REDEMPTION OR ACCOUNT INQUIRIES CONTACT
THE FUND'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
CALL 888-322-7224 TOLL FREE OR 908-855-5731
FOR GENERAL INQUIRIES
CALL (888)-3-CASCADIA (888)-322-7223 TOLL FREE OR
212-697-6666
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
Aquila Cascadia Equity Fund (the "Fund") is a diversified,
open-end mutual fund which continuously offers to sell or redeem
its shares on any business day. (See "Alternative Purchase Plans"
and "How to Redeem Your Investment"). The Fund's shares are
designed to be a suitable investment for investors who seek
capital appreciation, primarily through the common stocks or
other equity securities of companies having a significant
business presence in certain states of our country called in the
Prospectus the "Investment Region."
The Fund's investment objective is capital appreciation. The
Fund seeks to achieve this objective by investing primarily in
growth oriented common stocks or other equity securities of
companies having a significant business presence in the region of
our country, termed in this Prospectus the Investment Region,
consisting of Oregon, Washington, Idaho, Utah, Nevada, Alaska and
Hawaii. It is anticipated that under normal circumstances, the
Fund will invest at least 65%, and possibly up to 100%, of its
total assets in equity securities issued by such companies.
Companies with a significant business presence in the Investment
Region are defined as those companies (i) whose principal
executive offices are located in the Investment Region, (ii)
which have more than 50% of their assets located in the
Investment Region or (iii) which derive more than 50% of their
revenues or profits from the Investment Region. In the Prospectus
these companies are called "Investment Region companies." Since
the Fund's objective is capital appreciation, it is not expected
to provide any significant current income to investors from
dividend or interest payments and during its first fiscal year it
is not expected to provide any such distributions. (See "Table of
Expenses" and "Investment of the Fund's Assets.")
Investment Selection Criteria - The Fund will acquire only
those equity securities which, at the time of purchase, the Sub-
Adviser considers to be issues of financially sound companies
possessing good growth characteristics and solid management,
reasonably priced relative to their growth rate and anticipated
future values. The Fund may also make other types of investments.
(See "Investment of the Fund's Assets".)
Regional Portfolio Management - Ferguson, Wellman, Rudd,
Purdy & Van Winkle, Inc. ("Ferguson, Wellman" or the "Sub-
Adviser") serves as the Fund's regionally-located portfolio
management organization. The firm provides professional
investment advisory services to a broad base of clients and
currently manages over $1 billion of clients' assets of which
approximately $400 million consists of equity investments. The
advisory facilities for the Fund are located in Portland, Oregon.
Ferguson, Wellman is an employee owned full service investment
firm, with 66% of all employees holding equity in the company. It
serves both institutional and individual investors. The firm
currently provides professional investment advisory services to a
broad base of clients. Incorporated in 1975, Ferguson, Wellman
has one central office in Portland, Oregon and is a registered
investment adviser under the Investment Advisers Act of 1940.
Aquila Management Corporation, the Fund's founder, Adviser
and Administrator, is a registered investment adviser under the
Investment Advisers Act of 1940. It administers 14 mutual funds,
including the Fund, with assets as of June 30, 1996 of
approximately $2.6 billion. It is the founder of and serves as
administrator for three other funds oriented to the Investment
Region: Tax-Free Trust of Oregon with assets of $303 million,
Hawaiian Tax-Free Trust with assets of $651 million and Tax-Free
Fund For Utah with assets of $29 million, all as of June 30,
1996.
Diversification - The Fund will invest its assets in a
number of different securities. Additionally, investments will be
spread over a reasonably broad range of industries. Only the most
affluent investors can achieve such diversification on their own
among securities of Investment Region companies. In general, a
diversified portfolio, such as is provided by the Fund, can be
used to reduce your investment risk as compared to less
diversified portfolios. See "Investment of the Fund's Assets."
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of
$50 or more, through the convenience of having your investment
electronically transferred from your financial institution
account into the Fund by Automatic Investment or Telephone
Investment. (See "How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides alternative
ways to invest. (See "Description of the Fund and its Shares.")
For this purpose the Fund offers classes of shares, which differ
in their expense levels and sales charges:
Institutional Class Shares ("Class Y Shares")
are offered by this Prospectus. Class Y
Shares are offered only to institutions
acting for investors in a fiduciary,
advisory, agency, custodial or similar
capacity, and are not offered directly to
retail customers. Class Y Shares are offered
at net asset value with no sales charge, no
redemption fee, no contingent deferred sales
charge and no distribution fee. (See "How to
Purchase Class Y Shares.")
The other classes, Front-Payment Class Shares ("Class A
Shares") and Level Payment Class Shares ("Class C Shares") are
not offered by this prospectus. See "General Information -
Description of the Fund and its Shares."
Liquidity - Redemption - You may redeem all or part of your
account on any business day at the next determined net asset
value, by telephone, FAX or mail request, with proceeds being
sent to a predesignated financial institution, if you have
elected Expedited Redemption. Proceeds will be wired or
transferred through the facilities of the Automated Clearing
House, wherever possible, upon request, if in an amount of $1,000
or more, or will be mailed. For these and other redemption
procedures see "How to Redeem Your Investment." There are no
penalties or redemption fees for redemption of Class Y shares.
Distributions from the Fund - Distribution of any income net
of operating expenses or any net realized capital gains will be
made annually. The Fund's net income and short-term capital gains
are taxed as ordinary income, while long-term capital gains
distributions are taxed to you as long-term capital gains,
regardless of how long you have held your shares. See "Dividend
and Tax Information."
Exchanges - You may exchange Class Y Shares of the Fund into
Class Y Shares of the Aquila-sponsored tax-free municipal bond
mutual funds or another Aquila-sponsored equity fund. You may
also exchange them into shares of the Aquila sponsored money
market funds. The exchange prices will be the respective net
asset values of the shares. (See "Exchange Privilege.")
Convenience - Through ownership of a single security
consisting of shares of the Fund, you achieve investment
participation in a variety of Investment Region companies and you
are relieved of all the various inconveniences including
selecting, purchasing or selling, continuously monitoring,
handling, and safekeeping associated with direct investment in
individual securities of those companies. The Fund handles all
paperwork involved with share ownership, advising you of the
Federal tax status of dividends and capital gains, and providing
you with simplified records. You receive statements of your
account quarterly as well as each time you add to your investment
or redeem part or all of it. Additionally, you receive a semi-
annual report and an audited annual report.
Management Fee Arrangements - The Fund can pay management
fees at an annual rate of up to 0.80 of 1% of average annual net
assets to its Adviser and Administrator and up to 0.70 of 1% of
average annual net assets to its Sub-Adviser (for total
management fees at a rate of up to 1.50% of the first $15 million
of average annual net assets). The overall rates of these
management fees decline as the asset size of the Fund increases.
See "Management Arrangements." Some or all of these management
fees may be waived in the early development phase of the Fund.
Risk Factors - The Fund seeks to provide you with capital
appreciation over a period of time. The value of the Fund's
shares will fluctuate due to changes in the equity markets and
the proceeds of redemptions may be more or less than your cost.
The Fund's assets, being primarily or entirely invested in the
securities of Investment Region companies, are subject to
economic and other conditions affecting that area. (See "Risks
and Special Considerations Regarding the Investment Region.") In
addition, the Fund may have less diversification than funds
without this investment policy. The fund may invest in small
capitalization securities in a market value range of $100 million
to $700 million per issue. Smaller companies may experience
different growth rates and higher failure rates than those of
larger companies having longer operating histories. Moreover, the
stock price movements of smaller companies may experience more
volatility than those of larger and more mature companies. (See
"Risk Factors and Special Considerations.") The Fund may also to
a limited degree buy put options and buy and sell call options;
there may be risks associated with these practices. (See "Options
Transactions.")
<PAGE>
<TABLE>
<CAPTION>
AQUILA CASCADIA EQUITY FUND
TABLE OF EXPENSES
Class Y
Shareholder Transaction Expenses Shares
<S> <C>
Maximum Sales Charge Imposed on Purchases None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses (1)(2)
(as a percentage of average net assets)
Investment Advisory and Administration Fee 0.80%
Sub-Advisory Fee 0.70%
Other Expenses 0.35%
Total Fund Operating Expenses 1.85%
Example (3)
You would pay the following expenses on a $1,000 investment,
assuming a 5%
annual return and redemption at the end of each time period:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
$19 $58 $100 $217
<FN>
(1) Based upon estimated expenses to be incurred during the first
fiscal year of the Fund.
