<PAGE>
CHURCHILL CASH RESERVES TRUST
380 Madison Avenue
Suite 2300
New York, New York 10017
800-952-6666 * 212-697-6666
PROSPECTUS
February 1, 1999
Churchill Cash Reserves Trust is a mutual fund that seeks 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 its 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. There is no sales charge.
For Purchase, Redemption or Account inquiries contact The Trust's
Shareholder Servicing agent:
PFPC Inc * 400 Bellevue Parkway * Wilmington, DE 19809
Call 800-952-6666 toll free
For general Inquiries & Yield Information
Call 800-952-6666 or 800-228-7496 toll free
The Securities and Exchange Commission Has Not Approved or
Disapproved the Trust's Securities or Passed Upon the Adequacy of
This Prospectus. Any Representation to the Contrary Is a Criminal
Offense.
<PAGE>
THE TRUST'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Trust's Objective?"
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.
"What does the Trust invest in?"
The Trust invests in money market securities that are highly
rated by nationally recognized statistical rating organizations,
present minimal credit risks and are of short duration.
"What are the main risks of investing in the Trust?"
There can be no assurance that the Trust will be able to
maintain a stable net asset value of $1.00 per share.
No Bank Credit Support Investment in the Trust is not a
deposit in Bank One Corporation or its bank or non-bank
affiliates or by any other bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other
governmental agency.
<PAGE>
CHURCHILL CASH RESERVES TRUST
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Churchill Cash Reserves Trust by showing
changes in the Trust's performance from year to year over a 10-
year period and by showing the Trust's average annual returns for
one, five, ten years and since inception. How the Trust has
performed in the past is not necessarily an indication of how the
Trust will perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1989-1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10%
9.08
8% XXXX 7.97
XXXX XXXX
6% XXXX XXXX 5.83
XXXX XXXX XXXX 5.58 5.23
4% XXXX XXXX XXXX 3.37 3.76 XXXX 4.97 5.19 XXXX
XXXX XXXX XXXX XXXX 2.67 XXXX XXXX XXXX XXXX XXXX
2% XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
0% XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Calendar Years
During the 10-year period shown in the bar chart, the highest
return for a quarter was 2.34% (quarter ended June 30, 1989) and
the lowest return for a quarter was 0.65% (quarter ended June 30,
1993).
</TABLE>
Average Annual Total Return
<TABLE>
<CAPTION>
For the Period Ended
December 31, 1998
Since
1-Year 5-Year 10-Years inception
<S> <C> <C> <C> <C>
Churchill Cash
Reserves Trust 2.53% 4.99% 5.34% 5.73%*
<FN>
* From commencement of operations on July 9, 1985.
</FN>
</TABLE>
Please call (800) 228-7496 toll free to obtain the Trust's most
current seven-day yield.
<PAGE>
CHURCHILL CASH RESERVES TRUST
FEES AND EXPENSES OF THE TRUST
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Trust.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.........................0.00%
(as percentage of offering price)
Maximum Deferred Sales Charge (Load).........0.00%
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends
(as a percentage of offering price)........0.00%
Redemption Fees..............................0.00%
Exchange Fees................................0.00%
Annual Trust Operating Expenses (expenses that are
deducted from the Trust's assets)
Management Fees(1)...........................0.50%
12b-1 Fee (2)................................0.00%
All Other Expenses...........................0.13%
Total Annual Trust Operating Expenses (1)....0.63%
Example
This Example is intended to help you compare the cost of
investing in the Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Trust for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Trust's operating expenses remain
the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<C> <C> <C> <C>
$64 $202 $351 $786
<FN>
(1) As of the date of this Prospectus, the Manager is entitled to
receive an advisory fee from the Trust at the annual rate of 0.50
of 1% of average annual net assets of which 0.03 of 1% is
currently being waived; the Sub-Advisor is entitled to receive a
sub-advisory fee from the Manager at the annual rate of 0.33 of
1% of average annual net assets, of which 0.02 of 1% is currently
being waived.(See "Management Arrangements.") Reflecting this
waiver, management fees and total trust operating expenses are
currently 0.47% and 0.60% respectively. Although the management
fee can be terminated at any time at the option of the Manager,
it is expected to continue for the remainder of the Trust's
fiscal year which ends on September 30, 1999.
</FN>
<FN>
(2) 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>
</TABLE>
INVESTMENT OF THE TRUSTS'S ASSETS
"Is The Trust Right For Me?"
The Trust is designed to suit the cash management needs of
individuals, corporations, institutions and fiduciaries.
"What Securities Does the Trust Invest In?"
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; we refer to these obligations as "U.S.
Government Securities."
(2) Bank Obligations and Instruments Secured by Them: Bank
obligations including time deposits, certificates of deposit,
bankers' acceptances and other bank 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. 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. ("banks" include commercial banks,
savings banks and savings and loan associations.)
(3) Commercial Paper: Short-term corporate debt.
(4) Corporate Debt Obligations: Corporate debt obligations
(for example, bonds and debentures) which at the time of purchase
have a remaining maturity of not more than 397 days.
(5) Variable Amount Master Demand Notes: Variable amount
master demand notes that 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. Variable amount master demand notes repayable in
more than 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). If
the Trust invests more than 5% of its net assets in such other
obligations, the Prospectus will be supplemented to describe
them.
(7) Repurchase Agreements: The Trust may purchase
securities subject to repurchase agreements with commercial banks
and broker-dealers 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. 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.
Shareholder approval is not required to change any of the
foregoing management policies.
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"). 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. 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.
Additional Risks
Year 2000 Like other financial and business organizations,
the Trust could be adversely affected if computer systems the
Trust relies on do not properly process date-related information
and data involving the year 2000 and after. The Manager is taking
steps that it believes are reasonable to address this problem in
its own computer systems and to obtain assurances that steps are
being taken by the other major service providers to the Trust to
achieve comparable results. Certain vendors have advised the
Manager that they are currently compliant. The three mission
critical vendors -- the shareholder servicing agent, the
custodian and the fund accounting agent -- as well as other
support organizations, advised the Manager in 1998 that they were
actively working on necessary changes. These three vendors,
having anticipated readiness by December 1998 and having so
informed the Manager; thereafter advised the Manager that they
expect to be ready during the first half of 1999. The Manager has
also requested the Trust's portfolio manager to attempt to
evaluate the potential impact of this problem on the issuers of
securities in which the Trust invests. At this time there can be
no assurance that the target dates will be met or that these
steps will be sufficient to avoid any adverse impact on the
Trust.
TRUST MANAGEMENT
Management
Aquila Management Corporation, 380 Madison Avenue, Suite
2300, New York, NY 10017 (the "Manager"), is the Trust's
investment adviser under the "Advisory and Administration
Agreement". It has delegated its investment advisory duties,
including portfolio management to Banc One Investment Advisors
Corporation, the "Sub-Adviser" under a sub-advisory agreement
described below. The Manager is also responsible for
administrative services, including providing for the maintenance
of the headquarters of the Trust, overseeing relationships
between the Trust and the service providers to the Trust, either
keeping the accounting records of the Trust, 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
books and records and providing other administrative services.
