File Nos. 33-1857 and 811-4503
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[ X ]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. 11 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 13 [ X ]
TAX-FREE TRUST OF ARIZONA
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[___] on (date) pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[_X_] on ( March 12, 1996 ) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effec-
tive date for a previous post-effective amendment.
Registrant hereby declares, pursuant to Section (a)(1) of
Rule 24f-2 under the Investment Company Act of 1940, that
Registrant has registered an indefinite number of its shares
under the Securities Act of 1933 pursuant to that Section
and that the Rule 24f-2 Notice for Registrant's fiscal year
ended June 30, 1995 was filed in August 1995.
<PAGE>
TAX-FREE TRUST OF ARIZONA
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights; General Information
4..............Introduction; Highlights; Investment of the
Trust's Assets; Investment Restrictions;
General Information
5..............Management Arrangements
5A.............**
6..............General Information; Alternative Purchase
Plans; Dividend and Tax Information
7..............Net Asset Value per Share; Alternative
Purchase Plans; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information (Prospectus caption);
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind; Computa-
tion of Net Asset Value; Automatic With-
drawal Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus cap-
tion); General Information
22.............Performance
* Not applicable or negative answer
** Contained in the annual report of the Registrant
<PAGE>
Tax-Free Trust of Arizona
380 Madison Avenue, Suite 2300
New York, New York 10017
800-437-1020
212-697-6666
Prospectus March ***, 1996
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Arizona and
regular Federal income taxes as is consistent with preservation of
capital by investing in municipal obligations which pay interest
exempt from Arizona State and Federal income taxes. These municipal
obligations must, at the time of purchase, either be rated within
the four highest credit ratings (considered as investment grade)
assigned by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or, if unrated, be determined to be of comparable
quality by the Trust's Adviser, Bank One, Arizona, NA.
The Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information about the Trust dated March ***, 1996 (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Trust's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Trust and its management not included in the
Prospectus. The Additional Statement is incorporated by reference
in its entirety in the Prospectus. Only when you have read both the
Prospectus and the Additional Statement are all material facts
about the Trust available to you.
Shares of the Trust are not deposits in, obligations of or
guaranteed or endorsed by Bank One Arizona, NA, Banc One
Corporation or its bank or non-bank affiliates or by any other
bank. Shares of the Trust are not insured or guaranteed by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or
any other governmental agency or government sponsored agency of the
Federal Government or any State.
An investment in the Trust involves investment risks,
including possible loss of the principal amount invested.
For Purchase, Redemption or Account inquiries contact
The Trust's Transfer Agent: Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-437-1000 toll free or 908-855-5731
For General Inquiries & Yield Information,
Call 800-437-1020 toll free or 212-986-8826
The Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
Tax-Free Trust of Arizona (the "Trust"), founded by
Aquila Management Corporation in 1986 and one of the Aquilasm
Group of Funds, is an open-end mutual fund which invests in
tax-free municipal bonds, the kind of obligations issued by the
State of Arizona, its counties and various other local
authorities to finance such long-term projects as schools, roads,
hospitals , water facilities and other vital public-purpose
projects throughout Arizona. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the
Trust invests pay interest which is exempt from both regular
Federal and State of Arizona income taxes. Dividends paid by the
Trust from this income are likewise free of both such taxes. It
is, however, possible that in certain circumstances, a small
portion of the dividends paid by the Trust will be subject to
income taxes. In addition, the Federal alternative minimum tax
("AMT") may apply to some investors, but its impact will be
limited, since not more than 20% of the Trust's net assets can be
invested in obligations paying interest which is subject to this
tax. The receipt of exempt-interest dividends from the Trust may
result in some portion of social security payments or railroad
retirement benefits being included in taxable income. Capital
gains distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Investment Grade - The Trust will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard and Poor's Corporation, or are
determined by the Adviser to be of comparable quality. In general
there are nine separate credit ratings, ranging from the highest
to the lowest credit ratings for municipal obligations.
Obligations within the top four ratings are considered
"investment grade" but those in the fourth rating may have
speculative characteristics as well. (See "Investment of the
Trust's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $100 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Trust," which includes applicable sales charge
information.)
Alternative Purchase Plans - The Trust provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits investors to pay distribution
and certain service charges principally at the time they purchase
shares; the other way permits investors to pay such costs over a
period of time, but without paying anything at time of purchase,
much as goods can be purchased on an installment plan. For this
purpose the Trust offers the following classes of shares, which
differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A
Shares") are offered to anyone at net asset
value plus a sales charge, paid at the time
of purchase, at the maximum rate of 4.0% of
the public offering price, with lower rates
for larger purchases. (See "How to Purchase
Class A Shares.") Class A Shares are subject
to an asset retention service fee under the
Trust's Distribution Plan at the rate of 0.15
of 1% of the average annual net assets
represented by the Class A Shares. (See
"Distribution Plan.")