</FN>
<FN>
(2) For the first fiscal year of the Fund, investment income is
estimated to
be 1.50% of average net assets. It is anticipated that certain
fees may be
waived according to a predetermined formula. The Adviser and
Administrator
(the Adviser) and the Sub-Adviser have undertaken to waive some or
all of
their management fees for the first fiscal year of the Fund ending
March 31,
1997 (as required) in order to achieve the objective that (on an
annualized
basis for the fiscal year) the excess, if any, of Total Fund
Operating
Expenses over investment income be not greater than 1.50% of
average net
assets, provided that if the waiver of all of such fees has been
insufficient
to achieve that objective, then expenses will exceed that level.
No fee
waivers are currently in effect. If the Adviser and Sub-Adviser
determine
that it would be advisable in the future to waive some or all of
their
management fees, it is anticipated that as the asset size of the
Fund
increases, waivers would be progressively reduced so that when
total net
assets exceed approximately $25 million a substantial portion or
all of these
management fees would be paid.
</FN>
<FN>
(3) The expense example is based upon the above shareholder
transaction
expenses and estimated annual Fund operating expenses. It is also
based upon
amounts at the beginning of each year which includes the prior
year's assumed
results. A year's results consist of an assumed 5% annual return
less total
operating expenses; the expense ratio was applied to an assumed
average
balance (the year's starting investment plus one-half the year's
results).
Each figure represents the cumulative expenses so determined for
the period
specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES
THAT ALL
MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF
PREPARING THE
ABOVE EXAMPLE.
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will
bear directly or indirectly. The assumed 5% annual return should
not be interpreted as a prediction of an actual return, which may
be higher or lower.
<PAGE>
AQUILA CASCADIA EQUITY FUND
INTRODUCTION
Aquila Cascadia Equity Fund is a diversified, open-end
mutual fund which continuously offers to purchase or redeem its
shares on any business day (see sections of Prospectus on "How to
Invest in the Fund" and How to Redeem Your Investment." The
Fund's shares are designed to be a suitable investment for
investors who seek capital appreciation primarily through the
equity securities of companies operating in the Investment Region
of the country.
The Fund provides you with the opportunity to have the
benefits of a diversified and professionally managed portfolio of
securities intended to allow participation in the economic
development of the Investment Region. Through the convenience of
a single security consisting of shares of the Fund, you are
relieved of all the various inconveniences -- including
selecting, purchasing or selling, continuously monitoring,
handling, and safekeeping -- associated with direct investment in
individual securities of various companies in the Investment
Region.
The Fund was organized by Aquila Management Corporation,
which has provided administrative and/or investment advisory
services to various mutual funds founded by it since 1984. It
currently acts as administrator to fourteen Aquila-sponsored
funds, including the Fund, with combined net assets as of June
30, 1996 of approximately $2.6 billion. Continuous and active
local portfolio management of the Fund is provided by its
regionally-located sub-adviser, Ferguson, Wellman, Rudd, Purdy &
Van Winkle, Inc. (the "Sub-Adviser").
INVESTMENT OF THE FUND'S ASSETS
The Fund's investment objective, which is a fundamental
policy of the Fund, is to purchase and hold securities for
capital appreciation. There is no assurance that the Fund will
achieve its objective. The Fund does not expect to receive
dividends of sufficient size to enable it to provide investors
with any significant amount of current income and during at least
its first fiscal year expects to apply all of such income to Fund
operating expenses so that none will be available for
distribution to shareholders.
As used in the Prospectus and Additional Statement, the
general area consisting of Oregon, Washington, Idaho, Utah,
Nevada, Alaska and Hawaii is called in the Prospectus the
"Investment Region." The Fund seeks to achieve its objective by
investing primarily in equity securities of companies
("Investment Region companies") having a significant business
presence in the Investment Region. It is anticipated that under
normal circumstances, the Fund will invest at least 65% and
possibly up to 100%, of its total assets in securities issued by
such companies.
For purposes of this Prospectus, companies with a
significant business presence in the Investment Region are
defined as those companies (i) whose principal executive offices
are located in the Investment Region, (ii) which have more than
50% of their assets located in the Investment Region or
(iii) which derive a significant portion of their revenues or
profits from the Investment Region. In determining which
companies have a significant business presence in the Investment
Region, the Sub-Adviser may rely on any publicly available
information about those companies that it considers reliable.
There may be risks associated with this investment policy. (See
"Risk Factors and Special Considerations.")
As used in the Prospectus the term "equity securities" means
(i) common stocks and (ii) preferred stocks, bonds, debentures
and notes convertible into common stocks. Under normal
conditions, it is anticipated that the Fund will invest at least
65%, and possibly up to 100%, of its total assets in such
securities of companies in the Investment Region. The Fund may
also, to a limited extent make certain other types of
investments. (See below.)
Since the practice of many growth-oriented companies in
which the Fund will invest is to reinvest most or all of their
earnings in the development of their business, the Fund does not
expect to receive dividends enabling it to provide investors with
any significant amount of current income. In addition, during at
least the first fiscal year of the Fund, it is anticipated that
all of such income will be applied to payment of Fund operating
expenses so that none will be available for distribution to
shareholders.
In general, the Fund will take a long-term approach toward
investing. Accordingly, the turnover rate will normally be
consistent with this approach. (See "Portfolio Turnover.") At
times the Fund may make investments for short-term purposes.
Also, under changing market conditions, the Fund may dispose of
portfolio securities whenever the Sub-Adviser deems such action
advisable without regard to the length of time the securities
have been held.
In selecting investments for the Fund, the Sub-Adviser will
generally employ the investment philosophy of seeking to invest
in established, financially sound, well-managed Investment Region
companies whose securities it considers to be selling at a
reasonable price relative to their growth rate and anticipated
future values. Emphasis will be placed upon selection of
Investment Region companies whose securities the Sub-Adviser
believes are selling at lower prices relative to comparable
investments; other securities may be selected whose issuers the
Sub-Adviser believes are experiencing better growth relative to
comparable investments. It is anticipated that a number of
factors will be considered in investment selection, including but
not limited to: product characteristics and market potential,
operating ratios, management abilities, intrinsic value of
securities, securities' market action, and the overall economic,
monetary, political and market environment. The Sub-Adviser
currently focuses on approximately 200-500 Investment Region
companies from which it selects investments for the Fund's
portfolio.
Although the Fund may invest in large capitalization
companies, it is anticipated that the companies represented in
the Fund's portfolio may also include those companies, having
market capitalization of middle to smaller size, which the Sub-
Adviser believes offer the potential of capital appreciation due
to their overall characteristics. These companies are likely to
be less well known because they are smaller in size, have smaller
capitalizations, and have a lesser number of shares traded. The
prices of securities of such companies may be more volatile than
the prices of securities of issuers which are more mature, have
larger capitalizations and whose securities are more actively
traded.
In unusual market conditions when the Sub-Adviser believes a
defensive posture for the Fund's investments is warranted, the
Fund may temporarily invest a portion or all of its assets in
high quality fixed-income securities such as U.S. Treasury
securities, corporate bonds or high grade short-term money-market
securities, without geographic or percentage limitation. Only
corporate securities rated "A" or equivalent by a nationally
recognized statistical rating organization will be purchased. See
the Additional Statement for a description of these organizations
and an explanation of their ratings.
Convertible Securities
The Fund may invest up to 25% of its assets in convertible
securities of Investment Region companies, if the Sub-Adviser
believes there is potential of capital growth through the
conversion option and greater investment income prior to
conversion. Only convertible securities rated investment grade by
a nationally-recognized statistical rating organization will be
purchased. In general, there are nine separate credit ratings,
ranging from the highest to the lowest quality standards for debt
obligations; obligations rated within the four highest ratings
are considered "investment grade." Not more than 5% of the
convertible securities purchased by the Fund can have the lowest
of the four investment grade ratings. Obligations rated in the
fourth such credit rating are considered by the rating agencies
to be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. See the Additional Statement for
a description of these organizations and an explanation of their
ratings.