Banc One Investment Advisors Corporation, 1111 Polaris
Parkway, Columbus, Ohio 43240. ("the Sub-Adviser"), provides the
Trust with investment advisory services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision including supervising continuously the
investment program of the Trust and the composition of its
portfolio; determining what securities will be purchased or sold
by the Trust, arranging for the purchase and the sale of
securities held in the portfolio of the Trust; and, at the
Sub-Adviser's expense, for pricing of the Trust's portfolio
daily.
Under the Advisory and Administration Agreement, the Trust
pays the Manager 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 0.50 of 1% of such net asset
value.
Information about the Sub-Adviser and the Manager
The Sub-Adviser is a wholly-owned subsidiary of BANK ONE
CORPORATION ("Banc One"), based in Chicago, Illinois. As of June
30, 1998 the Sub-Adviser had $30 billion under management. In
October, 1998, Banc One completed a merger with First Chicago NBD
Corporation. The combined organization is a multi-bank holding
company, incorporated under the laws of the State of Delaware.
After the combination, Banc One operated with more than 2,000
offices in the states of Arizona, Colorado, Illinois, Indiana,
Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Texas, Utah, West
Virginia and Wisconsin. Banc One, its affiliated banks and its
non-bank subsidiaries had total assets of approximately $260.8
billion.
The Trust's Manager is founder and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money market funds and equity
funds. As of December 31, 1998, these funds had aggregate assets
of approximately $3.2 billion, of which approximately $1.2
billion consisted of assets of money market funds. The Manager,
which was founded in 1984, is controlled by Mr. Lacy B. Herrmann,
directly, through a trust and through share ownership by his
wife.
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 and the Custodian are open (a "Business Day") 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. The
net asset value per share is based on a valuation of the Trust's
investments at amortized cost.
The New York Stock Exchange is normally not open on the
following days: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, the
Exchange may close on other days as well. In addition, the
Custodian is not open on Veterans Day.
PURCHASES
"How Do I Purchase Shares?"
Opening an Account
To open a new account, you must send a properly completed
Application to PFPC Inc., (the "Agent"). The Trust will not honor
redemption of shares purchased by wire payment until a properly
completed Application has been received by the Agent. The minimum
initial investment is $1,000. Subsequent investments may be in
any amount.
You can make investments in any of these three ways:
1. By Mail. You can make payment 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:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, DE 19809
2. By Wire. You can wire Federal funds (monies credited to a
bank's account with a Federal Reserve Bank) to PNC Bank, NA.
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) and then instruct your bank to
wire funds as indicated below:
PNC BANK, NA
Philadelphia, PA
ABA #0310-0005-3
Account #85-0216-4861
FFC: Churchill Cash Reserves Trust
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.
The Trust imposes no sales or service charge, 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 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.
Opening an Account Adding to An Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
"Churchill Cash Reserves "Churchill Cash Reserves
Trust" Trust"
* Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Trust's confirmations.
you wish to authorize. Or, supply the name(s)
of account owner(s),
the account number and
the name of the Trust
* Send your check and * Send your check and
completed application completed application
to your dealer or to your dealer or
to the Trust's Agent, PFPC to the Trust's Agent, PFPC
Inc., or Inc., or
* Wire funds as described above. * Wire funds as described
above.
Be sure to supply the name(s) of account owner(s), the account
number, the name of the Trust.
"Can I Transfer Funds Electronically?"
You can have funds transferred electronically, in amounts of
$50 or more from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment You can authorize a pre-determined
amount to be regularly transferred from your account.
* Telephone Investment You can make single investments of up
to $50,000 to be made by telephone instructions to the
Agent.
Before you can transfer funds electronically, the Trust's
Agent must have your completed Application authorizing these
features. If you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent. The Trust may modify or terminate these
investment methods or charge a service fee, upon 30 day's written
notice to shareholders.
When Shares Are Issued and Dividends Are Declared On Them
The Trust issues shares three ways.
First Method - ordinary investments. Dividends on shares
issued under the first 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.
Your purchase order is effective and your funds are invested
as follows:
1) Payments by wire in Federal funds or by Federal
Reserve Draft prior to 4:00 p.m. New York time on any
Business Day - on that day;
2) Such payments received after 4:00 p.m. New York time - on
the next Business Day;
3) Wire payments not in Federal funds - as of 4:00 p.m. on
the Business Day when converted to Federal funds (normally
the next day);
4) Payments by check - as of 4:00 p.m. on the Business Day
when converted to Federal funds (within two Business Days
for checks drawn on a member bank of the Federal Reserve
System, and longer for most other checks);
5) Automatic Investment - on the day you specified unless it
is not a Business Day in which case the order will be
executed at the net asset value determined on the next
Business Day;
6) Telephone Investment made prior to 4:00 p.m. New York
time on any Business Day - on that day;
7) Telephone Investment made after 4:00 p.m. New York time -
on the next Business Day;
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.
Second Method - Banks or broker-dealers making special
arrangements with the Trust. Dividends on shares issued under the
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.
Your purchase order is effective and your funds are invested
as follows:
1) Payment 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 on a Business Day - on that day;
2) On any Business Day if (i) the Agent is advised prior to
5:00 p.m. New York 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 New York time on the next
Business Day wire Federal funds (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, 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.
Third Method Broker-dealers or banks which have requested
that this method be used, to which request the Trust has
consented. Dividends on shares issued under this third investment
method are declared beginning on that day but not on the day such
shares are redeemed.
Your purchase order is effective and your funds are invested
as follows:
If (i) the Agent has been advised prior to noon New York
time on a Business Day of a dollar amount to be invested;
and (ii) Federal funds are received by wire on that day - on
that day.
The 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.
The Agent will maintain records as to which of your shares
were purchased under each of the three investment methods set
forth above. If you make a redemption request and have purchased
shares under methods (1) and/or (2) and other shares under method
(3), the Agent will, unless you otherwise request as to such
redemption, redeem those shares first purchased, regardless of
the method under which they were purchased.
Under each method, shares are issued at the net asset value
per share next determined after the purchase order is effective,
as described above. 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.
REDEEMING YOUR INVESTMENT
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been accepted.
There is no minimum period for investment in the Trust,
except for shares recently purchased by check or by Automatic or
Telephone Investment as discussed below.
A redemption may result in a tax liability for you.
How to Redeem Your Investment
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-952-6666
By FAX, send instructions to: 302-791-3055
For liquidity and convenience, the Trust offers expedited
redemption.
Expedited Redemption Methods
(Non-Certificate Shares Only)
You may request expedited redemption for any shares not
issued in certificate form in two ways:
1 By Telephone. The Agent will accept instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you
have previously specified or
b) by check in the amount of $50,000 or less,
mailed to the same name and address (which
has been unchanged for the past 30 days) as
the account from which you are redeeming.
You may only redeem by check via telephone
request once in any 7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Trust, the Agent, and the Distributor are
not responsible for losses resulting from unauthorized
telephone transactions if the Agent follows reasonable
procedures designed to verify a caller's identity. The
Agent may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at 302-791-3055
or by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter, signed by the registered shareholder(s) (no signature
guarantee is required), must indicate:
account name(s),
account number,
amount to be redeemed,
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution Account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the Trust's
records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready Access
Features Form.