* Level-Payment Class Shares ("Class C
Shares") are offered to anyone at net asset
value with no sales charge payable at the
time of purchase but with a level charge for
service and distribution fees for six years
after the date of purchase at the aggregate
annual rate of 1% of the average annual net
assets of the Class C Shares. (See
"Distribution Plan" and "Service Plan.") Six
years after the date of purchase Class C
Shares are automatically converted to Class A
Shares. In addition, Class C Shares are
subject to a contingent deferred sales charge
("CDSC") if redeemed before they have been
held for 18 months from the date of purchase;
this charge is 1%, calculated on the net
asset value of the Class C Shares at the time
of purchase or at redemption, whichever is
less. There is no CDSC after Class C Shares
have been held beyond the applicable period.
(See "Alternative Purchase Plans,"
"Computation of the Holding Periods for Class
C Shares" and "How to Purchase Class C
Shares.")
The Trust also issues Institutional Class Shares ("Class
Y Shares") that are sold only to certain institutional investors.
Class Y Shares are not offered by this Prospectus.
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to
you, directly deposited into your financial institution account
or automatically reinvested without sales charge in additional
shares of the Trust at the then-current net asset value. Specific
classes of shares will have different dividend amounts due to
their particular expense levels. (See "Dividend and Tax
Information.")
Additional Investments - You may make additional
investments at any time and in any amount, directly, or if in an
amount of $50 or more, through the convenience of having your
investment electronically transferred from your financial
institution account into the Trust by Automatic Investment or
Telephone Investment. (See "How to Invest in the Trust.")
Many Different Issues - You have the advantages of a
portfolio which consists of over 235 issues with different
maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - The Trust provides you with
experienced, locally-based professional investment management by
Bank One, Arizona, NA, formerly The Valley National Bank of
Arizona, which serves as the Trust's Investment Adviser. The
Trust currently pays fees at a rate of up to 0.20 of 1% of
average annual net assets to each of its Adviser and
Administrator. Total advisory and administration fees are at a
rate of 0.40 of 1% of average annual net assets, although some or
all of these fees may be waived. (See "Table of Expenses" and
"Management Arrangements.")
The Adviser is a subsidiary of BANC ONE CORPORATION
("Banc One"), based in Columbus, Ohio. The Adviser serves Arizona
through 257 offices located in communities throughout the state's
15 counties. The Trust Division of the Adviser had, as of June
30, 1995, approximately $8.0 billion of assets under
administration, not including any other registered investment
companies but including approximately $1.2 billion in municipal
bonds. Banc One is a multi-bank holding company, incorporated
under the laws of the State of Ohio. As of June 30, 1995, Banc
One indirectly owned all of the stock of 65 banks operating with
more than 1,408 offices in the states of Arizona, Colorado,
Illinois, Indiana, Kentucky, Ohio, Oklahoma, Texas, Utah, West
Virginia and Wisconsin. As of that date, Banc One, its affiliated
banks and its non-bank subsidiaries had total assets of
approximately $86.8 billion.
Redemptions - Liquidity - You may redeem any amount of
your account on any business day at the next determined net asset
value by telephone, FAX or mail request, with proceeds being sent
to a predesignated financial institution, if you have elected
Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or
will be mailed. For these and other redemption procedures see
"How to Redeem Your Investment." There are no penalties or
redemption fees for redemption of Class A Shares. However, there
is a contingent deferred sales charge with respect to certain
Class A Shares which have been purchased in amounts of $1 million
or more (see "Purchases of $1 Million or More"). If you redeem
Class C Shares before you have held them for 18 months from the
date of purchase you will pay a Contingent Deferred Sales Charge
("CDSC") at the rate of 1%. (See "Alternative Purchase Plans"
- --"Class C Shares.")
Certain Stabilizing Measures - The Trust will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class A or Class C Shares of
the Trust into corresponding classes of shares of other
Aquila-sponsored tax-free municipal bond mutual funds or an
equity fund. You may also exchange them into shares of certain
Aquila-sponsored money market funds. The exchange prices will be
the respective net asset values of the shares. (See "Exchange
Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Trust's portfolio securities, which fluctuate with market
conditions including prevailing interest rates. Accordingly when
shares are redeemed the proceeds may be more or less than
original cost. (See "Factors Which May Affect the Value of the
Trust's Investments and Their Yields.") The Trust's assets, being
primarily or entirely Arizona issues, are subject to economic and
other conditions affecting Arizona. (See "Risks and Special
Considerations Regarding Investment in Arizona Obligations.")
Moreover, the Trust is classified as a "non-diversified"
investment company, because it may choose to invest in the
obligations of a relatively limited number of issuers. (See
"Investment of the Trust's Assets.") The Trust may also, to a
limited degree, buy and sell futures contracts and options on
futures contracts, although since inception the Trust has not
done so and has no present intention to do so. There may be risks
associated with these practices. (See "Certain Stabilizing
Measures.")
