CHURCHILL CASH RESERVES TRUST
380 MADISON AVENUE
SUITE 2300
NEW YORK, NEW YORK 10017
212-697-6666
PROSPECTUS
[LOGO] JANUARY 31, 1996
The Trust's objective is to provide safety of principal for the cash
reserves of investors while achieving as high a level of current income and
liquidity as possible. It seeks to obtain this objective through investments
in a diversified portfolio of money market securities meeting specific high
quality standards and having short maturities.
Shares of the Trust may be purchased and redeemed at their next
determined net asset value, which is normally the constant price of $1.00 per
share; See Net Asset Value Per Share. Purchases are made without any sales
charge through Aquila Distributors, Inc., which is the exclusive Distributor
of the Trust's shares. See How to Invest in the Trust and How to Redeem Your
Investment.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS IN, OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY BANC ONE CORPORATION OR ITS BANK OR NON-BANK AFFILIATES OR BY ANY
OTHER BANK. SHARES OF THE TRUST 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 TRUST INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
The Prospectus concisely states information about the Trust that you
should know before investing. A Statement of Additional Information about the
Trust dated January 31, 1996, (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 Trust'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 Trust and its management not included in the Prospectus. The
Additional Statement is incorporated by reference in its entirety in the
Prospectus. Only when you have read both the Prospectus and the Additional
Statement are all the material facts about the Trust available to you.
FOR PURCHASE, REDEMPTION OR ACCOUNT INQUIRIES CONTACT THE TRUST'S
SHAREHOLDER SERVICING AGENT: ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
CALL 800-952-6666 TOLL-FREE OR 908-855-5731
FOR GENERAL INQUIRIES AND YIELD INFORMATION, CALL 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>
<TABLE>
<CAPTION>
CHURCHILL CASH RESERVES TRUST
TABLE OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases 0%
Maximum Sales Load Imposed on Reinvested Dividends 0%
Deferred Sales Load 0%
Redemption Fees 0%
Exchange Fee 0%
<CAPTION>
ANNUAL TRUST OPERATING EXPENSES*
(as a percentage of average net assets)
<S> <C>
Investment Advisory Fee After Waiver # 0.30%
12b-1 Fee ## 0%
Total Other Expenses After Fee Waiver # 0.28%
Administration Fee After Waiver # 0.16%
Other Expenses 0.12%
Total Trust Operating Expenses After Fee Waivers # 0.58%
Example** 1 year 3 years 5 years 10 years
You would pay the following expenses
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption
at the end of each time period $6 $19 $32 $73
<FN>
*Based upon amounts incurred during the most recent fiscal year of the Trust,
restated to reflect current arrangements (See "Management Arrangements.")
</FN>
<FN>
#Absent fee waiver, investment advisory fees would have been incurred at the
rate of 0.33% of average net assets. Also absent administration fee waiver,
administration fees would have been incurred at the rate of 0.17% of average
net assets and other expenses would have included those fees. Absent any fee
waiver, total Trust operating expenses for the year would have been incurred
at the annual rate of 0.62%.
</FN>
<FN>
##The 12b-1 Plan of the Trust does not involve payments out of the assets or
income of the Trust designed to recognize sales of shares of the Trust or to
pay advertising expenses.
</FN>
<FN>
**The expense example is based upon an amount at the beginning of each year
which includes the prior year's assumed results. A years results consist of an
assumed 5% annual return less expenses at a 0.60% annual rate; the expense
ratio was applied to an assumed average balance (the years starting investment
plus one-half the years results). Each column 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%
RATE FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE.
The purpose of the above table is to assist the investor in understanding
the various costs and expenses that an investor in the Trust will bear
directly or indirectly. (See "Management Arrangements" for a more complete
description of the various investment advisory and administration fees.)
<PAGE>
<TABLE>
<CAPTION>
CHURCHILL CASH RESERVES TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table of Financial Highlights as it relates to the five
years ended September 30, 1995 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is included in the Trust'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.
Effective July 19, 1995, Banc One Investment Advisors Corporation became the
Trust's Investment Adviser, replacing PNC Bank, Kentucky, Inc.
Year ended September 30,
<S> <C> <C> <C> <C>
1995* 1994 1993 1992
Net Asset Value, Beginning of Year $1.0000 $1.0000 $1.0000 $1.0000
Income from Investment Operations:
Net investment income 0.0526 0.0319 0.0265 0.0380
Net gain on securities (both
realized and unrealized) -- -- -- 0.0005
Total from Investment Operations 0.0526 0.0319 0.0265 0.0385
Less Distributions:
Dividends from net investment
income (0.0526) (0.0319) (0.0265) (0.0380)
Distributions from capital gains -- -- -- (0.0005)
Total Distributions (0.0526) (0.0319) (0.0265) (0.0385)
Net Asset Value, End of Year $1.0000 $1.0000 $1.0000 $1.0000
Total Return 5.39% 3.24% 2.68% 3.87%
Ratios/Supplemental Data
Net Assets, End of Year (in
thousands) $146,130 $187,626 $187,274 $139,633
Ratio of Expenses to Average Net
Assets 0.58% 0.60% 0.60% 0.65%
Ratio of Net Investment Income to
Average Net Assets 5.24% 3.17% 2.65% 3.90%
<C> <C> <C> <C> <C> <C>
1991 1990 1989 1988 1987 1986
$1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
0.0636 0.0790 0.0865 0.0686 0.0504 0.0602
-- -- -- -- -- --
0.0636 0.0790 0.0865 0.0686 0.0504 0.0602
(0.0636) (0.0790) (0.0865) 0.0686 0.0504 0.0602
-- -- -- -- -- --
(0.0636) (0.0790) (0.0865) 0.0686 0.0504 0.0602
$1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
6.54% 8.17% 9.02% 7.07% 6.06% 6.94%
$222,362 $238,634 $288,357 $213,938 $199,292 $113,804
0.60% 0.58% 0.58% 0.59% 0.61% 0.65%
6.36% 7.90% 8.65% 6.84% 5.97% 6.72%
<FN>
*During this period, the Adviser and Administrator waived fees of $48,089 and
$21,561,respectively. If these fees had not been waived, net investment income
and dividends to shareholders would have been $0.0522; the ratio of expenses
to average net assets, 0.62%; and the ratio of net investment income to
average net assets, 5.20%.
</FN>
</TABLE>
The Trust's "current yield" (unaudited) for the seven days ended
September 30, 1995 was 5.28% and its "compounded effective yield" (unaudited)
for that period was 5.42%; see the Additional Statement for the methods of
calculating these yields.
<PAGE>
INTRODUCTION
The Trust is an open-end diversified investment company organized in
January 1985, as a Massachusetts business trust, designed to suit the cash
management needs of individuals, corporations, institutions and fiduciaries.
Cash of investors may be invested in shares of the Trust as an
alternative to idle funds, direct investments in savings deposits or
short-term debt securities. The Trust offers the opportunity to keep cash
reserves fully invested and provides you with a professionally managed
portfolio of money market instruments which may be more diversified, higher
yielding, more stable and more liquid than you might be able to obtain on an
individual basis. Through the convenience of a single security consisting of
shares of the Trust, you are also relieved of the inconvenience of making
direct investments, including the selection, purchasing and handling of
securities. Shares of the Trust are not deposits in, obligations of or
guaranteed or endorsed by Banc One Investment Advisors Corporation (the
"Adviser"), Banc One Corporation or its bank or non-bank affiliates or by any
other bank. Shares of the Trust 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.
INVESTMENT OF THE TRUST'S ASSETS
The objective of the Trust is to achieve as high a level of current
income, stability and liquidity for investors' cash assets as can be obtained
from investing in a diversified portfolio of short-term "money market"
securities meeting specific quality standards. There is no assurance that the
Trust will achieve this objective, which is a fundamental policy of the Trust.
In addition to the requirements of the Trust's management policies, all
obligations and instruments purchased by the Trust must meet the requirements
of Rule 2a-7 (the "Rule") of the Securities and Exchange Commission under the
Investment Company Act of 1940 (the "1940 Act"). The provisions of the Rule
that affect portfolio management are summarized under "Effect of the Rule on
Portfolio Management," below. In brief, the Rule's provisions for quality,
diversity and maturity require the Trust to limit its investments to those
instruments which the Adviser determines (pursuant to procedures approved by
the Board of Trustees) present minimal credit risks, and which at the time of
purchase are Eligible Securities. In general, the Rule defines as Eligible
Securities those that at the time of purchase are rated in the two highest
rating categories for short-term securities by any two of the nationally
recognized statistical rating organizations ("NRSROs") or unrated securities
determined by the Board of Trustees to be of comparable quality. See Appendix
A to the Additional Statement for a description of the NRSROs and the factors
considered by them in determining ratings. Eligible Securities so rated in the
highest rating category (or unrated securities of comparable quality) are
called "First Tier Securities"; all other Eligible Securities are called
"Second Tier Securities." The Rule also requires that the dollar-weighted
average maturity of the Trust's portfolio cannot exceed 90 days and that the
Trust cannot purchase any security having a remaining maturity in excess of
397 days. The Rule also contains limits on the percentage of the Trust's
assets that can be invested in the securities of any issuer. See "Effect of
the Rule on Portfolio Management," below.
MANAGEMENT POLICIES:
The Trust seeks to achieve its investment objective through investments
in the types of instruments described in the management policies listed below.
Under the current management policies, the Trust invests only in the following
types of obligations:
(1) U.S. GOVERNMENT SECURITIES: Obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities; these obligations are
referred to in the Prospectus as "U.S. Government Securities"; see
"Information On U.S. Government Securities" below.
(2) BANK OBLIGATIONS AND INSTRUMENTS SECURED BY THEM: Bank obligations
that are First Tier Securities including time deposits, certificates of
deposit, bankers' acceptances and other bank (see below for definition)
obligations, and which are (i) obligations of banks subject to regulation by
the U.S. Government having total assets of at least $1.5 billion, which may be
obligations issued by domestic banks, by foreign branches of such banks or by
U.S. subsidiaries of foreign banks; (ii) obligations of any foreign bank
having total assets equivalent to at least $1.5 billion; or (iii) obligations
("insured bank obligations") if such obligations are fully insured as to
principal by the Federal Deposit Insurance Corporation (see "Information on
Insured Bank Obligations" in the Additional Statement); the Trust may also
invest in obligations secured by any obligations set forth in (i) or (ii)
above if such investment meets the requirements of (6) below. (In the
Prospectus and in the Additional Statement, a bank includes commercial banks,
savings banks and savings and loan associations.)
(3) COMMERCIAL PAPER OBLIGATIONS: Commercial paper obligations that are
First Tier Securities; see "Effect of the Rule on Portfolio Management,"
below.
(4) CORPORATE DEBT OBLIGATIONS: Corporate debt obligations (for example,
bonds and debentures) which are First Tier Securities and which at the time of
purchase have a remaining maturity of not more than 397 days; See "Effect of
the Rule on Portfolio Management." See Appendix A to the Additional Statement
for information about bond ratings.
(5) VARIABLE AMOUNT AND MASTER DEMAND NOTES: Variable amount master
demand notes that are First Tier Securities and which are redeemable (and thus
repayable by the borrower) at principal amount, plus accrued interest, at any
time on not more than thirty days' notice. Variable amount master demand notes
may or may not be backed by bank letters of credit. (Because variable amount
master demand notes are direct lending arrangements between the lender and
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them; see the Additional Statement for further
information on these notes.) Variable amount master demand notes repayable in
more that seven days are securities which are not readily marketable, and fall
within the Trust's overall 10% limitation on securities which are illiquid.
(6) CERTAIN OTHER OBLIGATIONS: Obligations other than those listed in 1
through 5 above only if such other obligations are guaranteed as to principal
and interest by either a bank in whose obligations the Trust may invest (see 2
above) or a corporation in whose commercial paper the Trust may invest (see 3
above). See "Effect of the Rule on Portfolio Management." If the Trust invests
more than 5% of its net assets in such other obligations, the Prospectus will
be supplemented to describe them. See the Additional Statement.
(7) REPURCHASE AGREEMENTS: The Trust 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 the requisite
NRSROs. Repurchase agreements may be entered into only with commercial banks
or broker-dealers. Subject to the control of the Board of Trustees, the
Adviser will regularly review the financial strength of all parties to
repurchase agreements with the Trust. See "Information about Repurchase
Agreements," below.
(8) WHEN-ISSUED OR DELAYED DELIVERY SECURITIES: The Trust may buy
securities on a when-issued or delayed delivery basis; the securities so
purchased are subject to market fluctuation and no interest accrues to the
Trust until delivery and payment take place; their value at the delivery date
may be less than the purchase price. The Trust may not enter into when-issued
commitments exceeding in the aggregate 15% of the market value of the Trust's
total assets, less liabilities other than the obligations created by
when-issued commitments. See the Additional Statement for further information.
Shareholder approval is not required to change any of the foregoing
management policies.
INFORMATION ON U.S. GOVERNMENT SECURITIES
U.S. Government Securities (i.e., obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) include securities
issued by the U.S. Government, which in turn include Treasury Bills (which
mature within one year of the date they are issued) and Treasury Notes and
Bonds (which are issued with longer maturities). All Treasury securities are
backed by the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Export-Import Bank of the
United States, Farmers Home Administration, Federal Farm Credit System,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Housing Administration, Federal National Mortgage Association, Financing
Corporation, Government National Mortgage Association, Resolution Funding
Corporation, Small Business Administration, Student Loan Marketing Association
and the Tennessee Valley Authority.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
U.S. Treasury. Others, such as securities issued by the Federal National
Mortgage Association, are supported only by the credit of the instrumentality
and not by the U.S. Treasury. If the securities are not backed by the full
faith and credit of the United States, the owner of the securities must look
principally to the agency issuing the obligation for repayment and may not be
able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment. The Trust will invest in
government securities, including securities of agencies and instrumentalities
only if the Adviser (pursuant to procedures approved by the Board of Trustees)
is satisfied that these obligations present minimal credit risks. See "Effect
of the Rule on Portfolio Management," below, for a discussion of the
determination of minimal credit risks in connection with the purchase of
portfolio securities.
