File Nos. 2-92584 & 811-4083
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[ X ]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. 12 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 16 [ X ]
AQUILA CASCADIA EQUITY FUND
originally named
Short Term Asset Reserves
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[_X_] on July 31, 1997 pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[___] on (date) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effec-
tive date for a previous post-effective amendment.
Registrant hereby declares, pursuant to Section (a)(1) of Rule
24f-2 under the Investment Company Act of 1940, that Registrant
has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to that Section and that the Rule
24f-2 Notice for Registrant's fiscal year ended March 31, 1997
was filed in May 1997.
<PAGE>
AQUILA CASCADIA EQUITY FUND
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights; General Information
4..............Introduction; Highlights; Investment of the
Trust's Assets; Investment Restrictions;
General Information
5..............Management Arrangements
5A.............*
6..............General Information; Alternative Purchase
Plans; Dividend and Tax Information
7..............Net Asset Value per Share; Alternative
Purchase Plans; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information;
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind; Computa-
tion of Net Asset Value; Automatic With-
drawal Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus cap-
tion); General Information
22.............Performance
* Not applicable or negative answer
<PAGE>
AQUILA
CASCADIA
EQUITY FUND
A REGIONAL CAPITAL APPRECIATION FUND
380 MADISON AVENUE, SUITE 2300
NEW YORK, NY 10017
1-888-3-CASCADIA (888-322-7223)
212-697-6666
Prospectus
Class A Shares
Class C Shares July 31, 1997
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 31, 1997 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 Shareholder Servicing Agent:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 888-322-7224 toll free or 732-855-5731
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. (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 client 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, 1997
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 $310 million,
Hawaiian Tax-Free Trust with assets of $655 million and Tax-Free
Fund For Utah with assets of $29 million, all as of June 30,
1997.
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, which the Fund provides, 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. If you
redeem Class C Shares before you have held them for 12
months from the date of purchase you will pay a contingent
deferred sales charge ("CDSC"); this charge is 1%,
calculated on the net asset value of the 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 the 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.
Class A Shares and Class C Shares are only offered for
sale in certain states. (See "How to Invest in the Fund.") If
shares of the Fund are sold outside those states the Fund can
redeem them. If your state of residence is not Investment Region,
the dividends from the Fund may be subject to income taxes of the
state in which you reside. Accordingly, you should consult your
tax adviser before acquiring shares of the Fund.
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 "Purchase 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 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 After Waivers (4)............... 0.40% 0.40%
12b-1 Fee....................................... 0.25% 0.75%
All Other Expenses (3)(4)....................... 1.10% 1.35%
Service Fee None 0.25%
Other Expenses 1.10% 1.10%
Total Fund Operating Expenses After Fee Waivers (4) 1.75% 2.50%
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................. $60 $95 $133 $240
Class C Shares.................
With complete redemption
at end of period........ $35 $78 $133 $248 (6)
With no redemption.......... $25 $78 $133 $248 (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) Estimated based upon expenses incurred by the Fund during its most recent
fiscal year, restated to reflect current arrangements.
</FN>
<FN>
(4) The Fund's operating expenses are being incurred at the annual rates as
shown in the table, whereas without fee waivers, they would have been incurred
at the following annual rates: for Class A Shares, management fees, 1.50%;
12b-1 fee, 0.25%, other expenses, 1.10, for total operating expenses of 2.85%;
for Class C, management fees, 1.50%; 12-1 fee, 0.75%; service fee, 0.25%;
other expenses 1.10%, for total operating expenses 3.60%, for the Fund's
fiscal year ending March 31, 1998, investment income is estimated to be 1.60%
of average assets. The Adviser and Administrator (the "Adviser") and the Sub-
Adviser have undertaken to waive some or all of their management fees (as
required) in order to achieve the objective that (on an annualized basis for
the fiscal year) Total Fund Operating Expenses will equal the Fund's
investment income, provided that if the waiver of all of such fees has been
insufficient to achieve that objective, then expenses will exceed the
level. It is anticipated that as the asset size of the Fund increases, waivers
would be progressively reduced.
</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; 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. (See "Management Arrangements" for a more
complete description of the various investment advisory and
administration fees.)
<PAGE>
<TABLE>
<CAPTION>
AQUILA CASCADIA EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
The following table of Financial Highlights has been audited by KPMG
Peat Marwick LLP, independent auditors, whose report thereon is included
in the Fund's financial statements contained in its Annual Report, which
are incorporated by reference into the Additional Statement. The information
provided in the table should be read in conjunction with the financial
statements and related notes.
Class A Class C
Period Ended Period Ended
March 31,1997(1) March 31, 1997(1)
<S> <C> <C>
Net Asset Value,
Beginning of Period............... $12.00 $12.00
Income from Investment Operations:
Net investment income............. - -
Net gain on securities
(both realized and unrealized).. 0.95 0.95
Total from Investment Operations.. 0.95 0.95
Less Distributions:
Dividends from net investment
income.......................... - -
Distributions from capital gains.. - -
Total Distributions............... - -
Net Asset Value, End of Period...... $12.95 $12.95
Total Return (not reflecting
sales charge) (%)................. 7.92+ 7.92+
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands) ($).............. 1.615 350
Ratio of Expenses to Average
Net Assets (%).................. 1.18* 1.22*
Ratio of Net Investment Income
to Average Net Assets (%)....... 0.00* 0.00*
Portfolio Turnover Rate (%)....... 3.53+ 3.53+
Average commission rate paid(2)($) 0.0672 0.0672
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Sub-Adviser's voluntary waiver of
fees, the voluntary expense reimbursement and the expense offset in custodian
fees for uninvested cash balances would have been:
Net Investment Income ($)........... - -
Ratio of Expenses to Average
Net Assets (%)...................... 4.79* 5.55*
Ratio of Net Investment Income to
Average Net Assets (%).............. (3.61)* (4.33)*
<FN>
(1) For the period August 13, 1996 (commencement of operations) through March
31, 1997.
</FN>
<FN>
(2) Represents the average per share broker commission rate paid by the Fund
in connection with the execution of its portfolio transactions in equity
securities on which commissions were charged.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
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, 1997 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 the real Gross State Product growth for
1996 was 1.0%, slightly lower than the 1.3% that was projected in
1995. Although total employment continues to contract, it is
anticipated that most downsizing has been completed, and that
there will be minor job growth of 0.0-0.5% in 1997. Although some
local companies have left the State, other substantial
organizations have indicated interest in new Hawaiian operations.
Local economic sources expect that the deflationary trend,
apparent in 1995, has continued through 1996. Retailers have kept
retail prices down and the Honolulu Consumer Price Index is
projected to remain at the current 2.2% annual rate.
Uncertainties regarding sovereignty and privatization of
government contracts will be outstanding issues that will have
significant impact over the long term for the State. Limited
revenue growth and the need to reduce expenditures will continue
to be of paramount concern for the State government.
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 net asset value of the shares of each of the Fund's
three classes and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"),by dividing
the value of the Fund's net assets(i.e., the value of the assets
less liabilities) allocable to each class by the total number of
shares of such class then outstanding. The close of the principal
exchanges or other markets on which some of the Fund's portfolio
securities are traded may be later than 4:00 p.m. 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 you with two
alternative ways to invest in the Fund through two separate
classes of shares. All classes represent interests in the same
portfolio of Investment Region Obligations. 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 contingent 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.
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. Certain Class A Shares purchased in transactions of
$1 million or more are subject to a contingent deferred
sales charge. (See "Purchase 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. 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. For purposes of
applying the CDSC and determining the time of conversion,
the 12-month and six-year holding periods are considered
modified by up to one month depending upon when during a
month your purchase of such shares is made. (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>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4.25% of the None
Charge Public Offering Price
Contingent Deferred None (except for certain Maximum CDSC of 1%
Sales Charge purchases over $1 million) if shares redeemed
before 12 months;
0% after 12 months
Distribution and 0.25 of 1% Distribution fee of
Service Fees 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 Charge waived Shares convert to Class
or reduced in some cases A Shares after six
years
</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 within a
reasonably short time 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 of at least $50 by establishing an Automatic
Investment Program. To do this you must open an account for
automatic investments 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, a 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. 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.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Fund are available only in the following states:
Alaska, Arizona, California, Colorado, District of Columbia,
Florida, Hawaii, Idaho, Kentucky, Montana, Nevada, New Jersey,
New Mexico, New York, Oregon, Utah and Washington.
If you do not reside in one of these states you should
not purchase shares of the Fund. If Class A Shares or Class C
Shares are sold outside of these states the Fund can redeem them.
Such a redemption may result in a loss to you and may have tax
consequences.
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>
<CAPTION>
Sales Charge as Sales Charge Commissions
Percentage of as Approximate as
Amount of Public Percentage of Percentage of
Purchase Offering Price Amount Invested Offering 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 Class A Shares for his,
her or their own accounts; (c) a trustee or other fiduciary
purchasing Class A 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
Class A Shares issued under the following circumstances
are called "CDSC Class A Shares": (i)Class A Shares issued in a
single purchase of $1 million or more by a single purchaser; and
(ii) all Class A 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
Class A Shares issued under the program captioned "Special Dealer
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 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 "Redemption
Value"). The special charge will be an amount equal to 1% of the
Redemption Value if the redemption occurs within the first two
years after purchase, and 0.50 of 1% of the Redemption 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
for Certain Purchasers of Class A Shares." The special charge
does not apply to Class A 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 and still own, together
with Class A Shares of your subsequent purchase with such a
charge, amounts to $25,000 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 purchase, 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 Fund or 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 Class A 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,
including a contingent deferred sales charge, 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 Class A 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. 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"). 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
at 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 Class C 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 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, 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 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.
During the fiscal period July 23, 1997 (commencement of
operations) through March 31, 1997, $995 was paid to Qualified
Recipients under the Plan with respect to the Fund's Class A
Shares of which $107 was retained by the Distributor. During the
same period $566 was paid to Qualified Recipients under the Plan
with respect to the Fund's Class C Shares of which $566 was
retained by the Distributor. Payments with respect to Class C
Shares during the first year after purchase are paid to the
Distributor and thereafter to other Qualified Recipients.
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.
During the fiscal period July 23, 1996 (commencement of
operations) through March 31, 1997, $188 of Service Fees was paid
to Qualified Recipients with respect to the Fund's Class C Shares
of which $188 was retained by 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 732-855-5731
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
732-855-5730 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 have redemption proceeds sent to a
Financial Institution Account, 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, the 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 $310 million,
Hawaiian Tax-Free Trust with assets of $655 million and Tax-Free
Fund For Utah with assets of $29 million, all as of June 30,
1997.
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 Fee Advisory Fee Total Fees
<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,
1997, 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 in 1975.
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 responsibility by sector and each
manager/analyst prepares both industry research and
recommendations on individual issues. 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.
For the fiscal period July 23, 1996 (commencement of
operations) through March 31, 1997 fees of $18,520 and $16,205,
respectively, were paid and/or accrued to the Adviser and
Administrator and to the Sub-Adviser under the Advisory and
Administration Agreement and the Sub-Advisory Agreement, all of
which were waived. In addition, other direct operating expenses
of the Fund during this period were reimbursed in the amount of
$40,009, of which $11,480 due on March 31, 1997 was paid on April
11, 1997.
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 75% by Mr. Herrmann and 25% by Diana P.
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-sponsored 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 Class A 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 Class C 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 any, 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 any, 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 any, 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 any, 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 732-855-5731
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 "Tax Effects of Redemptions" and 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 any 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, if any, 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 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 Shares 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
participation in the Distribution Plan and Shareholder Services
Plan and has exclusive voting rights with respect to such
participation.
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 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). Shares vote by classes on any matter specifically
affecting one or more classes, such as an amendment of an
applicable part of the Distribution Plan. 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 1.
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 $25,000
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:
___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000
___ $500,000 ___ $1,000,000 ___ $2,500,000 ___ $5,000,000
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 are 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 1-888-322-7224 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 2c 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 $25,000, 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 2c 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>
ADVISER AND ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-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
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
LEGAL 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 and Letter of Intent
Aquila
Cascadia
Equity Fund
PROSPECTUS
One Of The
Aquilasm Group Of Funds
<PAGE>
AQUILA
CASCADIA
EQUITY FUND
A REGIONAL CAPITAL APPRECIATION FUND
380 MADISON AVENUE, SUITE 2300
NEW YORK, NY 10017
1-888-3-CASCADIA (888-322-7223)
212-697-6666
Prospectus
Institutional Class Shares
Class Y Shares July 31, 1997
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 31, 1997 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 Shareholder Servicing Agent: Administrative Data
Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 888-322-7224 toll free or 732-855-5731
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. (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, 1997
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 $310 million,
Hawaiian Tax-Free Trust with assets of $655 million and Tax-Free
Fund For Utah with assets of $29 million, all as of June 30,
1997.
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.")
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.")
Class Y Shares of the Fund are only offered for sale in
certain states. (See "How to Invest in the Fund.") If Class Y
Shares of the Fund are sold outside those states, except to
certain institutional investors, the Fund can redeem them.
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 Class Y Shares 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 Shares
Shareholder Transaction Expenses
<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)
(as a percentage of average net assets)
Management Fee After Waivers (2)....................... 0.40%
Other Expenses......................................... 1.10%
Total Fund Operating Expenses (2).................... 1.50%
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
Class Y Shares.... $15 $47 $82 $179
<FN>
(1) Estimated based on expenses incurred by the Fund during its most recent
year, restated to reflect current arrangements. </FN>
<FN>
(2) The Fund's operating expenses are being incurred at the annual rate of
1.50%, whereas without fee waivers, they would have been incurred at the
following annual rates: management fees, 1.50%; other expenses, 1.10%, for
total operating expenses of 2.60%. For the Fund's first fiscal year ending
March 31, 1998, investment income is estimated to be 1.60% of average net
assets. The Adviser and Administrator (the "Adviser") and the Sub-Adviser
have undertaken have undertaken to waive some or all of their management fees
for that year (as required in order to achieve the objective that (on an
annualized basis for the fiscal year) Total Fund Operating Expenses will equal
the Fund's investment income, provided that if the waiver of all provided that
if the waiver of all of such fees has been insufficient to achieve that
objective, then expenses will exceed the level of income. No fee waivers are
currently in effect. It is anticipated that as the asset size of the Fund
increases, waivers would be progressively reduced.
</FN>
<FN>
(3) The expense example is based upon the above shareholder 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
ASSUMED 5% ANNUAL RETURN SHOULD NOT BE INTERPRETED AS A PREDICTION OF AN
ACTUAL RETURN WHICH MAY BE HIGHER OF LOWER
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; 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. (See
Management Arrangements for a more complete description of the various
investment advisory and administration fees.)
<PAGE>
<TABLE>
<CAPTION>
AQUILA CASCADIA EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
The following table of Financial Highlights has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included in the
Fund's financial statements contained in its Annual Report, which are
incorporated by reference into the Additional Statement. The information
provided in the table should be read in conjunction with the financial
statements and related notes.