Statements and Reports - You will receive statements of
your account monthly as well as each time you add to your account
or take money out. Additionally, you will receive a Semi-Annual
Report and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
TABLE OF EXPENSES
<S> <C> <C>
Class A Class C
Shareholder Transaction Expenses Shares Shares
Maximum Sales Charge Imposed on Purchases 4.00% None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Deferred Sales Charge None(1) 1.00%(2)
Redemption Fees None None
Exchange Fee None None
Annual Trust Operating Expenses (3)
(as a percentage of average net assets)
Investment Advisory Fee 0.20% 0.20%
12b-1 Fee None 0.75%
All other expenses 0.54% 0.64%
Administration Fee 0.20% 0.20%
Service Fee 0.15% 0.25%
Other Expenses 0.19% 0.19%
Total Trust Operating Expenses 0.74% 1.59%
Example +
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and
redemption at the end of each time period:
1 Year $47 $26 *
3 Years 63 60 *
5 Years 80 87
10 Years 128 189
<FN>
* Assuming a 5% annual return and no redemption,
the expenses would be $16 for 1 year and $50
for 3 years, respectively.
</FN>
<FN>
+ The expense example is based upon the above shareholder transaction
expenses (in the case of Class A shares, this includes a sales charge of $40
for a $1,000 investment) and annual Trust operating expenses. It is also
based upon amounts at the beginning of each year which includes the prior
year's assumed results. A year's results consist of an assumed 5% annual
return less total annual operating expenses; the expense ratio was applied
to an assumed average balance (the year's starting investment plus one-half
the year's results). Each figure represents the cumulative expenses so
determined for the period specified.
</FN>
<FN>
(1) Certain shares purchased in transactions of $1 million or more without a
sales charge may be subject to a contingent deferred sales charge of up
to 1% upon redemption during the first four years after purchase. See
"Purchases of $1 Million or More" on page XX.
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds of the shares (or on the original price, whichever is lower) if
redeemed during the first 18 months after purchase.
</FN>
<FN>
(3) Estimated based upon actual expenses incurred by the Trust during its
most recent fiscal year. During that period, only Class A shares were
outstanding.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL FUNDS USE THE 5%
ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE. THE
EXAMPLE ALSO REFLECTS THE MAXIMUM SALES CHARGE. (SEE "HOW TO INVEST IN THE
TRUST").
The purpose of the above table is to assist the investor in understanding the
various costs that an investor in the Trust will bear directly or indirectly.
The assumed 5% annual return should not be interpreted as a prediction of an
actual return, which may be higher or lower.
<PAGE>
The following historical financial information applies only to shares of
the Trust which have been designated Class A Shares, upon adoption of the
class structure described in the Prospectus. Similar information does not
exist for Class C Shares.
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to the
five years ended June 30, 1995 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is included in the Trust's
financial statements contained in its Annual Report, which are
incorporated by reference into the Additional Statement. The information
provided in the table should be read in conjunction with the financial
statements and related notes. On April 2, 1990, Aquila Management
Corporation, originally the Trust's Administrator and Supplemental
Adviser, became Administrator only.
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.16 $10.84 $10.36 $9.92 $9.77
Income from Investment
Operations:
Net investment income 0.56 0.57 0.62 0.66 0.66
Net gain (loss) on
securities (both
realized and
unrealized) 0.21 (0.60) 0.54 0.43 0.15
Total from Investment
Operations 0.77 (0.03) 1.16 1.09 0.81
Less Distributions:
Dividends from net
investment income (0.56) (0.57) (0.62) (0.65) (0.66)
Distributions from
capital gains - (0.08) (0.06) - -
Total Distributions (0.56) (0.65) (0.68) (0.65) (0.66)
Net Asset Value, End
of Period $10.37 $10.16 $10.84 $10.36 $9.92
Total Return (not
reflecting sales load) 7.89% (0.38)% 11.45% 11.36% 8.57%
Ratios/Supplemental Data
Net Assets, End of
Period (in thousands) $380,745 $372,093 $349,920 $237,433 $175,342
Ratio of Expenses to
Average Net Assets 0.74% 0.70% 0.65% 0.57% 0.58%
Ratio of Net Investment
Income to Average
Net Assets 5.55% 5.36% 5.76% 6.37% 6.68%
Portfolio Turnover
Rate 34.44% 31.20% 18.78% 23.53% 26.83%
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees and the expense offset in custodian fees for uninvested
cash balances would have been:
Net Investment Income $0.56 $0.57 $0.61 $0.65 $0.65
Ratio of Expenses to
Average Net Assets 0.74% 0.71% 0.73% 0.70% 0.74%
Ratio of Net Investment
Income to Average
Net Assets 5.55% 5.35% 5.67% 6.24% 6.52%
<CAPTION>
1990 1989 1988 1987 1986*
<C> <C> <C> <C> <C>
$9.88 $9.47 $9.45 $9.46 $9.60
0.66 0.67 0.67 0.66 0.18
(0.11) 0.41 0.02 (0.01) (0.14)
0.55 1.08 0.69 0.65 0.04
(0.66) (0.67) (0.67) (0.66) (0.18)
- - - - -
(0.66) (0.67) (0.67) (0.66) (0.18)
$9.77 $9.88 $9.47 $9.45 $9.46
5.84% 11.86% 7.68% 7.07% 1.20%(1)
$121,026 $101,584 $83,437 $74,910 $13,012
0.58% 0.53% 0.51% 0.34% 0.44%(2)
6.66% 6.76% 6.95% 7.00% 6.00%(2)
31.11% 24.87% 22.41% 17.19% -
$0.64 $0.64 $0.64 $0.61 $0.16
0.77% 0.78% 0.88% 0.88% 1.00%(2)
6.47% 6.50% 6.58% 6.47% 5.54%(2)
<FN>
(1)Not annualized.