INFORMATION ON FOREIGN BANK OBLIGATIONS
Investments, which must be denominated in U.S. dollars, in foreign banks
and foreign branches of United States banks involve certain risks in addition
to those involved with investment in domestic banks. While domestic banks are
required to maintain certain reserves and are subject to other regulations,
such requirements and regulations may not apply to foreign branches of
domestic banks. Investments in foreign banks and foreign branches of domestic
banks may also be subject to other risks, including future political and
economic developments, the possible imposition of withholding taxes on
interest income, the seizure or nationalization of foreign deposits and the
establishment of exchange controls or other restrictions.
INFORMATION ABOUT REPURCHASE AGREEMENTS
Under a repurchase agreement, at the time the Trust purchases a security,
the Trust 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 Trust'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 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 Trust 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 Trust or its custodian. The Trust retains an unqualified right to
possess and sell the Resold Securities in the event of a default by the other
party.
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. If the maturity of the Resold Securities
is such that they cannot be owned by the Trust under the applicable provisions
of the Rule, they will have to be sold which could result in a loss. See
"Effect of the Rule on Portfolio Management."
LIMITATION TO 10% AS TO CERTAIN INVESTMENTS
Due to their possible limited liquidity, the Trust may not make certain
investments if thereafter more than 10% of its net assets would consist of
such investments. The investments included in this 10% limit are (i)
repurchase agreements maturing in more than seven days; (ii) fixed time
deposits subject to withdrawal penalties other than overnight deposits; (iii)
restricted securities, i.e., securities which cannot freely be sold for legal
reasons (which the Trust does not expect to own); (iv) securities which are
not readily marketable and (v) insured bank obligations unless the Board of
Trustees determines that a readily available market exists for such
obligations. However, this 10% limit does not include any obligations payable
at principal amount plus accrued interest on demand or within seven days after
demand.
FACTORS WHICH MAY AFFECT THE VALUE
OF THE TRUST'S INVESTMENTS AND THEIR YIELDS
The value of the obligations and instruments in which the Trust invests
will fluctuate depending in large part on changes in prevailing interest
rates. If the prevailing interest rates go up after the Trust buys a security,
the value of the security may go down; if these rates go down, the value of
the security may go up. Changes in value and yield based on changes in
prevailing interest rates may have different effects on short-term obligations
than on long-term obligations. Long-term obligations (which often have higher
yields) may fluctuate in value more than short-term ones.
PORTFOLIO TRANSACTIONS
The Trust will seek to obtain the best net price and the most favorable
execution of orders. Purchases will be made directly from issuers or from
underwriters, dealers or banks which specialize in the types of securities
invested in by the Trust. As most purchases made by the Trust are principal
transactions at net prices, the Trust incurs little or no brokerage costs.
Purchases from underwriters will include a commission or concession paid by
the issuer to the underwriter and purchases from dealers may include the
spread between the bid and the asked price. If the execution and price offered
by more than one dealer are comparable, the order may be allocated to a dealer
which has provided research advice, such as information on particular
companies and industries and market, economic and institutional activity. By
allocating transactions to obtain research services, the Trust enables the
Adviser to supplement its own research and analyses with the views and
information of other securities firms. Such research services, whether or not
useful to the Trust, may be useful to other accounts managed by the Adviser or
its affiliates.
EFFECT OF THE RULE ON PORTFOLIO MANAGEMENT
As a money market fund, the Trust operates under the Rule, which allows
the Trust to use the "amortized cost" method of valuing its securities and
which contains certain risk limiting provisions, including requirements as to
maturity, quality and diversification of the Trust's portfolio. Some of the
most important aspects of the Rule are described below.
Under the Rule, the Trust must limit its investments to those instruments
which are denominated in U.S. dollars, which are determined by the Board of
Trustees to present minimal credit risks, and which, at the time of purchase,
are Eligible Securities. In accordance with the Rule, the Board of Trustees
has adopted investment procedures and has approved investment policies
pursuant to which all investment determinations have been delegated to the
Adviser, under the direction and control of the Board of Trustees, except for
those matters for which the Rule requires Board determination.
In general, the Rule defines as Eligible Securities those that at the
time of purchase are rated in the two highest rating categories for short-term
securities by any two of the NRSROs, or if unrated are determined by the Board
of Trustees to be of comparable quality. Eligible Securities so rated in the
highest rating category (and unrated securities determined by the Board of
Trustees to be of comparable quality) are called "First Tier Securities"; all
other Eligible Securities are called "Second Tier Securities. " Eligible
Securities can in some cases include securities rated by only one NRSRO and
unrated obligations that are determined by the Board of Trustees to be of
comparable quality to rated securities. A security that was long-term when
issued must at the time of purchase by the Trust have either a short-term
rating such that it is an Eligible Security, be comparable in priority and
security with a rated short-term obligation of the same issuer that is an
Eligible Security or if it has no short-term rating (and does not have a
long-term rating from any NRSRO below the highest rating) if it is determined
by the Board of Trustees to be of comparable quality to rated securities the
Trust could purchase. Purchase of any security rated by only one NRSRO and
purchase of any unrated security (except U.S. Government Securities) must be
ratified by the Board of Trustees.
The Rule requires (with limited exceptions) that immediately after
purchase of any security the Trust have invested not more than 5% of its
assets in the securities of any one issuer. Moreover, the Rule provides that
the Trust cannot have more than 5% of its assets in the aggregate invested in
Second Tier Securities, nor more than the greater of 1% of its assets or
$1,000,000 invested in Second Tier Securities of any single issuer. In
general, the Trust does not intend to own Second Tier Securities. The Rule has
specific provisions relating to determinations of the eligibility of certain
types of instruments such as repurchase agreements and instruments subject to
a demand feature. It also has specific provisions for determining the issuer
of a security for purposes of compliance with the diversification
requirements.
Generally, under the Rule, the maturity of an instrument is considered to
be its stated maturity (or in the case of an instrument called for redemption,
the date on which the redemption payment must be made). There are special
rules for determining the maturity of certain kinds of instruments. The Rule
contains provisions as to the maturity of variable rate and floating rate
instruments. Repurchase agreements and securities loan agreements are, in
general, treated as having a maturity equal to the period remaining until they
can be executed.
The Rule has provisions requiring specific actions whenever the rating of
a portfolio security is downgraded. Generally, these actions include a prompt
reassessment by the Board of Trustees of the credit risks associated with such
a security. In general, the Rule mandates prompt sale or other disposition,
e.g., by exercising a demand for payment, in certain cases, such as when a
security ceases to be an Eligible Security, no longer presents minimal credit
risks or suffers a financial default.
INVESTMENT RESTRICTIONS
The Trust 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 Trust's outstanding shares vote
to change them. (See the Additional Statement for a definition of such a
majority.) All other policies can be changed from time to time without
shareholder approval. Some of the more important of the Trust's fundamental
policies, not otherwise identified in the Prospectus are set forth below;
others are listed in the Additional Statement.
1. THE TRUST HAS DIVERSIFICATION AND CERTAIN ANTI-CONCENTRATION
REQUIREMENTS.
The Trust cannot buy the securities of any issuer if it would then own
more than 10% of the total value of all of the issuer's outstanding
securities.
The Trust cannot buy the securities (not including U.S. Government
Securities) of any issuer if more than 5% of its total assets (valued at
market value) would then be invested in securities of that issuer. In
addition, the Rule limits investment in Second Tier Securities to 5% of the
Trust's assets in the aggregate, and to no more than the greater of 1% of the
Trust's assets or $1,000,000 in the securities of any one issuer.
The Trust cannot buy the securities of issuers in any one industry if
more than 25% of its total assets would then be invested in securities of
issuers in that industry (see the Additional Statement); U.S. Government
Securities and those domestic bank obligations and instruments of domestic
banks which the Trust may purchase (see "Investment of the Trust's Assets")
are considered as not included in this limit; however, obligations of foreign
banks and of foreign branches of domestic banks are considered as included in
this limit.
2. THE TRUST CAN MAKE LOANS ONLY BY LENDING SECURITIES OR ENTERING INTO
REPURCHASE AGREEMENTS.
The Trust can buy those debt securities which it is permitted to buy (see
"Investment of the Trust's Assets"); this is investing, not making a loan. The
Trust can lend its portfolio securities on a collateralized basis up to 10% of
the value of its total assets to specified borrowers (broker-dealers, banks
and certain other financial institutions) to increase its income (see the
Additional Statement) and enter into repurchase agreements (see "Repurchase
Agreements" above). The Trust may be considered as the beneficial owner of the
loaned securities in that any gain or loss in their market price during the
loan inures to the Trust and its shareholders; thus, when the loan is
terminated, the value of the securities may be more or less than their value
at the beginning of the loan.
3. THE TRUST CAN BORROW IN LIMITED AMOUNTS FOR SPECIAL PURPOSES.
The Trust 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 Trust's income. The Trust will not borrow to purchase securities or
to increase its income but only to meet redemptions so that it will not have
to sell securities to pay for redemptions. The Trust will not purchase any
securities while it has any outstanding borrowings which exceed 5% of the
value of its assets. Except in connection with borrowings, the Trust will not
issue senior securities.
NET ASSET VALUE PER SHARE
The Trust's net asset value per share is determined as of 4:00 p.m. New
York time on each day that the New York Stock Exchange is open by dividing the
value of the net assets of the Trust (i.e., the value of the assets less
liabilities, exclusive of surplus) by the total number of shares outstanding.
The net asset value per share will normally remain constant at $1.00 per
share except under extraordinary circumstances; see the Additional Statement
for a discussion of the extraordinary circumstances which could result in a
change in this fixed share value. The net asset value per share is based on a
valuation of the Trust's investments at amortized cost; see the Additional
Statement.
HOW TO INVEST IN THE TRUST
The Trust's shares are sold on a continuous basis at the net asset value
next determined after an order is entered and deemed effective. THERE IS NO
SALES CHARGE. THE MINIMUM INITIAL INVESTMENT IS $1,000. SUBSEQUENT INVESTMENTS
MAY BE IN ANY AMOUNT. Aquila Distributors, Inc. (the "Distributor") is the
exclusive Distributor of the Trust's shares. The Distributor sells shares only
for purchase orders received.
OPENING AN ACCOUNT
To open a new account, you must send a properly completed Application to
Administrative Data Management Corp. (the "Agent"). Redemption of shares
purchased by wire payment will not be honored until a properly completed
Application has been received by the Agent.
Initial investments may be made in any of these three ways:
1. BY MAIL. Payment may be made by check, money order, Federal Reserve
Draft or other negotiable bank draft drawn in United States dollars on a
United States commercial or savings bank or credit union (each of which is
a "Financial Institution") payable to the order of Churchill Cash Reserves
Trust and mailed to:
Administrative Data Management Corp.
Attn: Aquilasm Group of Funds
581 Main Street
Woodbridge, NJ 07095-1198
2. BY WIRE. Payment may be wired in Federal funds (monies credited to a
bank's account with a Federal Reserve Bank) to Bank One Trust Company, N.A.
(the "Custodian"), which serves as custodian of the Trust's assets.
To insure prompt and proper crediting to your account, if you choose this
method of payment, you should first telephone the Agent (800-952-6666 toll
free or 908-855-5731) and then instruct your bank to wire funds to:
Bank One, Columbus
ABA No. 044000037
CR A/C 04-01787
For further credit to
Churchill Cash Reserves Trust
A/C 6801373500
Account Name and Number (if an existing account)
The name in which the investment is to be registered (if a new
account).
Your bank may impose a charge for wiring funds.
3. THROUGH BROKERS. If you wish, you may invest in the Trust by
purchasing shares through registered broker-dealers.
There is no sales or service charge imposed by the Trust, although
broker-dealers may make reasonable charges to their customers for their
services. The services to be provided and the fees therefor are established by
each broker-dealer acting independently; broker-dealers may also determine to
establish, as to accounts serviced by them, higher initial or subsequent
investment requirements than those required by the Trust. Broker-dealers are
responsible for prompt transmission of orders placed through them.
ADDITIONAL INVESTMENTS
You may make additional investments in shares of the Trust in any amount
after an account has been established by mailing directly to the Agent a
check, money order or other negotiable bank draft made payable to Churchill
Cash Reserves Trust, or by wiring funds as described above. In each case you
should indicate your name and account number to insure prompt and proper
crediting of your account. The pre-printed stub attached to confirmations is
provided as a convenient identification method to accompany additional
investments made by mail. You may also make subsequent investments of $50 or
more using electronic funds transfers from your demand account at a Financial
Institution if it is a member of the Automated Clearing House and if the Agent
has received a 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 Trust may modify or terminate
these investment methods at any time or charge a service fee, although no such
fee is currently contemplated.
WHEN SHARES ARE ISSUED AND
DIVIDENDS ARE DECLARED ON THEM
There are three methods as to when shares are issued. Under each method,
shares are issued at the net asset value per share next determined after the
purchase order is effective, as discussed below. Under each method, the
Application must be properly completed and have been received and accepted by
the Agent; the Trust or the Distributor may also reject any purchase order.
Under each method, Federal funds (see above) must either be available to the
Trust or the payment thereof must be guaranteed to the Trust so that the Trust
can be as fully invested as practicable.
The FIRST method under which shares are issued involves ordinary
investments. Under this method, payments transmitted by wire in Federal funds
and payments made by Federal Reserve Draft received by the Custodian prior to
4:00 p.m. New York time on any day on which the New York Stock Exchange is
open will be invested (i.e., the purchase order will be effective) at the net
asset value per share determined as of 4:00 p.m. on that day; if either such
type of payment is received after that time, the purchase order will be
effective as of 4:00 p.m. on the next day that the exchange is open. Wire
payments not in Federal funds will normally be converted into Federal funds on
the next day such exchange is open and the purchase order will be effective as
of 4:00 p.m. on such next day. Payments transmitted by check will normally be
converted to Federal funds by the Agent, as your agent, within two business
days for checks drawn on a member bank of the Federal Reserve System, and
longer for most other checks, and the purchase orders will be effective as of
4:00 p.m. on that day if the exchange is open and otherwise at 4:00 p.m. on
the next day the exchange is open after such conversion. All checks are
accepted subject to collection at full face value in United States funds and
must be drawn in United States dollars on a United States bank; if not, shares
will not be issued. Purchases by Automatic Investment and Telephone Investment
will be executed on the first day on which that exchange is open occurring on
or after the date an order is considered received by the Agent at the net
asset value determined on that day. In the case of Automatic Investment the
order will be executed on the date you specified for investment at the price
determined on that day, unless it is not a day on which that exchange is open,
in which case the order will be executed at the net asset value determined on
the next day on which that exchange is open. In the case of Telephone
Investment the order will be filled at the next determined net asset value,
which for orders placed after the time for determining the net asset value of
the Trust's shares for any day will be the price determined on the following
day on which the exchange is open. Dividends on shares issued under this first
investment method are declared starting on the day (whether or not a business
day) after the purchase order is effective and are declared on the day on
which the shares are redeemed.