Class Y(2)
Period Ended
March 31, 1997
<S> <C>
Net Asset Value, Beginning of Period. $12.00
Income from Investment Operations:
Net investment income (loss)...... -
Net gain on securities
(both realized and unrealized).... 0.96
Total from Investment
Operations........................ 0.96
Less Distributions:
Dividends from net investment
income............................ -
Distributions from capital gains.. -
Total Distributions............... -
Net Asset Value, End of Period...... $12.96
Total Return (not reflecting
sales charge) (%)................. 8.00+
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands) ($).............. 7,393
Ratio of Expenses to Average
Net Assets (%)................... 1.24*
Ratio of Net Investment Income
to Average Net Assets (%)........ 0.00*
Portfolio Turnover Rate (%)...... 3.53+
Average commission rate paid(2)($) 0.0672
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Sub-Adviser's voluntary waiver of
fees, the voluntary expense reimbursement and the expense offset in custodian
fees for uninvested cash balances would have been:
Net Investment Income ($)........ -
Ratio of Expenses to Average
Net Assets (%)................... 4.54*
Ratio of Net Investment Income to
Average Net Assets (%)........... (3.30)*
<FN>
(1) For the period August 13,1996 (commencement of operations) through March
31, 1997.
</FN>
<FN>
(2) Represents the average per share broker commission rate paid by the Fund
in connection with the execution of its portfolio transactions in equity
securities on which commissions were charged.
</FN>
<FN>
* Annualized.
</FN>
<FN>
+ Not annualized.
</FN>
</TABLE>
<PAGE>
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, 1997 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 the real Gross State Product growth for
1996 was 1.0%, slightly lower than the 1.3% that was projected in
1995. Although total employment continues to contract, it is
anticipated that most downsizing has been completed, and that
there will be minor job growth of 0.0-0.5% in 1997. Although some
local companies have left the State, other substantial
organizations have indicated interest in new Hawaiian operations.
Local economic sources expect that the deflationary trend,
apparent in 1995, has continued through 1996. Retailers have kept
retail prices down and the Honolulu Consumer Price Index is
projected to remain at the current 2.2% annual rate.
Uncertainties regarding sovereignty and privatization of
government contracts will be outstanding issues that will have
significant impact over the long term for the State. Limited
revenue growth and the need to reduce expenditures will continue
to be of paramount concern for the State government.
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 net asset value of the shares of each of the Fund's
three classes and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"),by dividing
the value of the Fund's net assets(i.e., the value of the assets
less liabilities) allocable to each class by the total number of
shares of such class then outstanding. The close of the principal
exchanges or other markets on which some of the Fund's portfolio
securities are traded may be later than 4:00 p.m. 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 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.
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 of at least $50. 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.
At the date of the Prospectus, Class Y Shares of the Fund
are registered for sale only in the following states: Alaska,
California, Colorado, District of Columbia, Florida, Hawaii,
Idaho, Massachusetts, Nevada, New Jersey, New York, Ohio, Oregon,
Washington and Wyoming.
If you do not reside in those states and are not an
institutional investor, you should not purchase Class Y Shares of
the Fund. If shares are sold outside of those states, except to
certain institutional investors, the Fund can redeem them. Such a
redemption may result in a loss to you and may have tax
consequences.
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
You have the flexibility of two expedited methods of
initiating redemptions.
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 732-855-5731
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
732-855-5730 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 have redemption proceeds sent to a
Financial Institution Account, 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 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,
you may be charged 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, the 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 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 $310 million,
Hawaiian Tax-Free Trust with assets of $655 million and Tax-Free
Fund For Utah with assets of $29 million, all as of June 30,
1997.
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 Fee Advisory Fee Total Fees
<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,
1997, 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 in 1975.
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 responsibility by sector and each
manager/analyst prepares both industry research and
recommendations on individual issues. 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.
For the fiscal period July 23, 1996 (commencement of
operations) through March 31, 1997 fees of $18,520 and $16,205,
respectively, were paid and/or accrued to the Adviser and
Administrator and to the Sub-Adviser under the Advisory and
Administration Agreement and the Sub-Advisory Agreement, all of
which were waived. In addition, other direct operating expenses
of the Fund during this period were reimbursed in the amount of
$40,009, of which $11,480 due on March 31, 1997 was paid on April
11, 1997.
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 75% by Mr. Herrmann and 25% by Diana P.
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 Class Y 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 Class Y
Shares of 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 for 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 732-855-5731
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 "Tax Effects of Redemptions" and 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 any 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, if any, 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 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 1.
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 are
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 1-888-322-7224 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>
ADVISER AND ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-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
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
LEGAL 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
Cascadia
Equity Fund
PROSPECTUS
One Of The
Aquilasm Group Of Funds
<PAGE>
AQUILA CASCADIA EQUITY FUND
380 Madison Avenue
Suite 2300
New York, New York 10017
(888)-3-CASCADIA (888) 322-7223
212-697-6666
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1997
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for
the Fund dated July 31, 1997: one Prospectus describes Front
Payment Class Shares ("Class A Shares") and Level Payment Class
Shares ("Class C Shares") of the Fund and the other describes
Institutional Class Shares ("Class Y Shares") of the Fund.
References in the Additional Statement to "the Prospectus" refer
to either of these Prospectuses. The Additional Statement should
be read in conjunction with the Prospectus for the class of
shares in which you are considering investing. Either or both
Prospectuses may be obtained from the Fund's Shareholder
Servicing Agent, Administrative Data Management Corp., by writing
to: 581 Main Street, Woodbridge, New Jersey 07095-1198 or by
calling at the following numbers:
888-322-7224 toll free or 732-855-5731
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to it at 380 Madison Avenue, Suite 2300, New York, New
York 10017; or by calling:
(888)-3-CASCADIA (888) 322-7223
or 212-697-6666
The Annual Report of the Fund for the fiscal period ended
March 31, 1997 (audited) will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Fund's Assets . . . . . . . . . . . . . . . .2
Performance . . . . . . . . . . . . . . . . . . . . . . . . . .7
Investment Restrictions . . . . . . . . . . . . . . . . . . . .8
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . .9
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 15
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 17
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 17
Additional Information as to Management Arrangements . . . . . 22
Computation of Net Asset Value . . . . . . . . . . . . . . . . 27
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 28
Additional Tax Information . . . . . . . . . . . . . . . . . . 28
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 28
General Information . . . . . . . . . . . . . . . . . . . . . 29
Financial Statements . . . . . . . . . . . . . . . . . . . . . 31
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
The investment objective and policies of the Fund are
described in the Prospectus, which refers to the matters
described below.
Additional Information regarding Options Transactions, Risks
Associated with such Transactions and Tax Consequences.
Writing Covered Call Options
The Fund may write (sell) "covered" call options and
purchase options to close out options previously written by the
Fund to generate additional income from option premiums. This
premium income will serve to enhance the Fund's total return and
will reduce the effect of any price decline of the security
involved in the option. Covered call options will generally be
written on securities which, in the opinion of the Adviser are
not expected to make any major price moves in the near future but
which, over the long term, are deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the "right to
purchase" a security at a specified price (the exercise price) at
any time prior to a certain date (the expiration date). So long
as the obligation of the writer of a call option continues, he
may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the
underlying security against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or
such earlier time at which the writer effects a closing purchase
transaction by repurchasing the option which he previously sold.
To secure his obligation to deliver the underlying security in
the case of a call option, a writer is required to deposit in
escrow the underlying security or other assets in accordance with
the rules of the Options Clearing Corporation (OCC) and of the
Exchanges. The Fund will write only covered call options. This
means that the Fund will only write a call option on a security
which the Fund already owns. The Fund will not write call options
on when-issued securities. In order to comply with the
requirements of the securities laws in several states, the Fund
will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities covering call
options exceeds 20% of the market value of the Fund's assets.
Portfolio securities on which call options may be written
will be purchased solely on the basis of investment
considerations consistent with the Fund's investment objectives.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast
to the writing of naked or uncovered options, which the Fund will
not do), but capable of enhancing the Fund's total return. When
writing a covered call option, the Fund, in return for the
premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the
security decline. Unlike one who owns securities not subject to
an option, the Fund has no control over when it may be required
to sell the underlying securities, since it may be assigned an
exercise notice at any time prior to the expiration date of its
obligation as a writer. If a call option which the Fund has
written expires, the Fund will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the
market value of the underlying security during the option period.
If the call option is exercised, the Fund will realize a gain or
a loss from the sale of the underlying security. The security
covering the call will be maintained in a segregated account of
the Fund's custodian. The Fund does not consider a security
covered by a call to be "pledged" as that term is used in the
Fund's policy which limits the pledging or mortgaging of its
assets.
The premium received is the market value of an option. The
premium the Fund will receive from writing a call option will
reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to
such market price, the historical price volatility of the
underlying security, and the length of the option period. In
determining whether a particular call option should be written on
a particular security, the Adviser will consider the
reasonableness of the anticipated premium and the likelihood that
a liquid secondary market will exist for those options. The
premium received by the Fund for writing covered call options
will be recorded as a liability of the Fund. This liability will
be adjusted daily to the option's current market value, which
will be the latest sale price at the time at which the net asset
value per share of the Fund is computed (close of the New York
Stock Exchange), or, in the absence of such sale, the latest
asked price. The option will be terminated upon expiration of the
option, the purchase of an identical option in a closing
transaction, or delivery of the underlying security upon the
exercise of the option.
Closing transactions will be effected in order to realize a
profit on an outstanding call option, to prevent an underlying
security from being called, or, to permit the sale of the
underlying security. Furthermore, effecting a closing transaction
will permit the Fund to write another call option on the
underlying security with either a different exercise price or
expiration date or both. If the Fund desires to sell a particular
security from its portfolio on which it has written a call
option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of
the security. There is, no assurance that the Fund will be able
to effect such closing transactions at a favorable price. If the
Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case
it would continue to be at market risk on the security. This
could result in higher transaction costs, including brokerage
commissions. The Fund will pay brokerage commissions in
connection with the writing of options to close out previously
written options. Such brokerage commissions are normally higher
than those applicable to purchases and sales of portfolio
securities.
If the writer of an option wishes to terminate the
obligation, he or she may effect a "closing purchase
transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the
clearing corporation. However, a writer may not effect a closing
purchase transaction after he or she has been notified of the
exercise of an option. Similarly, an investor who is the holder
of an option may liquidate his or her position by effecting a
"closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing
sale transaction can be effected. To secure the obligation to
deliver the underlying security in the case of a call option, the
writer of the option (whether an exchange-traded option or a
NASDAQ option) is required to pledge for the benefit of the
broker the underlying security or other assets in accordance with
rules of the OCC, which is an institution created to interpose
itself between buyers and sellers of options. Technically, the
OCC assumes the other side of every purchase and sale transaction
on an exchange and, by doing so, guarantees the transaction.
Call options written by the Fund will normally have
expiration dates of less than nine months from the date written.
From time to time, the Fund may purchase an underlying security
for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from
its portfolio. In such cases additional brokerage commissions
will be incurred.
The Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or
more than the premium received from the writing of the option.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option
is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
Federal Income Tax Treatment of Covered Call Options
Expiration of an option or entry into a closing purchase
transaction will result in a capital gain. If the option is
"in-the-money" (i.e., the option strike price is less than the
market value of the security covering the option) at the time it
was written, any gain or loss realized as a result of the closing
purchase transaction will be long-term capital gain or loss, if
the security covering the option was held for more than 12 months
prior to the writing of the option. The holding period of the
securities covering an "in-the-money" option will not include the
period of time the option is outstanding. If the option is
exercised, the Fund will realize a gain or loss from the sale of
the security covering the call option, and in determining such
gain or loss the premium will be included in the proceeds of the
sale.
If the Fund writes options other than "qualified covered
call options," as defined in the Internal Revenue Code, any
losses on such options transactions, to the extent they do not
exceed the unrealized gains on the securities covering the
options, may be subject to deferral until the securities covering
the options have been sold. In addition, any options written
against securities other than stocks will be considered to have
been closed out at the end of the Fund's fiscal year and any
gains or losses will be recognized for tax purposes at that time.
Such gains or losses would be characterized as 60% long-term
capital gain or loss and 40% short-term capital gain or loss.
Purchasing Put Options
The Fund may purchase put options on an underlying security
owned by the Fund. As the holder of a put option, the Fund has
the right to sell the underlying security at the exercise price
at any time during the option period. The Fund may enter into
closing sale transactions with respect to such options, exercise
them or permit them to expire. The Fund may purchase put options
for defensive purposes in order to protect against an anticipated
decline in the value of its securities. The example of such use
of put options is provided below. The Fund will not purchase
options for leverage purposes.
The Fund may purchase a put option on an underlying security
(a "protective put") owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value
of its security. Such hedge protection is provided only during
the life of the put option when the Fund as the holder of the put
option is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. For example, a put option may be
purchased in order to protect unrealized appreciation of a
security where the Adviser deems it desirable to continue to hold
the security because of tax considerations. The premium paid for
the put option and any transaction costs would reduce any
capital gain otherwise available for distribution when the
security is eventually sold.
The Fund will commit no more than 5% of its assets to
premiums when purchasing put options. The premium paid by the
Fund when purchasing a put option will be recorded as an asset of
the Fund. This asset will be adjusted daily to the option's
current market value, which will be the latest sale price at the
time at which the net asset value per share of the Fund is
computed (close of New York Stock Exchange), or, in the absence
of such sale, the latest bid price. The option will be terminated
upon expiration of the option, the selling (writing) of an
identical option in a closing transaction, or the delivery of the
underlying security upon the exercise of the option.
Writing Put Options
The Fund will not write put options except to close out
transactions as described above.
Purchasing Call Options
The Fund may purchase call options. As the holder of a call
option, the Fund has the right to purchase the underlying
security at the exercise price at any time during the option
period. The Fund may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire.
The Fund may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could
reduce its current return. The Fund may also purchase call
options in order to acquire the underlying securities. Examples
of such uses of call options are provided below. The Fund will
not purchase options for leverage purposes.
Call options may be purchased by the Fund for the purpose of
acquiring the underlying securities for its portfolio. Utilized
in this fashion, the purchase of call options enables the Fund to
fix its cost of acquiring the securities directly. This technique
may also be useful to the Fund in purchasing a large block of
stock that would be more difficult to acquire by direct market
purchases. So long as it holds such a call option rather than the
underlying security itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying
security and in such event could allow the call option to expire,
incurring a loss only to the extent of the premium paid for the
option.
The Fund will commit no more than 5% of its assets to
premiums when purchasing call options. The Fund may also purchase
call options on underlying securities it owns in order to protect
unrealized gains on call options previously written by it. A call
option would be purchased for this purpose where tax
considerations make it inadvisable to realize such gains through
a closing purchase transaction. Call options may also be
purchased at times to avoid realizing losses that would result in
a reduction of the Fund's current return. For example, where the
Fund has written a call option on an underlying security having a
current market value below the price at which such security was
purchased by the Fund, an increase in the market price could
result in the exercise of the call option written by the Fund and
the realization of a loss on the underlying security with the
same exercise price and expiration date as the option previously
written.
Risks Associated with Options Transactions
Option transactions involve risks and transaction costs
which the Fund would not incur if it did not engage in option
transactions. If the 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 (i) dependence upon the Adviser's ability to
predict correctly movements in the direction of securities
prices; (ii) imperfect correlation between the price of options
and the movements in the prices of securities being hedged; (iii)
the fact that the skills needed to use these strategies are
different from those needed to select portfolio securities; (iv)
the possible absence of a liquid secondary market for any
particular instrument at any time; (v) the possible need to defer
closing out certain hedged position to avoid adverse consequences
and (vi) the possible inability of the Fund to purchase or sell
portfolio securities at a time when it would otherwise be
favorable to do so, or the possible need for the Fund to sell a
portfolio security at a disadvantageous time, because of the
requirement for the Fund to maintain "cover" or to segregate
securities in connection with a hedging transaction.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average
value of such securities during the year, excluding certain short
term securities. Since the turnover rate of the Fund will be
affected by a number of factors, the Fund is unable to predict
what rate the Fund will have in any particular period or periods,
although such rate is not expected to exceed 60%. The factors
which may affect the rate with respect to the balance of the
Fund's assets include (ii) the possible necessary sales of
portfolio securities to meet redemptions; and (iii) the
possibility of purchasing or selling portfolio securities without
regard to the length of time they have been held to attempt to
take advantage of market opportunities and to avoid market
declines. Short-term trading increases portfolio turnover and
transaction costs.