</FN>
<FN>
(2)Annualized.
</FN>
<FN>
*For the period from March 13, 1986 (commencement of operations) to June 30,
1986.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for individuals, corporations, institutions and fiduciaries who
seek income exempt from Arizona State and regular Federal income
taxes.
You may invest in shares of the Trust as an alternative
to direct investments in Arizona Obligations, as defined below,
which may include obligations of certain non-Arizona issuers. The
Trust offers you the opportunity to keep assets fully invested in
a vehicle that provides a professionally managed portfolio of
Arizona Obligations which may, but not necessarily will, be more
diversified, higher yielding , more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Arizona Obligations. Through the convenience of a
single security consisting of shares of the Trust, you are also
relieved of the inconvenience associated with direct investments
of fixed denominations, including the selecting, purchasing,
handling, monitoring call provisions and safekeeping of Arizona
Obligations.
Arizona Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes; and floating
and variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements, which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities
such as highways, bridges, schools, hospitals, housing, mass
transportation, streets, and water and sewer works. Other public
purposes for which municipal obligations may be issued include
the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the obtaining of funds to lend
to other public institutions and facilities.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Arizona State and
regular Federal income taxes as is consistent with the
preservation of capital, the Trust will invest in Arizona
Obligations (as defined below). There is no assurance that the
Trust will achieve its objective, which is a fundamental policy
of the Trust. (See "Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Arizona Obligations" means obligations, including those of
certain non-Arizona issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate
counsel, is exempt from regular Federal income taxes and Arizona
income taxes. Although exempt from regular Federal income tax,
interest paid on certain types of Arizona Obligations, and
dividends which the Trust might pay from this interest, are
preference items as to the Federal alternative minimum tax; for
further information, see "Dividend and Tax Information." As a
fundamental policy, at least 80% of the Trust's net assets will
be invested in Arizona Obligations the income paid upon which
will not be subject to the alternative minimum tax; accordingly,
the Trust can invest up to 20% of its net assets in obligations
which are subject to the Federal alternative minimum tax. The
Trust may refrain entirely from purchasing these types of Arizona
Obligations. See "Dividends and Tax information."
The non-Arizona bonds or other obligations the interest on
which is exempt under present law from regular Federal and
Arizona income taxes are the bonds or other obligations issued by
or under the authority of Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands. The Trust will not purchase
Arizona Obligations of non-Arizona issuers unless Arizona
Obligations of Arizona issuers of the desired quality, maturity
and interest rate are not available. As an Arizona-oriented fund,
at least 65% of the Trust's total assets will be invested in
Arizona Obligations of Arizona issuers. The Trust invests only
in Arizona Obligations and, possibly, in Futures and options on
Futures (see below) for protective (hedging) purposes.
In general, there are nine separate credit ratings, ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Trust will have a portfolio of
quality-oriented (investment grade) securities, the Arizona
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations
so rated, by Bank One, Arizona, NA (the "Adviser"), the Trust's
investment adviser (subject to the direction and control of the
Trust's Board of Trustees). Municipal obligations rated in the
fourth highest credit rating are considered by such rating
agencies to be of medium quality and thus may present investment
risks not present in more highly rated obligations. Such bonds
lack outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. If after purchase the rating of
any rated Arizona Obligation is downgraded such that it could not
then be purchased by the Trust, or, in the case of an unrated
Arizona Obligation, if the Adviser determines that the unrated
obligation is no longer of comparable quality to those rated
obligations which the Trust may purchase, it is the current
policy of the Trust to cause any such obligation to be sold as
promptly thereafter as the Adviser in its discretion determines
to be consistent with the Trust's objectives; such obligation
remains in the Trust's portfolio until it is sold. In addition,
because a downgrade often results in a reduction in the market
price of a downgraded obligation, sale of such an obligation may
result in a loss. See Appendix A to the Additional Statement for
further information as to these ratings. The Trust can purchase
industrial development bonds only if they meet the definition of
Arizona Obligations, i.e., the interest on them is exempt from
Arizona State and regular Federal income taxes.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). The Trust also intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code
(the "Code"). One of the tests for such qualification under the
Code is, in general, that at the end of each fiscal quarter of
the Trust, at least 50% of its assets must consist of (i) cash;
and (ii) securities which, as to any one issuer, do not exceed 5%
of the value of the Trust's assets. If the Trust had elected to
register under the 1940 Act as a "diversified" investment
company, it would have to meet the same test as to 75% of its
assets. The Trust may therefore not have as much diversification
among securities, and thus diversification of risk, as if it had
made this election under the 1940 Act. In general, the more the
Trust invests in the securities of specific issuers, the more the
Trust is exposed to risks associated with investments in those
issuers. The Trust's assets, being primarily or entirely Arizona
issues, are accordingly subject to economic and other conditions
affecting Arizona. (See "Risk Factors and Special Considerations
Regarding Investment in Arizona Obligations.")