3. By Check. The Agent will, upon request, provide you with
forms of drafts ("checks") drawn on PNC Bank, NA (the
"Bank"). 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 $100. You will be subject to the Bank'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 Bank 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
Bank for payment.
As these checks are redemption drafts relating to Trust
shares, 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 "When Will I Receive the Proceeds of My Redemption?"
below for more details as to special problems as to Trust 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
Bank. 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 Bank 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)
Certificate Shares. Mail to the Trust's Agent: (1) blank
(unsigned) certificates for Class A Shares to be redeemed, (2)
redemption instructions, and (3) a stock assignment form.
To be in "proper form," items (2) and (3) must be signed by
the registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures
are necessary.
For your protection, mail certificates separately from
signed redemption instructions. We recommend that
certificates be sent by registered mail, return receipt
requested.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other
than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on
file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the
address of record, except as noted above. In all other
cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association
Medallion Program ("STAMP") 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.
Non-Certificate Shares. You must use the Regular Redemption
Method if you have not chosen Expedited Redemption to a
predesignated Financial Institution account. To redeem by
this method, send a letter of instruction to the Trust's
Agent, which includes:
Account name(s)
Account number
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed
Payment instructions (we normally mail redemption
proceeds to your address as registered with the Trust)
Signature(s) of the registered shareholder(s) and
Signature guarantee(s), if required, as indicated
above.
"When Will I Receive the Proceeds of My Redemption?"
Redemption proceeds are normally sent, as shown below, to
your address of record on the next business day following
acceptance of your redemption request. Except as described
below, the Trust will send payments within 7 days after
acceptance of your redemption request.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and as None
you requested on your
Application or Ready Access
Features Form, wired
or transferred through
the Automated Clearing
House to your Financial
Institution Account.
Through a broker
/dealer Check or wire, to your None.
broker/dealer. However,
your
broker/dealer
may charge a
fee.
Although the Trust does not currently intend to, it can charge up
to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. Upon 30
days' written notice to shareholders the 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 presently contemplated. If any such changes are
made, the Prospectus will be supplemented to reflect them.
The Trust may delay redemption of shares recently purchased
by check (including certified, cashier's or official bank check)
or by Automatic Investment or Telephone Investment up to 15 days
after purchase; however, redemption will not be delayed after (i)
the check or transfer of funds has been honored, or (ii) the
Agent receives satisfactory assurance that your Financial
Institution will honor the check or transfer of funds. You can
eliminate possible delays by paying for purchased shares with
wired funds or Federal Reserve drafts.
The Trust has the right to postpone payment or suspend
redemption rights during certain periods. These periods may
occur (i) when the Exchange is closed for other than weekends and
holidays, (ii) when the Securities and Exchange Commission (the
"SEC") restricts trading on the Exchange, (iii) when the SEC
determines an emergency exists which causes disposal of, or
determination of, the portfolio securities to be unreasonable or
impracticable, and (iv) during such other periods as the SEC may
permit.
The Trust can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment Program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Trust's portfolio securities in conformity
with SEC rules. This method would only be used if Trustees
determine that partial or whole cash payments would be
detrimental to the best interests of the remaining shareholders.
Automatic Withdrawal Plan
You may establish an Automatic Withdrawal Plan if you own or
purchase shares of the Trust having a net asset value of at least
$5,000. Under the Plan:
* You will receive a monthly or quarterly check in a stated
amount of not less than $50.
* All dividends and distributions must be reinvested in your
account.
* Redemptions of shares to make payments will give rise to a
gain or loss for tax purposes. See the Automatic Withdrawal
Plan provisions on the Application included with this
Prospectus.
Restrictions
You may not maintain an Automatic Withdrawal Plan while
simultaneously making regular purchases. Purchases of additional
shares concurrent with withdrawals are disadvantageous due to the
payment of sales charges when purchases are made. While an
occasional lump sum investment may be made, such investment
should normally equal at least the lesser of three times the
annual withdrawal or $5,000.
Dividends and Distributions
The Trust will declare all of its net income for dividend
purposes daily as dividends. 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. You can make this election 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 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.
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.
The Trust will be required to withhold, subject to certain
exemptions, 31% of dividends paid or credited to you and
redemption proceeds, if you have not filed with the Trust a
correct Taxpayer Identification Number, certified when required.
Distribution Arrangements
Confirmations and Share Certificates
A statement will be mailed to you confirming each purchase
of shares in the Trust. Accounts are rounded to the nearest
1/1000th of a share. The Trust will not issue share certificates
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. If you have certificates issued, Expedited
Redemption Methods described below will not be available and
delay and expense may be incurred if you lose the certificates.
The Trust will not issue certificates for fractional shares or to
shareholders who have elected the checking account or
predesignated bank account methods of withdrawing cash from their
accounts.
The Trust and the Distributor may reject any order for the
purchase of shares. In addition, the offering of shares may be
suspended at any time and resumed at any time thereafter.
Distribution Plan
The Trust has adopted a Distribution Plan under Rule 12b-1
("Rule 12b-1") under the 1940 Act.
The Trust's Distribution Plan is solely a "defensive plan"
designed to protect the Trust and its affiliates against certain
conceivable claims relating to Rule 12b-1. 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.
<PAGE>
<TABLE>
<CAPTION>
CHURCHILL CASH RESERVES TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table of Financial Highlights has been audited
by KPMG LLP, independent auditors, whose report thereon is
included with 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. A copy of these financial statements can be
obtained without charge by calling or writing the Shareholder
Servicing Agent at the address and telephone numbers on the cover
of the Prospectus.
Year ended September 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
Income from Investment
Operations:
Net investment income 0.0513 0.0499 0.0500 0.0526 0.0319
Net gain on securities
(both realized and
unrealized) -- -- -- -- --
Total from Investment
Operations 0.0513 0.0499 0.0500 0.0526 0.0319
Less Distributions:
Dividends from net
investment income (0.0513) (0.0499) (0.0500) (0.0526) (0.0319)
Distributions from
capital gains -- -- -- -- --
Total Distributions (0.0513) (0.0499) (0.0500) (0.0526) (0.0319)
Net Asset Value,
End of Year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
Total Return (%) 5.25 5.11 5.12 5.39 3.24
Ratios/Supplemental Data
Net Assets, End of
Year ($ thousands) 103,866 125,392 120,939 146,130 187,626
Ratio of Expenses to
Average Net Assets (%) 0.60 0.60 0.56 0.58 0.60
Ratio of Net Investment
Income to Average Net
Assets (%) 5.13 4.99 5.02 5.24 3.17
For the years ended after October 1, 1994, net investment income per share
and the ratios of income and expenses to average net assets without the
voluntary waiver of a portion of the management fee would have been:
Net Investment Income ($) 0.0509 0.0493 0.0493 0.0522
Ratio of Expenses to
Average Net Assets (%) 0.63 0.66 0.63 0.62
Ratio of Net Investment
Income to Average
Net Assets (%) 5.10 4.93 4.94 5.20
</TABLE>
The Trust's "current yield" (unaudited) for the seven days
ended September 30, 1998 was 5.10% and its "compounded effective
yield" (unaudited) for that period was 5.23%; see the Additional
Statement for the methods of calculating these yields.