A convertible security is a fixed-income security (a bond or
preferred stock) which may be converted at a stated price within
a specified period of time into a certain quantity of the common
stock of the same or a different issuer. Convertible securities
are senior to common stocks in a corporation's capital structure,
but are usually subordinated to similar nonconvertible
securities. While providing a fixed income stream (generally
higher in yield than the dividends received from a common stock
but lower than that afforded by a similar nonconvertible
security), a convertible security also affords the opportunity
through its conversion feature to participate in the capital
appreciation attendant upon a market price advance in the
convertible security's underlying common stock.
In general, the market value of a convertible security is at
least the higher of its "investment value" (i.e., its value as a
fixed-income security) or its "conversion value" (i.e., its value
upon conversion into its underlying common stock). As a fixed-
income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a
convertible security is also influenced by the market value of
the security's underlying common stock. The price of a
convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines. While no
securities investment is without some risk, investments in
convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Warrants
The Fund may also invest up to 5% of its total net assets,
as determined at time of purchase, in warrants of Investment
Region companies. Warrants entitle the holder to purchase a fixed
number of shares of the common stock of the issuer at a fixed
price during certain specified times. The value of the warrants
from time to time depends upon the market evaluation of the
likelihood that exercise of the warrants would be economically
advantageous before they expire. The market price of warrants
tends to be more volatile than that of the underlying common
stock.
Options Transactions
The Fund may purchase put and write (i.e., sell) call
options and purchase call options for hedging purposes or in
order to generate additional income or for taking a position in a
security deemed attractive by the Sub-Adviser. The Fund will
purchase or write options only on equity securities that are
traded on national securities exchanges or that are listed on
NASDAQ (NASDAQ options). The Fund may purchase put and write call
options only on equity securities which are held in the Fund's
investment portfolio or to close out positions. Additionally, the
Fund may purchase calls on securities which are not in the Fund's
portfolio or to close out positions.
The Fund will not (a) write call options if immediately
after any such transaction, the aggregate value of the securities
underlying the calls would exceed 20% of the Fund's total net
assets, or (b) purchase put or call options if, immediately after
such purchases, the premiums paid for all such options owned at
the time would exceed 5% of the Fund's total net assets. The Fund
will not write put options except to close out positions. See the
Additional Statement for a description of these instruments and
their uses.
While the Fund may engage in puts and calls to a limited
extent, there are certain risks associated with this activity
that are different than investing in the underlying securities
directly (see the Additional Statement). Option transactions
involve risks and transaction costs which the Fund would not
incur if it did not engage in option transactions. If the Sub-
Adviser's predictions of movements in the direction of the
securities markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options
include dependence upon the Sub-Adviser's ability to predict
correctly movements in the direction of securities prices and the
possible absence of a liquid secondary market for any particular
instrument at any time. See the Additional Statement for a
description of these and other risks with respect to option
transactions.
Lending of Portfolio Securities
In order to generate additional income, the Fund may lend
portfolio securities, up to 25% of its total assets, to broker-
dealers, banks or other financial borrowers of securities. As
with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, the Fund
will enter into loan arrangements only with broker-dealers,
banks, or other institutions which the Sub-Adviser has determined
are creditworthy under guidelines established by the Fund's Board
of Trustees and will receive collateral in the form of cash or
short-term U.S. Government securities equal at least to 100% of
the value of the securities loaned. The value of the collateral
and the securities loaned will be marked to market on a daily
basis. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or
interest paid on the securities and the Fund may invest the cash
collateral and earn additional income or receive an agreed upon
amount of interest income from the borrower. However, the amounts
received by the Fund may be reduced by any finders' fee paid to
broker-dealers and any other related expenses.
Borrowings by the Fund
The Fund can borrow money for temporary or emergency
purposes from a bank. The Fund will not borrow amounts in excess
of 10% of total assets and will not purchase securities if
borrowings are equal to or greater than 5% of total assets. The
Fund intends primarily to exercise such borrowing authority to
meet any abnormal level of shareholder redemptions and under
circumstances where redemptions exceed available cash.
Repurchase Agreements
The Fund may purchase securities subject to repurchase
agreements, provided that such securities consist entirely of
U.S. Government securities or securities that, at the time the
repurchase agreement is entered into, are rated in the highest
rating category by at least one nationally recognized statistical
rating organization. Repurchase agreements may be entered into
only with commercial banks or broker-dealers. Subject to the
control of the Board of Trustees, the Sub-Adviser will regularly
review the financial strength of all parties to repurchase
agreements with the Fund.
Under a repurchase agreement, at the time the Fund purchases
a security, the Fund also resells it to the seller and must
deliver the security (or securities substituted for it) to the
seller on an agreed-upon date in the future. (The securities so
resold or substituted are referred to herein as the "Resold
Securities.") The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective
for the period of time during which the Fund's money is invested
in the Resold Securities. The majority of these transactions run
from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase.
Repurchase agreements can be considered as loans
"collateralized" by the Resold Securities, such agreements being
defined as "loans" in the Investment Company Act of 1940 (the
"1940 Act"). The return on such "collateral" may be more or less
than that from the repurchase agreement. The Resold Securities
under any repurchase agreement will be marked to market every
business day so that the value of the "collateral" is at least
equal to the resale price provided in the agreement, including
the accrued interest earned thereon, plus sufficient additional
market value as is considered necessary to provide a margin of
safety. During the term of the repurchase agreement, the Fund or
its custodian either has actual physical possession of the Resold
Securities or, in the case of a security registered in book entry
system, the book entry is maintained in the name of the Fund or
its custodian.
The Fund retains an unqualified right to possess and sell
the Resold Securities in the event of a default by the other
party. However, in the event of bankruptcy or other default by
the other party, there may be possible delays and expenses in
liquidating the Resold Securities, decline in their value and
loss of interest.
Shares of Investment Companies
The Fund may purchase shares of investment companies with
money market portfolios which are any of the money-market funds
in the Aquilasm Group of Funds. As of the date of the Prospectus,
these funds are Capital Cash Management Trust, Pacific Capital
Cash Assets Trust (Original Shares), Pacific Capital Tax-Free
Cash Assets Trust (Original Shares), Pacific Capital U.S.
Treasuries Cash Assets Trust (Original Shares) and Churchill Cash
Reserves Trust. The Fund will not purchase shares of an
investment company which imposes a sales or redemption charge of
any sort; however, an investment company in which the Fund
invests may have a distribution plan under which it may pay for
distribution expenses or services. Such investments will
ordinarily be made to provide additional liquidity and at the
same time to earn higher yields than are usually associated with
the overnight or short-term obligations in which the Fund might
otherwise invest for this purpose. While higher yields than those
of alternative investments may be obtainable, these yields will
reflect management fees and operating and distribution expenses
of the investment companies and will result in duplication of
management fees with respect to assets of the Fund so invested.
The Fund may not invest in the shares of investment companies if
immediately thereafter it has invested more than 10% of the value
of its total assets in such companies or more than 5% of the
value of its total assets in any one such company; it may not
invest in such a company if immediately thereafter it owns more
than 3% of the total outstanding voting stock of such a company.
Risk Factors and Special Considerations
While the Fund will be actively managed to seek growth of
your capital, the value of the Fund's shares will fluctuate as a
result of equity market factors. Accordingly, the proceeds of
redemptions may be more or less than your original cost
There are two types of risk generally associated with owning
equity securities: market risk and financial risk. Market risk is
the risk associated with the movement of the stock market in
general. Financial risk is associated with the financial
conditions and profitability of the underlying company.
The Fund may invest in small capitalization securities in a
market value range of $100 million to $700 million per issue.
Smaller companies may experience different growth rates and
higher failure rates than those of larger companies having longer
operating histories. Moreover, the stock price movements of
smaller companies may experience more volatility than those of
larger and more mature companies.