The SECOND method under which shares are issued involves a bank or
broker-dealer making special arrangements with the Trust under which (i)
either (a) payment is made in Federal funds or by check in New York Clearing
House funds delivered to the Agent prior to 5:00 p.m. New York time or (b) the
Agent is advised prior to that time of a dollar amount to be invested; (ii)
the Agent is advised prior to that time of the form of registration of the
shares to be issued; (iii) the bank or broker-dealer will prior to noon Ne w
York time on the next business day wire Federal funds to the Custodian (but in
the case of prior payment by check under (i)(a) above only if the check is not
converted into Federal funds in the normal course on the next business day);
and (iv) arrangements satisfactory to the Trust are made between it and the
bank or broker-dealer under which if Federal funds are not so received by the
Custodian, the Trust is reimbursed for any costs or loss of income arising out
of such non-receipt. New York Clearing House funds are funds represented by a
check drawn on a bank which is a member of the New York Clearing House. Under
this second method, the purchase order is effective on the day the check or
the advice is received under (i) above. Dividends on shares issued under this
second method are declared starting on the day (whether or not a business day)
after the purchase order is effective and are declared on the day on which
such shares are redeemed.
The THIRD method under which shares are issued involves broker-dealers or
banks which have requested that this method be used to which request the Trust
has consented. Under this third method (i) the Agent must be advised prior to
2:00 p.m. New York time on any business day of a dollar amount to be invested;
and (ii) Federal funds must be wired to the Custodian on that day; under this
method, the purchase order is effective on that day. Dividends on shares
issued under this third investment method are declared beginning on that day
but not on the day such shares are redeemed.
This third investment method is available to prospective investors in
Trust shares who wish to use it so that the dividends on their shares will
commence to be declared on the day the purchase order is effective. Upon
written or phone request to the Trust by such a prospective investor, the
Trust will advise as to the broker-dealers or banks through which such
purchases may be made.
CONFIRMATIONS AND SHARE CERTIFICATES
All purchases of shares will be confirmed and credited to you in an
account maintained for you by the Agent in full and fractional shares of the
Trust (rounded to the nearest 1/1000th of a share). Share certificates will
not be issued unless you so request from the Agent in writing and declare a
need for such certificates, such as a pledge of shares or an estate situation.
Expedited Redemption Methods described below will not be available and delay
and expense may be incurred if you lose the certificates. No certificates will
be issued for fractional shares or to shareholders who have elected the
checking account or predesignated bank account methods of withdrawing cash
from their accounts. (See "How to Redeem Your Investment" below.)
The Trust 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 Trust has adopted a Distribution Plan under Rule 12b-1 ("Rule 12b-1")
under the 1940 Act. No payments are made by the Trust under the Plan. Rule
12b-1 provides in substance that an investment company may not engage directly
or indirectly in financing any activity which is primarily intended to result
in the sale of its shares except pursuant to a plan adopted under that rule.
One part of the Distribution Plan is designed to protect against any claim
against or involving the Trust that some of the expenses which the Trust pays
or may pay come within the purview of Rule 12b-1. Another part of the
Distribution Plan authorizes Aquila Management Corporation (the
"Administrator"), not the Trust, to make payments in connection with the sale
of the Trust's shares provided such payments do not exceed in total in any of
the Trust's fiscal years 0.10 of 1% of its average annual net assets; see the
Additional Statement for further information.
THE TRUST'S DISTRIBUTION PLAN IS SOLELY A DEFENSIVE PLAN DESIGNED TO
PROTECT THE TRUST AND ITS AFFILIATES AGAINST ANY CLAIM DESCRIBED ABOVE. THE
DISTRIBUTION PLAN DOES NOT INVOLVE PAYMENTS OUT OF ASSETS OR INCOME OF THE
TRUST DESIGNED TO RECOGNIZE SALES OF SHARES OF THE TRUST OR TO PAY ADVERTISING
EXPENSES.
HOW TO REDEEM YOUR INVESTMENT
The Trust provides day-to-day liquidity. You may redeem all or any part
of your shares at any time 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. EXCEPT FOR SHARES RECENTLY PURCHASED BY
CHECK AS DISCUSSED BELOW, THERE IS NO MINIMUM TIME PERIOD FOR ANY INVESTMENT
IN THE TRUST. THERE ARE NO REDEMPTION FEES OR WITHDRAWAL PENALTIES. If you
purchase shares of the Trust through broker-dealers, banks and other financial
institutions which serve as shareholders of record you must redeem through
those institutions, which are responsible for prompt transmission of
redemption requests. In all other cases, you may redeem directly, but a
completed purchase Application must have been received by the Agent before
redemption requests can be honored. A redemption may result in a taxable
transaction to you, but only if there has been a change in the net asset value
per share, which will occur only under extraordinary circumstances.
For your convenience the Trust offers expedited redemption to provide you
with a high level of liquidity for your investment.
EXPEDITED REDEMPTION METHODS
(NON-CERTIFICATE SHARES)
You have the flexibility of three expedited methods of initiating
redemptions. These are available as to shares not represented by certificates.
1. BY TELEPHONE. The Agent will accept instructions by telephone from
anyone to redeem shares and make payments to a Financial Institution
account you have predesignated. See "Redemption Payments," below for
payment methods. Your name and your account number must be supplied.
To redeem an investment by this method, telephone:
800-952-6666 toll free or 908-855-5731
Note: The Trust, the Agent, and the Distributor will not be responsible
for any losses resulting for 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. You should verify
the accuracy of confirmation statements immediately upon receipt.
2. BY FAX OR MAIL. You may also request redemption payments to a
predesignated Financial Institution account by a letter of instruction
sent to: Administrative Data Management Corp., Attn: Aquilasm Group of
Funds, by FAX at 908-855-5730 or by mail at 581 Main Street, Woodbridge,
NJ 07095-1198 indicating account number, amount to be redeemed, and any
payment directions, signed by the registered holder(s). Signature
guarantees are not required. See "Redemption Payments," below for payment
methods.
If you wish to use the above procedures you should so elect on the
Expedited Redemption section of the Application or Ready Access Features form
and provide the required information concerning the Financial Institution
account number. THE FINANCIAL INSTITUTION ACCOUNT MUST BE IN THE EXCLUSIVE
NAME(S) OF THE SHAREHOLDER(S) AS REGISTERED WITH THE TRUST. 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.
3. BY CHECK. The Agent will, upon request, provide you with forms of
drafts ("checks") drawn on the Custodian. This feature is not available
if your shares are represented by certificates. These checks represent a
further alternative redemption means and you may make them payable to the
order of anyone in any amount of not less than $500. If you wish to use
this check writing redemption procedure you should notify the Agent or so
indicate on your Application. You will be issued special checks to be
drawn against the Custodian for this purpose. You will be subject to the
Custodian's rules and regulations governing its checking accounts. If the
account is registered in more than one name, each check must be signed by
each account holder exactly as the names appear on the account
registration, unless expressly stated otherwise on your Application.
There is no charge for the maintenance of this special check writing
privilege or for the clearance of any checks.
When such a check is presented to the Custodian for payment, a sufficient
number of full and fractional shares in your account will be redeemed to cover
the amount of the check. This check writing redemption procedure enables you
to continue receiving dividends on those shares equaling the amount being
redeemed by check until such time as the check is actually presented to the
Custodian for payment.
As these checks are redemption drafts relating to shares of the Trust,
you should be certain that adequate shares for which certificates have not
been issued and which were not recently purchased by check are in the account
to cover the amount of the check. SEE "REDEMPTION PAYMENTS" BELOW FOR MORE
DETAILS AS TO SPECIAL PROBLEMS AS TO SHARES RECENTLY PURCHASED BY CHECK. If
insufficient redeemable shares are in the account, the redemption check will
be returned marked "insufficient funds." The fact that redemption checks are
drafts may also permit a bank in which they are deposited to delay crediting
the account in question until that bank has received payment funds for the
redemption check.
Checks may not be directly presented to any branch of the Custodian. This
does not affect checks used for the payment of bills or cashed at other banks.
You may not use checks to close your account, since the number of shares in
your account changes daily through dividend payments which are automatically
reinvested in full and fractional shares. Consequently, you may not present a
check directly to the Custodian and request redemption for all or
substantially all shares held in your account. Only expedited redemption to a
predesignated bank account or the regular redemption method (see below) may be
used when closing your account.
MULTIPLE REDEMPTION SERVICES. You are not limited in choice of redemption
methods but may utilize all available forms. However, when both redemption to
a predesignated Financial Institution account and check writing are desired,
you must so elect on your Application, or by proper completion of a Ready
Access Features form.
REGULAR REDEMPTION METHOD
(CERTIFICATE AND NON-CERTIFICATE SHARES)
1. CERTIFICATE SHARES. Certificates in blank (unsigned) representing
shares to be redeemed should be sent to: the Trust'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 Agent.
FOR YOUR PROTECTION, CERTIFICATES AND SIGNED REDEMPTION DOCUMENTATION
SHOULD BE SENT SEPARATELY.
For the 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. Additional
documentation may be required where shares are held by a corporation, a
partnership, trustee or executor, or if redemption is requested by other than
the shareholder of record. If redemption proceeds of less than $50,000 are
payable to the record holder and are to be sent to the record address, no
signature guarantee is required. 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 Trust, 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 Number;
* Dollar amount or number of shares to be redeemed or 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 Trust);
* Signature(s) of the registered shareholder(s); and
* Signature guarantee(s), if required, as indicated above.
REDEMPTION PAYMENTS
For redemptions other than by checks you have written, 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 Trust may impose a charge, not exceeding $5.00
per wire redemption, after written notice to shareholders who have elected
this redemption procedure. The Trust has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Trust 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 currently
contemplated. If you use a dealer to arrange for a redemption, you may be
required to pay the dealer for this service.
Redemption proceeds on shares issued under the third method under which
shares are issued (see "When Shares Are Issued and Dividends Are Declared on
Them" under "How to Invest in the Trust") will be wired in Federal funds on
the date of redemption, if practicable, and, if not practicable, as soon
thereafter as practicable, irrespective of amount. Redemption requests as to
such shares may be made by telephone.
Except as indicated above, the Trust will normally make payment for all
shares redeemed on the next business day following receipt of request. Except
as set forth below, in no event will payment be made more than seven days
after receipt of a redemption request made in compliance with one of the
redemption methods specified above. 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 BY ANY METHOD (INCLUDING REDEMPTION BY CHECK) 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 BANK 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 TRUST, THAT THE PURCHASE CHECK OR AUTOMATIC
INVESTMENT OR TELEPHONE INVESTMENT WILL BE HONORED. Shares so purchased within
the prior 15 days will not be redeemed under the check writing redemption
procedure and a shareholder must not write a check if (i) it will be presented
to the Custodian for payment within 15 days of a share purchase by check and
(ii) the redemption check would cause the redemption of some or all of those
shares. Possible delays in payment of redemption proceeds can be eliminated by
using wire payments or Federal Reserve drafts to pay for purchases.
If the Board of Trustees determines that it would be detrimental to the
best interests of the remaining shareholders of the Trust to make payment
wholly or partly in cash, the Trust may pay the redemption price in whole or
in part by the distribution in kind of securities from the portfolio of the
Trust, in lieu of cash, in conformity with applicable rules of the Securities
and Exchange Commission. See the Additional Statement for details.
The Trust 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 due
to shareholder redemptions. If the Board of Trustees 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
If you own or purchase shares of the Trust 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. If such a plan is established, all dividends and distributions must be
reinvested in your shareholder's account. 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 Trust are managed under the direction and
control of its Board of Trustees. The Additional Statement lists the Trust's
Trustees and officers and provides further information about them.
THE ADVISORY AGREEMENT
Banc One Investment Advisors Corporation (the "Adviser") supervises the
investment program of the Trust and the composition of its portfolio.
The services of the Adviser are rendered under an Investment Advisory
Agreement (the "Advisory Agreement") which became effective on July 19, 1995
upon the termination of the Trust's former advisory agreement with PNC Bank,
Kentucky. The Advisory Agreement provides, subject to the control of the Board
of Trustees, for investment supervision, arranging for the purchase and the
sale of securities held in the portfolio of the Trust and furnishing
information as to such securities to any provider of fund accounting services
to the Trust, monitoring records of the Trust as to the portfolio, including
prices, maintained by such provider of such services; and supplying monthly or
more frequently as may be necessary, pricing of the Trust's portfolio based on
available market quotations using a pricing service or other source of pricing
information satisfactory to the Trust. The Advisory Agreement states that the
Adviser shall, at its expense, provide to the Trust all office space and
facilities, equipment and clerical personnel necessary for the carrying out of
the Adviser's duties under the Advisory Agreement.
Under the Advisory Agreement, the Adviser pays all compensation of those
officers and employees of the Trust and of those Trustees, if any, who are
affiliated with the Adviser. Under the Advisory Agreement, the Trust bears the
cost of preparing and setting in type its prospectuses, statements of
additional information, and reports to its shareholders and the costs of
printing or otherwise producing and distributing those copies of such
prospectuses, statements of additional information and reports as are sent to
its shareholders. Under the Advisory Agreement, all costs and expenses not
expressly assumed by the Adviser or by the Administrator under the
Administration Agreement or by the Trust's principal underwriter are paid by
the Trust. The Advisory Agreement lists examples of such expenses borne by the
Trust, 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 Trust and its shares under Federal and State
securities laws, interest, taxes and non-recurring expenses, including
litigation.