<PAGE>
APPLICATION FOR CHURCHILL CASH RESERVES TRUST
Please complete steps 1 through 4 and mail to:
PFPC Inc., 400 Bellevue Parkway
Wilmington, DE 19809
1-800-952-6666
STEP 1
A. 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._____________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for________________________________________________________
Minor's First Name Middle Initial Last Name Under
the________________UGTMA**___________________________________________
Name of State Minor's Social Security Number
4._____________________________________________________________________
_____________________________________________________________________
(Name of Corporation or 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:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. Other_________ Check here ___ if
you are a non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
____________________________________________________________________
Dealer Name Branch Number
____________________________________________________________________
Street Address Rep.Number/Name
___________________________________(_______)________________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
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
OR
2) By Wire:
$_________________________________ 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:
PNC Bank, NA Account of: (Account name and number,
Philadelphia, PA or name in which investment is to be
ABA #0310-0005-3 registered if new account)
Account #85-0216-4861
For further credit to Churchill Cash Reserves Trust
(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 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested
in your account. To establish this program, please complete Step 4,
Sections A & B of this Application.
I/We wish to make regular monthly investments of $________ (minimum $50)
on the ___ 1st day or ___ 16th day of the month (or on the first
business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the 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
person's 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 attorney's 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 PNC Bank, NA, 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 PNC Bank, NA, 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.
STEP 4 Section A
DEPOSITOR'S 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, 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 depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit in
the normal course of business initiated by the Agent (except any loss
due to your payment of any amount drawn against insufficient or
uncollected funds), provided that you promptly notify us in writing of
any claim against you with respect to the same, and further provided
that you will not settle or pay or agree to settle or pay any such
claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any
such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
The undersigned warrants that he/she has full authority and is of legal
age to purchase shares of the 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, Title Date
Trustee, etc.
*For Trusts, 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>
Manager and Founder
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
Investment Sub-Adviser
Banc One Investment Advisors Corporation
1111 Polaris Parkway
Columbus, Ohio 43240
Distributor
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
Board of Trustees
Lacy B. Herrmann, Chairman
Thomas A. Christopher
Douglas Dean
Diana P. Herrmann
Carroll F. Knicely
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
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Custodian
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
Independent Auditors
KPMG 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
This Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information about the Trust dated February 1, 1999, (the
"Additional Statement") has been filed with the Securities and
Exchange Commission. The Additional Statement contains
information about the Trust and its management not included in
this Prospectus. The Additional Statement is incorporated by
reference in its entirety in this Prospectus. Only when you have
read both this Prospectus and the Additional Statement are all
material facts about the Trust available to you.
You can get additional information about the Trust's
investments in the Trust's annual and semi-annual reports to
shareholders. In the Trust's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during its
last fiscal year. You can get the Additional Statement and the
Trust's annual and semi-annual reports without charge, upon
request.
In addition, you can review and copy information about the
Trust (including the Additional Statement) at the Public
Reference Room of the Commission in Washington, D.C. You can get
information on the operation of the Commission's public reference
room by calling the Commission at 1-800-SEC-0330. You can get
other information about the Trust at the Commission's Internet
site at http://www.sec.gov. You can get copies of this
information, upon payment of a duplicating fee, by writing the
Public Reference Section of the Commission, Washington, D.C.
20549-6009.
The file number under which the Trust is registered
with the Commission under the
Investment Company Act of 1940 is 811-4229.
TABLE OF CONTENTS
The Trust's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Trust...................
Investment of the Trust's Assets.................
Trust Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Dividends and Distributions......................
Financial Highlights.............................
Application
CHURCHILL CASH
RESERVES TRUST
[LOGO]
One of the
Aquilasm Group of Funds
A cash
management
investment
PROSPECTUS
To receive a free copy of the Trust's Additional Statement,
annual or semi-annual report, or other information about the
Trust, or to make shareholder inquiries call:
the Trust's Shareholder Servicing Agent at
800-952-6666 toll free
or you can write to:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
For General Inquiries and Yield Information, call 800-952-6666 or
212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
<PAGE>
CHURCHILL CASH RESERVES TRUST
380 Madison Avenue
Suite 2300
New York, New York 10017
212-697-6666
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
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 February 1, 1999 of Churchill Cash Reserves Trust (the
"Trust"). You can obtain the Prospectus from the Trust's
Shareholder Servicing Agent, PFPC Inc., by writing to it at: 400
Bellevue Parkway, Wilmington, DE 19809, or by calling it at the
following number:
800-952-6666 toll free
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:
800-228-7496 toll free
The financial statements for the Trust for the year ended
September 30, 1998, 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 LLP, independent auditors, whose report thereon
is incorporated herein by reference. The Annual Report of the
Trust for the fiscal year ended can be obtained without charge by
calling any of the toll-free numbers listed above. The Annual
Report will be delivered with the Additional Statement.
TABLE OF CONTENTS
Trust History
Investment Strategies and Risks
Trust Policies
Management of the Trust
Ownership of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock
Purchase, Redemption, and Pricing of Shares
Taxation of the Trust
Underwriter
Performance
Appendix A
<PAGE>
CHURCHILL CASH RESERVES TRUST
STATEMENT OF ADDITIONAL INFORMATION
Trust History
Churchill Cash Reserves Trust is an open-end, diversified
management investment company. It was formed as a Massachusetts
business trust in 1984.
Investment Strategies and Risks
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 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.
Trust Policies
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.
6. 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, provided, however that the Trust may
invest not more than 25% of its total assets in the First Tier
Securities (as defined in the Rule) of a single issuer for a
period of up to three business days after the purchase thereof,
and provided, further that the Trust may not make more than one
investment in accordance with the foregoing proviso at any time.
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.
7. 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" in the
Prospectus); 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 and enter into repurchase agreements (see
"Repurchase Agreements" in the Prospectus). 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.
8. 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.
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.
Management of the Trust
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees.
Trustees and Officers
The Trustees and officers of the Trust, their ages, 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: five money market funds, seven tax-free municipal bond
funds and two equity funds. None of the Trustees or officers of
the Trust is affiliated with the Sub-Adviser. As of January 1,
1998, the Trustees and officers of the Trust owned less than 1%
of its outstanding shares. 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 Manager and the
Distributor. Ms. Herrmann is an interested person of the Trust as
an officer of the Trust and of the Manager and as a shareholder
of the Distributor. Each is also an interested person as a member
of the immediate family of the other. Mr. Dean is an interested
person as a trustee of a trust that owns shares of the parent
company of the Sub-Adviser.