There are two types of risk associated with owning debt
securities: interest rate risk and credit risk. Interest rate
risk relates to fluctuations in market value arising from changes
in interest rates. If interest rates rise, the value of debt
securities will normally decline and if interest rates fall, the
value of debt securities will normally increase. All debt
securities, including U.S. Government securities, which are
generally considered to be the most creditworthy of all debt
obligations, are subject to interest rate risk. Securities with
longer maturities generally have a more pronounced reaction to
interest rate changes than shorter term securities. Credit risk
relates to the ability of the issuer to make periodic interest
payments as scheduled and ultimately repay principal at maturity.
The Fund does not intend to hold corporate debt securities unless
the opportunities for capital appreciation and income, combined,
remain attractive.
Risks and Special Considerations regarding
the Investment Region
The Fund's assets, being primarily or entirely invested in
the securities of Investment Region companies, are subject to
economic and other conditions affecting the various states which
comprise the Investment Region.
Continental States
The continental states of the Investment Region are
characterized by wide differences in climate, great distances and
diverse population density. In some areas, availability of water
is a factor of considerable importance in economic development
and water issues will likely affect the growth and prosperity of
much of those states in the future. Originally heavily oriented
toward the exploitation of natural resources, in recent years the
economies of the continental states of the Investment Region have
shifted toward more diversity with increases in tourism, high
technology and the service sector. Those states have been
characterized in recent years by population growth and
immigration from other areas of the United States. Some of the
states in the Investment Region have experienced growth rates
above the national averages.
Hawaii
As of the date of this Prospectus, economic data available
indicate that 1995 was a year of mild expansion in Hawaii, with
lingering areas of weakness and not enough economic growth to do
more than halt the slide in employment. Local economic sources
expect that the economy will gain some further strength this
year. Despite the lower unemployment rate and strong growth in
tourism, business activity in the state remained sluggish.
Disinflation has accompanied the lower growth rate.
Tourism is Hawaii's principal industry. Tourist arrivals and
spending provided a needed boost to the Hawaiian economy in 1995.
The decline in construction, underway since mid-1991, continued.
Job loss also accompanied the closure or announcement of
timetables for closure of several sugar plantations.
Combined with more gradual reductions in the number of
military personnel stationed on the islands and civilian military
employees in the military, during 1995, Hawaii was able to create
only slightly more jobs than it lost, leaving the job count
between 1993 and 1995 virtually unchanged.
The prolonged weakness has resulted in pressures for
Hawaiian state government to achieve a balanced budget by
significant cuts in expenditures. These reductions will pressure
government to operate in a much leaner and more efficient manner.
General Considerations
Because of the large geographic size of the Investment
Region, the above factors may have varying importance from one
state to another. It is not possible to predict what effect they
may individually or collectively have on any particular company
in which the Fund may choose to invest.
In addition, companies with headquarters in the Investment
Region or with a significant business presence in the Region may
also have significant business interests, sales and assets
outside of the Region and may thus be subject to other economic
influences. Because the Fund will invest most, and may invest
all, of its assets in Investment Region companies, it may have
less diversification than funds without this investment policy.
Portfolio Turnover
Given the Fund's value orientation to capital appreciation,
it is not expected that the Fund's annual portfolio turnover rate
will exceed 60%. See the Additional Statement.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and Additional Statement as "fundamental policies,"
cannot be changed unless the holders of a "majority," as defined
in the 1940 Act, of the Fund's outstanding shares vote to change
them. All other policies can be changed from time to time by the
Board of Trustees without shareholder approval. Some of the more
important of the Fund's fundamental policies, not otherwise
identified in the Prospectus, are set forth below; others are
listed in the Additional Statement.
1. The Fund has industry investment requirements.
The Fund cannot buy securities in any one industry if more
than 25% of its total assets would then be invested in securities
of that industry.
2. The Fund can make loans only by lending securities or entering
into repurchase agreements.
The Fund can lend its portfolio securities (see "Lending
Portfolio Securities") and can enter into repurchase agreements
(see "Repurchase Agreements") but cannot otherwise make loans.
The Fund can buy debt securities as described above (see
"Investment of the Fund's Assets"); this is investing, not making
a loan.
3. The Fund can borrow only in limited amounts for special
purposes.
The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage
or pledge its assets only in connection with such borrowing and
only up to the lesser of the amounts borrowed or 5% of the value
of its total assets. Interest on borrowings would reduce the
Fund's income. Except in connection with borrowings, the Fund
will not issue senior securities. The Fund will not purchase any
security while it has any outstanding borrowings which exceed 5%
of the value of its total assets.
NET ASSET VALUE PER SHARE
The Fund's net asset value and offering price per share are
determined as of 4:00 p.m. New York time on each day that the New
York Stock Exchange is open (a "business day"). The close of the
principal exchanges or other markets on which some of the Fund's
portfolio securities are traded may be later than 4:00 p.m. The
net asset value per share is determined by dividing the value of
the net assets (i.e., the value of the assets less liabilities)
by the total number of shares outstanding. Determination of the
value of the Fund's assets is subject to the direction and
control of the Fund's Board of Trustees. Securities listed on a
national securities exchange or designated as national market
system securities are valued at the last prior sale price or, if
there has been no sale that day, at the bid price. The value of
other securities is in general based on market value, except that
short-term investments maturing in 60 days or less are generally
valued at amortized cost; see the Additional Statement for
further information.
HOW TO INVEST IN THE FUND
Institutional Class Shares (Class Y Shares) are offered only
to institutional investors for investments held in a fiduciary,
advisory, agency, custodial or similar capacity or through them
to their clients, and are not offered to directly to retail
customers. Class Y Shares are offered at net asset value with no
sales charge, no redemption fee, no contingent deferred sales
charge and no distribution fee. (See "How to Purchase Class Y
Shares" and "Alternative Purchase Plans.")
How to Purchase Class Y Shares
Class Y Shares of the Fund may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to Administrative Data
Management Corp. (the "Agent") at the address on the Application.
There is no sales charge on initial or subsequent investments.
You are urged to complete an Application and send it to the Agent
so that expedited shareholder services can be established at the
time of your investment.
The minimum initial investment for Class Y Shares is $1,000,
except as otherwise stated in the Prospectus or Additional
Statement. You may also make an initial investment by
establishing an Automatic Investment Program. To do this you must
open an account for automatic investment of at least $50 each
month and make an initial investment of at least $50. (See below
and "Automatic Investment Program" in the Application.) Such
investment must be drawn in United States dollars on a United
States commercial or savings bank, credit union or a United
States branch of a foreign commercial bank (each of which is a
"Financial Institution"). You may make subsequent investments in
Class Y Shares in any amount (unless you have an Automatic
Withdrawal Plan). Your subsequent investment may be made through
a selected dealer or by forwarding payment to the Agent, with the
name(s) of account owner(s), the account number and the name of
the Fund. With subsequent investments, please send the pre-
printed stub attached to the Fund's confirmations.
Subsequent investments of $50 or more in Class Y Shares can
be made by electronic funds transfer from your demand account at
a Financial Institution. To use electronic funds transfer for
your purchases, your Financial Institution must be a member of
the Automated Clearing House and the Agent must have received
your completed Application designating this feature, or, after
your account has been opened, a Ready Access Features form
available from the Distributor or the Agent. A pre-determined
amount can be regularly transferred for investment ("Automatic
Investment"), or single investments can be made upon receipt by
the Agent of telephone instructions from anyone ("Telephone
Investment"). The maximum amount of each Telephone Investment is
$50,000. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate these investment methods at any time or
charge a service fee, although no such fee is currently
contemplated.
The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to
all purchase orders received by the Agent from selected dealers
that day, except that orders received by it after 4:00 p.m. New
York time will receive that day's offering price only if such
orders were received by selected dealers from customers prior to
such time and transmitted to the Distributor prior to its close
of business that day (normally 5:00 p.m. New York time); if not
so transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Fund's best interest to do
so.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share). No Share certificates will be issued for Class Y
Shares.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule 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 written
plan adopted under the Rule. No payments under the Plan from
assets represented by Class Y Shares are authorized.