Under the Advisory Agreement, the Trust pays a fee payable monthly and
computed on the net asset value of the Trust as of the close of business each
business day at the annual rate of 0.33 of 1% of such net assets. (However,
the total fees which the Trust pays are at the annual rate of 0.50 of 1% of
such net assets, since the Administrator also receives a fee from the Trust
under the Administration Agreement; see below.)
The Adviser agrees that the above fee shall be reduced, but not below
zero, by an amount equal to its pro-rata portion (hereafter described) of the
amount, if any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the lesser of
(i) 2.5% of the first $30 million of average annual net assets of the Trust
plus 2% of the next $70 million of such net assets of the Trust plus 1.5% of
its average annual net assets in excess of $100 million, or (ii) 25% of the
Trust's total annual investment income.
The Advisory Agreement contains provisions as to the allocation of the
portfolio transactions of the Trust; see the Additional Statement. Under these
provisions, the Adviser is authorized to consider sales of the Trust's shares
in making this allocation.
THE ADMINISTRATION AGREEMENT
Under an Administration Agreement (the "Administration Agreement"),
Aquila Management Corporation as Administrator, at its own expense, 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 Trust and pays all compensation of the Trust's
Trustees, officers and employees who are affiliated persons of the
Administrator.
Under the Administration Agreement, subject to the control of the Trust's
Board of Trustees, the Administrator provides all administrative services to
the Trust other than those relating to its investment portfolio. Such
administrative services include but are not limited to either keeping the
accounting records of the Trust, including the computation of net asset value
per share and the dividends (provided that pricing of the Trust's portfolio
shall be the responsibility of the Adviser under the Advisory Agreement) or,
at its expense and responsibility, delegating such duties in whole or in part
to a company satisfactory to the Trust, maintaining the Trust's other books
and records and overseeing the relationships between the Trust and its
transfer agent, custodian, legal counsel, auditors and principal underwriter,
including the negotiation of agreements in relation thereto, the supervision
and coordination of the performance of such agreements, and the overseeing of
all administrative matters which are necessary or desirable for effective
operation of the Trust and for the sale, servicing or redemption of the
Trust's shares. See the Additional Statement for a further description of
functions listed in the Administration Agreement as part of such duties.
Under the Administration Agreement, the Trust pays a fee payable monthly
and computed on the net asset value of the Trust at the end of each business
day at the annual rate of 0.17 of 1% of such net asset value. The
Administrator has agreed that this fee shall be reduced, but not below zero,
by an amount equal to its pro-rata portion (hereafter described) of the
amount, if any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the lesser of
(i) 2.5% of the first $30 million of average annual net assets of the Trust
plus 2% of the next $70 million of such net assets of the Trust plus 1.5% of
its average annual net assets in excess of $100 million, or (ii) 25% of the
Trust's total annual investment income. The pro-rata portion, as between the
Administrator and Adviser, is based on the aggregate of the fee of the Adviser
and the fee of the Administrator (exclusive of amounts paid or to be paid out
for the applicable period pursuant to the Trust's Distribution Plan).
INFORMATION AS TO THE ADVISER,
THE ADMINISTRATOR AND THE DISTRIBUTOR
The Adviser is a wholly-owned subsidiary of BANC ONE CORPORATION,
Columbus, Ohio. BANC ONE CORPORATION is one of the largest U.S. banking
organization based on assets. The Adviser also advises the One Group Family of
Mutual Funds with $9.4 billion in assets. The Adviser is currently responsible
for management of over $30 billion in assets, of which over $5.8 billion are
short-term assets and $4.8 billion are money market assets. The Trust has been
advised that initially certain Bank One affiliates of the Adviser intend to
use the Trust as an alternative money market fund for temporary cash
investments of clients. It is expected that substantial funds will be invested
in the Trust from such sources. Since September 11, 1995, an affiliate of the
Adviser, Bank One Trust Company, N.A., has acted as custodian for the Trust.
See the Additional Statement as to the legality, under the Glass-Steagall Act,
of the Adviser's acting as the Trust's investment adviser.
The Trust's Administrator is administrator to the Aquilasm Group of Funds
which consists of tax-free municipal bond funds, money market funds and an
equity fund. As of September 30, 1995, these funds had aggregate assets of
approximately $2.6 billion, of which approximately $700 million consisted of
assets of the money market funds. The Administrator is controlled by Mr. Lacy
B. Herrmann, through share ownership directly, through a trust and by his
wife. See the Additional Statement for information on Mr. Herrmann.
For the fiscal year ended September 30, 1995, the fees payable to the
Trust's former adviser under an advisory agreement in effect until July 19,
1995 were $366,654 and fees payable to the Adviser under the Advisory
Agreement thereafter were $99,642 of which $49,089 was voluntarily waived.
During the same period, fees payable to the Administrator under a former
administration agreement in effect until July 19, 1995 were $366,654 and under
the Administration Agreement in effect thereafter were $58,931 of which
$21,561 was waived.
The Distributor currently handles the distribution of the shares of
fourteen funds (six money-market funds, seven tax-free municipal bond funds
and an equity fund) including the Trust. Under the Distribution Agreement, the
Distributor is responsible for the payment of certain printing and
distribution costs relating to prospectuses and reports as well as the costs
of supplemental sales literature, advertising and other promotional
activities. All of the shares of the Distributor are owned by Mr. Herrmann.
At the date of the Prospectus, there is a proposed transaction whereby
all of the shares of the Distributor, which are currently owned by Mr.
Herrmann, will be owned by certain officers and directors of the Distributor
and Administrator, including Mr. Herrmann; in anticipation of this
transaction, the Board of Trustees, including a majority of the Independent
Trustees, has approved a new Distribution Agreement for the Trust with no
material change from the currently effective Distribution Agreement.
DIVIDEND AND TAX INFORMATION
All of the Trust's net income for dividend purposes (see below) will be
declared daily as dividends; see "When Shares Are Issued and Dividends Are
Declared on Them" under "How to Invest in the Trust" for information as to
when dividends are declared. Dividends are paid within a week before or after
the end of each month and invested in additional shares at net asset value on
the payable date, or, at your election, paid in cash by check. This election
may be made in the Application or by subsequent written notice to the Agent.
You may also elect to have dividends deposited without charge by electronic
funds transfers into an account at a Financial Institution which is a member
of the Automated Clearing House by completing a Ready Access Features form. If
you redeem all of your shares, you will be credited on the redemption payment
date with the amount of all dividends declared for the month through the date
of redemption, or through the day preceding the date of redemption in the case
of shares on which income dividends were declared on the same day on which the
shares were issued.
You will receive monthly a summary of your account, including information
as to dividends paid during the month and the shares credited to your account
through reinvestment of dividends.
Daily dividends will be calculated as follows: the net income for
dividend purposes will be calculated immediately prior to the calculation of
net asset value and will include accrued interest and original issue and
market discount earned since the last valuation, less the estimated expenses
of the Trust and amortized original issue and market premium for the period.
However, the calculation of the dividend could change under certain
circumstances under the procedures adopted by the Board of Trustees relating
to "amortized cost" valuation; see the Additional Statement.
Dividends so paid will be taxable to you as ordinary income, even though
reinvested, unless the net income, computed as above, exceeds "earnings and
profits," as determined for tax purposes; this could occur because net income
as so determined will include certain unrealized appreciation and discount
which is not included for tax purposes. If dividends exceed your ratable share
of "earnings and profits," the excess will reduce the cost or other tax basis
for your shares; any reduction which would otherwise result in a negative
basis will cause the basis to be reduced to zero, with any remaining amount
being taxed as capital gain. The dividends paid by the Trust will not be
eligible for the 70% dividends received deduction for corporations. Statements
as to the tax status of your dividends will be mailed annually.
It is possible but unlikely that the Trust may have realized long-term
capital gains or losses in a year. If it has any net long-term gains realized
through October 31st of a year, it will pay a capital gains distribution after
that date. It may also pay a supplemental distribution after the end of its
fiscal year. Any capital gains distribution will be taxed at the same rate as
ordinary income, except that for individuals, Trust's and estates the maximum
tax rate on capital gains distributions is 28% even if the applicable rate on
ordinary income for such taxpayers is higher than 28%.
The Trust will be required to withhold, subject to certain exemptions, at
a rate of 31% on dividends paid or credited to you and on redemption proceeds,
if you have not filed with the Trust a correct Taxpayer Identification Number,
certified when required.
The Trust, during its last fiscal year, qualified and intends to continue
to qualify under subchapter M of the Internal Revenue Code; if so qualified it
will not be liable for Federal income taxes on amounts distributed by it.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this Trust 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 in the Aquilasm Group of Funds and have the same Administrator and
Distributor as the Trust. All exchanges are subject to certain conditions
described below. As of the date of the Prospectus, the Aquila Bond or Equity
Funds are 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 this Trust,
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 Prime Cash
Fund.
Under the exchange privilege, once any applicable sales charge has been
paid on shares of any Bond or Equity Fund, those shares (and any shares
acquired as a result of reinvestment of dividends and/or distributions) may be
exchanged any number of times between Money-Market Funds and Bond or Equity
Funds without the payment of any additional sales charge.
The "Eligible Shares" of any Bond or Equity Fund are those 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); or (d)
acquired as a result of reinvestment of dividends and/or distributions on
otherwise Eligible Shares.
If you own Eligible Shares of any Bond or Equity Fund, you may exchange
them for shares of any Money-Market Fund or the shares of any other 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 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 shares of any Bond or Equity Fund
without payment of any sales charge.
Shares of a Money-Market Fund may be exchanged for shares of another
Money-Market Fund or 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 shares of a Bond or Equity Fund only upon
payment of the applicable sales charge. The shares of the Bond or Equity Fund
so acquired are then Eligible Shares.
This Trust, as well as the other Money-Market Funds and 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 Trust 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; and (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.
To effect an exchange, you must complete a form which is available from
the Distributor unless you have elected the Telephone Exchange feature on the
Application. The exchange will be effected at the relative exchange prices of
the shares being exchanged next determined after receipt by the Distributor of
a properly completed form or Telephone 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 of a Money-Market
Fund for shares of a Bond or Equity Fund as described above, in which case the
exchange price of shares of the Bond or Equity Fund will be its public
offering price. Prices for exchanges are determined in the same manner as for
purchases of the Trust's shares. (See "How to Invest in the Trust.")
An exchange is treated for Federal tax purposes as a redemption and
purchase of shares and may result in the realization of a capital gain or
loss, depending on the cost or other tax basis of the shares exchanged and the
holding period (see the Additional Statement); no representation is made as to
the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except to the
extent that 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 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 Bond or Equity 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 or Equity 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
DESCRIPTION OF SHARES
The 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 Trust. Each share represents an
equal proportionate interest in the Trust with each other share. Upon
liquidation of the Trust, shareholders are entitled to share pro-rata in the
net assets of the Trust available for distribution to shareholders. All shares
are presently of the same class; however, if they deem it advisable and in the
best interests of shareholders, the Board of Trustees of the Trust may create
additional classes of shares which may differ from each other only as to
dividends (subject to rules and regulations of the Securities and Exchange
Commission or by exemptive order) or the Board of Trustees may, at its own
discretion, create additional series of shares, each of which will have
separate assets and liabilities (in which case any such series would 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.
Of the shares of the Trust outstanding on January 2, 1996, a nominee of
Bank One Trust Co., 235 West Schrock Road, Westerville, OH held of record
37,993,511 shares (21.0%); First Fidelity Bank, N.A., New Jersey, Broad &
Walnut Street, Philadelphia, PA held of record 15,301,348 shares (8.4%) and
Liberty National Bank & Trust Co., P.O. Box 32590, Louisville, KY held of
record 110,328,134 shares (60.9%). The Trust's management is not aware of any
person, other than those named above, who beneficially owned 5% or more of its
outstanding shares on such date. On the basis of information received from the
record owners listed above, the Trust's management believes (i) that all of
the shares indicated are held for the benefit of custodial or trust clients;
and (ii) that all of such shares could be considered as "beneficially" owned
by the named shareholders in that they possessed shared voting and/or
investment powers as to such shares.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares held) and will vote on the election of
Trustees and on other matters submitted to the vote of shareholders. 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 Trust. The Trust
may be terminated (i) upon the sale of its assets to another issuer, or (ii)
upon liquidation and distribution of the assets of the Trust, in either case
if such action is approved by the vote of the holders of a majority of the
outstanding shares of the Trust. If not so terminated, the Trust will continue
indefinitely.
<PAGE>
[LOGO] Application for Churchill Cash Reserves Trust
Please complete steps 1 through 4 and mail to:
ADM, Attn: Aquilasm Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198
1-800-952-6666
STEP 1 ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation,
Other Organization or
any Fiduciary capacity
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._____________________________________________________________________
Custodians First Name Middle Initial Last Name
Custodian for_________________________________________________________
Minors First Name Middle Initial Last Name
Under the________________ UGTMA**_____________________________________
Name of State Minors Social Security Number
4._____________________________________________________________________
_____________________________________________________________________
(Name of Corporation or Organization. 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:_______________________
Employers 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
1) ___ By Check
2) ___ By Wire
1) By Check: Make check payable to: CHURCHILL CASH RESERVES TRUST
Amount of investment $ ________________ Minimum initial investment $1,000
2) By Wire: OR
$_________________________________ From_______________________________
Name of Financial Institution
_________________________________ ___________________________________
Financial Institution Account No. Branch, Street or Box#
On_______________________________ ___________________________________
(Date) City State Zip
*NOTE: If investing by wiring of funds, instruct your Financial
Institution to wire funds to:
Bank One, Columbus Account of: (Account name and number,
ABA No. 044000037 or name in which investment is to be
CR A/C 04-01787 registered if new account)
For further credit to Churchill Cash Reserves Trust A/C 6801373500
(A FINANCIAL INSTITUTION IS A COMMERCIAL BANK, SAVINGS
BANK OR CREDIT UNION.)
B. DIVIDENDS
ALL INCOME DIVIDENDS ARE AUTOMATICALLY REINVESTED IN ADDITIONAL SHARES
AT NET ASSET VALUE UNLESS OTHERWISE INDICATED BELOW.