Lacy B. Herrmann*, 69, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder and Chairman of the Board of Aquila Management
Corporation, the sponsoring organization and Manager or
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees and (currently or until 1998) President of each since
its establishment, beginning in 1984: Pacific Capital Cash
Assets Trust, Churchill Cash Reserves Trust (this Trust), Pacific
Capital U.S. Government Securities Cash Asset Trust, Pacific
Capital Tax-Free Cash Assets Trust, each of which is a money
market fund, and together with Capital Cash Management Trust
("CCMT") are called the Aquila Money-Market Funds; Hawaiian Tax-
Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of Oregon,
Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For
Utah, each of which is a tax-free municipal bond fund and which
together are called Aquila Bond Funds; and Aquila Cascadia Equity
Fund and Aquila Rocky Mountain Equity Fund, which together are
called Aquila Equity Funds; currently President of Aquila
Cascadia Equity Fund, Aquila Rocky Mountain Equity Fund,
Churchill Cash Reserves Trust (this Trust), Churchill Tax-Free
Fund of Kentucky and Tax-Free Fund of Colorado; President and
Chairman of the Board of Trustees of CCMT, a money market fund,
since 1981, and an Officer and Trustee/Director of its
predecessors since 1974; Vice President and Director, and
formerly Secretary, of Aquila Distributors, Inc. since 1981,
distributor of the above funds; Chairman of the Board of Trustees
and President of Prime Cash Fund (which is inactive), since 1982
and of Short Term Asset Reserves 1984-1996; President and a
Director of STCM Management Company, Inc., sponsor and sub-
adviser to CCMT; Chairman, President, and a Director since 1984,
of InCap Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term Asset Reserves,
and Founder and Chairman of several other money market funds;
Director or Trustee of OCC Cash Reserves, Inc. and Quest For
Value Accumulation Trust, and Director or Trustee of Oppenheimer
Quest Value Fund, Inc., Oppenheimer Quest Global Value Fund, Inc.
and Oppenheimer Rochester Group of Funds, each of which is an
open-end investment company; Trustee of Brown University, 1990-
1996 and currently Trustee Emeritus; actively involved for many
years in leadership roles with university, school and charitable
organizations.
Thomas A. Christopher, 51, Trustee, 459 Martin Luther King
Blvd., 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 1991 to 1994; Trustee of Churchill Tax-Free Fund
of Kentucky since 1992; presently active in leadership roles with
various civic, community and church organizations.
Douglas Dean*, 49, 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 employed by Coopers &
Lybrand, a public accounting firm; member of the American
Institute of Certified Public Accountants and Kentucky Society of
Certified Public Accountants; accredited in business valuation by
the American Institute of Certified Public Accountants; 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*, 40, Trustee and Vice President, 380 Madison
Avenue, New York, New York 10017
President and Chief Operating Officer of the
Manager/Administrator since 1997, a Director since 1984,
Secretary since 1986 and previously its Executive Vice President,
Senior Vice President or Vice President, 1986-1997; President of
various Aquila Bond Funds since 1998; Assistant Vice President,
Vice President, Senior Vice President or Executive Vice President
of Aquila Money-Market, Bond and Equity Funds since 1986; Trustee
of a number of Aquila Money-Market, Bond and Equity Funds since
1995; Trustee of Reserve Money-Market Funds since 1999 and
Reserve Private Equity Series since 1998; Assistant Vice
President and formerly Loan Officer of European American Bank,
1981-1986; daughter of the Trust's Chairman; Trustee of the
Leopold Schepp Foundation (academic scholarships) since 1995;
actively involved in mutual fund and trade associations and in
college and other volunteer organizations.
Carroll F. Knicely, 70, Trustee, 505 Augusta Circle, Glasgow,
Kentucky 42141
Director Star Banc since 1998; Director of Trans Financial
Bancorp, Trans Financial Bank, N.A., Bowling Green, Kentucky and
Trans Financial Bank, Glasgow, Kentucky and predecessors,
1976-1998; President of Associated Publications Inc., Glasgow,
Kentucky; Director, Chairman and member of Executive Board of
West Kentucky Corporation and Director and Secretary-Treasurer
of South Gate Plaza, Inc., (owner and developer of shopping
centers and commercial real estate); Director, Vice President and
Treasurer of Knicely and Knicely, Inc., (owner and developer of
rental properties and residential real estate); Trustee of
Churchill Cash Reserves Trust; Trustee of Churchill Tax-Free Fund
of Kentucky since 1998; Editor and Publisher of Kentucky
newspaper group, 1957-1990; Secretary of Commerce of the
Commonwealth of Kentucky, 1983-1988; Commissioner of Commerce of
the Commonwealth of Kentucky, 1978-1979; currently active in real
estate development, commercial and residential subdivision and
regional economic development planning under Kentucky State
government sponsorship.
Theodore T. Mason, 63, Trustee, 26 Circle Drive,
Hastings-on-Hudson, New York 10706
Managing Director of EastWind Power Partners, Ltd. since 1994;
Second Vice President, Alumni Association, SUNY Maritime College
1998; Director for the same organization, 1997; 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
(which is inactive) since 1982; Trustee of Short Term Asset
Reserves, 1984-1986 and 1989-1996, 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. Government
Securities 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, 60, 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, 1994-1997; Director of the
American Baptist Foundation 1985-1986 and since 1998; 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, 69, Trustee, 1266 East Main Street,
Stamford Connecticut 06902
Chairman and founder (1975) and Senior Advisor since 1995 of
Nightingale & Associates, L.L.C., 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 Kasper A.S.L. Ltd.; Ring's End, Inc; Furr's/Bishop's
Inc.
James R. Ramsey, 50, Trustee, Campus Box 1000, 300 S.
Bldg.,University of North Carolina, Chapel Hill, North Carolina
27599
Vice Chancellor for Finance and Administration, North Carolina,
Chapel Hill; Trustee of Churchill Tax-Free Fund of Kentucky since
1987. Previously Vice President for Finance and Administration at
Western Kentucky University; State Budget Director for the
Commonwealth of Kentucky; Chief State Economist and Executive
Director for the Office of Financial Management and Economic
Analysis for the Commonwealth of Kentucky; Adjunct Professor at
the University of Kentucky, Associate Professor at Loyola
University-New Orleans and Assistant Professor at Middle
Tennessee State University; served on numerous civic and
corporate boards; consultant to the Federal, State, Local
government and to private business.
Charles E. Childs, III, 41, Vice President, 380 Madison Avenue,
New York, New York 10017
Senior Vice President - Corporate development since 1998,
formerly Vice President - Administration, Assistant Vice
President and Associate of the Manager since 1987; Senior Vice
President, Vice President or Assistant Vice President of the
Money-Market 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, 59, Assistant Secretary, Vice President, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market, Bond and Equity
Funds since 1995 and Vice President of the Aquila Money-Market
Funds since 1990; Vice President of the Manager 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, 54, Vice President, 5331 Fayette Street,
Houston, TX 77056
President of Aquila Distributors, Inc. since 1998, Registered
Principal since 1993, Senior Vice President, 1997-1998 and Vice
President, 1993-1997; Senior Vice President of Aquila Rocky
Mountain Equity Fund since 1996; Senior Vice President of
Churchill Tax-Free Fund of Kentucky since 1994, and of Tax-Free
Fund of Colorado and Tax-Free Fund For Utah since 1997;
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,
1993-1997; 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; Director-at Large, Houston Alliance for
the Mentally Ill (AMI), since 1998.