The Plan contains provisions designed to protect against any
claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for payments made with respect to Class A Shares and
Class C Shares it is not financing any such activity and does not
consider any payment enumerated in such provisions as so
financing any such activity. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Fund shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. See the Additional Statement.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your Class Y Shares at the
net asset value next determined after acceptance of your
redemption request at the Agent. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Fund, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. There are no redemption fees or penalties on
redemption of Class Y Shares. A redemption may result in a
transaction taxable to you.
For your convenience the Fund offers expedited redemption
for Class Y Shares to provide you with a high level of liquidity
for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your
address of record during the 30 days preceding your
redemption request. You can make only one request for
telephone redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
888-322-7224 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
2. By FAX or Mail. You may also request redemption payments
to a predesignated Financial Institution account by a letter
of instruction sent to: Administrative Data Management
Corp., Attn: Aquilasm Group of Funds, by FAX at 908-855-5730
or by mail at 581 Main Street, Woodbridge, NJ 07095-1198,
indicating account name(s), account number, amount to be
redeemed, and any payment directions, signed by the
registered holder(s). Signature guarantees are not required.
See "Redemption Payments" below for payment methods.
If you wish to use the above procedures you should so elect
on the Expedited Redemption section of the Application or the
Ready Access Features form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s) of
the shareholder(s) as registered with the Fund. You may change
the designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
If you own Class Y shares registered on the books of the
Fund, and you have not elected Expedited Redemption to a
predesignated Financial Institution account, you must use the
Regular Redemption Method. Under this redemption method you
should send a letter of instruction to: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main Street,
Woodbridge, NJ 07095-1198, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
below.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), The Stock Exchanges
Medallion Program (SEMP) or The New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.
Redemption Payments
Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Fund may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
it may charge you a fee for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or valuation of the
net asset value of, portfolio securities to be unreasonable or
impracticable; or (iii) for such other periods as the Securities
and Exchange Commission may permit. Payment for redemption of
shares recently purchased by check (irrespective of whether the
check is a regular check or a certified, cashier's or official
bank check) or by Automatic Investment or Telephone Investment
may be delayed up to 15 days or until (i) the purchase check or
Automatic Investment or Telephone Investment has been honored or
(ii) the Agent has received assurances by telephone or in writing
from the Financial Institution on which the purchase check was
drawn, or from which the funds for Automatic Investment or
Telephone Investment were transferred, satisfactory to the Agent
and the Fund, that the purchase check or Automatic Investment or
Telephone Investment will be honored. Possible delays in payment
of redemption proceeds can be eliminated by using wire payments
or Federal Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. See the Additional Statement for details.
The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase shares Class Y Shares of the Fund having a net asset
value of at least $5,000. Under an Automatic Withdrawal Plan you
will receive a monthly or quarterly check in a stated amount, not
less than $50. If such a plan is established, all dividends and
distributions must be reinvested in your shareholder account.
Redemption of shares to make payments under the Automatic
Withdrawal Plan will give rise to a gain or loss for tax
purposes. See the Automatic Withdrawal Plan provisions of the
Application included in the Prospectus, the Additional Statement
under "Automatic Withdrawal Plan," and "Dividend and Tax
Information" below.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
The Advisory and Administration Agreement
Aquila Management Corporation, founder of the Fund, serves
as Adviser and Administrator (the "Adviser") for the Fund under
an Advisory and Administration Agreement (the "Advisory and
Administration Agreement"). The Adviser is the founder and serves
as administrator for three other funds oriented to the Investment
Region: Tax-Free Trust of Oregon with assets of $303 million,
Hawaiian Tax-Free Trust with assets of $651 million and Tax-Free
Fund For Utah with assets of $29 million, all as of June 30,
1996.
At its own expense, the Adviser provides office space,
personnel, facilities and equipment for the performance of its
functions thereunder and as is necessary in connection with the
maintenance of the headquarters of the Fund and pays all
compensation of the Fund's Trustees, officers and employees who
are affiliated persons of the Adviser.
Under the Advisory and Administration Agreement, subject to
the control of the Fund's Board of Trustees, the Adviser provides
such advisory services to the Fund, in addition to those services
provided by the Sub-Adviser, as the Adviser deems appropriate.
Under the Advisory and Administration Agreement, subject to
the control of the Fund's Board of Trustees, the Adviser provides
all administrative services to the Fund other than those relating
to its investment portfolio handled by the Sub-Adviser under the
Sub-Advisory Agreement. Such administrative services include, but
are not limited to, overseeing all relationships between the Fund
and its various support organizations including the transfer
agent, custodian, legal counsel, auditors and principal
underwriter. Its services include 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. Additionally, the Adviser either
keeps the accounting and other books and records of the Fund,
including the computation of net asset value per share and the
dividends (utilizing daily pricing of the securities in the
Fund's portfolio performed by the Sub-Adviser under the Sub-
Advisory Agreement) or, at its expense and responsibility,
delegates such duties in whole or in part to a company
satisfactory to the Fund. See the Additional Statement for a
further description of functions listed in the Advisory and
Administration Agreement as part of such duties.
Under the Advisory and Administration Agreement, subject to
the control of the Fund's Board of Trustees, the Adviser provides
advisory services to the Fund, which include review of the
investment activities of the Fund, and may include providing the
Sub-Adviser and the Fund with material relevant to the investment
in securities of issuers in various states. Although such event
is not anticipated, if the Sub-Advisory Agreement were
terminated, the Adviser would assume the duties of managerial
investment adviser, in addition to continuing its duties as
adviser and administrator, subject to and in compliance with the
1940 Act and the rules thereunder. In such event, it would be
paid an additional fee at the rate currently paid to the Sub-
Adviser. See the Additional Statement.
The Advisory and Administration Agreement contains
provisions as to the Adviser's allocation of the portfolio
transactions of the Fund similar to those in the Sub-Advisory
Agreement; see the Additional Statement.
Under the Advisory and Administration Agreement, the Fund
pays an advisory and administration fee computed on the net asset
value of the Fund as described in the table below.
The Sub-Advisory Agreement
Ferguson, Wellman, Rudd, Purdy & Van Winkle, Inc. (the "Sub-
Adviser") supervises the investment program of the Fund and the
composition of its portfolio.
The services of the Sub-Adviser are rendered under an
Investment Sub-Advisory Agreement (the "Sub-Advisory Agreement")
which provides, subject to the control of the Board of Trustees,
for investment supervision. The Sub-Advisory Agreement states
that the Sub-Adviser shall, at its expense, provide to the Fund
all office space and facilities, equipment and clerical personnel
necessary for the carrying out of the Sub-Adviser's duties under
the Sub-Advisory Agreement. At the Sub-Adviser's expense the Sub-
Adviser shall provide for pricing of the Fund's portfolio daily
using a pricing service or other source of pricing information
satisfactory to the Fund and, unless otherwise directed by the
Board of Trustees, for pricing of the Fund's portfolio at least
quarterly using another such source satisfactory to the Fund.
Under the Sub-Advisory Agreement, the Sub-Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Sub-Adviser.
Under the Sub-Advisory Agreement, the Fund bears the cost of
preparing and setting in type its prospectuses, statements of
additional information, and reports to shareholders and the costs
of printing or otherwise producing and distributing those copies
of such prospectuses, statements of additional information and
reports as are sent to its shareholders. Under the Sub-Advisory
Agreement, all costs and expenses not expressly assumed by the
Sub-Adviser or by the Adviser under the Advisory and
Administration Agreement or by the Fund's Distributor (principal
underwriter) are paid by the Fund. The Sub-Advisory Agreement
lists examples of such expenses borne by the Fund, the major
categories of such expenses being: legal and audit expenses,
custodian and transfer agent, or shareholder servicing agent fees
and expenses, stock issuance and redemption costs, certain
printing costs, registration costs of the Fund and its shares
under Federal and State securities laws, interest, taxes and
brokerage commissions, and non-recurring expenses, including
litigation.
Under the Sub-Advisory Agreement, the Fund pays a Sub-
Advisory fee computed on the net asset value of the Fund as set
forth in the table that appears below.