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject
to rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Fund be accompanied by certain standardized
performance information computed as required by the SEC. Average
annual compounded total return quotations used by the Fund are
based on these standardized methods. Each of these and other
methods that may be used by the Fund are described in the
following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over a 1- year period
and a period since the inception of the operations of the Fund
that would equate an initial hypothetical $1,000 investment to
the value such an investment would have if it were completely
redeemed at the end of each such period. The calculation assumes
the maximum sales charge is deducted from the hypothetical
initial $1,000 purchase, that on each reinvestment date during
each such period any capital gains are reinvested at net asset
value, and all income dividends are reinvested at net asset
value, without sales charge (because the Fund does not impose any
sales charge on reinvestment of dividends). The computation
further assumes that the entire hypothetical account was
completely redeemed at the end of each such period.
Investors should note that the maximum sales charge (4.25%)
reflected in the following quotations is a one time charge, paid
at the time of initial investment. The greatest impact of this
charge is during the early stages of an investment in the Fund.
Actual performance will be affected less by this one time charge
the longer an investment remains in the Fund.
Average Annual Compounded Rates of Return:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
Since
beginning
investments
on September
9, 1996 3.35% 6.92% 8.00%
</TABLE>
These figures will be calculated according to the following
SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1- and 5-year
periods or the period since inception, at the end of
each such period.
As discussed in the Prospectus, the Fund may quote total
rates of return in addition to its average annual total return.
Such quotations are computed in the same manner as the Fund's
average annual compounded rate, except that such quotations will
be based on the Fund's actual return for a specified period as
opposed to its average return over the periods described above.
In general, actual total rate of return will be lower than
average annual rate of return because the average annual rate of
return reflects the effect of compounding. See discussion of the
impact of the sales charge on quotations of rates of return,
above.
Total Return
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
Since
beginning
investments
on September
9, 1996 3.35% 6.92% 8.00%
</TABLE>
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used.
INVESTMENT RESTRICTIONS
The Fund has a number of policies concerning what it can and
cannot do. Those that are called 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.
Under that Act, the vote of the holders of a "majority" of the
Fund's outstanding shares means the vote of the holders of the
lesser of (a) 67% or more of the Fund's shares present at a
meeting or represented by proxy if the holders of more than 50%
of its shares are so present or represented; or (b) more than 50%
of the Fund's outstanding shares. Those fundamental policies not
set forth in the Prospectus are set forth below.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than those
discussed under "Investment of the Fund's Assets" in the
Prospectus; therefore the Fund cannot buy any commodities or
commodity contracts, any mineral related programs or leases,or
combinations thereof.
The Fund cannot purchase or hold the securities of any
issuer if, to its knowledge, Trustees, Directors or officers of
the Fund or its Adviser individually owning beneficially more
than 0.5% of the securities of that issuer together own in the
aggregate more than 5% of such securities.
The Fund cannot buy real estate or any non-liquid interests
in real estate investment trusts; however, it can buy any
securities which it can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Fund does not buy for control.
The Fund cannot invest for the purpose of exercising control
or management of other companies.
3. The Fund does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin; however, the
Fund can make margin deposits in connection with the purchase or
sale of options and can pay premiums on these options.
4. The Fund is not an underwriter.
The Fund cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Fund's Distribution Plan has three parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II) and to certain defensive provisions (Part III).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Fund would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Adviser
or the Distributor. The Distributor will consider shares which
are not Qualified Holdings of such unrelated broker-dealers to
be Qualified Holdings of the Distributor and will authorize
Permitted Payments to the Distributor with respect to such shares
whenever Permitted Payments are being made under the Plan.
Part I of the Plan applies only to the Front Payment Shares
Class ("Class A Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Front Payment Shares
or servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient,
all Front Payment Class Shares beneficially owned by such
Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Fund's Board
of Trustees, the Fund may make payments ("Class A Permitted
Payments") to Qualified Recipients, which Class A Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Fund (as adjusted for any part
or parts of a fiscal year during which payments under the Plan
are not accruable or for any fiscal year which is not a full
fiscal year), 0.15 of 1% of the average annual net assets of the
Fund represented by the Front Payment Class Shares. Such payments
shall be made only out of the Fund's assets allocable to the
Front Payment Shares.
The Distributor shall have sole authority (i) as to the
selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) as to the amount of
Class A Permitted Payments, if any, to each Qualified Recipient
provided that the total Class A Permitted Payments to all
Qualified Recipients do not exceed the amount set forth above.
The Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front Payment Class
Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year-end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part I is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part I of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Front Payment Class Shares (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level Payment Class and/or of any other class whose shares
are convertible into Front Payment Shares. Part I has continued,
and will, unless terminated as hereinafter provided, continue in
effect, until the June 30 next succeeding such effectiveness, and
from year to year thereafter only so long as such continuance is
specifically approved at least annually by the Fund's Trustees
and its Independent Trustees with votes cast in person at a
meeting called for the purpose of voting on such continuance.
Part I may be terminated at any time by the vote of a majority of
the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Fund to which Part I applies. Part I may not
be amended to increase materially the amount of payments to be
made without shareholder approval of the class or classes of
shares affected by Part I as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class A Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level Payment Class
Shares ("Class C Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Level Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in
the sole judgment of the Distributor, instrumental in the
purchase and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Board of
Trustees of the Fund, the Fund may make payments ("Class C
Permitted Payments") to Qualified Recipients, which Class C
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent as disbursing agent,
which may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year), 0.75 of 1% of the average
annual net assets of the Fund represented by the Level Payment
Class Shares. Such payments shall be made only out of the Fund's
assets allocable to the Level Payment Shares. The Distributor
shall have sole authority (i) as to the selection of any
Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Fund
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level Payment Class Shares. Part II has
continued, and will, unless terminated as hereinafter provided,
continue in effect, until the April 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Fund's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class C Plan Agreements with them shall be their
agreements with the Distributor with respect to payments under
Part II.
Defensive Provisions (Part III)
Another part of the Plan (Part III) states that if and to
the extent that any of the payments listed below are considered
to be "primarily intended to result in the sale of" shares issued
by the Fund within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Fund or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Fund's shares; (iv) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, statements of
additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Fund and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Fund's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan states that while it is in effect, the Fund's
Administrator and Distributor shall report at least quarterly to
the Fund's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Fund to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Plan defines as the Fund's Independent Trustees those
Trustees who are not "interested persons" of the Fund as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan. The Plan, unless terminated as hereinafter
provided, continues in effect from year to year only so long as
such continuance is specifically approved at least annually by
the Fund's Board of Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Plan may be terminated at any time by vote of a
majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund. The Plan may not be
amended to increase materially the amount of payments to be made
without shareholder approval and all amendments must be approved
in the manner set forth above as to continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Fund.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares of the Fund of "Service Fees" within the meaning of
Article III, Section 26(b)(9) of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. The
Services Plan applies only to the Class C Shares of shares of the
Fund (regardless of whether such class is so designated or is
redesignated by some other name).
As used in the Services Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to the
Distributor and any other principal underwriter of the Fund, who
have, pursuant to written agreements with the Fund or the
Distributor, agreed to provide personal services to shareholders
of Level-Payment Class Shares and/or maintenance of Level-Payment
Class Shares shareholder accounts. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Class
Shares beneficially owned by such Qualified Recipient's
customers, clients or other contacts. "Administrator" shall mean
Aquila Management Corporation or any successor serving as
sub-adviser or administrator of the Fund.
Subject to the direction and control of the Board of
Trustees of the Fund, the Fund may make payments ("Service Fees")
to Qualified Recipients, which Service Fees (i) may be paid
directly or through the Distributor or shareholder servicing
agent as disbursing agent and (ii) may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Services 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 of the Fund
represented by the Level-Payment Class of shares. Such payments
shall be made only out of the Fund's assets allocable to the
Level-Payment Shares. The Distributor shall have sole authority
with respect to the selection of any Qualified Recipient or
Recipients and the amount of Service Fees, if any, paid to each
Qualified Recipient, provided that the total Service Fees paid to
all Qualified Recipients may not exceed the amount set forth
above and provided, further, that no Qualified Recipient may
receive more than 0.25 of 1% of the average annual net asset
value of shares sold by such Recipient. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient
and (b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level Payment Class Shares, including
without limitation, any or all of the following activities:
answering customer inquiries regarding account status and
history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other
related services as the Distributor or a shareholder may request
from time to time. Notwithstanding the foregoing two sentences,
a majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
While the Services Plan is in effect, the Fund's Distributor
shall report at least quarterly to the Fund's Trustees in writing
for their review on the following matters: (i) all Service Fees
paid under the Services Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor
paid or accrued during such quarter. In addition, if any
Qualified Recipient is an "affiliated person," as that term is
defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Fund, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Fund
an accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Fund and had no direct or indirect financial interest in the
operation of the Service Plan or in any agreements related to the
Service Plan (the "Independent Trustees"), with votes cast in
person at a meeting called for the purpose of voting on the
Service Plan. It is effective as of the date first above written
and will continue in effect for a period of more than one year
from such date only so long as such continuance is specifically
approved at least annually as set forth in the preceding
sentence. It may be amended in like manner and may be terminated
at any time by vote of the Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the Act as now in force
or hereafter amended.
While the Service Plan is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent
of the net asset value of the Fund during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Fund will have the option of redeeming the
excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting
the assets into cash. The method of valuing securities used to
make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of
the same time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their affiliations,
if any, with the Administrator or the Distributor, and their
principal occupations during at least the past five years are set
forth below. None of the Trustees or officers of the Trust is
affiliated with the Adviser, except as indicated.
Mr. Herrmann is an "interested person" of the Trust as that
term is defined in the Investment Company Act of 1940 (the "1940
Act") as an officer of the Trust and a Director, officer and
shareholder of the Distributor. Ms. Herrmann is an interested
person as a member of his immediate family.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila
Management Corporation since 1984, the sponsoring organization
and Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: Hawaiian Tax-Free Trust since
1984; Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; Tax-Free Fund For
Utah since 1992; and Narragansett Insured Tax-Free Income Fund
since 1992; each of which is a tax-free municipal bond fund, and
two equity funds, Aquila Rocky Mountain Equity Fund since 1993,
and this Fund which together are called the Aquila Bond and
Equity Funds; and Pacific Capital Cash Assets Trust since 1984;
Churchill Cash Reserves Trust since 1985; Pacific Capital U.S.
Treasuries Cash Assets Trust since 1988; Pacific Capital Tax-Free
Cash Assets Trust since 1988; each of which is a money market
fund, and together with Capital Cash Management Trust ("CCMT")
are called the Aquila Money-Market Funds; and Vice President,
Director, Secretary and formerly Treasurer of Aquila
Distributors, Inc. since 1981, distributor of the above funds;
President and Chairman of the Board of Trustees of CCMT, a money
market fund since 1981, and an Officer and Trustee/Director of
its predecessors since 1974; Chairman of the Board of Trustees
and President of Prime Cash Fund (which is inactive), since 1982
and of Short Term Asset Reserves 1984-1996; President and a
Director of STCM Management Company, Inc., sponsor and
sub-adviser to CCMT; Chairman, President, and a Director since
1984, of InCap Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term Asset Reserves,
and Founder and Chairman of several other money market funds;
Director or Trustee of OCC Cash Reserves, Inc., Oppenheimer Quest
Global Value Fund, Inc., Oppenheimer Quest Value Fund, Inc., and
Trustee of Quest For Value Accumulation Trust, The Saratoga
Advantage Trust, and of the Rochester Group of Funds, each of
which is an open-end investment company; Trustee of Brown
University, 1990-1996 and currently Trustee Emeritus; actively
involved for many years in leadership roles with university,
school and charitable organizations.
Vernon R. Alden, Trustee, 420 Boylston Street, Suite 403, Boston,
Massachusetts 02116
Director of Colgate Palmolive Company since 1974, Digital
Equipment Corporation, a computer manufacturing corporation,
since 1959, Intermet Corporation, an independent foundry, since
1986, and Sonesta International Hotels Corporation since 1978;
Chairman of the Board and Executive Committee of The Boston
Company, Inc., a financial services company, 1969-1978; Trustee
of Tax-Free Trust of Oregon since 1988, of Hawaiian Tax-Free
Trust, Pacific Capital Cash Assets Trust, Pacific Capital
Tax-Free Cash Assets Trust and Pacific Capital U.S. Treasuries
Cash Assets Trust since 1989, of Cascades Cash Fund, 1989-1994 ,
of Narragansett Insured Tax-Free Income Fund since 1992;
Associate Dean and member of the faculty of Harvard University
Graduate School of Business Administration, 1951-1962; member of
the faculty and Program Director of Harvard Business School
- -University of Hawaii Advanced Management Program, summer of 1959
and 1960; President of Ohio University, 1962-1969; Chairman of
The Japan Society of Boston, Inc., and member of several
Japan-related advisory councils; Chairman of the Massachusetts
Business Development Council and the Massachusetts Foreign
Business Council, 1978-1983; Trustee of the Boston Symphony
Orchestra since 1975; Chairman of the Massachusetts Council on
the Arts and Humanities, 1972-1984; Member of the Board of
Fellows of Brown University, 1969-1986; Trustee and member of the
Executive Committee, Plimoth Plantation; trustee of various other
cultural and educational organizations; Honorary Consul General
of the Royal Kingdom of Thailand.
Warren C. Coloney, Trustee, 7304 Millwood Road, Bethesda,
Maryland 20817
Consultant to management and governing boards on issues of
corporate governance, strategy and organization, marketing, and
human resource management. President, Coloney & Company, Inc.,
Bethesda MD, since 1984; Advisory Director of Management
Practice, Inc., New York NY since 1992; Chairman of The Global
Business Association, Bethesda MD, since 1996; Director of
Bradley Energy International, Inc., Alexandria VA, since 1997;
Trustee of the Tax-Free Trust of Oregon since 1986 and of Aquila
Cascadia Equity Fund since 1996; Trustee of Cascades Cash Fund,
1989-1994; Managing Director-Europe, Towers, Perrin, Forster &
Crosby, Inc., London England, 1974-1984; President, Coloney,
Cannon, Main & Pursell, Inc., New York NY and London England,
1968-1974; Senior Engagement Manager, McKinsey & Company, Inc.,
New York NY and London England, 1959-1967; Sales Engineer,
American Oil Company, Tampa Fl, 1955-1956; Managing Engineer,
J.E. Greiner, Co., Tampa FL, 1956-1957; Lt(jg) Civil Engineer
Corps, U.S.N.R. 1952-1955; MBA, The Darden School, University of
Virginia, 1959; Bachelor of Civil Engineering, University of
Florida, 1951; Life Member of the American Society of Civil
Engineers; Founding Member of the Institute of Management
Consultants.