Rose F. Marotta, 74, Chief Financial Officer, 380 Madison Avenue,
New York, New York 10017
Chief Financial Officer of the Aquila Money-Market, Bond and
Equity Funds since 1991 and Treasurer, 1981-1991; formerly
Treasurer of the predecessor of CCMT; Treasurer and Director of
STCM Management Company, Inc., since 1974; Treasurer of Trinity
Liquid Assets Trust, 1982-1986 and of Oxford Cash Management
Fund, 1982-1988; Treasurer of InCap Management Corporation since
1982, of the Manager since 1984 and of the Distributor since
1985.
Richard F. West, 63, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market, 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, 59, Secretary, 551 Fifth Avenue, New York,
New York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market, 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.
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, 1998, the Trust paid $52,093 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 equity funds. 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 which
Compensation funds in the the Trustee
Name from the Trust Aquila Group now serves
Thomas A. $5.933 $14,051 2
Christopher
Douglas Dean $4,623 $13,461 2
Carroll
Knicely $4,762 $11,260 2
Theodore T. $6,082 $54,718 8
Mason
Anne J. $5,380 $33,649 6
Mills
William J. $5,660 $14,185 3
Nightingale
James R. $5,410 $12,461 2
Ramsey
Ownership of Securities
Of the shares of the Trust outstanding on November 23, 1998,
a nominee of Bank One Trust Co. Strafe & Co., 1111 Polaris
Parkway, Columbus, OH held of record 112,950,351 shares (99.9%).
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 owner, 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.
Investment Advisory and Other Services
Description of the Investment Advisory and Administration
Agreement
The Investment Advisory and Administration Agreement
provides that subject to the direction and control of the Board
of Trustees of the Trust, the Manager shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust; and
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust.
The Agreement provides that, subject to the termination
provisions described below, the Manager may at its own expense
delegate to a qualified organization ("Sub-Adviser"), affiliated
or not affiliated with the Manager, any or all of the above
duties. Any such delegation of the duties set forth in (i), (ii)
or (iii) above shall be by a written agreement (the "Sub-Advisory
Agreement") approved as provided in Section 15 of the Investment
Company Act of 1940. The Manager has delegated all of such
functions to BOIAC under the Sub-Advisory Agreement.
The Investment Advisory and Administration Agreement
provides that subject to the direction and control of the Board
of Trustees of the Trust, the Manager shall provide all
administrative services to the Trust other than those relating to
its investment portfolio which have been delegated to a
Sub-Adviser of the Trust under a Sub-Advisory Agreement; as part
of such administrative duties, the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Trust;
(ii) oversee all relationships between the Trust and any
sub-adviser, transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the
negotiation of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters
which are necessary or desirable for the effective operation
of the Trust and for the sale, servicing or redemption of
the Trust's shares;
(iii) either keep the accounting records of the Trust,
including the computation of net asset value per share and
the dividends (provided that if there is a Sub-Adviser,
daily pricing of the Trust's portfolio shall be the
responsibility of the Sub-Adviser under the Sub-Advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory to
the Trust;
(iv) maintain the Trust's books and records, and prepare (or
assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Trust's
shareholders and Trustees, reports to and other filings with
the Securities and Exchange Commission and any other
governmental agencies, and tax returns, and oversee the
insurance relationships of the Trust;
(v) prepare, on behalf of the Trust and at the Trust's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Trust and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Trust 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, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
The Agreement contains provisions relating to compliance of
the investment program, responsibility of the Manager for any
investment program managed by it, allocation of brokerage, and
responsibility for errors that are substantially the same as the
corresponding provisions in the Sub-Advisory Agreement.
The Agreement provides that the Manager shall, at its own
expense, provide office space, facilities, equipment, and
personnel for the performance of its functions thereunder and
shall pay all compensation of Trustees, officers, and employees
of the Trust who are affiliated persons of the Manager.
The Trust shall bear the costs of preparing and setting in
type its prospectuses, statements of additional information and
reports to its shareholders, and the costs of printing or
otherwise producing and distributing those copies of such
prospectuses, statements of additional information and reports as
are sent to its shareholders. All costs and expenses not
expressly assumed by the Manager under the agreement or otherwise
by the Manager, administrator or principal underwriter or by any
Sub-Adviser shall be paid by the Trust, including, but not
limited to (i) interest and taxes; (ii) brokerage commissions;
(iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Manager or such
sub-adviser, administrator or principal underwriter; (v) legal
and audit expenses; (vi) custodian and transfer agent, or
shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Trust or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Trust; (x) all other expenses
incidental to holding meetings of the Trust's shareholders; and
(xi) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations for
which the Trust may have to indemnify its officers and Trustees.
Under the Advisory and Administration Agreement, the Trust
will pay to Aquila 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 0.50 of 1% of such net asset
value.
The Agreement provides that the Sub-Advisory Agreement may
provide for its termination by the Manager upon reasonable
notice, provided, however, that the Manager agrees not to
terminate the Sub-Advisory Agreement except in accordance with
such authorization and direction of the Board of Trustees, if
any, as may be in effect from time to time.
The Agreement provides that it will, unless terminated as
hereinafter provided, continue in effect until the April 30 next
preceding the first anniversary of the effective date of the
Advisory Agreement, and from year to year thereafter, but only so
long as such continuance is specifically approved at least
annually (1) by a vote of the Trust's Board of Trustees,
including a vote of a majority of the Trustees who are not
parties to the Agreement or "interested persons" (as defined in
the 1940 Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the
outstanding voting securities of the Trust and by such a vote of
the Trustees.
The Agreement provides that it may be terminated by the
Manager at any time without penalty upon giving the Trust sixty
days' written notice (which notice may be waived by the Trust)
and may be terminated by the Trust at any time without penalty
upon giving the Manager sixty days' written notice (which notice
may be waived by the Manager), provided that such termination by
the Trust shall be directed or approved by a vote of a majority
of its Trustees in office at the time or by a vote of the holders
of a majority (as defined in the 1940 Act) of the voting
securities of the Trust outstanding and entitled to vote. The
specific portions of the Agreement which relate to providing
investment advisory services will automatically terminate in the
event of the assignment (as defined in the 1940 Act) of the
Agreement, but all other provisions relating to providing
services other than investment advisory services will not
terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Trust as of the close of business each business day shall be
reduced to the annual rate of 0.17 of 1% of such net asset value.
Description of the Sub-Advisory Agreement
The Sub-Advisory Agreement provides in general that subject
to the direction and control of the Manager and the Board of
Trustees of the Trust, the Sub-Adviser shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust;
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust; and
(v) consult with the Manager in connection with its duties
thereunder.