The Sub-Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. In general, the primary consideration in
effecting transactions for the Fund is obtaining the most
favorable prices and efficient execution. This means that the
Sub-Adviser will seek to execute each transaction at a price and
commission, if any, which provide the most favorable total cost
or proceeds reasonably attainable in the circumstances. While the
Sub-Adviser generally seeks reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest
spread or commission available. The Sub-Adviser has complete
freedom as to the markets in which and the broker-dealers through
whom (acting on an agency basis or as principal) it operates to
seek this result. The Sub-Adviser may consider a number of
factors in determining which broker-dealers to use. These
factors, which are more fully discussed in the Additional
Statement, include, but are not limited to, research services,
the reasonableness of commissions and quality of services and
execution. The Sub-Adviser is authorized to consider sales of
shares of the Fund.
Advisory and Administration and Sub-Advisory Fees
Under the Advisory and Administration Agreement and the Sub-
Advisory Agreement, the Fund pays fees to the Adviser and Sub-
Adviser which are payable monthly and computed on the net asset
value of the Fund at the end of each business day at different
levels, depending on the net assets of the Fund. The aggregate
annual rate of the fees payable with respect to net assets at
different levels are set forth in the following table:
<TABLE>
<CAPTION>
Aggregate Annual Rates
Advisory and Sub-
Fund Net Assets Administration Advisory Fee
Total Fees
Fee
<S> <C> <C>
<C>
Up to $15 million..... 0.80 of 1% 0.70 of 1%
1.50%
$15 million up to
$50 million........ 0.65 of 1% 0.55 of 1%
1.20%
Above $50 million..... 0.50 of 1% 0.40 of 1%
0.90%
</TABLE>
The Adviser and the Sub-Adviser may each waive all or part
of their respective fees during the early development phase of
the Fund. The combined fees paid by the Fund to the Adviser and
the Sub-Adviser are higher than those paid by most other
investment companies. In authorizing such fees, the Board of
Trustees considered a number of factors including the
difficulties of managing a portfolio oriented primarily to the
Investment Region, and the expertise with respect to that area
possessed by both the Adviser and the Sub-Adviser.
The Adviser and Sub-Adviser have each agreed that their
respective fees shall be reduced, but not below zero, by an
amount equal to their respective pro-rata portions (based upon
the aggregate fees of the Adviser and the Sub-Adviser) of the
amount, if any, by which the total expenses of the Fund in any
fiscal year, exclusive of taxes, interest, and brokerage fees,
exceed the most restrictive expense limitation imposed upon the
Fund in the states in which shares are then eligible for sale. At
the present time none of the states in which the Fund's shares
will be sold have any such limitation.
Information about the Adviser and Administrator,
the Sub-Adviser and the Distributor
The Fund's founder, Adviser and Administrator is
administrator to the Aquilasm Group of Funds, which consists of
14 funds: seven tax-free municipal bond funds, five money market
funds and two equity funds including the Fund. As of June 30,
1996, these funds had aggregate assets of approximately $2.6
billion, of which approximately $700 million consisted of assets
of money market funds and $1.9 billion consisted of assets of the
tax-free bond funds.
The Adviser and Administrator, which was founded in 1984, is
controlled by Mr. Lacy B. Herrmann (directly, through a trust and
through share ownership by his wife). See the Additional
Statement for information on Mr. Herrmann.
The Sub-Adviser, Ferguson, Wellman, Rudd, Purdy & Van
Winkle, Inc is the Fund's local investment-adviser. It provides
professional investment advisory services to a broad base of
clients and currently manages over $1 billion in clients' assets,
of which approximately $400 million consists of equity
investments. Ferguson, Wellman is a full service investment
advisory firm serving institutional and individual investors with
investments in publicly traded stocks, bonds and cash securities.
Founded in 1975, Ferguson, Wellman operates as a private
corporation from their offices in Portland, Oregon. The Sub-
Adviser is employee owned, with over two-thirds of the company's
employees owning stock. The Sub-Adviser manages a conservative
mix of publicly traded stocks, government and corporate bonds as
well as other fixed income investments and cash management
securities for a diversified group of investors including
corporate, union, public and individual retirement funds, taxable
corporate and individual investors, family trusts, endowments,
foundations and special investment accounts. The Sub-Adviser has
enjoyed consistent, controlled growth of assets managed since
beginning operations twenty years ago.
Ferguson, Wellman implements a team-oriented equity
investment process utilizing the collective experience and
knowledge of each of five equity portfolio managers/analysts. The
equity team divides research by industry classification and each
manager/analyst prepares both industry research and research and
recommendations on individual issues within the industry and
presents all research at regular meetings of the equity team. Two
Senior Vice Presidents and Portfolio Managers, George W.
Hosfield, CFA and Dean M. Dordevic, share final responsibility
for implementation of the investment process for the Fund. Mr.
Hosfield joined Ferguson, Wellman in 1991. He holds a B.S. in
management and MBA in finance from the University of Oregon. He
is a Chartered Financial Analyst and a member and past president
of the Portland Society of Financial Analysts. Prior to joining
Ferguson, Wellman, Mr. Hosfield served as Vice President and
Portfolio Manager with Qualivest Capital Management and an
account executive with Smith Barney, Harris Upham & Co. Mr.
Dordevic came to Ferguson, Wellman in 1994 after serving eleven
years as Senior Vice President and Portfolio Manager with Kidder
Peabody Asset Management in New York City. Mr. Dordevic holds a
B.A. in finance from Trinity University in San Antonio, Texas and
is a member of the New York Society of Securities Analysts. Mr.
Dordevic began his career as a consultant for high-net-worth
individuals with E.F. Hutton & Co. in New York.
The Distributor currently handles the distribution of the
shares of fourteen funds, five money market funds, seven tax-free
municipal bond funds, another regionally-oriented equity fund and
the Fund. Under the Distribution Agreement, the Distributor is
responsible for the payment of certain printing and distribution
costs relating to prospectuses and reports as well as the costs
of supplemental sales literature, advertising and other
promotional activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned by Mr. Herrmann, will be owned by certain
directors and/or officers of the Sub-Adviser and/or the
Distributor including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
The Fund distributes dividends from net investment income,
if any, on an annual basis, generally in December. If the Fund
has net long-term capital gains or net short-term capital gains
that must be distributed pursuant to Federal income tax law, it
distributes those amounts at the same time. Short-term capital
gains include the gains from the disposition of securities held
less than one year, the premiums from expired call options
written by the Fund and net gains from closing transactions with
respect to such options. If required by tax laws to avoid excise
or other taxes, dividends and/or capital gains distributions may
be made more frequently.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Fund at net asset value on the record date for the dividend or
distribution or other date fixed by the Board of Trustees. An
election to receive cash will continue in effect until written
notification of a change is received by the Agent. All
shareholders, whether their dividends are received in cash or are
being reinvested, will receive a quarterly account summary
indicating the current status of their investment. There is no
fixed dividend rate.
Tax Information
The Fund intends to qualify for taxation as a regulated
investment company under the provisions of Subchapter M of the
Internal Revenue Code. As such, the Fund will not be taxed on its
net investment income or its net realized capital gains, if any,
to the extent they have been distributed to the Fund's
shareholders. Distribution from the Fund's net income and net
short-term capital gains are taxed as ordinary income. If the
Fund has net long-term capital gains which are greater than its
net short-term capital losses, it will distribute the excess and
such distribution will be taxed to you as long-term capital
gains, regardless of how long you have held your shares.
For purposes of Federal income tax, certain options, if any,
held by the Fund at the end of its fiscal year generally will be
treated as having been sold at market value. As a general
rule any gain or loss on such contracts will be treated as 60%
long-term and 40% short-term. See the Additional Statement for
more detail on the tax aspects of options. Dividends paid by the
Fund will qualify for the dividends received deduction for
corporations only to the extent that they represent payment of
qualifying dividend income received by the Fund. Shortly after
the end of each calendar year, the Fund will send you a statement
of the amount and nature of net income and capital gains.
Distributions from the Fund, whether ordinary income or
capital gain in nature, will be taxable to you whether you take
them in cash or have them automatically reinvested in shares of
the Fund.