Diana P. Herrmann*, Trustee and Senior Vice President, 380
Madison Avenue, New York, New York 10017
Trustee of Tax-Free Trust of Arizona and Tax-Free Trust of
Oregon since 1994, of Churchill Tax-Free Fund of Kentucky and
Churchill Cash Reserves Trust since 1995, of Aquila Rocky
Mountain Equity Fund and Tax-Free Fund for Utah since 1997;
President and Chief Operating Officer of the Administrator since
1997; Senior Vice President and Secretary, formerly Vice
President of the Administrator since 1986 and Director since
1984; Senior Vice President or Vice President and formerly
Assistant Vice President of the Aquila Money-Market Funds since
1986; Vice President of the Aquila Bond and Equity Funds since
1997; Vice President of InCap Management Corporation since 1986
and Director since 1983;Assistant Vice President of Oxford Cash
Management Fund, 1986-1988; Assistant Vice President and formerly
Loan Officer of European American Bank, 1981-1986; daughter of
the Fund's President; Trustee of the Leopold Schepp Foundation
(academic scholarships) since 1995; actively involved in mutual
fund and trade associations and in college and other volunteer
organizations.
James A. Gardner, Trustee, Vandervert Ranch, Vandervert Road,
Bend, Oregon 97707
President of Gardner Associates, an investment and real estate
firm, since 1970; President Emeritus of Lewis and Clark College
and Law School since 1989 and President, 1981-1989; Program
Officer and County Representative of the Ford Foundation,
1969-1981; Lecturer and Assistant Director of Admissions of
Harvard College, 1968-1969; Member of the Oregon Young Presidents
Organization since 1983; Member of the Council on Foreign
Relations since 1988; Founding Member of the Pacific Council
since 1995; Trustee of Tax-Free Trust of Oregon since 1986 and of
Cascades Cash Fund, 1989-1994; Director of the Oregon High Desert
Museum since 1989; active in civic, business, educational and
church organizations in Oregon.
Ann R. Leven, Trustee, 785 Park Avenue, Apartment 20A, New York,
NY 10021
Treasurer of the National Gallery of Art, Washington, D.C., since
1994, Deputy Treasurer, 1990-1994; Treasurer of the Smithsonian
Institution, Washington, D.C., 1984-1990; President of ARL
Associates, strategic consultants, since 1983; Vice
President/Senior Corporate Planning Officer of The Chase
Manhattan Bank, N.A., 1979-1983; Treasurer of The Metropolitan
Museum of Art, 1972-1979; Trustee of Short Term Asset Reserves,
1984-1993, of Tax-Free Trust of Oregon since 1986, of Churchill
Tax-Free Fund of Kentucky since 1987, of Cascades Cash Fund,
1989-1994, and of Churchill Cash Reserves Trust since 1995;
Trustee of Oxford Cash Management Fund, 1987-1988; Director of
the Delaware Group of mutual funds since 1989; Adjunct Professor
at Columbia University Graduate School of Business Administration
since 1975; Trustee of the American Red Cross Endowment Fund,
1985-1990; Member of the Visiting Committee of Harvard Business
School, 1979-1985; Member of the Board of Overseers of The Amos
Tuck School, Dartmouth College, 1978-1984; Staff Director of the
Presidential Task Force on the Arts and Humanities, 1981;
Director of Alliance Capital Reserves Fund, a money market fund,
1978-1979.
Raymond H. Lung, Trustee, 16199 N.W. Canterwood Way, Portland,
Oregon 97229
Retired; Trustee of Qualivest Group of Funds since 1994;
Executive Vice President and Executive Trust Officer of U.S.
National Bank of Oregon, 1989-1991; Senior Vice President and
Executive Trust Officer, 1980-1989; various other management
positions, 1954-1980; Member of Executive Committee, Trust
Division, American Bankers Association, 1986-1988; Director of
Pacific Securities Depository Trust Company and Pacific Clearing
Corporation (subsidiaries of the Pacific Stock Exchange),
1980-1987; Director of Collins Pine Company and Ostrander
Companies (lumber and oil), 1980-1990; Trustee of Tax-Free Trust
of Oregon since 1992 and of Cascades Cash Fund, 1992-1994.
Richard C. Ross, Trustee, 510 SW Country Club Road, Lake Oswego,
Oregon 97034
President of Richard Ross Communications, a consulting firm,
since 1986; Senior communications consultant to Pihas, Schmidt,
Westerdahl, advertising and public relations, 1986-1988;
Executive News Director of KATU Television, 1975-1986; News
Director of KGW-TV, 1956-1975; Trustee of Tax-Free Trust of
Oregon since 1988 and of Cascades Cash Fund, 1989-1994; Director
of the Portland Rose Festival since 1972; Director of the
Greater Portland Convention & Visitors Association, 1982-1985;
Director of the Portland Chamber of Commerce, 1971-1980;
President of the Oregon chapter of the National Multiple
Sclerosis Society, 1984-1986; Director of the Meridian Park
Hospital Foundation, 1984-1987; Chairman of the Broadcasters
Group of the Bar-Press-Broadcasters professional relations
committee, 1964-1984; Former President of the Rotary Club of East
Portland and currently a Director of Goodwill Industries,
Metropolitan Youth Symphony and the Lake Oswego Community
Theatre.
Nancy L. Kayani, Vice President, 4800 Macadam Avenue, Suite
330, Portland, Oregon 97201
Vice President of Tax-Free Trust of Oregon since 1992 and of
Cascades Cash Fund; Customer Service Representative of U.S.
National Bank of Oregon, 1990-1991; Securities Trader of Bidwell
& Co., 1988-1989; Securities Trader and Mutual Fund Regional
Representative of Fidelity Investments Southwest, 1985-1987;
Stockbroker of Dean Witter Reynolds, 1983-1984; Mutual Regional
Representative of Columbia Management Company, 1980-1983;
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and
the Aquila Bond and Equity Funds since 1991 and Treasurer,
1981-1991; formerly Treasurer of the predecessor of CCMT;
Treasurer and Director of STCM Management Company, Inc., since
1974; Treasurer of Trinity Liquid Assets Trust, 1982-1986 and of
Oxford Cash Management Fund, 1982-1988; Treasurer of InCap
Management Corporation since 1982, of the Administrator since
1984 and of the Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT Insight Funds, Inc.,
1986-1988; Vice President of Lehman Management Co., Inc. and
Assistant Treasurer of Lehman Money Market Funds, 1981-1985;
Controller of Seligman Group of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust,
1982-1985 and Trustee of that Trust, 1985-1986; Secretary of
Oxford Cash Management Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990;Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the
Administrator and the Distributor since 1995; formerly a Legal
Associate for Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Fund does not pay fees to Trustees affiliated with
the Administrator or Adviser or to any of the Fund's officers.
During the fiscal period ended March 31, 1997, the Fund paid
$7,056 in fees and reimbursement of expenses to its other
Trustees. The Fund is one of the 14 funds in the Aquilasm Group
of Funds, which consist of tax-free municipal bond funds, money
market funds and two equity funds. The following table lists the
compensation of all Trustees who received compensation from the
Fund and the compensation each received during the Fund's fiscal
year from all funds in the Aquilasm Group of Funds and the number
of such funds. None of such Trustees has any pension or
retirement benefits from the Fund or any of the other funds in
the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Fund Group serves
<S> <C> <C> <C>
Vernon R.
Alden $1,270 $50,245 7
Warren C.
Coloney $700 $9,827 2
James A.
Gardner $500 $9,100 2
Ann R.
Leven $825 $22,750 4
Raymond H.
Lung $900 $10,366 2
Richard C.
Ross $1,048 $10,380 2
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Sub-Advisory Agreement
The Investment Sub-Advisory Agreement (the "Sub-Advisory
Agreement") between the Fund and Ferguson, Wellman, Rudd, Purdy &
Van Winkle, Inc. (the "Sub-Adviser") contains the provisions
described below, in addition to those described in the
Prospectus.
The Sub-Advisory Agreement may be terminated by the
Sub-Adviser at any time without penalty upon giving the Fund
sixty days' written notice, and may be terminated by the Fund at
any time without penalty upon giving the Sub-Adviser sixty days'
written notice, provided that such termination by the Fund shall
be directed or approved by the vote of a majority of all its
Trustees in office at the time or by the vote of the holders of a
majority (as defined in the 1940 Act) of its voting securities at
the time outstanding and entitled to vote; it automatically
terminates in the event of its assignment (as so defined).
However, in the Sub-Advisory Agreement, the Sub-Adviser agrees
that it will not exercise its termination rights for at least two
years from the effective date of the Sub-Advisory Agreement,
except for regulatory reasons.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Sub-Advisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the Sub-Adviser is not
liable for any loss sustained by the adoption of any investment
policy or the purchase, sale or retention of any security and
permits the Sub-Adviser to act as investment adviser for any
other person, firm or corporation. The Fund agrees to indemnify
the Sub-Adviser to the full extent permitted under the Fund's
Declaration of Trust.
The Sub-Advisory Agreement contains the following provisions
as to the Fund's portfolio transactions. In connection with its
duties to arrange for the purchase and sale of the Fund's
portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-Adviser's
judgment, implement the policy of the Fund to achieve "best
execution," i.e., the most favorable price and efficient
execution, and accordingly shall seek to execute each transaction
at a price and commission, if any, which provide the most
favorable total cost or proceeds reasonably attainable in the
circumstances. The Fund understands that purchases from
underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions placed
through dealers include a spread between the bid and asked
prices. In allocating transactions to dealers, the Sub-Adviser is
authorized to consider, in determining whether a particular
dealer will provide best execution, the dealer's reliability,
integrity, financial condition and risk in positioning the
securities involved, as well as the difficulty of the transaction
in question, and thus need not pay the lowest spread or
commission available if the Sub-Adviser determines in good faith
that the amount of commission is reasonable in relation to the
value of the brokerage and research services provided by the
dealer, viewed either in terms of the particular transaction or
the Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Sub-Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the Fund. Such research may be in
written form or through direct contact with individuals and may
include quotations on portfolio securities and information on
particular issuers and industries, as well as on market, economic
or institutional activities. The Fund recognizes that no dollar
value can be placed on such research services or on execution
services and that such research services may or may not be useful
to the Fund and may be used for the benefit of the Sub-Adviser or
its other clients.
The Sub-Advisory Agreement states that it is agreed that the
Sub-Adviser shall have no responsibility or liability for the
accuracy or completeness of the Fund's Registration Statement
under the Securities Act of 1933 and the 1940 Act, except for the
information supplied by the Sub-Adviser for inclusion therein.
Additional Information as to the Advisory and Administration
Agreement
The Advisory and Administration Agreement (the "Advisory
Agreement") between Aquila Management Corporation, as Adviser and
Administrator, and the Fund contains the provisions described
below in addition to those described in the Prospectus.
Subject to the control of the Fund's Board of Trustees, the
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; as part of such
duties, the Adviser (i) provides office space, personnel,
facilities and equipment for the performance of the following
functions and for the maintenance of the Fund's headquarters;
(ii) oversees all relationships between the Fund and its transfer
agent, custodian, legal counsel, auditors and principal
underwriter, including the negotiation, subject to the approval
of the Fund's Board of Trustees, 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 and for
the sale, servicing, or redemption of the Fund's shares; (iii)
either keeps the accounting records of the Fund, including the
computation of net asset value per share and the dividends
(provided that daily pricing of the Fund's portfolio is the
responsibility of 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;
(iv) maintains the Fund's books and records and prepares (or
assists counsel and auditors in the preparation of) all required
proxy statements, reports to shareholders and Trustees, reports
to and other filings with the Securities and Exchange Commission
and any other governmental agencies, and tax returns, and
oversees the Fund's insurance relationships; (v) prepares, on the
Fund's behalf and at its expense, such applications and reports
as may be necessary to register or maintain the Fund's
registration or that of its shares under the securities or
"Blue-Sky" laws of all such jurisdictions as may be required from
time to time; and (vi) responds to any inquiries or other
communications from shareholders and broker-dealers, or if any
such inquiry or communication is more properly to be responded to
by the Fund's shareholder servicing and transfer agent or
distributor, oversees such shareholder servicing and transfer
agent's or distributor's response thereto. Since the Fund pays
its own legal and audit expenses, to the extent that the Fund's
counsel and accountants prepare or assist in the preparation of
prospectuses, proxy statements and reports to shareholders, the
costs of such preparation or assistance are paid by the Fund.
The Advisory and Administration Agreement further provides
with respect to advisory services that subject to the direction
and control of the Board of Trustees of the Fund, the Adviser
shall review with the Sub-Adviser the investment activities of
the Fund and in conjunction with the Sub-Adviser shall make such
periodic reports to the Board of Trustees of the Fund as may be
appropriate, and in addition, the Adviser shall provide such
advisory services to the Fund, in addition to those services
provided by the Sub-Adviser, as the Adviser deems appropriate;
as part of any such services, the Adviser shall at its
discretion: (i) provide the Sub-Adviser and the Fund with overall
market analysis; (ii) provide the Sub-Adviser and the Fund with
material relevant to the investment of the assets of the Fund in
securities of issuers in various states; (iii) provide the
Sub-Adviser and the Fund such other investment advice as it
considers necessary or appropriate; (iv) consult with the
Sub-Adviser in connection with the Sub-Adviser's duties under the
Sub-Advisory Agreement; and (v) otherwise assist the Sub-Adviser,
and itself directly act (in coordination with the Sub-Adviser and
as may be agreed among them with respect to a portion of, or all
of, the Fund's portfolio), to (A) supervise continuously the
investment program of the Fund and the composition of its
portfolio; (B) determine what securities shall be purchased or
sold by the Fund; and (C) arrange for the purchase and the sale
of securities held in the portfolio of the Fund.
The Advisory and Administration Agreement further provides
with respect to possible advisory services that subject to the
direction and control of the Board of Trustees of the Fund, in
the event of the termination of the Sub-Advisory Agreement, the
Adviser shall act as managerial investment adviser to the Fund
with respect to the investment of the Fund's assets, and
supervise and arrange the purchase of securities for and the sale
of securities held in the portfolio of the Fund, and the fee
payable to the Adviser shall be increased to the amount provided
in sub-section 4(b) thereof, provided, however, that (i) within
two weeks of notice of termination of the Sub-Advisory Agreement
being delivered by the Fund or by the Sub-Adviser, or termination
of the Sub-Advisory Agreement for any other reason, or within
such longer period as shall have been specified by the Board of
Trustees, the Adviser shall have provided the Board of Trustees
information of the kind required in connection with annual
renewal of agreements under Section 15(c) of the Act, and (ii)
within thirty days of the termination of the Sub-Advisory
Agreement, the assumption of such duties by the Adviser shall
have been approved by a vote of the Trust's Board of Trustees,
including a vote of a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in
the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval.
In the event that the Adviser assumes such duties, it shall
(i) supervise continuously the investment program of the Fund and
the composition of its portfolio; (ii) determine what securities
shall be purchased or sold by the Fund; (iii) arrange for the
purchase and the sale of securities held in the portfolio of the
Fund; and (iv) at its expense provide for pricing of the Fund's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Fund and, unless
otherwise directed by the Board of Trustees, provide for pricing
of the Fund's portfolio at least quarterly using another such
source satisfactory to the Fund.
In the event that the Adviser has assumes the duties of
managerial investment adviser to the Fund with respect to
investment of the Fund's assets hereof following approval by the
Fund's Board of Trustees, the Fund shall pay the Adviser, and the
Adviser shall accept as full compensation for all services
rendered thereunder, a fee payable monthly and computed on the
net asset value of the Fund at the end of each business day at
the annual rate of 1.50% of such net asset value on net assets of
the Fund up to $15,000,000, 1.20% on net assets of the Fund above
$15,000,000 to $50,000,000 and 0.90 of 1% of the Fund's net
assets above $50,000,000.