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser shall at all times conform
to, and be in accordance with, any requirements imposed by: (1)
the Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the
fundamental policies of the Trust, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Trust.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall give to the Manager and to the Trust the benefit of its
best judgment and effort in rendering services thereunder, but
the Sub-Adviser shall not be liable for any loss sustained by
reason of the adoption of any investment policy or the purchase,
sale or retention of any security, whether or not such purchase,
sale or retention shall have been based upon (i) its own
investigation and research or (ii) investigation and research
made by any other individual, firm or corporation, if such
purchase, sale or retention shall have been made and such other
individual, firm or corporation shall have been selected in good
faith by the Sub-Adviser. Under the Sub-Advisory Agreement, the
Sub-Adviser will not be liable for any error in judgment or for
any loss suffered by the Trust or its security holders in
connection with the matters to which the Agreement relates,
except a loss resulting from wilful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under
the Agreement.
The Sub-Advisory Agreement provides that nothing in it shall
prevent the Sub-Adviser or any affiliated person (as defined in
the Act) of the Sub-Adviser from acting as investment adviser or
manager for any other person, firm or corporation and shall not
in any way limit or restrict the Sub-Adviser or any such
affiliated person from buying, selling or trading any securities
for its own or their own accounts or for the accounts of others
for whom it or they may be acting, provided, however, that the
Sub-Adviser expressly represents that, while acting as
Sub-Adviser, it will undertake no activities which, in its
judgment, will adversely affect the performance of its
obligations to the Trust under the Agreement. It is agreed that
the Sub-Adviser shall have no responsibility or liability for the
accuracy or completeness of the Trust's Registration Statement
under the Act and the Securities Act of 1933, except for
information supplied by the Sub-Adviser for inclusion therein.
The Sub-Adviser shall promptly inform the Trust as to any
information concerning the Sub-Adviser appropriate for inclusion
in such Registration Statement, or as to any transaction or
proposed transaction which might result in an assignment (as
defined in the Act) of the Agreement. To the extent that the
Manager is indemnified under the Trust's Declaration of Trust
with respect to the services provided under the Agreement by the
Sub-Adviser, the Manager agrees to provide the Sub-Adviser the
benefits of such indemnification.
The Sub-Advisory Agreement provides that in connection with
its duties to arrange for the purchase and sale of the Trust's
portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-Adviser's
judgment, implement the policy of the Trust to achieve "best
execution," i.e., prompt, efficient, and reliable execution of
orders at the most favorable net price. The Sub-Adviser shall
cause the Trust to deal directly with the selling or purchasing
principal or market maker without incurring brokerage commissions
unless the Sub-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 Sub-Adviser is authorized
to consider, in determining whether a particular dealer will
provide best execution, the dealer's reliability, integrity,
financial condition and risk in positioning the securities
involved, as well as the difficulty of the transaction in
question, and thus need not pay the lowest spread or commission
available if the Sub-Adviser determines in good faith that the
amount of commission is reasonable in relation to the value of
the brokerage and research services provided by the dealer,
viewed either in terms of the particular transaction or the
Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Sub-Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the 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 and that such research services may or may not
be useful to the Trust and may be used for the benefit of the
Sub-Adviser or its other clients.
The Sub-Advisory Agreement provides that the Sub-Adviser
agrees to maintain, and to preserve for the periods prescribed,
such books and records with respect to the portfolio transactions
of the Trust as are required by applicable law and regulation,
and agrees that all records which it maintains for the Trust on
behalf of the Manager shall be the property of the Trust and
shall be surrendered promptly to the Trust or the Manager upon
request. The Sub-Adviser agrees to furnish to the Manager and to
the Board of Trustees of the Trust such periodic and special
reports as each may reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall bear all of the expenses it incurs in fulfilling its
obligations under the Agreement. In particular, but without
limiting the generality of the foregoing: the Sub-Adviser shall
furnish the Trust, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for
carrying out its duties under the Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Trust all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Trust. The Sub-Adviser will also pay all
compensation of the Trust's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement provides that the Manager agrees
to pay the Sub-Adviser, and the Sub-Adviser agrees to accept as
full compensation for all services rendered by the Sub-Adviser as
such, a management 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 asset
value.
The Sub-Advisory Agreement provides that it shall, unless
terminated as thereinafter provided, continue in effect until the
April 30 next preceding the first anniversary of the effective
date of the Agreement, and from year to year thereafter, but only
so long as such continuance is specifically approved at least
annually (1) by a vote of the Trust's Board of Trustees,
including a vote of a majority of the Trustees who are not
parties to the Agreement or "interested persons" (as defined in
the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the
outstanding voting securities of the Trust and by such a vote of
the Trustees.
The Sub-Advisory Agreement provides that it may be
terminated by the Sub-Adviser at any time without penalty upon
giving the Manager and the Trust sixty days' written notice
(which notice may be waived). It may be terminated by the Manager
or the Trust at any time without penalty upon giving the
Sub-Adviser sixty days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination by the
Trust shall be directed or approved by a vote of a majority of
its Trustees in office at the time or by a vote of the holders of
a majority (as defined in the Act) of the voting securities of
the Trust outstanding and entitled to vote. The Sub-Advisory
Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act) or the termination of the
Advisory and Administration Agreement.
Glass-Steagall Act
The Sub-Adviser has advised the Trust that it is subject to
the Glass-Steagall Act. The Glass-Steagall Act, among other
things, prohibits, with certain exceptions, banks and bank
holding companies from engaging in the business of issuing,
underwriting, selling or distributing securities and from
affiliating with companies engaged in those activities. In April
1971, the United States Supreme Court held, in Investment Company
Institute v. Camp, that certain provisions of the Glass-Steagall
Act applicable to both national and Federal Reserve member banks
prohibit any such bank from operating a collective investment
fund. The fund which was the subject of litigation was registered
as an open-end investment company, and participations in the fund
were offered on a continuous basis directly by the bank.
Subsequent to that decision, the Board of Governors of the
Federal Reserve System amended its Regulation Y to forbid a bank
holding company or subsidiary thereof from organizing, sponsoring
or controlling a registered open-end investment company
continuously engaged in distributing its shares but to permit a
non-banking subsidiary of a bank holding company to serve as
investment adviser to a registered investment company, subject to
a number of terms and conditions. The validity of this amendment
to Regulation Y, as it relates to closed-end investment
companies, was upheld by the Supreme Court in February, 1981 in
Board of Governors v. Investment Company Institute. In addition,
the Comptroller of the Currency has taken the position that a
national bank having fiduciary powers may act as investment
advisor to an open-end investment company. In the view of the
Sub-Adviser, it is permitted under current Federal banking laws
to perform the services for the Trust required by the current
advisory agreement and the proposed sub-advisory agreement.
However, future changes in federal or state statutes and
regulations relating to the permissible activities of banks and
bank holding companies, including their bank and non-bank
subsidiaries, as well as future judicial or administrative
decisions and interpretations of present and future statutes and
regulations, might at some future time prevent it from continuing
to serve in those capacities.
In the event the Sub-Adviser is prohibited from acting as
the Trust's investment sub-adviser, it is probable that the
Trust's Manager or the Trustees would recommend to the
shareholders the selection of another qualified sub-adviser.
The Sub-Adviser believes that it must comply with the
position of the Comptroller of the Currency referred to above
and, because not legally applicable to a national bank acting as
an investment adviser, need not comply with the provisions of
Regulation Y (and the interpretations thereof) of the Board of
Governors of the Federal Reserve System that specify the terms on
which a non-banking subsidiary of a bank holding company may
serve as investment adviser to an open-end investment company.