The Fund will be obliged to withhold certain percentages of
distributions and pay over the amounts to the Internal Revenue
Service in either of two instances:
(1) if you do not supply the Fund or the institution
through which you receive distributions with your correct
taxpayer identification number, which for most individuals is
their Social Security number, the Fund will have to withhold 31%
on ordinary income dividends, capital gains dividends and
redemption payments; and
(2) if you are a non-resident alien or foreign entity, the
Fund will have to withhold 30% (or lower rate provided by treaty
with the country in which the alien or entity resides).
As of the date of the Prospectus, Congress is considering a
number of changes affecting taxation. It is not possible to
predict which, if any, of such changes will become law.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. If you are required to pay a conditional deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. The gain or loss will be long-term
if you held the redeemed shares for over a year, and short-term,
if for a year or less. However, if shares held for six months or
less are redeemed and you have a loss, two special rules apply:
the loss is reduced by the amount of exempt-interest dividends,
if any, which you received on the redeemed shares, and any loss
over and above the amount of such exempt-interest dividends is
treated as a long-term loss to the extent you have received
capital gains dividends on the redeemed shares.
The above information is a summary of the tax treatment that
will be applied to the Fund and its distributions. If you have
any questions, you should contact your tax adviser, particularly
in connection with state and local taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and an equity fund
(the "Bond or Equity Funds") and certain money market funds (the
"Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have
the same Administrator and Distributor as the Fund. All exchanges
are subject to certain conditions described below. As of the date
of the Prospectus, the Aquila Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust, Tax-
Free Trust of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund of
Colorado, Churchill Tax-Free Fund of Kentucky, Tax-Free Fund For
Utah and Narragansett Insured Tax-Free Income Fund; the Aquila
Money-Market Funds are Capital Cash Management Trust, Pacific
Capital Cash Assets Trust (Original Shares), Pacific Capital Tax-
Free Cash Assets Trust (Original Shares), Pacific Capital U.S.
Treasuries Cash Assets Trust (Original Shares) and Churchill Cash
Reserves Trust.
Class Y Shares of the Fund may be exchanged only for Class Y
Shares of the Bond or Equity Funds or for shares of a Money-
Market Fund.
Under the Class Y exchange privilege, once Class Y Shares of
any Bond or Equity Fund have been purchased, those shares (and
any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and Class Y Shares of the Bond or
Equity Funds without the payment of any sales charge.
The "Class Y Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange by an institutional investor from a Money-Market
Fund, or which were received in exchange for shares of Class Y
Shares another Bond or Equity Fund; or (b) acquired as a result
of reinvestment of dividends and/or distributions on otherwise
Class Y Eligible Shares. Shares of a Money-Market Fund not
acquired in exchange of Class Y Eligible Shares of a Bond or
Equity Fund can be exchanged for Class Y Shares of a Bond or
Equity Fund only by persons eligible to make an initial purchase
of Class Y Shares.
This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence. The Fund
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal
to the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
888-322-7224 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
Exchanges of Class Y Shares will be effected at the relative
net asset values of the Class Y Shares being exchanged next
determined after receipt by the Agent of your exchange request.
Prices for exchanges are determined in the same manner as for
purchases of the Fund's shares. See "How to Invest in the Fund."
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see the Additional Statement); no representation is made as to
the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-
Market Fund) are exempt from regular Federal income tax, and to
the extent that a portion or all of the dividends paid by Pacific
Capital U.S. Treasuries Cash Assets Trust (which invests in U.S.
Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund are taxable.
If your state of residence is not the same as that of the issuers
of obligations in which a tax-free municipal bond fund or a tax-
free money-market Fund invests, the dividends from that fund may
be subject to income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of such a Bond Fund or a tax-free Money-Market Fund under
the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including various expressions of total return.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes the applicable sales charge) for 1- and 5-year periods
and for a period since the inception of the Fund, to the extent
applicable, through the end of such periods, assuming
reinvestment (without sales charge) of all distributions. The
Fund may also furnish total return quotations for other periods
or based on investments at various applicable sales charge levels
or at net asset value. For such purposes total return equals the
total of all capital gains and income paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a
percentage of the purchase price. See the Additional Statement.
Performance figures are based upon past performance, reflect
as appropriate all recurring charges against Fund income net of
fee waivers and reimbursement of expenses, if any, and will
assume the payment of the maximum sales charge on the purchase of
shares, but not on reinvestment of income dividends for which the
Fund does not impose a sales charge.
The investment results of the Fund, like those of all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's total return may be in
any future period.
Description of the Fund and its Shares
The Fund is an open-end, diversified management investment
company originally organized in 1982 under the name Short Term
Asset Reserves, as a Massachusetts business trust. From that date
until 1993 it operated as a money-market fund. In 1993 it ceased
operations. In 1996, its name was changed to Aquila Cascadia
Equity Fund. The Fund's Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares and to
divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial
interests in the Fund. Each share represents an equal
proportionate interest in the Fund with each other share. Upon
liquidation of the Fund, shareholders are entitled to share pro
rata in the net assets of the Fund available for distribution to
shareholders. The Fund's shares are presently divided into three
classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Fund may
create additional classes of shares which may differ from each
other as provided in applicable rules and regulations of the
Securities and Exchange Commission or by exemptive order. The
Board of Trustees may also, at its own discretion, create
additional series of shares, each of which may have separate
assets and liabilities (in which case any such series will have a
designation including the word "Series"). See the Additional
Statement for further information about possible additional
series. Shares are fully paid and non-assessable, except as set
forth under the caption "General Information" in the Additional
Statement; the holders of shares have no pre-emptive or
conversion rights.
The other two classes of shares of the Fund are Front
Payment Class Shares ("Class A Shares") and Level Payment Class
Shares ("Class C Shares"), which are fully described in a
separate prospectus that can be obtained by calling the Fund at
888-322-7223.
The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All three
classes represent interests in the same portfolio of securities
and have the same rights, except that each class bears the
separate expenses, if any, of its Distribution Plan and has
exclusive voting rights with respect to its Plan. There are no
Distribution fees with respect to Class Y Shares.
Dividends and other distributions paid by the Fund with
respect to shares of each Class are calculated in the same manner
and at the same time, but may differ depending upon the
distribution and service fees, if any, and other class-specific
expenses borne by each Class.
The Fund's Distribution Plan has three parts. In addition to
the defensive provisions described above, Parts I and II of the
Plan authorize payments, to certain "Qualified Recipients," out
of the Fund's assets allocable to the Class A Shares and Class C
Shares, respectively. See the Additional Statement. The Fund has
also adopted a Shareholder Services Plan under which the Fund is
authorized to make certain payments out of the Fund's assets
allocable to the Class C Shares. See the Additional Statement.
See the notes to the "Statement of Assets and Liabilities"
in the Additional Statement for information as to the
amortization of the Fund's organizational and start-up expenses.
Voting Rights
At any meeting of shareholders, shareholders of the Fund are
entitled to one (1) vote for each dollar of net asset value
(determined as of the record date for such meeting) per share
held (and proportionate fractional votes for fractional dollar
amounts). Shareholders will vote on the election of Trustees and
on other matters submitted to the vote of shareholders. See the
Additional Statement for information about shareholder voting if
the Fund were in the future to have more than one portfolio
(series). No amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of a majority of the
outstanding shares of the Fund except that the Fund's Board of
Trustees may change the name of the Fund. The Fund may be
terminated (i) upon the sale of its assets to another issuer, or
(ii) upon liquidation and distribution of the assets of the Fund,
in either case if such action is approved by the vote of the
holders of a majority of the outstanding shares of the Fund. If
not so terminated, the Fund will continue indefinitely.
<PAGE>
Application for Aquila Cascadia Equity Fund
For Class Y Shares only
Please complete steps 1 through 4 and mail to:
ADM, Attn: AquilaSM Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198
Tel.# 1-888-322-7224
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the
name(s)
of Trustees in which account will be registered and the name and
date
of the Trust Instrument. Account for a Pension or Profit Sharing
Plan
or Trust may be registered in the name of the Plan or Trust
itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:_____________________
___
Employer's
Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you
are a non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate Method of Payment (For either method, make check
payable to: Aquila Cascadia Equity Fund)
___Initial Investment $ ______________ (Minimum investment $1,000)
___Automatic Investment $______________ (Minimum $50)
For Automatic Investment of at least $50 per month, you must
complete Step 3, Section A, Step 4, Sections A & B and ATTACH
A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are
automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in
cash*
* For cash dividends, please choose one of the following
options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like
you
to deposit the dividend. (A Financial Institution is a
commercial
bank, savings bank or credit union.)