In the event of termination of the Sub-Advisory Agreement,
if the Adviser does not elect to assume the duties of managerial
investment adviser or if its election as managerial investment
adviser is not approved by the Board of Trustees, the Adviser
shall act as acting investment adviser until a new investment
adviser has been appointed. In such event, the Fund shall pay the
Adviser an amount in addition to the amounts it is being paid for
advisory and administrative services as described in the
Prospectus, which does not exceed its costs for its services as
acting managerial investment adviser, but in no event more that
the amounts set forth in the preceding paragraph.
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.
The Advisory and Administration Agreement may be terminated
at any time without penalty by the Adviser upon sixty days'
written notice to the Fund and the Sub-Adviser; it may be
terminated by the Fund at any time without penalty upon giving
the Adviser sixty days' written notice, provided that such
termination by the Fund shall be directed or approved by a vote
of a majority of the Trustees in office at the time, including a
majority of the Trustees who are not interested persons of the
Fund. The Advisory and Administration Agreement will otherwise
continue indefinitely. In either case the notice provision may be
waived. The Advisory and Administration Agreement contains a
provision under which the Adviser agrees that it will not
exercise its termination rights for at least two years from the
effective date of the Agreement except for regulatory reasons.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory and Administration Agreement provides that the
Adviser shall not be liable for any error in judgement or for any
loss suffered by the Fund in connection with the matters to
which the Advisory and Administration Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross
negligence of the Adviser in the performance of its duties, or
from reckless disregard by it of its obligations and duties under
the Advisory and Administration Agreement. The Fund agrees to
indemnify the Adviser to the full extent permitted by the
Declaration of Trust.
COMPUTATION OF NET ASSET VALUE
The net asset value of the shares of each of the Fund's
three classes and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"), by dividing
the value of the Fund's net assets (i.e., the value of the assets
less liabilities) allocable to each class by the total number of
shares of such class then outstanding. The close of the principal
exchanges or other markets on which some of the Fund's portfolio
securities are traded may be later than 4:00 p.m. 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.
As indicated above, the net asset value per share of the
Fund's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, that Exchange may close on days not
included in that announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Fund's Class A Shares are sold
or issued on a basis other than the maximum public offering
price, that is, the net asset value plus the highest sales
charge. Some of these relate to lower or eliminated sales charges
for larger purchases, whether made at one time or over a period
of time as under a Letter of Intent or right of accumulation.
(See the table of sales charges in the Prospectus.) The reasons
for these quantity discounts are, in general, that (i) they are
traditional and have long been permitted in the industry and are
therefore necessary to meet competition as to sales of shares of
other funds having such discounts; and (ii) they are designed to
avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses.
Quantity discounts are made available to certain related persons
("single purchasers") for reasons of family unity and to provide
a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges for Class A Shares are as
follows. Exchanges at net asset value are permitted because a
sales charge has already been paid on the shares exchanged. Sales
without sales charge are permitted to Trustees, officers and
certain others due to reduced or eliminated selling expenses
and/or since such sales may encourage incentive, responsibility
and interest and an identification with the aims and policies of
the Fund. Limited reinvestments of redemptions of Class A Shares
and Class C Shares at no sales charge are permitted to attempt to
protect against mistaken or incompletely informed redemption
decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and
since, in some cases, such issuance is exempted in the 1940 Act
from the otherwise applicable restrictions as to what sales
charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Fund
receives the net asset value per share of all shares sold or
issued.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchase Class A Shares or Class Y Shares of
the Fund having a net asset value of at least $5,000 you may
establish an Automatic Withdrawal Plan under which you will
receive a monthly or quarterly check in a stated amount, not less
than $50. Stock certificates will not be issued for shares held
under an Automatic Withdrawal Plan. All dividends and
distributions must be reinvested. Shares will be redeemed on the
last business day of the month or quarter as may be necessary to
meet withdrawal payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate the account. Monthly or quarterly payments paid to
shareholders should not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
If you incur a sales commission when you buy shares of one
mutual fund (the original fund) and then sell such shares or
exchange them for shares of a different mutual fund without
having held them at least 91 days you must reduce your tax basis
for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or
later acquiring shares of the original fund or another fund is
reduced because of your having owned the original fund shares.
The effect of the rule is to increase your gain or reduce your
loss on the original fund shares. The amount of the basis
reduction on the original fund shares, however, is added on your
basis for the fund shares acquired in the exchange or later
acquired. The provision applies to commissions charged after
October 3, 1989.
CONVERSION OF CLASS C SHARES
Level Payment Class Shares ("Class C Shares) of the Fund,
which you hold will automatically convert to Front Payment Class
Shares ("Class A Shares") of the Fund based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the
sixth anniversary of the your initial purchase of such Class C
Shares occurs. For these purposes, the date of your initial
purchase shall mean (1) the first business day of the month in
which such Class C Shares were issued to you, or (2) for Class C
Shares of the Fund you have obtained through an exchange or
series of exchanges under the Exchange Privilege (see "Exchange
Privilege" in the Prospectus), the first business day of the
month in which you made the original purchase of Class C Shares
so exchanged. For conversion purposes, Class C Shares purchased
through reinvestment of dividends or other distributions paid in
respect of Class C Shares will be held in a separate
sub-account. Each time any Class C Shares in your regular account
(other than those in the sub-account) convert to Class A Shares,
a pro-rata portion of the Class C Shares in the sub-account will
also convert to Class A Shares. The portion will be determined by
the ratio that your Class C Shares then converting to Class A
Shares bears to the total of your Class C Shares not acquired
through reinvestment of dividends and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A Shares and
Class C Shares will not result in "preferential dividends" under
the Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Fund has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Fund implements any amendments to its Distribution
Plan that would increase materially the costs that may be borne
under such Distribution Plan by Class A Shares shareholders,
Class C Shares will stop converting into Class A Shares unless a
majority of Class C Shares shareholders, voting separately as a
class, approve the proposal.
GENERAL INFORMATION
Voting at Meetings of Shareholders
At any meeting of shareholders, each shareholder of each
share of the Fund and of each share of each series of the Fund,
if more than one series is established, is entitled to one (1)
vote for each dollar of net asset value (determined as of the
record date for such meeting) per share of each such series, and
will so vote on the election of Trustees and on other matters
submitted to the vote of all shareholders of the Business Trust,
except where a vote of the holders of the shares of any series
voting by series, is required by the 1940 Act and/or
Massachusetts law as to any proposal.
Possible Additional Series
If additional Series were created by the Board of Trustees,
shares of each such Series would be entitled to vote as a Series
only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees. Income and operating expenses
would be allocated among two or more series in a manner
acceptable to the Board of Trustees.
Under Rule 18f-2 under the 1940 Act, any matter required to
be submitted to shareholder vote is not deemed to have been
effectively acted upon unless approved by the holders of a
"majority" (as defined in that Rule) of the voting securities of
each Series affected by the matter. Such separate voting
requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, Series. A change in
investment policy may go into effect as to one or more Series
whose holders so approve the change, even though the required
vote is not obtained as to the holders of other affected Series.
Ownership of Securities
Of the shares of the Fund outstanding on July 1, 1997,
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box 30561, New
Brunswick, NJ, held of record 95,302 Class A Shares (69.5% of the
class), 31,347 Class C Shares (96.7% of the class) and 15,084
Class Y Shares (8.7% of the class). On the basis of information
received from the holders, the Fund's management believes that
all of the shares indicated are held for the benefit of clients.
Signatory Employers Laborers held of record 56,850 Class Y Shares
(9.2% of the Class), Oregon SW Painters held of record 110,864
Class Y Shares (18.0% of the class) and Oregon Laborers Employee
held of record 150,700 Class Y Shares (24.5% of the Class). The
Fund's management is not aware of any other person beneficially
owning more than 5% of its outstanding shares as of such
date.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Fund may, under certain circumstances, be held personally liable
as partners for the obligations of the trust. For shareholder
protection, however, an express disclaimer of shareholder
liability for acts or obligations of the Fund is contained in the
Declaration of Trust which requires that notice of such
disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Fund or the Trustees. The
Declaration of Trust provides for indemnification out of the
Fund's property of any shareholder held personally liable for the
obligations of the Fund. The Declaration of Trust also provides
that the Fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of
the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is limited to the relatively remote circumstances in
which the Fund itself would be unable to meet its obligations. In
the event the Fund had two or more Series, and if any such Series
were to be unable to meet the obligations attributable to it
(which, as is the case with the Fund, is relatively remote), the
other Series would be subject to such obligations, with a
corresponding increase in the risk of the shareholder liability
mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees of
the Fund out of the property of the Fund and provides that they
will not be liable for errors of judgment or mistakes of fact or
law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his
office.
Underwriting Commissions
During the fiscal period ended March 31, 1997, the
aggregate dollar amount of sales charges on sales of shares in
the Fund was $50,277 and the amount retained by the Distributor
was $593.
Custodian and Auditors
The Fund's Custodian, Bank One Trust Company is responsible
for holding the Fund's assets.
The Fund's auditors, KPMG Peat Marwick LLP, perform an
annual audit of the Fund's financial statements.
Financial Statements
The financial statements for the Fund for the fiscal
period July 23, 1996, commencement of operations of the Fund and
ended March 31, 1997, which are contained in the Annual Report
for that period, are hereby incorporated by reference into the
Additional Statement. Those financial statements have been
audited by KPMG Peat Marwick LLP, independent auditors, whose
report thereon is incorporated herein by reference.
<PAGE>
APPENDIX A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS
Bond Ratings
At the date of this Additional Statement there are six
organizations considered as Nationally Recognized Statistical
Rating Organizations ("NRSROs") for purposes of Rule 15c3-1 under
the Securities Exchange Act of 1934. Their names, a brief summary
of their respective rating systems, some of the factors
considered by each of them in issuing ratings and their
individual procedures are described below.
STANDARD & POOR'S CORPORATION
Commercial paper consists of unsecured promissory notes
issued to raise short-term funds. An S&P commercial paper rating
is a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. S&P's
commercial paper ratings are graded into several categories from
"A-1" for the highest-quality obligations (which can also have a
plus (+) sign designation) to "D" for the lowest. The two highest
categories are:
A-1: This highest category indicates the degree of safety
regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign.
A-2: Capacity for timely payment on issues with this
designation is satisfactory. However, the relative
degree of safety is not as high for issues designated
A-1.
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific
obligation. The ratings are based, in varying degrees, on the
following considerations:
1) Likelihood of default -- capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the
obligations;
2) Nature of and provisions of the obligation; and
3) Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
The two highest categories are:
AAA: Capacity to pay interest and repay principal is
extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in a degree.
MOODY'S INVESTORS SERVICE
Moody's short-term debt ratings are opinions of the ability
of issuers to repay punctually senior debt obligations which have
an original maturity not exceeding one year. Obligations relying
upon support mechanisms such as letters of credit and bonds of
indemnity are excluded unless explicitly rated. The two highest
categories are:
Prime-1: Issuers rated P-1 have a superior ability for
repayment of senior short-term debt obligations, evidenced
by the following characteristics:
* Leading market positions in well-established
industries.
* High rates of return on funds employed.
* Conservative capital structure with moderate reliance
on debt and ample asset protection.
* Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
* Well-established access to a range of markets and
assured sources of alternative liquidity.
Prime-2: Issuers rated P-2 have a strong ability for
repayment of senior short-term debt obligations, evidenced
by the above-mentioned characteristics, but to a lesser
degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation.
Capitalization characteristics, while still appropriate, may
be more affected by external conditions. Ample alternative
liquidity is maintained. Corporate bonds rated Aaa are judged to
be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edged."
Interest payments are protected by large or exceptionally stable
margin and principal is secure. Corporate bonds rated Aa are
judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high-grade
bonds. Aa bonds are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude,
or there may be other elements present which make the long-term
risk appear somewhat greater than the Aaa securities.
DUFF & PHELPS, INC.
The ratings apply to all obligations with maturities of
under one year, including commercial paper, the unsecured portion
of certificates of deposit, unsecured bank loans, master notes,
bankers' acceptances, irrevocable letters of credit and current
maturities of long-term debt.
The two highest categories are:
D-1+: Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
access to alternative sources of funds is outstanding and
safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
D-1 -: High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection
factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are very small.
Long-term debt rated AAA represents the highest credit
quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt. Debt rated AA
represents high credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
IBCA
In determining the creditworthiness of financial
institutions, IBCA assigns ratings within the following
categories: Legal, Individual, Short and Long Term. A legal
rating deals solely with the question of whether an institution
would receive support if it ran into difficulties and not whether
it is "good" or "bad". An individual rating looks purely at the
strength of a financial institution without receiving any
support. Short and long-term ratings assess the borrowing
capabilities and the capacity for timely repayment of debt
obligations. A short-term rating relates to debt which has a
maturity of less than one year, while a long-term rating applies
to a instrument of longer duration. The legal ratings are:
1: A bank for which there is a clear legal guarantee on the
part of its home state to provide any necessary support or a
bank of such importance both internationally and
domestically that support from the state would be
forthcoming, if necessary.
2: A bank for which there is no legal obligation on the part
of its sovereign entity to provide support but for which
state support would be forthcoming, for example, because of
its importance to the total economy or its historic
relationship with the government.
The individual ratings are:
A: A bank with a strong balance sheet, favorable credit
profile and a consistent record of above average
profitability.
B: A bank with a sound credit profile and without
significant problems. The bank's performance has generally
been in line with or better than that of its peers.
The short-term ratings are:
A-1+: Obligations supported by the highest capacity for
timely repayment.
A-1: Obligations supported by a very strong capacity for
timely repayment.
A-2: Obligations supported by a very strong capacity for
timely repayment, although such capacity may be susceptible
to adverse changes in business, economic or financial
conditions.
The long-term ratings are:
AAA: Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of
principal and interest is substantial, such that adverse
changes in business, economic or financial conditions are
unlikely to increase investment risk.
AA: Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment
risk albeit not significantly.
Thomson BankWatch, Inc. (TBW)
The TBW short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the
entities to which the rating has been assigned. TBW's two highest
short-term ratings are:
TBW-1: Indicates a very high degree of likelihood that
principal and interest will paid on a timely basis.
TBW-2: While the degree of safety regarding timely repayment
of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
The TBW long-term rating specifically assess the likelihood
of an untimely repayment of principal or interest over the term
to maturity of the rated instrument. TBW's two highest long-term
ratings are:
AAA: Indicates ability to repay principal and interest on a
timely basis is very strong.
AA: Indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
Fitch Investors Service, Inc.
The Fitch short-term ratings apply to debt obligations that
are payable on demand which include commercial paper,
certificates of deposit, medium-term notes and municipal and
investment notes. Short-term ratings places greater emphasis
than long-term ratings on the existence of liquidity necessary to
meet the issuer's obligations in a timely manner. Fitch
short-term ratings are:
F-1+: Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1: Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues
rated "F-1+".
The Fitch long-term rating represents their assessment of
the issuer's ability to meet the obligations of a specific debt
issue or class of debt in a timely manner. The rating takes into
consideration special features of the issue, its relationship to
other obligations of the issuer, the current and prospective
financial and operating performance of the issuer and any
guarantor, as well as the economic and political environment that
might affect the issuer's future financial strength and credit
quality. The Fitch long-term rating are:
AAA: Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest
and repay principal is very strong.