Certain Stabilizing Measures
The Trust will employ such traditional measures as
varying maturities, upgrading credit standards for portfolio
purchases, broadening diversification and increasing its position
in cash and cash equivalents in attempting to protect against
declines in the value of its investments and other market risks.
There can, however, be no assurance that these will be
successful. Although the Trust has no current intention of using
futures and options, to the limited degree described below, these
may be used to attempt to hedge against changes in the market
price of the Trust's Arizona Obligations caused by interest rate
fluctuations. Futures and options could also provide a hedge
against increases in the cost of securities the Trust intends to
purchase.
Although it does not currently do so, and since inception
has not done so, the Trust may buy and sell futures contracts
relating to indices on municipal bonds ("Municipal Bond Index
Futures") and to U.S. government securities ("U.S. Government
Securities Futures"); both kinds of futures contracts are
"Futures." The Trust may also write and purchase put and call
options on Futures. As a matter of fundamental policy the Trust
will not buy or sell a Future or an option on a Future if
thereafter more than 10% of its net assets would be in initial or
variation margin on such Futures and options on them, and in
premiums on such options. Under an applicable regulatory rule,
the Trust will not enter into Futures or options for which the
aggregate initial margins and premiums paid for options exceed 5%
of the fair market value of the Trust's assets. (See the
Additional Statement.) Under normal market conditions, the Trust
cannot purchase or sell Municipal Bond Index Futures, U.S.
Government Securities Futures, or options on Futures if
thereafter more than 20% of its total assets would consist of
cash, margin deposits on such Futures and margin deposits and
premiums on such options, except for temporary defensive
purposes, i.e., in anticipation of a decline or possible decline
in the value of Arizona Obligations.
The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Trust's portfolio and
the prices of Futures or options purchased or sold by the Trust;
(ii) incorrect forecasts by the Adviser concerning interest rates
which may result in the hedge being ineffective; and (iii)
possible lack of a liquid secondary market for a Future or
option; the resulting inability to close a Futures or options
position could adversely affect the Trust's hedging ability. For
a hedge to be completely effective, the price change of the
hedging instrument should equal the price change of the security
being hedged. The risk of imperfect correlation of these price
changes is increased as the composition of the Trust's portfolio
is divergent from the debt securities underlying the hedging
instrument. To date, the Adviser has had no experience in the use
of Futures or options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits"
established by commodity exchanges which restrict the amount of
change in the contract price allowed during a single trading day.
Thus, once a daily limit is reached, no further trades may be
entered into beyond the limit, thereby preventing the liquidation
of open positions. Prices have in the past reached the daily
limit on a number of consecutive trading days. For further
information about Futures and options, see the Additional
Statement.
When and if the Trust determines to use Futures or options,
the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30 days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.
Participation Interests
The Trust may purchase from financial institutions
participation interests in Arizona Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Trust an
undivided interest in the underlying Arizona Obligations in the
proportion that the Trust's participation interest bears to the
total amount of the underlying Arizona Obligations. All such
participation interests must meet the Trust's credit
requirements. See "Limitation to 10% as to Certain Investments."
When-Issued and Delayed Delivery Purchases
The Trust may buy Arizona Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring
them. The Arizona Obligations 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 cannot 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. If the
Trust chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Trust places an amount of assets equal in
value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account with the Custodian, which is marked to market
every business day. See the Additional Statement for further
information.
Limitation to 10% as to Certain Investments
The Trust cannot purchase Arizona Obligations that are not
readily marketable if thereafter more than 10% of its net assets
would consist of such investments. However, this 10% limit does
not include any Arizona Obligations as to which the Trust can
exercise the right to demand payment in full within seven days
and as to which there is a secondary market. Floating and
variable rate demand notes and participation interests (including
municipal lease/purchase obligations) are considered illiquid
unless determined by the Board of Trustees to be readily
marketable. See the Additional Statement.
Current Policy as to Certain Obligations
The Trust will not invest more than 25% of its total assets
in (i) Arizona Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value
of the Trust's Investments and Their Yields
The value of the Arizona Obligations in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Trust buys Arizona Obligations, the value of these
obligations may go down; if these rates go down, the value of
these obligations may go up. Changes in value and yield based on
changes in prevailing interest rates may have different effects
on short-term Arizona Obligations than on long-term obligations.
Long-term obligations (which often have higher yields) may
fluctuate in value more than short-term ones. For this reason,
the Trust may, to achieve a defensive position, shorten the
average maturity of its portfolio.
Risk Factors and Special Considerations
Regarding Investment in Arizona Obligations
The following is a discussion of the general factors that
might influence the ability of Arizona issuers to repay principal
and interest when due on the Arizona Obligations contained in the
portfolio of the Trust. Such information is derived from sources
that are generally available to investors and is believed by the
Trust to be accurate, but has not been independently verified and
may not be complete.