Dividends are to be:___ Reinvested or ___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.
___ 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 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
ADMINISTRATIVE DATA MANAGEMENT CORP. (THE AGENT) toll-free at
1-800-952-6666. 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, 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
______________________________________ _____________________________
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.
TO MAKE A TELEPHONE EXCHANGE, CALL
THE AGENT AT 1-800-952-6666
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares 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.
TO MAKE AN EXPEDITED REDEMPTION,
CALL THE AGENT AT 1-800-952-6666
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 Trust 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
F. CHECKING ACCOUNT SERVICE
(Check appropriate box)
___ Yes ___ No
Please open a redemption checking account at Bank One Trust Company,
N.A., in my (our) name(s) as registered and send me (us) a supply of
checks. I (we) understand that this checking account will be subject to the
rules and regulations of Bank One Trust Company, N.A., pertaining thereto
and as amended from time to time. For joint account: Check here whether
either owner ___ is authorized, or all owners ___ are required to sign
checks. IF NO BOX IS CHECKED, TWO SIGNATURES WILL BE REQUIRED ON JOINT
ACCOUNTS.
<PAGE>
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 Name of Financial Institution____________________
is maintained Street Address___________________________________
City______________________State_____ Zip_________
Name(s) and
Signature(s)of ________________________________
Depositor(s) as they (Please Print)
appear where account X_______________________________ __________
is registered (Signature) (Date)
________________________________
(Please Print)
X_______________________________ __________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositors 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.
<PAGE>
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 Trust and has received and read a current
Prospectus of the Trust and agrees to its terms.
. I/We authorize the Trust 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 Trust and its agents may cancel the purchase
transaction and are authorized to liquidate other shares or fractions
thereof held in my/our Trust 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 Trust and its agents to
correct any transfer error by a debit or credit to my/our Financial
Institution account and/or Trust account and to charge the account for any
related charges.
. The Trust, 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 more than 183 days during each calendar year and does not conduct a
business in the U.S. which would receive any gain from the Trust, 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, Trustee, etc. Title Date
* 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 Trust's Agent.
. You may cancel any feature at any time, effective 3 days after the Agent
receives written notice from you.
. Either the Trust 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 Trust 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
1-800-228-7496 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 Trust's Agent.
<PAGE>
INVESTMENT ADVISER
BANC ONE INVESTMENT ADVISORS CORPORATION
774 Park Meadow Road
Columbus, Ohio 43271-0211
ADMINISTRATOR
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRUSTEES
Lacy B. Herrmann, Chairman
Thomas A. Christopher
Douglas Dean
Diana P. Herrmann
Ann R. Leven
Theodore T. Mason
Anne J. Mills
William J. Nightingale
James R. Ramsey
OFFICERS
Lacy B. Herrmann, President
Diana P. Herrmann, Vice President
Charles E. Childs, III, Vice President
John M. Herndon, Vice President and Assistant Secretary
Jerry G. McGrew, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
TRANSFER AND SHAREHOLDER SERVICING AGENT
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
COUNSEL
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Table of Expenses 2
Financial Highlights 3
Introduction 4
Investment Of The Trust's Assets 4
Investment Restrictions 9
Net Asset Value Per Share 10
How To Invest In The Trust 10
How To Redeem Your Investment 13
Automatic Withdrawal Plan 17
Management Arrangements 17
Dividend And Tax Information 19
Exchange Privilege 20
General Information 22
Application
CHURCHILL CASH
RESERVES TRUST
A cash
management
investment
[LOGO]
PROSPECTUS
[LOGO]
One of the
AQUILASM Group of Funds
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CHURCHILL CASH RESERVES TRUST
380 Madison Avenue
Suite 2300
New York, New York 10017
212-697-6666
STATEMENT OF ADDITIONAL INFORMATION
January 31, 1996
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. The Additional Statement should be read in conjunction with
the Prospectus (the "Prospectus") dated January 31, 1996, of Churchill Cash
Reserves Trust (the "Trust") which may be obtained from the Trust's
Shareholder Servicing Agent, Administrative Data Management Corp., by writing
to it at: 581 Main Street, Woodbridge, NJ 07095-1104 or by calling it at the
following numbers:
800-952-6666 toll free or 908-855-5731
or from Aquila Distributors, Inc., the Trust's Distributor, by writing to it
at 380 Madison Avenue, Suite 2300, New York, New York 10017; or by calling:
212-697-6666
The Annual Report of the Trust for the fiscal year ended September 30,
1995 will be delivered with the Additional Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . . . . . . . . . 2
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Loans of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . 6
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Limitation of Redemptions in Kind . . . . . . . . . . . . . . . . . . . . .10
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Additional Information as to Management Arrangements . . . . . . . . . . . .16
Amortized Cost Valuation . . . . . . . . . . . . . . . . . . . . . . . . . .20
Computation of Daily Dividends . . . . . . . . . . . . . . . . . . . . . . .21
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . . . . . . . .21
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
<PAGE>
INVESTMENT OF THE TRUST'S ASSETS
The Prospectus contains information as to the purchase and redemption of
the Trust's shares. The investment objective and policies of the Trust are
also described in the Prospectus, which refers to the investments and
investment methods described below.
INFORMATION ON VARIABLE AMOUNT MASTER DEMAND NOTES
The Trust may buy variable amount master demand notes. The nature and
terms of these obligations are as follows. They permit the investment of
fluctuating amounts by the Trust at varying rates of interest pursuant to
direct arrangements between the Trust, as lender, and the borrower. They
permit daily changes in the amounts borrowed. The Trust has the right to
increase the amount under the note at any time up to the full amount provided
by the note agreement, or to decrease the amount, and the borrower may prepay
up to the full amount of the note without penalty. Because these notes are
direct lending arrangements between the lender and borrower, it is not
generally contemplated that they will be traded, and there is no secondary
market for them. They are redeemable (and thus repayable by the borrower) at
principal amount, plus accrued interest, at any time on not more than thirty
days' notice. The Trust has no limitations on the amount of its assets
invested in such notes. However, except for those which are payable at
principal amount plus accrued interest within seven days after demand, such
notes are securities which are not readily marketable, and fall within the
Trust's overall 10% limitation on securities with limited liquidity. There is
no limitation on the type of issuer from which these notes will be purchased;
however, all such notes must be Eligible Securities and in connection with
such purchases and on an ongoing basis, Banc One Investment Advisors
Corporation (the "Adviser") must determine, pursuant to procedures approved by
the Board of Trustees, that such obligations present minimal credit risks. In
addition, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest
on demand or on the specified notice, as the case may be, including a
situation in which all holders of such notes make demand simultaneously.
Master demand notes, as such, are not typically rated by credit rating
agencies, and if not so rated the Trust may invest in them only if at the time
of an investment they are determined to be comparable in quality to rated
issues in which the Trust can invest.
INFORMATION ON INSURED BANK OBLIGATIONS
The Federal Deposit Insurance Corporation ("FDIC") insures the deposits
of Federally insured banks and, effective August 9, 1989, savings institutions
(collectively, herein, "banks") up to $100,000. On that date the FDIC assumed
the insurance functions of the Federal Savings and Loan Insurance Corporation,
which was abolished. The Trust may purchase bank obligations which are fully
insured as to principal by the FDIC. To remain fully insured as to principal,
these investments must currently be limited to $100,000 per bank; if the
principal amount and accrued interest together exceed $100,000 then the excess
accrued interest will not be insured. Insured bank obligations may have
limited marketability; unless the Board of Trustees determines that a readily
available market exists for such obligations, the Trust will invest in them
only within the 10% limit mentioned in the Prospectus unless such obligations
are payable at principal amount plus accrued interest on demand or within
seven days after demand.
INFORMATION ABOUT CERTAIN OTHER OBLIGATIONS
The Trust may purchase obligations other than those listed in categories
1 through 5 under "Investment of the Trust's Assets," in the Prospectus, but
only if such other obligations are guaranteed as to principal and interest by
either a bank in whose obligations the Trust may invest or a corporation in
whose commercial paper the Trust may invest. If any such guarantee is
unconditional and is itself an Eligible Security, the obligation may be
purchased based on the guarantee; if any such guarantee is not unconditional,
purchase of the obligation can only be made if the underlying obligation is an
Eligible Security and meets all other applicable requirements of Rule 2a-7
(the "Rule") of the Securities and Exchange Commission. See "Effect of the
Rule on Portfolio Management" in the Prospectus. As of the date of this
Additional Statement, the Trust does not own any such obligations and has no
present intention of purchasing any. Such obligations can be any obligation of
any kind so guaranteed, including, for example, obligations created by
"securitizing" various kinds of assets such as credit card receivables or
mortgages. If the Trust invests in these assets, they will be identified in
the Trust's Prospectus; and described in the Additional Statement.
TURNOVER
In general, the Trust will purchase securities with the expectation of
holding them to maturity. However, the Trust may to some degree engage in
short-term trading to attempt to take advantage of short-term market
variations. The Trust may also sell securities prior to maturity to meet
redemptions or as a result of a revised management evaluation of the issuer.
The Trust will have a high portfolio turnover due to the short maturities of
the securities held, but this should not affect net asset value or income, as
brokerage commissions are not usually paid on the securities in which the
Trust invests. (In the usual calculation of portfolio turnover, securities of
the type in which the Trust invests are excluded; consequently, the high
turnover which the Trust will have is not comparable to the turnover of
non-money-market investment companies.)
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Trust may purchase securities on a when-issued or delayed delivery
basis. For example, delivery and payment may take place a month or more after
the date of the transaction. The purchase price and the interest rate payable
on the securities are fixed on the transaction date. At the time the Trust
makes the commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction and thereafter reflect the
value of such securities each day in determining its net asset value. The
Trust will make commitments for such when-issued transactions only when it has
the intention of actually acquiring the securities. The Trust will maintain
with the Custodian and mark to market every business day a separate account
with portfolio securities in an amount at least equal to such commitments. On
delivery dates for such transactions, the Trust will meet its obligations from
maturities or sales of the securities held in the separate account and/or from
cash flow. If the Trust chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation.
DIVERSIFICATION AND CERTAIN INDUSTRY REQUIREMENTS
The Trust has a rule, set forth in the Prospectus, under which it cannot
buy the securities of issuers in any one industry if more than 25% of its
total assets would then be invested in securities of issuers of that industry.
In applying this rule to commercial paper issued by finance subsidiaries or
affiliates of operating companies, if the business of the issuer consists
primarily of financing the activities of the related operating company, the
Trust considers the industry of the issuer to be that of the related operating
company.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise its "current yield" and its
"effective yield" (also referred to as "effective compound yield"). Both yield
figures are based on historical earnings and are not intended to indicate
future performance. The current yield of a Trust refers to the net income
generated by an investment in that Trust over a stated seven-day period. This
income is then "annualized". That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-
week period and is shown as a percentage of the investment. The Trust may also
advertise or quote its effective yield, which is calculated similarly, but,
when annualized, the income earned by an investment in the Trust is assumed to
be reinvested. The effective yield will be slightly higher than the current
yield because of the compounding effect of this assumed reinvestment.
In addition, the Trust may also compare its performance to other income-
producing securities such as (i) money market funds; (ii) various bank
products, including both those that are insured (e.g., deposit obligations)
and those that are not (e.g., investment instruments offered by affiliates of
banks); and (iii) U.S. Treasury Bills or Notes. There are differences between
these income-producing alternatives and the Trust other than their yields,
some of which are summarized below.
The yield of the Trust is not fixed and will fluctuate. In addition, your
investment is not insured and its yield is not guaranteed. There can be no
assurance that the Trust will be able to maintain a stable net asset value of
$1.00 per share. Although the yields of bank money market deposit accounts and
NOW accounts will fluctuate, principal will not fluctuate and is insured by
the Federal Deposit Insurance Corporation up to $100,000. Bank passbook
savings accounts normally offer a fixed rate of interest, and their principal
and interest are also guaranteed and insured. Bank certificates of deposit
offer fixed or variable rates for a set term. Principal and fixed rates are
guaranteed and insured. There is no fluctuation in principal value. Withdrawal
of these deposits prior to maturity will normally be subject to a penalty.
Investment instruments, such as Repurchase Agreements and Commercial Paper,
offered by affiliates of banks are not insured by the Federal Deposit
Insurance Corporation. In comparing the yields of one money market fund to
another, consideration should be given to each fund's investment policy,
portfolio quality, portfolio maturity, type of instruments held and operating
expenses.
INVESTMENT RESTRICTIONS
The Trust has a number of policies concerning what it can and cannot do.
Those policies, which are called "fundamental policies" may not be changed
unless the holders of a majority, as defined in the Investment Company Act of
1940 (the "1940 Act"), of the Trust's outstanding shares vote to change them.
Under the 1940 Act, the vote of the holders of a majority of the outstanding
shares of the Trust means the vote of the holders of the lesser of (a) 67% or
more of the Trust's shares present at a meeting or represented by proxy if the
holders of more than 50% of its shares are so present or represented, or (b)
more than 50% of its outstanding shares. Those fundamental policies not set
forth in the Prospectus are set forth below.
1. THE TRUST INVESTS ONLY IN CERTAIN LIMITED SECURITIES.
The Trust cannot buy any voting securities, any commodities or commodity
contracts, any mineral related programs or leases, any shares of other
investment companies or any warrants, puts, calls or combinations thereof.
The Trust cannot purchase or hold the securities of any issuer if, to its
knowledge, Trustees, Directors or officers of the Trust 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 Trust cannot buy real estate or any non-liquid interests in real
estate investment trusts; however, it can buy any securities which it could
otherwise buy even though the issuer invests in real estate or interests in
real estate.
2. ALMOST ALL OF THE TRUST'S ASSETS MUST BE IN ESTABLISHED COMPANIES.
Only 5% of the Trust's total assets may be in issuers less than three
years old, that is, which have not been in continuous operation for at least
three years. This includes the operations of predecessor companies.
3. THE TRUST DOES NOT BUY FOR CONTROL.
The Trust cannot invest for the purpose of exercising control or
management of other companies.
4. THE TRUST DOES NOT SELL SECURITIES IT DOES NOT OWN OR BORROW FROM BROKERS
TO BUY SECURITIES.