<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
William C. Wallace, 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
Aquila
Cascadia
Equity Fund
Statement of
Additional Information
One Of The
Aquilasm Group Of Funds
<PAGE>
AQUILA CASCADIA EQUITY FUND
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Report of Independent Auditors
Statement of Net Assets as of March 31, 1997
Statement of Operations for the year
ended March 31, 1997
Statement of Changes in Net Assets for the
period August 11, 1996 (commencement of
operations) March 31, 1997
Notes to Financial Statements
Included in Part C:
Consent of Independent Certified Public
Accountants
(b) Exhibits:
(1) Amended and Restated Declaration of Trust (i)
(2) By-laws (i)
(3) Not applicable
(4) Specimen share certificate (ii)
(5) (a) Investment Advisory and
Administration Agreement (i)
(5) (b) Sub-Advisory Agreement (i)
(6) (a) Distribution Agreement (i)
(b) Sales Agreement (for brokerage firms) (i)
(c) Sales Agreement (for financial
institutions (i)
(d) Related Agreement (i)
(e) Shareholder Services Agreement (i)
(7) Not applicable
(8) Custody Agreement (ii)
(9) (a) Transfer Agency Agreement (i)
(10) Opinion and consent
of counsel to the Fund (i)
(11) Not applicable
(12) Not applicable
(13) Not Applicable
(14) Not applicable
(15) Distribution Plan (i)
(15) (a) Services Plan (i)
(16) Schedule for Computation of Performance
Quotations (ii)
(17) Financial Data Schedules (ii)
(18) Plan pursuant to Rule 18f-3
under the 1940 Act (i)
(i) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 10 under the 1940 Act dated April, 22
1996 and incorporated herein by reference.
(ii) Filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant
None
ITEM 26. Numbers of Holders of Securities
As of July 18, 1997, Registrant had 61 holders of record of its
Class A Shares, 5 of its Class C Shares and 61 of its Class Y
Shares.
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Amended and Restated Declaration of
Trust, is incorporated herein by reference.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to Trustees, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in that Act and is, therefore, unenforce-
able. In the event that a claim for indemnifica-
tion against such liabilities (other than the pay-
ment by Registrant of expenses incurred or paid by
a Trustee, officer, or controlling person of Regis-
trant in the successful defense of any action,
suit, or proceeding) is asserted by such Trustee,
officer, or controlling person in connection with
the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against pub-
lic policy as expressed in the Act and will be go-
verned by the final adjudication of such issue.
ITEM 28. Business & Other Connections of Investment Adviser
Ferguson, Wellman, Rudd, Purdy & Van Winkle Inc.
("Ferguson, Wellman", Registrant's investment adviser,
is an investment adviser for other non-investment
company clients. For information as to the business,
profession, vocation, or employment of a substantial
nature of the investment adviser, its directors, and
its officers, reference is made to the Form ADV filed
by it under the Investment Adviser's Act of 1940.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal un-
derwriter to Aquila Rocky Mountain Equity Fund,
Capital Cash Management Trust, Churchill Cash
Reserves Trust, Churchill Tax-Free Fund of Kentucky,
Hawaiian Tax-Free Trust, Narragansett Insured Tax-Free
Income Fund, Pacific Capital Cash Assets Trust, Pacific
Capital Tax-Free Cash Assets Trust, Pacific Capital
U.S. Treasuries Cash Assets Trust, Tax-Free Fund for
Utah, Tax-Free Fund of Colorado, Tax-Free Trust of
Arizona, and Tax-Free Trust of Oregon, in addition to
serving as the Registrant's principal underwriter.
(b) For information about the Directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange
Act of 1934.
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All such accounts, books, and other documents are
maintained by the administrator and the custodian,
whose addresses appear on the back cover pages of
the Prospectus and Statement of Additional Infor-
mation, and by the fund accounting service of the
Registrant, which is Bank of Boston, 150 Royall
Street, Canton, Massachusetts 02021.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) If the information called for by Item 5A is contained
in the latest annual report to shareholders, the
Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's
latest Annual Report to Shareholders, upon request and
without charge.
(d) If requested to do so by the holders of 10% of the
Fund's outstanding shares, the Fund will call a meeting
of shareholders for the purpose of voting upon the
question of removal of a Trustee or Trustees and to
assist in communication with other shareholders as
required by Section 16(c) of the Investment Company Act
of 1940.
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Consent of Independent Auditors
To the Shareholders and Board of Trustees
Cascadia Equity Fund:
We consent to the use of our report, dated May 9, 1997
incorporated herein by reference, and to the reference to our
firm under the headings "Financial Highlights" in the Prospectus
and "Custodian and Auditors" and "Financial Statements" in the
Statement of Additional Information.
New York, New York KPMG Peat Marwick LLP
July 25, 1997 /s/KPMG Peat Marwick LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933, and has caused this Amendment
to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 29th day of July, 1997.
AQUILA CASCADIA EQUITY FUND
(Registrant)
/s/Lacy B. Herrmann
By____________________________
Lacy B. Herrmann, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement or Amendment has been signed below by
the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/Lacy B. Herrmann 7/29/97
______________________ President, Chairman of __________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Vernon A. Alden 7/29/97
______________________ Trustee __________
Vernon A. Alden
/s/Warren C. Coloney 7/29/97
______________________ Trustee __________
Warren C. Coloney
/s/James A. Gardner 7/29/97
______________________ Trustee __________
James A. Gardner
/s/Diana P. Herrmann 7/29/97
______________________ Trustee __________
Diana P. Herrmann
/s/Ann R. Leven 7/29/97
_____________________ Trustee __________
Ann R. Leven
/s/Raymond H. Lung 7/29/97
_____________________ Trustee __________
Raymond H. Lung
/s/Richard C. Ross 7/29/97
_____________________ Trustee __________
Richard C. Ross
/s/Rose F. Marotta 7/29/97
_____________________ Chief Financial Officer __________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
AQUILA CASCADIA EQUITY FUND
EXHIBIT INDEX
Exhibit Exhibit
Number Name
(4) Specimen share certificate
(8) Custody Agreement
(16) Schedule for Computation of Performance
Quotations
(17) Financial Data Schedules
Correspondence
AQUILA CASCADIA EQUITY FUND
A MASSACHUSETTS BUSINESS TRUST
I. FRONT OF CERTIFICATE (all text and other matter lies within
7-1/2" x 11-1/2" decorative border, 1/2" wide)
(upper right) oval with heading: SHARES
(upper left) oval with heading: NUMBER
(below right oval) CUSIP 037938 10 7
SEE REVERSE FOR CERTAIN DEFINITIONS
(at left)
THIS IS TO CERTIFY that
is the owner of
CLASS A SHARES OF BENEFICIAL INTEREST IN
AQUILA CASCADIA EQUITY FUND
hereafter called the "Fund", fully paid and nonassessable, this
Certificate and the shares represented hereby are issued and shall
be held subject to the provisions of the Declaration of Trust and
By-Laws of the Fund and all amendments thereof, copies of which are
on file at the office of the Fund, to all of which the holder, by
acceptance hereof assents.
This certificate is not valid until countersigned by the
Transfer Agent.
The shares represented hereby are transferable on the books of
the Fund by the owner hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed.
Witness the seal of the Fund and the signatures of its duly
authorized officers or facsimiles thereof.
Dated:
(centered) round seal: AQUILA CASCADIA EQUITY FUND
MASSACHUSETTS
1984
BUSINESS TRUST
/s/Edward M.W. Hines /s/Lacy B. Herrmann
______________________ _____________________
Secretary President
(at lower right, printed vertically)
COUNTERSIGNED:
ADMINISTRATIVE DATA MANAGEMENT CORP.
(WOODBRIDGE, NEW JERSEY)
TRANSFER AGENT,
BY
____________________________
AUTHORIZED SIGNATURE.
II. BACK OF CERTIFICATE (text reads from top to bottom of 11-1/2"
dimension)
The following abbreviations, when used in the inscription on
the face of this Certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT/TRANSF MIN ACT -..............Custodian..................
(Cust) (Minor)
under Uniform Gifts/Transfers to Minors Act...............
(State)
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED, ________________ HEREBY SELL, ASSIGN AND
TRANSFER UNTO
PLEASE INSERT TRANSFER NUMBER
OF ASSIGNEE
_______________
[ (box for SS#) ]
[_______________]________________________________________________
(Please print or typewrite name and address
including postal zip code of assignee)
_________________________________________________________________
_________________________________________________________________
___________________________________________________CLASS A SHARES
OF THE BENEFICIAL INTEREST REPRESENTED BY THE WITHIN CERTIFICATE,
AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT_________________
_________________________________________________________________
ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-
NAMED FUND WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
Dated_______________________
Signed__________________________________
__________________________________
(Both must sign if joint tenancy)
NOTICE: The signature(s) to this assignment must
correspond with the name as written upon the face of the
Certificate in every particular, without alteration or enlargement,
or any change whatever.
____________________________________
Firm
Signature(s) guaranteed by:
____________________________________
Officer
[THIS SPACE MUST NOT BE COVERED IN ANY WAY]
CUSTODY AGREEMENT
THIS AGREEMENT, is made as of March 30, 1995, by and between
SHORT TERM ASSET RESERVES, a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), and BANK
ONE TRUST COMPANY, N.A., a banking company organized under the laws
of the United States (the "Custodian").
WITNESSETH:
WHEREAS, the Trust desires that Securities and cash of the
Trust be held and administered by the Custodian pursuant to this
Agreement; and
WHEREAS, the Trust is an open-end management investment
company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements
herein made, the Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1.1 "Authorized Person" means any Officer or other person
duly authorized by resolution of the Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Trust and
named in Exhibit B hereto or in such resolutions of the Board of
Trustees, certified by an Officer, as may be received by the
Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to
time serving under the Trust's Declaration of Trust, dated July 31,
1984, as from time to time amended.
1.3 "Book-Entry System" shall mean a federal book-entry
system as provided in Subpart O of Treasury Circular No. 300, 31
CFR 306, in Subpart B of 31 CFR Part 350, or in such book-entry
regulations of federal agencies as are substantially in the form of
such Subpart O.
1.4 "Business Day" shall mean any day recognized as a
settlement day by The New York Stock Exchange, Inc. and any other
day for which the Fund computes the net asset value of the Fund.
1.5 "Fund" shall mean any of the individual investment
portfolios of the Trust, including any additional portfolios
hereafter created, as each are or will be identified in Exhibit A
hereto; provided, however, that in the event that the Trust
consists of only one such portfolio, "Fund" shall refer to the
Trust.
1.6 "NASD" shall mean The National Association of Securities
Dealers, Inc.
1.7 "Officer" shall mean the President, any Senior Vice
President, Vice President or Assistant Vice President, the
Secretary, any Assistant Secretary, the Chief Financial Officer,
the Treasurer, or any Assistant Treasurer of the Trust.
1.8 "Oral Instructions" shall mean instructions orally
transmitted to and accepted by the Custodian because such
instructions are: (i) reasonably believed by the Custodian to have
been given by an Authorized Person, (ii) recorded and kept among
the records of the Custodian made in the ordinary course of
business and (iii) orally confirmed by the Custodian. The Trust
shall cause all Oral Instructions to be confirmed by Written
Instructions. If such Written Instructions confirming Oral
Instructions are not received by the Custodian prior to a
transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Trust. If Oral
Instructions vary from the Written Instructions which purport to
confirm them, the Custodian shall notify the Trust of such variance
but such Oral Instructions will govern unless the Custodian has not
yet acted.
1.9 "Custody Account" shall mean any account in the name of
a Fund, which is provided for in Section 3.2 below, or of the
Trust.
1.10 "Proper Instructions" shall mean Oral Instructions or
Written Instructions. Proper Instructions may be continuing
Written Instructions when deemed appropriate by both parties.
1.11 "Securities Depository" shall mean The Participants Trust
Company or The Depository Trust Company and (provided that the
Custodian shall have received a copy of a resolution of the Board
of Trustees, certified by an Officer, specifically approving the
use of such clearing agency as a depository for the Trust) any
other clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities and Exchange Act of
1934 (the "1934 Act"), which acts as a system for the central
handling of Securities where all Securities of any particular class
or series of an issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of the Securities.
1.12 "Securities" shall include, without limitation, common
and preferred stocks, bonds, call options, put options, debentures,
notes, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities, other money market instruments or other
obligations, and any certificates, receipts, warrants or other
instruments or documents representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that
the Custodian has the facilities to clear and to service.
1.13 "Shares" shall mean the units of beneficial interest
issued by the Trust.
1.14 "Written Instructions" shall mean (i) written
communications actually received by the Custodian and signed by one
or more persons as the Board of Trustees shall have from time to
time authorized, or (ii) communications by telex or any other such
system from a person or persons reasonably believed by the
Custodian to be Authorized, or (iii) communications transmitted
electronically through the Institutional Delivery System (IDS), or
any other similar electronic instruction system acceptable to the
Custodian and approved by resolutions of the Board of Trustees, a
copy of which, certified by an Officer, shall have been delivered
to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints
the Custodian as custodian of all Securities and cash owned by or
in the possession of the Trust at any time during the period of
this Agreement, provided that such Securities or cash at all times
shall be and remain the property of the Trust.
2.2 Acceptance. The Custodian hereby accepts appointment as
such custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held
by the Custodian for the account of the Fund, except Securities
maintained in a Securities Depository or Book-Entry System, shall
be physically segregated from other Securities and non-cash
property in the possession of the Custodian and shall be identified
as subject to this Agreement.
3.2 Custody Account. The Custodian shall open and maintain
in its trust department a custody account in the name of each Fund,
subject only to draft or order of the Custodian, in which the
Custodian shall enter and carry all Securities, cash and other
assets of the Fund which are delivered to it.
3.3 Appointment of Agents. Subject to the continuing
approval of the Board of Trustees, the Custodian may appoint, and
at any time remove, any domestic bank or trust company, and is
qualified to act as a custodian under the 1940 Act, as sub-
custodian to hold Securities and cash of the Funds and to carry out
such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such
a bank or trust company (any such accounts to be in the name of the
Custodian and subject only to its draft or order), provided,
however, that the appointment of any such agent shall not relieve
the Custodian of any of its obligations or liabilities under this
Agreement.
3.4 Delivery of Assets to Custodian. The Fund shall deliver,
or cause to be delivered, to the Custodian all of the Fund's
Securities, cash and other assets, including (a) all payments of
income, payments of principal and capital distributions received by
the Fund with respect to such Securities, cash or other assets
owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time
during such period, of Shares. The Custodian shall not be
responsible for such Securities, cash or other assets until
actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The
Custodian may deposit and/or maintain Securities of the Funds in a
Securities Depository or in a Book-Entry System, subject to the
following provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Fund
shall deliver to the Custodian a resolution of the Board
of Trustees, certified by an Officer, authorizing and
instructing the Custodian on an on-going basis to deposit
in such Securities Depository or Book-Entry System all
Securities eligible for deposit therein and to make use
of such Securities Depository or Book-Entry System to the
extent possible and practical in connection with its
performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and
returns of collateral consisting of Securities.
(b) Securities of a Fund kept in a Book-Entry System or
Securities Depository shall be kept in an account
("Depository Account") of the Custodian in such Book-
Entry System or Securities Depository which includes only
assets held by the Custodian as a fiduciary, custodian or
otherwise for customers.
(c) The records of the Custodian and the Custodian's account
on the books of the Book-Entry System and Securities
Depository as the case may be, with respect to Securities
of a Fund maintained in a Book-Entry System or Securities
Depository shall, by book-entry or otherwise, identify
such Securities as belonging to the Fund.
(d) If Securities purchases by the Fund are to be held in a
Book-Entry System or Securities Depository, the Custodian
shall pay for such Securities upon (i) receipt of advice
from the Book-Entry System or Securities Depository that
such Securities have been transferred to the Depository
Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for
the account of the Fund. If Securities sold by the Fund
are held in a Book-Entry System or Securities Depository,
the Custodian shall transfer such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities depository that payment for such Securities
has been transferred to the Depository Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Fund.