The composition of the Arizona economy has changed
significantly in recent years. Arizona has shifted from a
resource-based economy to one based on high-tech manufacturing,
construction and services. The construction sector recently has
shown an upturn from the cyclical lows associated with several
factors. These factors included a slowing in the rate of growth
of population, over-built conditions in most sub-markets and less
favorable tax treatments. The problems associated with the
phenomenal growth experienced during the 1980's boom, i.e., air
quality, transportation and public infrastructure, are being
addressed by the Arizona legislature and other public bodies.
Most cities in Arizona derive a large portion of their
operating revenues from state-shared sales tax and state-shared
income taxes. As these revenues began to grow at slower rates, or
in some cases to decline, city management found their ability to
trim operating budgets restricted by the relative inflexibility
of fixed debt-service costs. As such, many Arizona municipalities
took advantage of the low interest rate environment during 1992
and 1993 by refinancing outstanding higher coupon bonds to reduce
debt service requirements. Bond funding for new capital
improvements has slowed due to slower economic growth,
insufficient assessed valuation growth and the slower growth of
operating revenues.
Officials throughout the state have been challenged to
manage budgetary strain and set priorities with fewer available
resources. Whether municipalities can maintain fiscal stability
will become increasingly dependent on growth expectations and
municipalities' willingness to reduce spending and manage
revenues. The period of double-digit increases in the tax base
and population and the tax revenues generated by such growth
appear appears to be over. As such, Arizona municipalities will
have to adapt to a changing and more constricted fiscal
environment.
One of the most significant issues facing Arizona
municipalities is the ability to provide water. The Central
Arizona Project is a three hundred thirty-five mile long water
conveyance system designed to take water from the Colorado River
and deliver it to the Phoenix and Tucson metropolitan areas, to
Indian reservations and to farms for irrigation. The project has
been completed to Tucson, but the start of Arizona's obligation
to repay the Federal government its $1.8 billion share of the
project's costs is still subject to negotiation among the
parties. However, demand for the water is currently only
one-third of capacity. The price of water could increase
substantially for cities to cover the cost of the project.
Currently plans are being discussed to maintain the project's
finances and to boost the demand for the water, thus spreading
the projects costs to all its intended users.
In July, 1994, the Supreme Court of Arizona reversed a
lower court ruling and held that the State's statutory scheme for
financing public education is not in compliance with the State's
constitution. The case was remanded to the lower court to
determine whether, in a reasonable time, the Arizona legislature
has taken action to remedy the financing scheme to bring it into
compliance. The Supreme Court has also ruled that its ruling will
be prospective only and that bonded indebtedness incurred under
existing statutes as long as they are in effect are valid and
enforceable. In late 1995, the legislature failed to reach
agreement on a proposed solution. It is not possible to predict
what further court or legislative action will be taken or what
effect such action may have on Arizona Obligations in the Trust's
portfolio or the supply of new Arizona Obligations in the
future.
In October, 1995, a group of taxpayers filed suit against
a municipality challenging the practice used by some localities
in Arizona pursuant to which so-called "Capital Appreciation
Bonds" ("CAB"s) are issued. CABs are zero-coupon bonds that pay
no current interest. The Trust does not own any CABs but does own
conventional issues of localities that have issued CABs. The suit
challenges the further practice whereby a municipality includes
in its bonded indebtedness only the initial principal amount of
its CABs. Under this practice, because the entire principal
amount of the CABs is not included, the municipality can issue
additional conventional bonds without exceeding its legal debt
limit. The legality of the practice is also being considered
before other Arizona agencies and the legislature. It is not
possible to predict the outcome of the suit or these other
actions. However, if CABs were held illegal, it might not be
possible to collect the principal of the CABs when due, and if
CABs were required to be added to bonded indebtedness of the
municipalities that have issued them, there might be an impact on
the overall financial condition of such municipalities. Any of
these matters could adversely affect the liquidity of the market
for Arizona bonds and the supply of new issues.
Inasmuch as the Arizona Obligations in which the Trust may
invest from time to time include general obligation bonds,
revenue bonds, industrial development bonds, and special tax
assessment bonds, and the sensitivity of each of these types of
investments to the general and economic factors discussed above
may vary significantly, no assurance can be given as to the
effect, if any, that these factors, individually or in the
aggregate, may have on any individual Arizona Obligation or on
the Trust as a whole.
Obligations of non-Arizona issuers are subject to general
economic and other factors affecting those issuers.
INVESTMENT RESTRICTIONS
The Trust has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and Additional Statement as "fundamental policies,"
cannot be changed unless the holders of a "majority," as defined
in the 1940 Act, of the Trust's outstanding shares vote to change
them. (See the Additional Statement for a definition of such a
majority.) All other policies can be changed from time to time by
the Board of Trustees without shareholder approval. Some of the
more important of the Trust's fundamental policies, not otherwise
identified in the Prospectus, are set forth below; others are
listed in the Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than the Arizona
Obligations meeting the standards stated under "Investment of the
Trust's Assets"; the Trust can also purchase and sell Futures and
options on them within the limits there discussed.