___ Mail check to my/our address listed in Step B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and
invested
in your Aquila Cascadia Equity Fund Account. To establish this
program, please complete Step 4, Sections A & B of this
application.
I/We wish to make regular monthly investments of $
_________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on
the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your
account (minimum $50 and maximum $50,000) at any time you wish by
simply calling the Fund toll-free at 1-888-322-7224. To establish
this program, please complete Step 4, Sections A & B of this
Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks
prior to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions
set
forth below. To realize the amount stated below, Administrative
Data Management Corp. (the Agent) is authorized to redeem
sufficient
shares from this account at the then current Net Asset Value, in
accordance with the terms below:
Dollar Amount of each withdrawal $
______________beginning________________ .
Minimum: $50
Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate
Financial Institution name, address and your account number.
_______________________________
______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________
______________________________________
Street Financial Institution Street
Address
_______________________________
______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account
Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the AquilaSM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any
other persons telephone instructions to execute the exchange of
shares of one Aquila-sponsored fund for shares of another Aquila-
sponsored fund with identical shareholder registration in the
manner
described in the Prospectus. Except for gross negligence in acting
upon such telephone instructions to execute an exchange, and
subject
to the conditions set forth herein, I/we understand and agree to
hold harmless the Agent, each of the Aquila Funds, and their
respective officers, directors, trustees, employees, agents and
affiliates against any liability, damage, expense, claim or loss,
including reasonable costs and attorneys fees, resulting from
acceptance of, or acting or failure to act upon, this
Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will
be mailed or wired, whenever possible, upon request, if in an
amount
of $1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________
____________________________________
Account Registration Financial Institution Account
Number
_______________________________
____________________________________
Financial Institution Name Financial Institution
Transit/Routing
Number
_______________________________
____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account
initiated
by the Agent, Administrative Data Management Corp., and to pay such
sums in accordance therewith, provided my/our account has
sufficient
funds to cover such drafts or debits. I/We further agree that your
treatment of such orders will be the same as if I/we personally
signed
or initiated the drafts or debits. I/We understand that this
authority
will remain in effect until you receive my/our written instructions
to
cancel this service. I/We also agree that if any such drafts or
debits
are dishonored, for any reason, you shall have no liabilities.
Financial Institution Account Number
_______________________________________
Name and Address where my/our account is maintained
Name of Financial
Institution______________________________________________
Street
Address__________________________________________________________
___
City___________________________________________State _________ Zip
________
Name(s) and Signature(s) of Depositor(s) as they appear where
account
is registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted
pursuant to the above authorization shall be subject to the
provisions of the Operating Rules of the National Automated
Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer
in connection with the execution and issuance of any electronic
debit in the normal course of business initiated by the Agent
(except any loss due to your payment of any amount drawn against
insufficient or uncollected funds), provided that you promptly
notify us in writing of any claim against you with respect to
the same, and further provided that you will not settle or pay
or agree to settle or pay any such claim without the written
permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs
and expenses in the event that you dishonor, with or without
cause, any such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is
of legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment
or Telephone Investment, if my/our account at the Financial
Institution has insufficient funds, the Fund and its agents may
cancel the purchase transaction and are authorized to liquidate
other shares or fractions thereof held in my/our Fund account to
make up any deficiency resulting from any decline in the net
asset value of shares so purchased and any dividends paid on
those shares. I/We authorize the Fund and its agents to correct
any transfer error by a debit or credit to my/our Financial
Institution account and/or Fund account and to charge the account
for any related charges. I/We acknowledge that shares purchased
either through Automatic Investment or Telephone Investment may
be
subject to applicable sales charges.
- - The Fund, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting
upon instructions believed to be genuine, and will not be
responsible for any losses resulting from unauthorized
telephone transactions if the Agent follows reasonable
procedures designed to verify the identity of the caller. The
Agent will request some or all of the following information:
account name and number; name(s) and social security number
registered to the account and personal identification; the
Agent may also record calls. Shareholders should verify the
accuracy of confirmation statements immediately upon receipt.
Under penalties of perjury, the undersigned whose Social
Security (Tax I.D.) Number is shown above certifies (i) that
Number is my correct taxpayer identification number and (ii)
currently I am not under IRS notification that I am subject to
backup withholding (line out (ii) if under notification). If no
such Number is shown, the undersigned further certifies, under
penalties of perjury, that either (a) no such Number has been
issued, and a Number has been or will soon be applied for; if
a Number is not provided to you within sixty days, the
undersigned understands that all payments (including
liquidations) are subject to 31% withholding under federal tax
law, until a Number is provided and the undersigned may be
subject to a $50 I.R.S. penalty; or (b) that the undersigned is
not a citizen or resident of the U.S.; and either does not
expect to be in the U.S. for 183 days during each calendar year
and does not conduct a business in the U.S. which would receive
any gain from the Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________
_________
Individual (or Custodian) Joint Registrant, if any
Date
__________________________ ____________________________
_________
Corporate Officer, Partner, Title
Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be
accompanied by proof of authority to sign, such as a certified
copy of the corporate resolution or a certificate of incumbency
under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are
effective 15 days after this form is received in good order
by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after
the Agent receives written notice from you.
- - Either the Fund or the Agent may cancel any feature, without
prior notice, if in its judgment your use of any feature
involves
unusual effort or difficulty in the administration of your
account.
- - The Fund reserves the right to alter, amend or terminate any or
all features or to charge a service fee upon 30 days written
notice
to shareholders except if additional notice is specifically
required by the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete
a Ready Access features form which may be obtained from Aquila
Distributors at 1-888-322-7223 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's
Agent.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who
executed the Plan authorization.
2. Certificates will not be issued for shares of the Fund purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Fund. Any share
certificates now held by the Planholder may be surrendered
unendorsed to the Agent with the application so that the shares
represented by the certificate may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the
Fund at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments
will be made at the Net Asset Value per share in effect at the
close of business on the last business day of the month or
quarter.
5. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed, at any
time, by the Planholder on written notification to the Agent.
The Planholder should allow at least two weeks time in mailing
such notification before the requested change can be put in
effect.
6. The Planholder may, at any time, instruct the Agent by written
notice (in proper form in accordance with the requirements of
the
then current Prospectus of the Fund) to redeem all, or any part
of,
the shares held under the Plan. In such case the Agent will
redeem
the number of shares requested at the Net Asset Value per share
in
effect in accordance with the Fund's usual redemption procedures
and will mail a check for the proceeds of such redemption to the
Planholder.
7. The Plan may, at any time, be terminated by the Planholder on
written notice to the Agent, or by the Agent upon receiving
directions to that effect from the Fund. The Agent will also
terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon
termination of the Plan by the Agent or the Fund, shares
remaining unredeemed will be held in an uncertificated account
in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and
until proper instructions are received from the Planholder,
his executor or guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any
action taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent
for the Fund, the Planholder will be deemed to have appointed
any successor transfer agent to act as his agent in
administering
the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional
lump
sum investment may be made, such investment should normally be
an
amount equivalent to three times the annual withdrawal or
$5,000,
whichever is less.
<PAGE>
INVESTMENT ADVISER
Ferguson, Wellman, Rudd, Purdy & Van Winkle Inc.
888 SW Fifth Avenue, Suite 1200
Portland, OR 97204-2026
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Sally Wilson Church, Vice President
Nancy L. Kayani, 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
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................
Table of Expenses................................
Financial Highlights.............................
Introduction.....................................
Investment Of The Fund's Assets..................
Investment Restrictions..........................
Net Asset Value Per Share........................
How To Invest In The Fund........................
How To Redeem Your Investment....................
Automatic Withdrawal Plan........................
Management Arrangements..........................
Dividend And Tax Information.....................
Exchange Privilege...............................
General Information..............................
Application
Aquila
[LOGO]
Cascadia
[LOGO]
Equity Fund
PROSPECTUS
One Of The
AquilaSM Group Of Funds