(e) Upon request, the Custodian shall provide the Fund with
copies of any report (obtained by the Custodian from a
Book-Entry System or Securities Depository in which
Securities of the Fund is kept) on the internal
accounting controls and procedures for safeguarding
Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting (i)
from the use of a Book-Entry System or Securities
Depository by reason of any negligence or willful
misconduct on the part of the Custodian or any sub-
custodian appointed pursuant to Section 3.3 above or any
of its or their employees, or (ii) from failure of the
Custodian or any such sub-custodian to enforce
effectively such rights as it may have against a Book-
Entry System or Securities Depository. At its election,
the Trust shall be subrogated to the rights of the
Custodian with respect to any claim against a Book-Entry
System or Securities Depository or any other person for
any loss or damage to the Funds arising from the use of
such Book-Entry System or Securities Depository, if and
to the extent that the Custodian has been made whole for
any such loss or damage.
3.6 Disbursement of Moneys from Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall disburse moneys
from a Custody Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only upon
compliance with Section 4.1 of this Agreement and only
(i) in the case of Securities (other than options on
Securities, futures contracts and options on futures
contracts), against the delivery to the Custodian (or any
sub-custodian appointed pursuant to Section 3.3 above) of
such Securities registered as provided in Section 3.9
below in proper form for transfer, or if the purchase of
such Securities is effected through a Book-Entry System
or Securities Depository, in accordance with the
conditions set forth in Section 3.5 above; (ii) in the
case of options on Securities, against delivery to the
Custodian (or such sub-custodian) of such receipts as are
required by the customs prevailing among dealers in such
options; (iii) in the case of futures contracts and
options on futures contracts, against delivery to the
Custodian (or such sub-custodian) of evidence of title
thereto in favor of the Trust or any nominee referred to
in Section 3.9 below; and (iv) in the case of repurchase
or reverse repurchase agreements entered into between the
Trust and a bank which is a member of the Federal Reserve
System or between the Trust and a primary dealer in U.S.
Government securities, against delivery of the purchased
Securities either in certificate form or through an entry
crediting the Custodian's account at a Book-Entry System
or Securities Depository for the account of the Fund with
such Securities;
(b) In connection with the conversion, exchange or surrender,
as set forth in Section 3.7(f) below, of Securities owned
by the Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as provided
in Section 5.1 below;
(e) For the payment of any expense or liability incurred by
the Trust, including but not limited to the following
payments for the account of a Fund: interest; taxes;
administration, investment management, investment
advisory, accounting, auditing, transfer agent,
custodian, trustee and legal fees; and other operating
expenses of a Fund; in all cases, whether or not such
expenses are to be in whole or in part capitalized or
treated as deferred expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of the
NASD, relating to compliance with rules of The Options
Clearing Corporation and of any registered national
securities exchange (or of any similar organization or
organizations) regarding escrow or other arrangements in
connection with transactions by the Trust;
(g) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Trust;
(h) For the funding of any uncertificated time deposit or
other interest-bearing account with any banking
institution (including the Custodian), which deposit or
account has a term of one year or less; and
(i) For any other proper purposes, but only upon receipt, in
addition to Proper Instructions, of a copy of a
resolution of the Board of Trustees, certified by an
Officer, specifying the amount and purpose of such
payment, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such
payment is to be made.
3.7 Delivery of Securities from Fund Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall release and
deliver Securities from a Custody Account but only in the following
cases:
(a) Upon the sale of Securities for the account of a Fund but
only against receipt of payment therefor in cash, by
certified or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry
System or Securities Depository, in accordance with the
provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with
tender or other similar offers for Securities of a Fund;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into
the name of the Trust, the Custodian or any sub-custodian
appointed pursuant to Section 3.3 above, or of any
nominee or nominees of any of the foregoing, or (ii) for
exchange for a different number of certificates or other
evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
Securities are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the issuer of such Securities, or
pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement,
including surrender or receipt of underlying Securities
in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the
new Securities and cash, if any, are to be delivered to
the Custodian;
(g) Upon receipt of payment therefor pursuant to any
repurchase or reverse repurchase agreement entered into
by a Fund;
(h) In the case of warrants, rights or similar Securities,
upon the exercise thereof, provided that, in any such
case, the new Securities and cash, if any, are to be
delivered to the Custodian;
(i) For delivery in connection with any loans of Securities
of a Fund, but only against receipt of such collateral as
the Trust shall have specified to the Custodian in Proper
Instructions;
(j) For delivery as security in connection with any
borrowings by the Trust on behalf of a Fund requiring a
pledge of assets by such Fund, but only against receipt
by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization
of the Trust or a Fund;
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of the
NASD, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Trust
on behalf of a Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust on behalf of a Fund, the
Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits
in connection with transactions by the Trust on behalf of
a Fund; or
(n) For any other proper corporate purposes, but only upon
receipt, in addition to Proper Instructions, of a copy of
a resolution of the Board of Trustees, certified by an
Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom
delivery of such Securities shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless
otherwise instructed by the Trust, the Custodian shall with respect
to all Securities held for a Fund;
(a) Subject to Section 7.4 below, collect on a timely basis
all income and other payments to which the Trust is
entitled either by law or pursuant to custom in the
securities business;
(b) Present for payment and, subject to Section 7.4 below,
collect on a timely basis the amount payable upon all
Securities which may mature or be called, redeemed, or
retired, or otherwise become payable;
(c) Endorse for collection, in the name of the Trust, checks,
drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary
form for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax
laws or the laws or regulations of any other taxing
authority now or hereafter in effect, and prepare and
submit reports to the Internal Revenue Service ("IRS")
and to the Trust at such time, in such manner and
containing such information as is prescribed by the IRS;
(f) Hold for a Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
Securities Depository, all rights and similar securities
issued with respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with sale, exchange, substitution, purchase,
transfer and other dealings with Securities and assets of
the Fund.
3.9 Registration and Transfer of Securities. All Securities
held for a Fund that are issued or issuable only in bearer form
shall be held by the Custodian in that form, provided that any such
Securities shall be held in a Book-Entry System for the account of
the Trust on behalf of a Fund, if eligible therefor. All other
Securities held for a Fund may be registered in the name of the
Trust on behalf of such Fund, the Custodian, or any sub-custodian
appointed pursuant to Section 3.3 above, or in the name of any
nominee of any of them, or in the name of a Book-Entry System,
Securities Depository or any nominee of either thereof; provided,
however, that such Securities are held specifically for the account
of the Trust on behalf of a Fund. The Trust shall furnish to the
Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name
of any of the nominees hereinabove referred to or in the name of a
Book-Entry System or Securities Depository, any Securities
registered in the name of a Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund,
complete and accurate records with respect to Securities, cash or
other property held for the Trust, including (i) journals or other
records of original entry containing an itemized daily record in
detail of all receipts and deliveries of Securities and all
receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical
possession, (C) monies and Securities borrowed and monies and
Securities loaned (together with a record of the collateral
therefor and substitutions of such collateral), (D) dividends and
interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related
thereto. The Custodian shall keep such other books and records of
the Trust as the Trust shall reasonably request, or as may be
required by the 1940 Act, including, but not limited to Section 31
and Rule 31a-1 and 31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian
shall (i) be maintained in a form acceptable to the Trust and in
compliance with rules and regulations of the Securities and
Exchange Commission, (ii) be the property of the Trust and at all
times during the regular business hours of the Custodian be made
available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the
Securities and Exchange Commission, and (iii) if required to be
maintained by Rule 31a-1 under the 1940 Act, be preserved for the
periods prescribed in Rule 31a-2 under the 1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish
the Trust with a daily activity statement by Fund and a summary of
all transfers to or from the Custody Account on the day following
such transfers. At least monthly and from time to time, the
Custodian shall furnish the Trust with a detailed statement, by
Fund, of the Securities and moneys held for the Trust under this
Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide
the Trust with such reports, as the Trust may reasonably request
from time to time, on the internal accounting controls and
procedures for safeguarding Securities, which are employed by the
Custodian or any sub-custodian appointed pursuant to Section 3.3
above.
3.13 Proxies and Other Materials. The Custodian shall cause
all proxies, if any, relating to Securities which are not
registered in the name of a Fund, to be promptly executed by the
registered holder of such Securities, without indication of the
manner in which such proxies are to be voted, and shall include all
other proxy materials, if any, promptly deliver to the Trust such
proxies, all proxy soliciting materials, and all notices to the
holders of such Securities.
3.14 Information on Corporate Actions. The Custodian will
promptly notify the Trust of corporate actions, limited to those
Securities registered in nominee name and to those Securities held
at a Depository or sub-Custodian acting as agent for the Custodian.
The Custodian will be responsible only if the notice of such
corporate actions is published by the Financial Card Service, J.J.
Kenny's Munibase System, Depository Trust Reorganization Notices,
Xcitek Inc., Standard & Poor's Called Bond Listing or The Wall
Street Journal or received by first class mail from the agent. For
market announcements not yet received and distributed by the
Custodian's services, the Trust will inform its custody
representative with appropriate instructions. The Custodian will,
upon receipt of the Trusts's response within the required deadline,
effect such action for receipt or payment for the Trust. For those
responses received after the deadline, the Custodian will effect
such action for receipt or payment, subject to the limitations of
the agent(s) effecting such actions. The Custodian will promptly
notify the Trust for put options only if the notice is received by
first class mail from the agent. The Trust will provide or cause
to be provided to the Custodian with all relevant information
contained in the prospectus for any security which has unique
put/option provisions and provide the Custodian with specific
tender instructions at least ten business days prior to the
beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of
Securities for the Trust, Written Instructions shall be delivered
to the Custodian, specifying (a) the Fund making the purchase, (b)
the name of the issuer or writer of such Securities, and the title
or other description thereof, (c) the number of shares, principal
amount (and accrued interest, if any) or other units purchased, (d)
the date of purchase and settlement, (e) the purchase price per
unit, (f) the total amount payable upon such purchase, and (g) the
name of the person to whom such amount is payable. The Custodian
shall upon receipt of such Securities purchased by a Fund pay out
of the moneys held for the account of such Fund the total amount
specified in such Written Instructions to the person named therein.
The Custodian shall not be under any obligation to pay out moneys
to cover the cost of a purchase of Securities for a Fund, if in the
relevant Custody Account there is insufficient cash available to
the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of
Securities for a Fund is made by the Custodian in advance of
receipt for the account of the Fund of the Securities purchased but
in the absence of specific Written or Oral Instructions to so pay
in advance, the Custodian shall be liable to the Fund for such
Securities to the same extent as if the Securities had been
received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of
Securities by a Fund, Written Instructions shall be delivered to
the Custodian, specifying (a) the Fund making the purchase, (b) the
name of the issuer or writer of such Securities, and the title or
other description thereof, (c) the number of shares, principal
amount (and accrued interest, if any), or other units sold, (d) the
date of sale and settlement (e) the sale price per unit, (f) the
total amount payable upon such sale, and (g) the person to whom
such Securities are to be delivered. Upon receipt of the total
amount payable to the Trust as specified in such Written
Instructions, the Custodian shall deliver such Securities to the
person specified in such Written Instructions. Subject to the
foregoing, the Custodian may accept payment in such form as shall
be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in
Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3
above or any other provision of this Agreement, the Custodian, when
instructed to deliver Securities against payment, shall be
entitled, if so directed in Written Instructions and if in
accordance with generally accepted market practice, to deliver such
Securities prior to actual receipt of final payment therefor. In
any such case, the Trust shall bear the risk that final payment for
such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person
to whom they were delivered, and the Custodian shall have no
liability for any of the foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion
and from time to time, the Custodian may credit the relevant
Custody Account, prior to actual receipt of final payment thereof,
with (i) proceeds from the sale of Securities which it has been
instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Trust, and (iii)
income from cash, Securities or other assets of the Trust. Any
such credit shall be conditional upon actual receipt by the
Custodian of final payment and may be reversed if final payment is
not actually received in full. The Custodian may, in its sole
discretion and from time to time, permit the Trust to use funds so
credited to its Custody Account in anticipation of actual receipt
of final payment. Any such funds shall be repayable immediately
upon demand made by the Custodian at any time prior to the actual
receipt of all final payments in anticipation of which funds were
credited to the Custody Account.
4.6 Advances by Custodian for Settlement. If the Custodian
should, in its sole discretion, advance funds to the Trust to
facilitate the settlement of transactions on behalf of a Fund in
its Custody Account, then such advance shall be repayable
immediately upon demand made by the Custodian and shall bear
interest from the date incurred at a rate per annum (based on a
360-day year from the actual number of days involved) equal to 1%
over the Federal Funds rate in effect from time to time as
announced by The Wall Street Journal under the section entitled
Money Rates, or any successor title, such rate to be adjusted on
the effective date of any changes in such rate.
ARTICLE V
REDEMPTION OF TRUST SHARES
5.1 Transfer of Funds. From such funds as may be available
for the purpose in the relevant Custody Account, and upon receipt
of Proper Instructions specifying that the funds are required to
redeem Shares of a Fund, the Custodian shall wire each amount
specified in such Proper Instructions to or through such bank as
the Trust may designate with respect to such amount in such Proper
Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not
be under any obligation to effect payment or distribution by any
bank designated in Proper Instructions given pursuant to Section
5.1 above of any amount paid by the Custodian to such bank in
accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of and in conformity with Proper Instructions,
the Custodian shall establish and maintain a segregated account or
accounts for and on behalf of each Fund, into and from which
account or accounts may be transferred cash and/or Securities,
including Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among
the Trust, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD (or any
futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity
Futures Trading commission or any registered contract
market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Trust,
(b) for purposes of segregating cash or Securities in
connection with securities options purchased or written
by a Fund or in connection with financial futures
contracts (or options thereon) purchased or sold by a
Fund,
(c) which constitute collateral for loans of Securities made
by a Fund,
(d) for purposes of compliance by the Trust with requirements
under the 1940 Act for the maintenance of segregated
accounts by registered investment companies in connection
with reverse repurchase agreements and when-issued,
delayed delivery and firm commitment transactions, and
(e) for other proper corporate purposes, but only upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Trustees,
certified by an Officer, setting forth the purpose or
purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the
exercise of reasonable care in carrying out its obligations under
this Agreement, and shall be without liability to the Trust for any
loss, damage, cost, expense (including attorneys' fees and
disbursements), liability or claim unless such loss, damages, cost,
expense, liability or claim arises from negligence, bad faith or
willful misconduct on its part or on the part of any sub-custodian
appointed pursuant to Section 3.3 above. The Custodian shall be
entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. The Custodian shall
promptly notify the Trust of any action taken or omitted by the
Custodian pursuant to advice of counsel. The Custodian shall not
be under any obligation at any time to ascertain whether the Trust
is in compliance with the 1940 Act, the regulations thereunder, the
provisions of the Trust's charter documents or by-laws, or its
investment objectives and policies as then in effect.
7.2 Actual Collection Required. The Custodian shall not be
liable for, or considered to be custodian of, any cash belonging to
the Trust or any money represented by a check, draft or other
instrument for the payment of money, until the Custodian or its
agents actually receive such cash or collect on such instrument.
7.3 No Responsibility for title, etc. So long as and to the
extent that it is in the exercise of reasonable care, the Custodian
shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received or delivered by
it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. The Custodian shall not
be required to enforce collection, by legal means or otherwise, of
any money or property due and payable with respect to Securities
held for the Trust if such Securities are in default or payment is
not made after due demand or presentation. The Custodian shall
inform the Trust promptly of any such default or failure to make
payment.