2. The Trust has industry investment requirements.
The Trust cannot buy the obligations 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; the Trust
will consider that a non-governmental user of facilities financed
by industrial development bonds is an issuer in an industry.
3. The Trust cannot make loans.
The Trust can buy those Arizona Obligations which it is
permitted to buy (see "Investment of the Trust's Assets"); this
is investing, not making a loan. The Trust cannot lend its
portfolio securities.
4. The Trust can borrow only 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. However, this shall not prohibit margin
arrangements in connection with the purchase or sale of Municipal
Bond Index Futures, U.S. Government Securities Futures or options
on them, or the payment of premiums on those options. Interest on
borrowings would reduce the Trust's income. Except in connection
with borrowings, the Trust will not issue senior securities. The
Trust will not purchase any Arizona Obligations, Futures or
options on Futures while it has any outstanding borrowings which
exceed 5% of the value of its total assets.
NET ASSET VALUE PER SHARE
The Trust's net asset value and offering price per share
of each class are determined as of 4:00 p.m. New York time on
each day that the New York Stock Exchange is open (a "business
day"). However, Futures and options on them are valued at the
close of the principal commodities exchange on which they are
traded, which may be later than 4:00 p.m. New York time. The net
asset value per share is determined by dividing the value of the
net assets of the Trust (i.e., the value of the assets less
liabilities) by the total number of shares outstanding.
Determination of the value of the Trust's assets is subject to
the direction and control of the Trust's Board of Trustees. In
general it is based on market value, except that Arizona
Obligations maturing in 60 days or less are generally valued at
amortized cost; see the Additional Statement for further
information.
ALTERNATIVE PURCHASE PLANS
The Trust provides individual investors with the option of
two alternative ways to purchase shares, through two separate
classes of shares. All classes represent interests in the same
portfolio of Arizona Obligations. The primary distinction among
the classes of shares offered to individuals lies in their sales
charge structures and ongoing expenses, as described below.
By purchasing Class A Shares you have the option of paying
the applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you have the option of paying a sales
charge over a period of six years after purchase but without
paying anything at time of purchase, much as goods can be
purchased on an installment plan. You are subject to a
conditional deferred sales charge, described below, but only if
you redeem your Class C Shares before they have been held 18
months from your purchase.(See "Computation of Holding Periods
for Class C Shares.")
Each class has distinct advantages and disadvantages for
different investors, and you should choose the class that best
suits your own circumstances and needs.
Dividends and other distributions paid by the Trust with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A because
Class C Shares bear higher distribution and service fees. In
addition, the dividends of each class can vary because each class
will bear certain class-specific charges. For example, each class
will bear the costs of printing and mailing annual reports to its
own shareholders.
* Class A Shares, "Front-Payment Class Shares," are
offered to anyone at net asset value plus a sales
charge, paid at the time of purchase, at the maximum
rate of 4.0% of the public offering price, with lower
rates for larger purchases. Under the Trust's
Distribution Plan, Class A Shares are subject to a fee
of 0.15 of 1% of the average annual net assets of the
Class A Shares. When you purchase Class A Shares, the
amount of your investment is reduced by the applicable
sales charge. Certain Class A Shares purchased in
transactions of $1 million or more are subject to a
contingent deferred sales charge. (See "Purchases of $1
Million or More of Class A Shares.")
* Class C Shares, "Level-Payment Class Shares," are
offered to anyone at net asset value with no sales
charge payable at purchase but with a level charge for
distribution fees and service fees for six years after
the date of purchase at the aggregate annual rate of 1%
of the average annual net assets of the Class C Shares.
(See "Distribution Plan" and "Shareholder Services
Plan.") Six years after the date of purchase, Class C
Shares, including Class C Shares acquired in exchange
for other Class C Shares under the Exchange Privilege
(see "Exchange Privilege"), are automatically converted
to Class A Shares. In addition, if you redeem Class C
Shares before you have held them for 18 months from the
date of purchase you will pay a contingent deferred
sales charge ("CDSC") at the rate of 1%, calculated on
the net asset value of the Class C Shares redeemed at
the time of purchase or of redemption, which ever is
less. The amount of any CDSC will be paid to the
Distributor. The CDSC does not apply to shares acquired
through the reinvestment of dividends on Class C Shares
or to any Class C Shares held for more than 18 months
after purchase. In the Prospectus, 18-month and
six-year holding periods are considered modified by up
to one month depending upon when during a month your
purchase of such shares is made. (See "Computation of
Holding Periods for Class C Shares" and "How to
Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption
of Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions,
second of any Class C Shares you have held for more than 18
months from the date of purchase and finally of those Class C
Shares as to which the CDSC is payable which you have held the
longest. This will result in your paying the lowest possible
CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class
C Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that
month. The 18-month CDSC holding period will end on the first
business day of the 18th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your Class C Shares may be up to one
month less than the full 18 months depending upon when your
actual purchase was made during a month. Running of the 18-month
CDSC holding period will be suspended for one month for each
period of thirty days during which you have held shares of a
money market fund you have received in exchange for Class C
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class
C Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day
of the month following that in which the sixth anniversary of
your purchase of the Class C Shares occurred, except as noted
below. Accordingly, the holding period applicable to your Class C
Shares may be up to one month more than the six years depending
upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of
Class C Shares at the time of conversion, you may receive fewer
Class A Shares than the number of Class C Shares converted. If
you have made one or more exchanges of Class C Shares among the
Aquila-sponsored tax-free municipal bond funds or equity funds
under the Exchange Privilege, the six-year holding period is
deemed to have begun on the date you purchased your original
Class C Shares of the Trust or of another of the Aquila Bond or
Equity funds. The six-year holding period will be suspended by
one month for each period of thirty days during which you hold
shares of a money market fund you have received in exchange for
Class C Shares under the Exchange Privilege. (See "Exchange
Privilege.")