Thus, it cannot sell short or buy on margin.
5. THE TRUST IS NOT AN UNDERWRITER.
The Trust 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.
LOANS OF PORTFOLIO SECURITIES
The Trust may, to increase its income, lend its securities on a short- or
long-term basis to broker-dealers, banks or certain other financial
institutions (see below) if (i) the loan is collateralized in accordance with
applicable regulatory requirements (the "Guidelines") and if (ii) after any
loan, the value of the securities loaned does not exceed 10% of the value of
its total assets. As of the date of this Additional Statement, the Trust does
not foresee lending securities if after any loan the value of loaned
securities exceeds 5% of the value of its total assets. The financial
institutions other than broker-dealers or banks to which the Trust can lend
its securities are limited to "accredited investors," as that term is defined
in Section 2(15) of the Securities Act of 1933. (In general, such institutions
are insurance companies, investment companies and certain employee benefit
plans.) Under the present Guidelines (which are subject to change) the loan
collateral must, on each business day, at least equal the value of the loaned
securities and must consist of cash, bank letters of credit or U.S. Government
securities. To be acceptable as collateral, a letter of credit must obligate a
bank to pay amounts demanded by the Trust if the demand meets the terms of the
letter. Such terms and the issuing banks would have to be satisfactory to the
Trust. Any loan might be secured by any one or more of the three types of
collateral. In addition, any such investment must meet the applicable
requirements of the Rule. See "Effect of the Rule on Portfolio Management" in
the Prospectus.
The Trust receives amounts equal to the interest or other distributions
on loaned securities and also receives one or more of the negotiated loan
fees, interest on securities used as collateral or interest on the securities
purchased with such collateral, either of which types of interest may be
shared with the borrower. The Trust may also pay reasonable finder's,
custodian and administrative fees but only to persons not affiliated with the
Trust. The terms of the Trust's loans will meet certain tests under the
Internal Revenue Code and permit the Trust to terminate the loan and thus
reacquire loaned securities on five days' notice.
DISTRIBUTION PLAN
The Trust has adopted a Distribution Plan (the "Plan") under Rule 12b-1
("Rule 12b-1") under the 1940 Act (the "1940 Act"). Rule 12b-1 provides in
substance that an investment company may not engage directly or indirectly in
financing any activity which is primarily intended to result in the sale of
its shares except pursuant to a plan adopted under Rule 12b-1. The Plan is
designed to protect against any claim involving the Trust that the
administration fee and some of the expenses which the Trust pays or may pay
come within the purview of Rule 12b-1. The Trust believes it is not financing
any such activity and does not consider such fee or any payment enumerated in
the Plan as so financing any such activity. However, it might be claimed that
such fee and some of the expenses the Trust pays come within the purview of
Rule 12b-1. If and to the extent that any payments (including fees)
specifically listed in the Plan are considered to be primarily intended to
result in or are indirect financing of any activity which is primarily
intended to result in the sale of Trust shares, these payments are authorized
under the Plan.
As used in the Plan, "Qualified Recipients" means (i) any principal
underwriter or underwriters of the Trust (other than a principal underwriter
which is an affiliated person, or an affiliated person of an affiliated
person, of the Administrator) and (ii) broker-dealers or others selected by
Aquila Management Corporation (the "Administrator") with which it has entered
into written agreements ("Related Agreements") contemplated by Rule 12b-1 and
which have rendered assistance (whether direct, administrative or both) in the
distribution and/or retention of the Trust's shares or servicing shareholder
accounts. "Qualified Holdings" means, as to any Qualified Recipient, all Trust
shares beneficially owned by such Qualified Recipient or by one or more of
customers (brokerage or other) or other contacts and/or its investment
advisory or other clients, if the Qualified Recipient was, in the sole
judgment of the Administrator, instrumental in the purchase and/or retention
of such Trust shares and/or in providing administrative assistance in relation
thereto.
The Plan permits the Administrator to make payments ("Permitted
Payments") to Qualified Recipients. These Permitted Payments are made by the
Administrator and are not reimbursed by the Trust to the Administrator.
Permitted Payments may not exceed, for any fiscal year of the Trust (pro-rated
for any fiscal year which is not a full fiscal year), 0.10 of 1% of the
average annual net assets of the Trust. The Administrator shall have sole
authority (i) as to the selection of any Qualified Recipient or Recipients;
(ii) not to select any Qualified Recipient; and (iii) to determine the amount
of Permitted Payments, if any, to each Qualified Recipient, provided that the
total Permitted Payments to all Qualified Recipients do not exceed the amount
set forth above. The Administrator is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the Qualified
Recipient; (b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area; and (c) the
possibility that the Qualified Holdings of the Qualified Recipient would be
redeemed in the absence of its selection or continuance as a Qualified
Recipient. Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined below) may remove any person as a Qualified
Recipient.
The Plan recognizes that, in view of the Permitted Payments and bearing
by the Administrator of certain distribution expenses, the profits, if any, of
the Administrator are dependent primarily on the administration fees paid by
the Trust to the Administrator and that its profits, if any, would be less, or
losses, if any, would be increased due to such Permitted Payments and the
bearing by it of such expenses. If and to the extent that any such
administration fees paid by the Trust might, in view of the foregoing, be
considered as indirectly financing any activity which is primarily intended to
result in the sale of shares issued by the Trust, the payment of such fees is
authorized by the Plan.
The Plan does not contain any limit as to the source of the assets which
the Administrator may use to make Permitted Payments under the Plan and
therefore it may use any of its assets for such purpose, whether or not such
assets are derived from the Administration fee.
The Plan also states that if and to the extent that any of the payments
listed below are considered to be "primarily intended to result in the sale
of" shares issued by the Trust 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 Trust 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 Trust'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 Trust 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 Trust'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 whenever
the Administrator bears the costs, not borne by the Trust's Distributor, of
printing and distributing all copies of the Trust's prospectuses, statements
of additional information and reports to shareholders which are not sent to
the Trust's shareholders, or the costs of supplemental sales literature and
advertising, such payments are authorized.
The Plan states that while it is in effect, the selection and nomination
of those Trustees of the Trust who are not "interested persons" of the Trust
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 Trust's Administrator
shall report at least quarterly to the Trust's Trustees in writing for its
review on the following matters: (i) all Permitted Payments made to Qualified
Recipients, the identity of the Qualified Recipient of each Payment and the
purpose for which the amounts were expended; (ii) all costs of each item
specified in the second preceding paragraph (making estimates of such costs
where necessary or desirable) during the preceding calendar or fiscal quarter;
and (iii) all fees of the Trust to the Administrator paid or accrued during
such quarter.
The Plan defines as the Trust's Independent Trustees those Trustees who
are not "interested persons" of the Trust 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 Trust's
Trustees and its Independent Trustees with votes cast in person at a meeting
called for the purpose of voting on such continuance. In voting on the
implementation or continuance of 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 Trust 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 Trust. 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 states that in the case of a Qualified Recipient which is a
principal underwriter of the Trust the Related Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each such
agreement must be approved in accordance with, and contain the provisions
required by, Rule 12b-1. The Plan also states that in the case of Qualified
Recipients which are not principal underwriters of the Trust, the Related
Agreements with them shall be approved in accordance with, and contain the
provisions required by, Rule 12b-1.
Under Rule 12b-1, all Related Agreements must be in writing and must
contain specified adoption and continuance requirements, including a
requirement that they terminate automatically on their "assignment," as that
term is defined in the 1940 Act. The other adoption and continuance
requirements as to Related Agreements are the same as those described above as
to the Plan itself except that: (i) no shareholder action is required for the
approval of Related Agreements, and (ii) termination by Trustee or shareholder
action as there described may be on not more than 60 days' written notice.
During the Trust's fiscal year ended September 30, 1995, no Qualified
Payments were made by the Administrator to Qualified Recipients.
The formula under which the payments described above may be made under
the Plan by the Administrator was arrived at by considering a number of
factors. One of such factors is that such payments are designed to provide
incentives for Qualified Recipients (i) in the case of Qualified Recipients
which are principal underwriters, to act as such and (ii) in the case of all
Qualified Recipients, to devote substantial time, persons and effort to the
sale of the shares of the Trust. Another factor is that such payments by the
Administrator to Qualified Recipients provide the only incentive for Qualified
Recipients to do so since there is no sales charge on the sale of the Trust's
shares. Another factor is that the Trust is one of a group of funds having
certain common characteristics. Each such fund (i) is a money market fund; and
(ii) has as its investment adviser a banking institution or an affiliate which
invests assets over which it has investment authority in money market funds
advised by other banking institutions or affiliates. The marketing of the
Trust's shares may be facilitated since each such institution can, due to
these common characteristics, be fully and currently informed as to the
quality of the investments of and other aspects of the operations of each of
the other funds and if such an investment is otherwise appropriate, can,
although not required to do so, invest assets over which it has investment
authority in one or more of the other funds.
LIMITATION OF REDEMPTIONS IN KIND
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act,
pursuant to which the Trust 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 Trust during
any 90-day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation, the Trust 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
Aquila Management Corporation, the Administrator of the Trust, and Aquila
Distributors, Inc., the Distributor of the Trust, and their principal
occupations during at least the past five years are set forth below. The Trust
is one of the Aquilasm Group of Funds, which consists of fourteen funds, six
money market funds, seven tax-free municipal bond funds and an equity fund.
None of the Trustees or officers of the Trust is affiliated with the Adviser.
As of January 6, 1996, the Trustees and officers of the Trust owned less than
1% of its outstanding shares. Mr. G. Philip Williams resigned in May, 1995
because of the need to devote more time to other business. Mr. Robert Sanchez
resigned in May, 1995 because he is no longer associated with the
Administrator. Mr. Dean, Ms. Leven and Mr. Ramsey were elected Trustees by the
shareholders of the Trust at the Trust's annual meeting on August 18, 1995.
Ms. Herrmann was elected Trustee by the Board of Trustees on December 3, 1995.
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. Ms. Leven is an
interested person as a beneficiary of a trust that owns shares of the parent
company of the Adviser. They are so designated by an asterisk.
LACY B. HERRMANN*, President and Chairman of the Board of Trustees, 380
Madison Avenue, New York, New York 10017
Founder of the Trust and President and a Director of the Administrator since
1984; Chairman and President, Chief Executive Officer (Chairman of the Board
of Trustees and/or President) and Trustee of Capital Cash Management Trust
("CCMT"), since 1981 and Founder and executive officer (since 1974) of CCMT
and its predecessor; Founder, President and Chairman of the Board of Trustees
of Prime Cash Fund since 1982, of Short Term Asset Reserves and Pacific
Capital Cash Assets Trust since 1984, of Pacific Capital Tax-Free Cash Assets
Trust and of Pacific Capital U.S. Treasuries Cash Assets Trust since 1988 and
of Cascades Cash Fund, 1989-1994, all of which are money market funds to which
the Administrator is administrator and which are referred to as the "Money
Funds"; Founder, President and Chairman of the Board of Trustees of Hawaiian
Tax-Free Trust since 1984, of Tax-Free Trust of Arizona and Tax-Free Trust of
Oregon since 1986, of Churchill Tax-Free Fund of Kentucky and Tax-Free Fund of
Colorado since 1987 and of Tax-Free Fund For Utah and Narragansett Insured
Tax-Free Income Fund since 1992, all of which are tax-free municipal bond
funds, and an equity fund, Aquila Rocky Mountain Equity Fund since 1993, to
all of which the Administrator is administrator and which are referred to as
the "Bond and Equity Funds"; Vice President, a Director and Secretary since
1981 (formerly Treasurer) of the Distributor, which is distributor (i.e.,
principal underwriter) for the Money Funds and the Bond and Equity Funds;
President and a Director of STCM Management Company, Inc., 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; Director or Trustee of the various Quest for Value Funds, a group of
stock, bond and money market mutual funds, since 1983; Director of Saratoga
Advantage Trust, a group of mutual funds, since 1994; Trustee of Brown
University since 1990; actively involved for many years in leadership roles
with university, school and charitable organizations.
THOMAS A. CHRISTOPHER, Trustee, 459 West Green Street, Danville, Kentucky
40422
Shareholder of Robinson, Hughes & Christopher, C.P.A.s, P.S.C., since 1977;
President of A Good Place for Fun, Inc., a sports facility, since 1987; active
member of the American Institute of Certified Public Accountants; Board of
Directors of the Kentucky Society of CPAs; Trustee of Churchill Tax-Free Fund
of Kentucky since 1992; presently active in leadership roles with various
civic, community and church organizations.
DOUGLAS DEAN, Trustee, 106 West Vine Street, Suite 600, Lexington, Kentucky
40507
Founder and President of Dean, Dorton & Ford P.S.C., a public accounting firm,
since 1979; previously Staff Accountant, Tax Supervisor and Tax Manager with
Coopers & Lybrand, a public accounting firm; Trustee of Trent Equity Fund, an
equity mutual fund, 1992-1994; Trustee of Churchill Tax-Free Fund of Kentucky
since 1987; Active as an officer and board member of various charitable and
community organizations.
DIANA P. HERRMANN*, Vice President and Trustee, 380 Madison Avenue, New York,
New York 10017
Senior Vice President and Secretary and formerly Vice President of the
Administrator since 1986 and Director since 1984; Trustee of Tax-Free Trust of
Arizona and Tax-Free Trust of Oregon since 1994 and of Churchill Tax-Free Fund
of Kentucky since 1995; Vice President of InCap Management Corporation since
1986 and Director since 1983; Vice President and formerly Assistant Vice
President of the Money Funds since 1986; Assistant Vice President of Oxford
Cash Management Fund, 1986-1988; Assistant Vice President and formerly Loan
Officer of European American Bank, 1981-1986; daughter of the Trust's
President; Trustee of the Leopold Schepp Foundation (academic scholarships)
since 1995; actively involved in mutual fund and trade associations and in
college and other volunteer organizations.
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 and of Cascades
Cash Fund, 1989-1994; 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.