7.5 Reliance Upon Documents and Instructions. The Custodian
shall be entitled to rely upon any certificate, notice or other
instrument in writing received by it and reasonably believed by it
to be genuine. The Custodian shall be entitled to rely upon any
Oral Instructions and/or any Written Instructions actually received
by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties
or obligations whatsoever except such duties and obligations as are
specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the
Custodian.
7.7 Cooperation. The Custodian shall cooperate with and
supply necessary information to the entity or entities appointed by
the Trust to keep the books of account of the Trust and/or compute
the value of the assets of the Trust. The Custodian shall take all
such reasonable actions as the Trust may from time to time request
to enable the Trust to obtain, from year to year, favorable
opinions from the Trust's independent accountants with respect to
the Custodian's activities hereunder in connection with (a) the
preparation of the Trust's filings on Form N-1A and Form N-SAR and
any other reports required by the Securities and Exchange
Commission, and (b) the fulfillment by the Trust of any other
requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Trust shall indemnify and hold
harmless the Custodian and any sub-custodian appointed pursuant to
Section 3.3 above, and any nominee of the Custodian or of such sub-
custodian from and against any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state
or foreign securities and/or banking laws) or claim arising
directly or indirectly (a) from the fact that Securities are
registered in the name of any such nominee, or (b) from any action
or inaction by the Custodian or such sub-custodian (i) at the
request or direction of or in reliance on the advice of the Trust,
or (ii) upon Proper Instructions, or (c) generally, from the
performance of its obligations under this Agreement or any sub-
custody agreement with a sub-custodian appointed pursuant to
Section 3.3 above or, in the case of any such sub-custodian, from
the performance of its obligations under such custody agreement,
provided that neither the Custodian nor any such sub-custodian
shall be indemnified and held harmless from and against any such
loss, damage, cost, expense, liability or claim arising from the
Custodian's or such sub-custodian's negligence, bad faith or
willful misconduct.
8.2 Indemnity to be Provided. If the Trust requests the
Custodian to take any action with respect to Securities, which may,
in the opinion of the Custodian, result in the Custodian or its
nominee becoming liable for the payment of money or incurring
liability of some other form, the Custodian shall not be required
to take such action until the Trust shall have provided indemnity
therefor to the Custodian in an amount and form satisfactory to the
Custodian.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any
failure or delay in performance of its obligations under this
Agreement arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including, without
limitation, acts of God; earthquakes; fires; floods; wars; civil or
military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its
reasonable control as may cause interruption, loss or malfunction
of utility, transportation, computer (hardware or software) or
telephone communication service; accidents; labor disputes, acts of
civil or military authority; governmental actions; or inability to
obtain labor, material, equipment or transportation; provided,
however, that the Custodian in the event of a failure or delay
shall use its best efforts to ameliorate the effects of any such
failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective
as of the date first set forth above and shall continue in full
force and effect until terminated as hereinafter provided.
10.2 Termination. Either party hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less
than ninety (90) days after the date of the giving of such notice.
If a successor custodian shall have been appointed by the Board of
Trustees, the Custodian shall, upon receipt of a notice of
acceptance by the successor custodian, on such specified date of
termination (a) deliver directly to the successor custodian all
Securities (other than Securities held in a Book-Entry System or
Securities Depository) and cash then owned by the Trust and held by
the Custodian as custodian, and (b) transfer any Securities held in
a Book-Entry System or Securities Depository to an account of or
for the benefit of the Trust at the successor custodian, provided
that the Trust shall have paid to the Custodian all fees, expenses
and other amounts to the payment or reimbursement of which it shall
then be entitled. Upon such delivery and transfer, the Custodian
shall be relieved of all obligations under this Agreement. The
Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the
Custodian by regulatory authorities in the State of Ohio or upon
the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor
custodian is not designated by the Trust on or before the date of
termination specified pursuant to Section 10.1 above, then the
Custodian shall have the right to deliver to a bank or trust
company of its own selection, which is (a) a "Bank" as defined in
the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not
less than $25 million, and (c) is doing business in New York, New
York, all Securities, cash and other property held by the Custodian
under this Agreement and to transfer to an account of or for the
Trust at such bank or trust company all Securities of the Trust
held in a Book-Entry System or Securities Depository. Upon such
delivery and transfer, such bank or trust company shall be the
successor custodian under this Agreement and the Custodian shall be
relieved of all obligations under this Agreement. If, after
reasonable inquiry, the Custodian cannot find a successor custodian
as contemplated in this Section 10.3, then the Custodian shall have
the right to deliver to the Trust all Securities and cash then
owned by the Trust and to transfer any Securities held in a Book-
Entry System or Securities Depository to an account of or for the
Trust. Thereafter, the Trust shall be deemed to be its own
custodian with respect to the Trust and the Custodian shall be
relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon
from time to time by the Trust and the Custodian. The fees and
other charges in effect on the date hereof and applicable to the
Funds are set forth in Exhibit C attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
The Trust is a business trust organized under the laws of the
Commonwealth of Massachusetts and under a Declaration of Trust, to
which reference is hereby made a copy of which is on file at the
office of the Secretary of State of Massachusetts as required by
law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of the Trust entered into in the name of
the Trust or on behalf thereof by any of the Trustees, officers,
employees or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, officers,
employees, agents or shareholders of the Trust or the Funds
personally, but bind only the assets of the Trust, and all persons
dealing with any of the Funds of the Trust must look solely to the
assets of the Trust belonging to such Fund for the enforcement of
any claims against the Trust.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices,
instructions, and other communications to be given to a party
hereunder shall be in writing and shall be sent or delivered to the
party at the address set forth after its name herein below:
To the Trust:
SHORT TERM ASSET RESERVES
380 Madison Avenue
New York, NY 10017
Attn: Mr. Richard F. West, Treasurer and Mr.
William Killeen, Senior Operations
Officer
Telephone: (212)-697-6666
Facsimile: (212)-687-5373
To the Custodian:
BANK ONE TRUST COMPANY, N.A.,
100 East Broad Street
Columbus, OH 43271-0187
Attention: Mr. Robert F. Schultz, Senior Trust
Officer
Telephone: (614)-248-5445
Facsimile: (614)-248-2554
or at such other address as either party shall have provided to the
other by notice given in accordance with this Article XIII.
Writing shall include transmission by or through teletype,
facsimile, central processing unit connection, on-line terminal and
magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
14.2 No Waiver. No failure by either party hereto to exercise
and no delay by such party in exercising, any right hereunder shall
operate as a waiver thereof. The exercise by either party hereto
of any right hereunder shall not preclude the exercise of any other
right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
14.3 Amendments. This Agreement cannot be changed orally and
no amendment to this Agreement shall be effective unless evidenced
by an instrument in writing executed by the parties hereto.
14.4 Counterparts. This Agreement may be executed in one or
more counterparts, and by the parties hereto on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
14.5 Severability. If any provision of this Agreement shall
be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the
remaining provisions shall not be affected or impaired thereby.
14.6 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that this
Agreement shall not be assignable by either party hereto without
the written consent of the other party hereto.
14.7 Headings. The headings of sections in this Agreement are
for convenience of reference only and shall not affect the meaning
or construction of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its
behalf by its representatives thereunto duly authorized, all as of
the day and year first above written.
ATTEST: SHORT TERM ASSET RESERVES
/s/Patricia A. Craven /s/Lacy B. Herrmann
_____________________ By: ______________________
Assistant Secretary President
ATTEST: BANK ONE TRUST COMPANY, N.A.
/s/Beth Hayes /s/Robert F. Schultz
______________________ By: _______________________
Senior Trust Officer
<PAGE>
EXHIBIT A
Name of Fund (if different from Date Added (if
the Trust different from
date of original
Custody Agreement
<PAGE>
EXHIBIT B
I, Richard F. West, Treasurer, and I, Patricia Craven, Assistant
Secretary, of SHORT TERM ASSET RESERVES, a Massachusetts business
trust (the "Trust"), do hereby certify that:
The following individuals have been duly authorized by the Board of
Trustees of the Trust in conformity with the Trust's Declaration of
Trust and By-Laws to give Oral Instructions and Certificate on
behalf of the Trust, and the signatures set forth opposite their
respective names are their true and correct signatures:
NAME SIGNATURE
/s/Lacy B. Herrmann
Lacy B. Herrmann _____________________________
/s/Rose F. Marotta
Rose F. Marotta _____________________________
/s/Richard F. West
Richard F. West _____________________________
/s/William C. Wallace
William C. Wallace _____________________________
/s/Diana P. Herrmann
Diana P. Herrmann _____________________________
/s/Charles E. Childs III
Charles E. Childs III _____________________________
/s/John M. Herndon
John M. Herndon _____________________________
/s/William Killeen
William Killeen _____________________________
/s/Patricia A. Craven
Patricia A. Craven _____________________________
/s/Richard F. West /s/Patricia A. Craven,
________________________ _____________________________
Richard F. West, Patricia A. Craven,
Treasurer Assistant Secretary
<PAGE>
EXHIBIT C
Compensation of Custodian - Equity Fund/Money Market Funds
Whereas Article XI of the Custody Agreement between Short Term
Asset Reserves and Bank One Trust Company, N.A. stipulates that the
compensation of Custodian shall be agreed upon by the Trust and
Custodian, the following is hereby agreed:
The compensation of the Custodian shall be computed according to
the following schedule:
I. Activity Fee:
A. $5.00 per book entry security transaction.
For the purpose of this agreement, a "transaction "
includes, but is not limited to, a purchase sale,
maturity, redemption, tender, exchange, deposit,
withdrawal, and collateral movement of a security.
B. $28.00 per ineligible security transaction.
C. $10.00 per principal paydown on amortized issues.
II. Other Activity Fees:
A. $5.00 per wire.
B. $2.00 per outgoing check from custody account.
III. Overdraft Charges:
As described in Section 4.6 of the Custody Agreement,
overdraft charges will be at 100 basis points above the
Fed Funds rate.
An earnings credit using the most recent 90-day T-bill auction rate
applied to 90% of each day's positive collected balance will reduce
custody, FDIC and other fees as allowed by law. For each month
that the charges exceed the earnings credit, the deficiency shall
be paid to Custodian. For each month that the earnings credit
exceeds the charges, the Custodian shall carry such surplus credits
forward to subsequent month(s) and calendar year(s) until utilized.
Custodian is to be reimbursed for out of pocket expenses deemed to
be exceptional.
The above fee schedule will remain in effect until March 31, 1998
and thereafter unless changed.
As stated by the Custodian in bidding to provide custody services
to the Trust, if at any time the Trust is not completely satisfied
with the Custodian's service levels, the Custodian will cease to
charge custody fees until its responsiveness and accuracy meet the
requirements of the Trust.
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Aquila Cascadia Equity Fund (Class A Shares)
TOTAL RETURN SINCE INCEPTION AS OF 3/31/97 3.35%
CUMULATIVE TOTAL RETURN SINCE INCEPTION AS OF 3/31/97 3.35%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $12.00 As of 9/9/96
Public Offering Price Per Share (POP) $12.53 As of 9/9/96
Number of Shares Purchased 79.808 Based on POP
INVESTMENT NUMBER DIVIDEND
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIBUTION
<S> <C> <C> <C> <C>
September 30, 1996 1,000.00 79.808 0.00
October 31, 1996 984.04 79.808 0.00
November 29, 1996 980.85 79.808 0.00
December 31, 1996 1,034.32 79.808 0.00
January 31, 1997 1,030.33 79.808 0.00
February 28, 1997 1,071.83 79.808 0.00
March 31, 1997 1,063.05 79.808 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
September 30, 1996 12.33 0.000 984.04 -1.60%
October 31, 1996 12.29 0.000 980.85 -1.92%
November 29, 1996 12.96 0.000 1,034.32 3.43%
December 31, 1996 12.91 0.000 1,030.33 3.03%
January 31, 1997 13.43 0.000 1,071.83 7.18%
February 28, 1997 13.32 0.000 1,063.05 6.30%
March 31, 1997 12.95 0.000 1,033.52 3.35%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Aquila Cascadia Equity Fund (Class C Shares)
TOTAL RETURN SINCE INCEPTION AS OF 3/31/97 6.92%
CUMULATIVE TOTAL RETURN SINCE INCEPTION AS OF 3/31/97 6.92%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $12.00 As of 9/9/96
Public Offering Price Per Share (POP) $12.00 As of 9/9/96
Number of Shares Purchased 83.333 Based on POP
INVESTMENT NUMBER DIVIDEND
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIBUTION
<S> <C> <C> <C> <C>
September 30, 1996 1,000.00 83.333 0.00
October 31, 1996 1,027.50 83.333 0.00
November 29, 1996 1,024.17 83.333 0.00
December 31, 1996 1,080.00 83.333 0.00
January 31, 1997 1,075.83 83.333 0.00
February 28, 1997 1,119.17 83.333 0.00
March 31, 1997 1,109.17 83.333 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
September 30, 1996 12.33 0.000 1,027.50 2.75%
October 31, 1996 12.29 0.000 1,024.17 2.42%
November 29, 1996 12.96 0.000 1,080.00 8.00%
December 31, 1996 12.91 0.000 1,075.83 7.58%
January 31, 1997 13.43 0.000 1,119.17 11.92%
February 28, 1997 13.31 0.000 1,109.17 10.92%
March 31, 1997 12.83 0.000 1,069.17 6.92%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Aquila Cascadia Equity Fund (Class Y Shares)
TOTAL RETURN SINCE INCEPTION AS OF 3/31/97 8.00%
CUMULATIVE TOTAL RETURN SINCE INCEPTION AS OF 3/31/97 8.00%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $12.00 As of 9/9/96
Public Offering Price Per Share (POP) $12.00 As of 9/9/96
Number of Shares Purchased 83.333 Based on POP
INVESTMENT NUMBER DIVIDEND
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIBUTION
<S> <C> <C> <C> <C>
September 30, 1996 1,000.00 83.333 0.00
October 31, 1996 1,027.50 83.333 0.00
November 29, 1996 1,024.17 83.333 0.00
December 31, 1996 1,080.00 83.333 0.00
January 31, 1997 1,075.83 83.333 0.00
February 28, 1997 1,120.00 83.333 0.00
March 31, 1997 1,110.00 83.333 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
September 30, 1996 12.33 0.000 1,027.50 2.75%
October 31, 1996 12.29 0.000 1,024.17 2.42%
November 29, 1996 12.96 0.000 1,080.00 8.00%
December 31, 1996 12.91 0.000 1,075.83 7.58%
January 31, 1997 13.44 0.000 1,120.00 12.00%
February 28, 1997 13.32 0.000 1,110.00 11.00%
March 31, 1997 12.96 0.000 1,080.00 8.00%
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS'S ANNUAL REPORT DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000750913
<NAME> AQUILA CASCADIA EQUITY FUND - CLASS A SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 8,898,581
<INVESTMENTS-AT-VALUE> 8,852,726
<RECEIVABLES> 137,026
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 396,706
<TOTAL-ASSETS> 9,386,458
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<OTHER-ITEMS-LIABILITIES> 27,012
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<DIVIDEND-INCOME> 28,507
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<EXPENSES-NET> 28,507
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<REALIZED-GAINS-CURRENT> (8,598)
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<NUMBER-OF-SHARES-SOLD> 125,726
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000750913
<NAME> AQUILA CASCADIA EQUITY FUND - CLASS C SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 8,898,581
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<GROSS-EXPENSE> 106,866
<AVERAGE-NET-ASSETS> 119,102
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000750913
<NAME> AQUILA CASCADIA EQUITY FUND - CLASS Y SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
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</TABLE>