Among the restrictions imposed by the Comptroller of the
Currency are that the Sub-Adviser may not be involved in the
promotion or distribution of shares of the Trust and that Trust
accounts administered by the Sub-Adviser may not purchase shares
of the Trust unless lawfully authorized by the instrument
creating the relationship or by court order or by local law.
Under Kentucky law, if the portfolios of that investment company
or investment trust consist of investments permitted by the
applicable fiduciary instrument, the Sub-Adviser, in its capacity
as a fiduciary, may purchase shares of the Trust. Collective
investment funds operated by the Sub-Adviser may not purchase
shares of the Trust.
For the fiscal year ended September 30, 1998, the Trust
incurred fees for advisory and administration services of
$615,322, of which $36,786 was waived. During the fiscal year
ended September 30, 1998, the Sub-Adviser made payments to the
Manager of $48,000. For the fiscal year ended September 30, 1997,
the fees payable to the Sub-Adviser under a former advisory
agreement were $417,092 of which $54,585 was voluntarily waived.
During the same period, fees payable to the Manager under a
former administration agreement were $213,571 of which $27,571
was voluntarily waived. For the fiscal year ended September 30,
1996, the fees payable to the Sub-Adviser under the former
advisory agreement were $521,359 of which $77,712 was voluntarily
waived. During the same period, fees payable to the Manager
under the former administration agreement were $267,924 of which
$39,771 was voluntarily waived.
Transfer Agent, Custodian and Auditors
The Trust's Shareholder Servicing Agent (transfer agent) is
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
The Trust's Custodian is Bank One Trust Company N.A., 100
East Broad Street, Columbus, Ohio 43271; 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 LLP, 345 Park Avenue, New York,
New York 10154 perform an annual audit of the Trust's financial
statements.
Brokerage Allocation and Other Practices
During the fiscal years ended September 30, 1998, 1997 and
1996, all of the Trust's transactions were principal transactions
and no brokerage commissions were paid. Brokerage allocation and
other practices relating to brokerage are set forth in the
description of the Sub-Advisory Agreement, above.
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.
Capital Stock
The Trust has one class of shares. 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. Shares are fully paid and
nonassessable, except as set forth in the following paragraph;
holders of shares have no pre-emptive or conversion rights.
Voting rights of shareholders cannot be modified other than by
shareholder vote.
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.
Purchase, Redemption, and Pricing of Shares
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.
Exchange Privilege
There is an exchange privilege as set forth below among this
Trust and certain tax-free municipal bond funds and equity funds
(the "Bond or Equity Funds") and certain money market funds
(together with the Trust, the "Money-Market Funds"), all of which
are sponsored by Aquila Management Corporation and Aquila
Distributors, Inc., and have the same Manager or Administrator
and Distributor as the 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, Aquila Cascadia 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, Pacific Capital Cash Assets Trust (Original Shares),
Pacific Capital Tax-Free Cash Assets Trust (Original Shares),
Pacific Capital U.S. Government Securities Cash Assets Trust
(Original Shares) and Capital Cash Management Trust.
The Aquila Bond and Equity Funds offer Classes of Shares:
Class A Shares ("Front-Payment Shares") and Class C Shares
("Level-Payment Shares") which can be purchased by anyone and
Class Y Shares ("Institutional Class Shares"), which are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are not
offered directly to retail customers. Some Funds also offer Class
I Shares ("Financial Intermediary Class Shares"). The Exchange
Privilege has different provisions for exchanges for each class.
Generally, you can exchange shares of a given class of a
Bond or Equity Fund including the Trust for shares of the same
class of any other Bond or Equity Fund, or for shares of any
Money-Market Fund, without the payment of a sales charge or any
other fee, and there is no limit on the number of exchanges you
can make from fund to fund. However, the following important
information should be noted:
(1) Originally Purchased Money-Market Fund Shares. Shares
of a Money-Market Fund (and any shares acquired as a result of
reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money-Market
Fund shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they
been purchased rather than acquired in exchange for Money-Market
Fund shares. If the shares received in exchange are shares that
would be subject to a CDSC if purchased directly, the holding
period governing the CDSC will run from the date of the exchange,
not from the date of the purchase of Money-Market Fund shares.
(2) CDSCs Upon Redemptions of Shares Acquired Through
Exchanges. If you exchange shares subject to a CDSC, no CDSC will
be imposed at the time of exchange, but the shares you receive in
exchange for them will be subject to the applicable CDSC if you
redeem them before the requisite holding period (extended, if
required) has expired.
If the shares you redeem would have incurred a CDSC if you
had not made any exchanges, then the same CDSC will be imposed
upon the redemption regardless of the exchanges that have taken
place since the original purchase.
(3) Extension of Holding Periods by Owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
Fund shares received on an exchange of CDSC Class A Shares or
Class C Shares are held is not counted in computing the
applicable holding period for CDSC Class A Shares or Class C
Shares.
The 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 as described above, in which case the
exchange price of shares of the Bond or Equity Fund will be its
public offering price).
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;
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. Government Securities Cash Assets Trust
(which invests in U.S. Government obligations) are exempt from
state income taxes. Dividends paid by Aquila Rocky Mountain
Equity Fund and Aquila Cascadia Equity Fund are taxable. If your
state of residence is not the same as that of the issuers of
obligations in which a bond fund or a tax-free money-market fund
invests, the dividends from that fund may be subject to income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of such a bond
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.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 ("Rule 12b-1") under 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 Manager) and
(ii) broker-dealers or others selected by Aquila Management
Corporation (the "Manager") 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 Manager, instrumental in the
purchase and/or retention of such Trust shares and/or in
providing administrative assistance in relation thereto.
The Plan permits the Manager to make payments ("Permitted
Payments") to Qualified Recipients. These Permitted Payments are
made by the Manager and are not reimbursed by the Trust to the
Manager. 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 Manager 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 Manager
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 Manager of certain distribution expenses, the
profits, if any, of the Manager are dependent primarily on the
administration fees paid by the Trust to the Manager 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 Manager 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 Manager
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
Manager 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 Manager
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 years ended September 30, 1998,
1997 and 1996, no Qualified Payments were made by the Manager to
Qualified Recipients.
The formula under which the payments described above may be
made under the Plan by the Manager 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 Manager 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.
Taxation of the Trust
The Trust qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as
dividends and distributions.
Underwriter
Aquila Distributors, Inc. acts as the Trust's principal
underwriter in the continuous public offering of the Trust's
shares. The Distributor is not obligated to sell a specific
number of shares. Under the Distribution Agreement, the
Distributor is responsible for the payment of certain printing
and distribution costs relating to prospectuses and reports as
well as the costs of supplemental sales literature, advertising
and other promotional activities.
(1) (2) (3) (4) (5)
Name of Net Under- Compensation Brokerage Other
Principal writing on Redemptions Commissions Compen-
Underwriter Discounts and sation
and Repurchases
Commissions
Aquila None None None None
Distributors
Inc.
Performance
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.
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.