THEODORE T. MASON, Trustee, 26 Circle Drive, Hastings-on-Hudson, New York
10706
Managing Director of EastWind Power Partners, Ltd. since 1994; Director of
Cogeneration Development of Willamette Industries, Inc., a forest products
company, 1991-1993; Vice President of Corporate Development of Penntech
Papers, Inc., 1978-1991; Vice President of Capital Projects for the same
company, 1977-1978; Vice Chairman of the Board of Trustees of CCMT since 1981;
Trustee and Vice President, 1976-1981, and formerly Director of its
predecessor; Director of STCM Management Company, Inc.; Vice Chairman of the
Board of Trustees and Trustee of Prime Cash Fund since 1982; Trustee of Short
Term Asset Reserves, 1984-1986 and since 1989, of Hawaiian Tax-Free Trust and
Pacific Capital Cash Assets Trust since 1984, of Pacific Capital Tax-Free Cash
Assets Trust and Pacific Capital U.S. Treasuries Cash Assets Trust since 1988
and of Churchill Tax-Free Fund of Kentucky since 1992; Vice President and
Trustee of Oxford Cash Management Fund, 1983-1989; Vice President of Trinity
Liquid Assets Trust, 1983-1985; President and Director of Ted Mason Venture
Associates, Inc., a venture capital consulting firm, 1972-1980; Advisor to the
Commander, U.S. Maritime Defense Zone Atlantic, 1984-1988; National Vice
President, Surface/Subsurface, Naval Reserve Association, 1985-1987; National
Vice President, Budget and Finance, for the same Association, 1983-1985;
Commanding Officer of four Naval Reserve Units, 1974-1985; Captain, USNR,
1978-1988.
ANNE J. MILLS, Trustee, 167 Glengarry Place, Castle Pines Village, Castle
Rock, Colorado 80104
Vice President for Business Affairs of Ottawa University since 1992; Director
of Customer Fulfillment, U.S. Marketing and Services Group, IBM Corporation,
1990-1991; Director of Business Requirements of that Group, 1988-1990;
Director of Phase Management of that Group, 1985-1988; Budget Review Officer
of the American Baptist Churches/USA since 1994; Director of the American
Baptist Foundation since 1985; Trustee of Brown University; Trustee of Tax-
Free Trust of Arizona since 1986, of Churchill Tax-Free Fund of Kentucky, Tax-
Free Fund of Colorado and Capital Cash Management Trust since 1987 and of Tax-
Free Fund For Utah since 1994.
WILLIAM J. NIGHTINGALE, Trustee, 1266 East Main Street, Stamford Connecticut
06902
Chairman and founder (1975) and Senior Advisor since 1995 of Nightingale &
Associates, Inc., a general management consulting firm focusing on interim
management, divestitures, turnaround of troubled companies, corporate
restructuring and financial advisory services; President, Chief Executive
Officer and Director of Bali Company, Inc., a manufacturer of women's apparel,
which became a subsidiary of Hanes Corporation, 1970-1975; prior to that, Vice
President and Chief Financial Officer of Hanes Corporation after being Vice
President-Corporate Development and Planning of that company, 1968-1970;
formerly Senior Associate of Booz, Allen & Hamilton, management consultants,
after having been Marketing Manager with General Mills, Inc.; Trustee of
Narragansett Insured Tax-Free Income Fund since 1992 and of Churchill Tax-Free
Fund of Kentucky since 1993; Director of Spreckels Industries, Inc. (beet
sugar processing and various industrial manufacturing companies); Glasstech
Inc. (glass bending equipment and engineering) and Ring's End, Inc. (retail
lumber and building supply chain).
JAMES R. RAMSEY, Trustee, 109 Wetherby Building, Western Kentucky University,
Bowling Green, Kentucky 42101
Vice President for Finance and Administration, and Professor of Economics,
Western Kentucky University; Trustee of Churchill Tax-Free Fund of Kentucky
since 1987; Chief State Economist and Executive Director of the Office for
Financial Management and Economic Analysis of the Commonwealth of Kentucky,
1981-1992; Adjunct Professor of the University of Kentucky; Assistant Dean and
Director of Public Administration of Loyola University in New Orleans,
Louisiana, 1978-1981; Assistant Professor of Public Finance and Administration
of Loyola University, 1977-1981; Assistant Professor of Economics, Middle
Tennessee State University, 1975-1977; published numerous articles, monographs
and working papers on economics and fiscal management.
CHARLES E. CHILDS, III, Vice President, 380 Madison Avenue, New York, New York
10017
Vice President - Administration and formerly Assistant Vice President and
Associate of the Administrator since 1987; Vice President or Assistant Vice
President of the Money Funds since 1988; Northeastern University, 1986-1987
(M.B.A., 1987); Financial Analyst, Unisys Corporation, 1986; Associate Analyst
at National Economic Research Associates, Inc. (NERA), a micro-economic
consulting firm, 1979-1985.
JOHN M. HERNDON, Vice President and Assistant Secretary, 380 Madison Avenue,
New York, New York 10017
Assistant Secretary of the Money Funds and the Bond and Equity Funds since
1995; Vice President of the Money Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank Services
Executive of Wright Investors' Service, a registered investment adviser, 1983-
1989; Member of the American Finance Association, the Western Finance
Association and the Society of Quantitative Analysts.
JERRY G. MCGREW, Vice President, P.O. Box 662, Radcliff, Kentucky 40159
Senior Vice President of Churchill Tax-Free Fund of Kentucky since 1994, Vice
President since 1987; Vice President of Tax-Free Fund For Utah since 1992;
Registered Principal since 1993; Vice President of Aquila Distributors, Inc.
since 1993; Registered Representative of J.J.B. Hilliard, W.L. Lyons Inc.,
1983-1987; Account Manager with IBM Corporation, 1967-1981; Gubernatorial
appointee, Kentucky Financial Institutions Board, since 1993; Chairman, Total
Quality Management for Small Business, 1990-1994; President of
Elizabethtown/Hardin County, Kentucky, Chamber of Commerce, 1989-1991;
President of Elizabethtown Country Club, 1983-1985.
ROSE F. MAROTTA, Chief Financial Officer, 380 Madison Avenue, New York, New
York 10017
Chief Financial Officer of the Money Funds and the Bond and Equity Funds since
1991; Treasurer of the Money Funds and the Bond and Equity Funds, 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 Money Funds and the 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 Money Funds and
the Bond and Equity Funds since 1982; Secretary of Trinity Liquid Assets
Trust, 1982-1985 and Trustee of that Trust, 1985-1986; Secretary of Oxford
Cash Management Fund, 1982-1988.
PATRICIA A. CRAVEN, Assistant Secretary & Compliance Officer, 380 Madison
Avenue, New York, New York 10017
Assistant Secretary of the Money Funds and the 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 Trust does not pay fees to Trustees affiliated with the Administrator
or to any of the Trust's officers. During the fiscal year ended September 30,
1995, the Trust paid $43,749 in fees and reimbursement of expenses to its
other Trustees. The Trust is one of the 14 funds in the Aquilasm Group of
Funds, which consist of tax-free municipal bond funds, money market funds and
an equity fund. The following table lists the compensation of all Trustees who
received compensation from the Trust and the compensation they received during
the Trust's fiscal year from other funds in the Aquilasm Group of Funds. None
of such Trustees has any pension or retirement benefits from the Trust or any
of the other funds in the Aquila group.
Compensation Number of
from all boards
Compensation funds in the which the
Name from the Trust Aquila Group Trustee now
serves
Thomas A. $,5022 $10,776 2
Christopher
Douglas Dean $ $7,054 2
Ann R. $ $19,100 3
Leven
Theodore T. $4,718 $30,690 8
Mason
Anne J. $4,587 $19,818 6
Mills
William J. $4,250 $9,750 3
Nightingale
James R. $ $6,624 2
Ramsey
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
ADDITIONAL INFORMATION AS TO THE ADVISORY AGREEMENT
The Investment Advisory Agreement (the "Advisory Agreement") between the
Trust and the Adviser contains the provisions described below, in addition to
those described in the Prospectus. The Advisory Agreement became effective on
July 19, 1995. Prior to that date, PNC Bank, Kentucky, Inc. acted as the
Trust's investment adviser under a former advisory agreement that terminated
on that date.
The Advisory Agreement may be terminated by the Adviser at any time
without penalty upon giving the Trust sixty days' written notice, and may be
terminated by the Trust at any time without penalty upon giving the Adviser
sixty days' written notice, provided that such termination by the Trust shall
be directed or approved by the vote of a majority of all its Trustees in
office at the time or by the vote of the holders of a majority (as defined in
the 1940 Act) of its voting securities at the time outstanding and entitled to
vote; it automatically terminates in the event of its assignment (as so
defined).
The expense limitation referred to in the Prospectus, if in effect, is
implemented monthly so that at no time is there any unpaid liability under the
limitation, subject to readjustment during the year.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Adviser is not liable for any loss sustained by
the adoption of any investment policy or the purchase, sale or retention of
any security and permits the Adviser to act as investment adviser for any
other person, firm or corporation. The Trust agrees to indemnify the Adviser
to the full extent permitted under the Trust's Declaration of Trust.
The Advisory Agreement states that it is agreed that the Adviser shall
have no responsibility or liability for the accuracy or completeness of the
Trust's Registration Statement under the Securities Act of 1933 and the 1940
Act except for the information supplied by the Adviser for inclusion therein.
The Advisory Agreement contains the following provisions as to the
Trust's portfolio transactions. In connection with its duties to arrange for
the purchase and sale of the Trust's portfolio securities, the Adviser shall
select such broker-dealers ("dealers") as shall, in the Adviser's judgment,
implement the policy of the Trust to achieve "best execution," i.e., prompt,
efficient and reliable execution of orders at the most favorable net price.
The Adviser shall cause the Trust to deal directly with the selling or
purchasing principal or market maker without incurring brokerage commissions
unless the Adviser determines that better price or execution may be obtained
by paying such commissions; the Trust expects that most transactions will be
principal transactions at net prices and that the Trust will incur little or
no brokerage costs. The Trust understands that purchases from underwriters
include a commission or concession paid by the issuer to the underwriter and
that principal transactions placed through dealers include a spread between
the bid and asked prices. In allocating transactions to dealers, the Adviser
is authorized to consider, in determining whether a particular dealer will
provide best execution, the dealer's reliability, integrity, financial
condition and risk in positioning the securities involved, as well as the
difficulty of the transaction in question, and thus need not pay the lowest
spread or commission available if the Adviser determines in good faith that
the amount of commission is reasonable in relation to the value of the
brokerage and research services provided by the dealer, viewed either in terms
of the particular transaction or the Adviser's overall responsibilities as to
the accounts as to which it exercises investment discretion. If, on the
foregoing basis, the transaction in question could be allocated to two or more
dealers, the Adviser is authorized, in making such allocation, to consider (i)
whether a dealer has provided research services, as further discussed below;
and (ii) whether a dealer has sold shares of the Trust or any other investment
company or companies having the Adviser as its investment adviser or having
the same sub-adviser, Administrator or principal underwriter as the Trust.
Such research may be in written form or through direct contact with
individuals and may include quotations on portfolio securities and information
on particular issuers and industries, as well as on market, economic or
institutional activities. The Trust recognizes that no dollar value can be
placed on such research services or on execution services, that such research
services may or may not be useful to the Trust and/or other accounts of the
Adviser and that research received by such other accounts may or may not be
useful to the Trust.
GLASS-STEAGALL ACT
In 1971 the United States Supreme Court held in Investment Company
Institute v. Camp that the federal statute commonly referred to as the Glass-
Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision:
(a) forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing, or controlling a registered, open-end
investment company continuously engaged in the issuance of its Shares, but (b)
do not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent, and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board did not exceed
its authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank
affiliates to act as investment advisers to registered closed-end investment
companies. In the Board of Governors case, the Supreme Court also stated that
if a national bank complied with the restrictions imposed by the Board in its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to investment companies, a
national bank performing investment advisory services for an investment
company would not violate the Glass-Steagall Act. In addition, state
securities laws on this issue may differ from the interpretations of federal
law expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
In the Investment Advisory Agreement with the Trust, the Adviser has
represented to the Trust that it possesses the legal authority to perform the
investment advisory services contemplated by the agreement and described in
the Prospectus and the Additional Statement without violation of applicable
statutes and regulations. Future changes in either federal or state statutes
and regulations relating to the permissible activities of banks or bank
holding companies and the subsidiaries or affiliates of those entities, as
well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent or restrict the
Adviser from continuing to perform such services for the Trust. Depending upon
the nature of any changes in the services which could be provided by the
Adviser, the Board of Trustees of the Trust would review the Trust's
relationship with the Adviser and consider taking all action necessary in the
circumstances.
Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of BANC ONE CORPORATION subsidiary banks or
their correspondent banks in connection with customer purchases of shares of
the Trust, these banks might be required to alter materially or discontinue
the services offered by them to customers. It is not anticipated, however,
that any change in the Trust's method of operations would affect its net asset
value per share or result in financial losses to any customer.
ADDITIONAL INFORMATION AS TO THE ADMINISTRATION AGREEMENT
The Administration Agreement between Aquila Management Corporation, as
Administrator, and the Trust (the "Administration Agreement") contains the
provisions described below in addition to those described in the Prospectus.
Subject to the control of the Trust's Board of Trustees, the
Administrator provides all administrative services to the Trust other than
those relating to its investment portfolio; as part of such duties, the
Administrator (i) provides office space, personnel, facilities and equipment
for the performance of the following functions and for the maintenance of the
Trust's headquarters; (ii) oversees all relationships between the Trust and
its transfer agent, custodian, legal counsel, auditors and principal
underwriter, including the negotiation of agreements in relation thereto, the
supervision and coordination of the performance of such agreements, and the
overseeing of all administrative matters which are necessary or desirable for
effective operation of the Trust and for the sale, servicing or redemption of
the Trust's shares; (iii) provides to the Adviser and to the Trust statistical
and other factual information and advice regarding economic factors and
trends, but does not generally furnish advice or make recommendations
regarding the purchase or sale of securities; (iv) either keeps the accounting
records of the Trust, including the computation of net asset value per share
and the dividends (provided that pricing of the Trust's portfolio is the
responsibility of the Adviser under the Advisory Agreement) or, at its expense
and responsibility, delegates such duties in whole or in part to a company
satisfactory to the Trust, maintains the Trust's other 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 Trust's insurance relationships;
(v) prepares, on the Trust's behalf and at its expense, such applications and
reports as may be necessary to register or maintain its registration or that
of its shares under the securities or "Blue-Sky" laws of all such
jurisdictions as may be required from time to time; and (vi) responds to any
inquiries or other communications from shareholders and broker-dealers, or if
any such inquiry or communication is more properly to be responded to by the
Trust's shareholder servicing and transfer agent or distributor, oversees such
shareholder servicing and transfer agent's or distributor's response thereto.
Since the Trust pays its own legal and audit expenses, to the extent that the
Trust'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 Trust.
The Administration Agreement may be terminated at any time without
penalty by the Administrator upon sixty days' written notice to the Trust and
the Adviser; it may be terminated by the Trust at any time without penalty
upon giving the Administrator sixty days' written notice, provided that such
termination by the Trust 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 Trust. In either case the notice
provision may be waived.
The expense limitation referred to in the Prospectus, if in effect, is
implemented monthly so that at no time is there any unpaid liability under the
limitation, subject to readjustment during the year.
The Administration Agreement provides that the Administrator shall not be
liable for any error in judgement or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence of the Administrator in the performance of its duties, or from
reckless disregard by it of its obligations and duties under the
Administration Agreement. The Trust agrees to indemnify the Administrator to
the full extent permitted by the Declaration of Trust.
For the fiscal year ended September 30, 1995, the fees payable to the
Trust's former adviser under an advisory agreement in effect until July 19,
1995 were $366,654 and fees payable to the Adviser under the Advisory
Agreement thereafter were $99,642 of which $49,089 was voluntarily waived.
During the same period, fees payable to the Administrator under a former
administration agreement in effect until July 19, 1995 were $366,654 and under
the Administration Agreement in effect thereafter were $58,931 of which
$21,561 was waived. For the fiscal years ended September 30, 1994 and 1993,
respectively, the fees payable to the former adviser under the former advisory
agreement then in effect and to the Administrator under the former
administration agreement then in effect, were, each, $543,130 and $387,719.
AMORTIZED COST VALUATION
The Trust operates under Rule 2a-7 (the "Rule") of the Securities and
Exchange Commission which permits it to value its portfolio on the basis of
amortized cost. The amortized cost method of valuation is accomplished by
valuing a security at its cost and thereafter assuming a constant amortization
rate to maturity of any discount or premium, and does not reflect the impact
of fluctuating interest rates on the market value of the security. This method
does not take into account unrealized gains or losses.
While the amortized cost method provides certainty in valuation, there
may be periods during which value, as determined by amortized cost, is higher
or lower than the price the Trust would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on the Trust's
shares may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio instruments and
changing its dividends based on these changing prices. The converse would
apply in a period of rising interest rates.
Under the Rule, the Trust's Board of Trustees must establish, and has
established, procedures (the "Procedures") designed to stabilize at $1.00, to
the extent reasonably possible, the Trust's price per share as computed for
the purpose of sales and redemptions. Such procedures must include review of
the Trust's portfolio holdings by the Board of Trustees at such intervals as
it may deem appropriate and at such intervals as are reasonable in light of
current market conditions to determine whether the Trust's net asset value
calculated by using available market quotations deviates from the per share
value based on amortized cost. "Available market quotations" may include
actual market quotations (valued at the mean between bid and asked prices),
estimates of market value reflecting current market conditions based on
quotations or estimates of market value for individual portfolio instruments
or values obtained from yield data relating to a directly comparable class of
securities published by reputable sources.
Under the Rule, if the extent of any deviation between the net asset
value per share based upon "available market quotations" (see above) and the
net asset value per share based on amortized cost exceeds $0.005, the Board of
Trustees must promptly consider what action, if any, will be initiated. When
the Board of Trustees believes that the extent of any deviation may result in
material dilution or other unfair results to investors or existing
shareholders, it is required to take such action as it deems appropriate to
eliminate or reduce to the extent reasonably practicable such dilution or
unfair results. Such actions could include the sale of portfolio securities
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends or payment of distributions from
capital or capital gains, redemptions of shares in kind, or establishing a net
asset value per share using available market quotations. The Procedures
include changes in the dividends payable by the Trust under specified
conditions, as described below under "Computation of Daily Dividends." This
portion of the Procedures provides that actions that the Trustees would
consider under certain circumstances can be taken automatically.
COMPUTATION OF DAILY DIVIDENDS
Under the Procedures which the Trust's Board of Trustees has adopted
relating to amortized cost valuation, the calculation of the Trust's daily
dividends will change under certain circumstances from that indicated in the
Prospectus. If on any day the deviation between net asset value determined on
an amortized cost basis and that determined using market quotations is $0.003
or more, the amount of such deviation will be added to or subtracted from the
daily dividend to the extent necessary to reduce such deviation to within
$0.003.
If on any day there is insufficient net income to absorb any such
reduction, the Board of Trustees would be required under the Rule to consider
taking other action if the deviation, after eliminating the dividend for that
day, exceeds $0.005. One of the actions which the Board of Trustees might take
could be the elimination or reduction of dividends for more than one day.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchase shares of the Trust having a net asset value of at
least $5,000 you may establish an Automatic Withdrawal Plan under which you
will receive a monthly or quarterly check in a stated amount, not less than
$50. Stock certificates will not be issued for shares held under an Automatic
Withdrawal Plan. All dividends must be reinvested.
Shares will be redeemed on the last business day of the month as may be
necessary to meet withdrawal payments. Shares acquired with reinvested
dividends will be redeemed first to provide such withdrawal payments and
thereafter other shares will be redeemed to the extent necessary, and,
depending upon the amount withdrawn, your principal may be depleted.
Redemption of shares for withdrawal purposes may reduce or even liquidate
the account. Monthly or quarterly payments paid to shareholders may not be
considered as a yield or income on investment.
GENERAL INFORMATION
NET ASSET VALUE PER SHARE
As indicated in the Prospectus, the net asset value per share of the
Trust'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, 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.
POSSIBLE ADDITIONAL SERIES
If additional Series (as discussed in the Prospectus) 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 fairly among two or more series in a manner acceptable to the Board
of Trustees.
Under Rule 18f-2 under the 1940 Act, as to any investment company which
has two or more Series outstanding as to any matter required to be submitted
to shareholder vote, such matter is not deemed to have been effectively acted
upon unless approved by the holders of a "majority" (as defined in that Rule)
of the voting securities of each Series affected by the matter. Such separate
voting requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains special
provisions for cases in which an advisory contract is approved by one or more,
but not all, Series. A change in investment policy may go into effect as to
one or more Series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected Series.
INDEMNIFICATION OF SHAREHOLDERS AND TRUSTEES
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust such as the
Trust, 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
Trust 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 Trust or the Trustees. The Declaration of Trust does,
however, contain an express disclaimer of shareholder liability for acts or
obligations of the Trust. The Declaration of Trust provides for
indemnification out of the Trust's property of any shareholder held personally
liable for the obligations of the Trust. The Declaration of Trust also
provides that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to the
relatively remote circumstances in which the Trust itself would be unable to
meet its obligations. In the event the Trust 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 Trust, 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 Trust
and provides that they will not be liable for errors of judgment or mistakes
of fact or law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
CUSTODIAN AND AUDITORS
The Trust's Custodian is Bank One Trust Company N.A.; it receives, holds
and delivers the Trust's portfolio securities (including physical securities,
book-entry securities, and securities in depositories) and money, performs
related accounting functions and issues reports to the Trust. The Trust pays
the Custodian (1) an asset-based annual fee, with a minimum asset-based annual
fee, and (2) a fee for each portfolio purchase transaction of the Trust. The
rates of these fees have been reviewed by the Board of Trustees of the Trust
and are believed to be comparable to those available from other organizations
providing such services. The Custodian is an affiliate of the Adviser.
The Trust's auditors, KPMG Peat Marwick LLP, perform an annual audit of
the Trust's financial statements.
FINANCIAL STATEMENTS
The financial statements for the Trust for the fiscal year ended
September 30, 1995, which are contained in the Annual Report for that fiscal
year, 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
At the date of this Additional Statement there are six organizations
considered as Nationally Recognized Statistical Rating Organizations
("NRSROs") for purposes of Rule 15c3-1 under the Securities Exchange Act of
1934. Their names, a brief summary of their respective rating systems, some of
the factors considered by each of them in issuing ratings and their individual
procedures are described below.
STANDARD AND POOR'S CORPORATION
Commercial paper consists of unsecured promissory notes issued to raise
short-term funds. An S&P commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no
more than 365 days. S&P's commercial paper ratings are graded into several
categories from "A-1" for the highest-quality obligations (which can also have
a plus (+) sign designation) to "D" for the lowest. The two highest categories
are:
A-1: This highest category indicates the degree of safety regarding
timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
for issues designated A-1.
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. The
ratings are based, in varying degrees, on the following considerations:
1) Likelihood of default -- capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligations;
2) Nature of and provisions of the obligation; and
3) Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other
laws affecting creditors' rights.
The two highest categories are:
AAA: Capacity to pay interest and repay principal is extremely
strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in a
degree.
MOODY'S INVESTORS SERVICE
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters of credit and bonds of indemnity are excluded unless explicitly rated.
The two highest categories are:
Prime-1: Issuers rated P-1 have a superior ability for repayment of
senior short-term debt obligations, evidenced by the following
characteristics:
* Leading market positions in well-established industries.
* High rates of return on funds employed.
* Conservative capital structure with moderate reliance on
debt and ample asset protection.
* Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
* Well-established access to a range of markets and
assured sources of alternative liquidity.
Prime-2: Issuers rated P-2 have a strong ability for repayment of
senior short-term debt obligations, evidenced by the above-mentioned
characteristics, but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
Corporate bonds rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by large or exceptionally stable
margin and principal is secure. Corporate bonds rated Aa are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. Aa bonds are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risk appear
somewhat greater than the Aaa securities.
DUFF & PHELPS, INC.
The ratings apply to all obligations with maturities of under one year,
including commercial paper, the unsecured portion of certificates of deposit,
unsecured bank loans, master notes, bankers' acceptances, irrevocable letters
of credit and current maturities of long-term debt. The two highest categories
are:
D-1+: Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds is outstanding and safety is just below risk-free
U.S. Treasury short-term obligations.
D-1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
D-1 -: High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk
factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are very small.
Long-term debt rated AAA represents the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt. Debt rated AA represents high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
IBCA
In determining the creditworthiness of financial institutions, IBCA
assigns ratings within the following categories: Legal, Individual, Short and
Long Term. A legal rating deals solely with the question of whether an
institution would receive support if it ran into difficulties and not whether
it is "good" or "bad". An individual rating looks purely at the strength of a
financial institution without receiving any support. Short and long-term
ratings assess the borrowing capabilities and the capacity for timely
repayment of debt obligations. A short-term rating relates to debt which has a
maturity of less than one year, while a long-term rating applies to a
instrument of longer duration. The legal ratings are:
1: A bank for which there is a clear legal guarantee on the part of
its home state to provide any necessary support or a bank of such
importance both internationally and domestically that support from
the state would be forthcoming, if necessary.
2: A bank for which there is no legal obligation on the part of its
sovereign entity to provide support but for which state support
would be forthcoming, for example, because of its importance to the
total economy or its historic relationship with the government.
The individual ratings are:
A: A bank with a strong balance sheet, favorable credit profile and
a consistent record of above average profitability.
B: A bank with a sound credit profile and without significant
problems. The bank's performance has generally been in line with or
better than that of its peers.
The short-term ratings are:
A-1+: Obligations supported by the highest capacity for timely
repayment.
A-1: Obligations supported by a very strong capacity for timely
repayment.
A-2: Obligations supported by a very strong capacity for timely
repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
The long-term ratings are:
AAA: Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business,
economic or financial conditions are unlikely to increase investment
risk.
AA: Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not
significantly.
Thomson BankWatch, Inc. (TBW)
The TBW short-term ratings apply to commercial paper, other senior short-
term obligations and deposit obligations of the entities to which the rating
has been assigned. TBW's two highest short-term ratings are:
TBW-1: Indicates a very high degree of likelihood that principal and
interest will paid on a timely basis.
TBW-2: While the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
The TBW long-term rating specifically assess the likelihood of an
untimely repayment of principal or interest over the term to maturity of the
rated instrument. TBW's two highest long-term ratings are:
AAA: Indicates ability to repay principal and interest on a timely
basis is very strong.
AA: Indicates a superior ability to repay principal and interest on
a timely basis with limited incremental risk versus issues rated in
the highest category.
Fitch Investors Service, Inc.
The Fitch short-term ratings apply to debt obligations that are payable
on demand which include commercial paper, certificates of deposit, medium-term
notes and municipal and investment notes. Short-term ratings places greater
emphasis than long-term ratings on the existence of liquidity necessary to
meet the issuer's obligations in a timely manner. Fitch short-term ratings
are:
F-1+: Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1: Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated "F-1+".
The Fitch long-term rating represents their assessment of the issuer's
ability to meet the obligations of a specific debt issue or class of debt in a
timely manner. The rating takes into consideration special features of the
issue, its relationship to other obligations of the issuer, the current and
prospective financial and operating performance of the issuer and any
guarantor, as well as the economic and political environment that might affect
the issuer's future financial strength and credit quality. The Fitch long-
term rating are:
AAA: Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal
is very strong.
<PAGE>
Investment Adviser
BANC ONE INVESTMENT ADVISORS CORPORATION
774 Park Meadow Road
Columbus, Ohio 43271-0211
Administrator
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
Distributor
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
Trustees
Lacy B. Herrmann, Chairman
Thomas A. Christopher
Douglas Dean
Diana P. Herrmann
Ann R. Leven
Theodore T. Mason
Anne J. Mills
William J. Nightingale
James R. Ramsey
Officers
Lacy B. Herrmann, President
Diana P. Herrmann, Vice President
Charles E. Childs, III, Vice President
John M. Herndon, Vice President
Jerry G. McGrew, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
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
CHURCHILL CASH
RESERVES TRUST
A cash
management
investment
[LOGO]
STATEMENT OF
ADDITIONAL
INFORMATION
[LOGO]
One of the
Aquilasm Group of Funds