The higher distribution and service fees will cause the
Class C Shares to have a higher expense ratio and pay lower
dividends than Class A Shares.
The following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<S> <C> <C>
Class A Class C
Initial Sales Maximum of 4% None
Charge of the Public
Offering Price
Contingent None (except Maximum CDSC
Deferred for certain of 1% if shares
Sales Charge purchases over redeemed before
$1 Million) 18 months; 0%
after 18 months
Distribution and 0.15 of 1% Distribution
Service Fees fee of 0.75
of 1% and a
service fee of
0.25 of 1% for
a total of 1%,
payable for six
years
Other Information Initial Sales Shares convert
Charge waived to Class A Shares
or reduced in after six years
some cases
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Trust be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual
service and distribution fees on the Class C Shares will equal or
exceed the total cost of the initial 4% maximum initial sales
charges and 0.15 of 1% annual fee payable for Class A Shares. For
example, if equal amounts were paid at the same time for Class A
Shares (where the amount invested is reduced by the amount of the
sales charge) and for Class C Shares (which carry no sales charge
at the time of purchase) and the net asset value per share
remained constant over time, the total of such costs for Class C
Shares would equal the total of such costs for Class A Shares
after approximately four and two-thirds years. This example
assumes no redemptions and disregards the time value of money.
Purchasers of Class C Shares have all of their investment dollars
invested from the time of purchase, without having their
investment reduced at the outset by the initial sales charge
payable for Class A Shares. If you invest in Class A Shares you
will pay the entire sales charge at the time of purchase.
Accordingly, if you expect to redeem your shares shortly after
purchase, you should consider the total cost of such an
investment in Class A Shares compared with a similar investment
in Class C Shares. The example under "Table of Expenses" shows
the effect of Trust expenses for both Classes if a hypothetical
investment in each of the Classes is held for 1, 3, 5 and 10
years. (See the Table of Expenses.)
HOW TO INVEST IN THE TRUST
The Trust's shares may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to Administrative Data
Management Corp. (the "Agent") at the address on the Application.
The applicable sales charge will apply in either instance.
Subsequent investments are also subject to the applicable sales
charges. You are urged to complete an Application and send it to
the Agent so that expedited shareholder services can be
established at the time of your investment. Unless your initial
investment is specified to be made in Class C Shares, it will be
made in Class A Shares.
The minimum initial investment for Class A Shares and
Class C Shares is $1,000, except as otherwise stated in the
Prospectus or Additional Statement. You may also make an initial
investment of at least $100 by establishing an Automatic
Investment Program for Automatic investments of at least $100
per month and paying at least $100. (See below and "Automatic
Investment Program" in the Application.) Such investment must be
drawn in United States dollars on a United States commercial or
savings bank, credit union or a United States branch of a foreign
commercial bank (each of which is a "Financial Institution"). You
may make subsequent investments in the same class of shares in
any amount (unless you have an Automatic Withdrawal Plan). Your
subsequent investment may be made through a selected dealer or by
forwarding payment to the Agent, with the name(s) of account
owner(s), the account number , the name of the Trust and the
Class of Shares to be purchased. With subsequent investments,
please send the pre-printed stub attached to the Trust's
confirmations.
Subsequent investments of $50 or more in shares of the
same class as your initial investment can be made by electronic
funds transfer from your demand account at a Financial
Institution. To use electronic funds transfer for your purchases,
your Financial Institution must be a member of the Automated
Clearing House and the Agent must have received your completed
Application designating this feature, or, after your account has
been opened, a Ready Access Features form available from the
Distributor or the Agent. A pre-determined amount can be
regularly transferred for investment ("Automatic Investment"), or
single investments can be made upon receipt by the Agent of
telephone instructions from anyone ("Telephone Investment"). The
maximum amount of each Telephone Investment is $50,000. Upon 30
days' written notice to shareholders, the Trust may modify or
terminate these investment methods at any time or charge a
service fee, although no such fee is currently contemplated.
The offering price is the net asset value per share for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent from selected dealers that day, except that orders
received by it after 4:00 p.m. New York time will receive that
day's offering price only if such orders were received by
selected dealers from customers prior to such time and
transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Trust shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Trust's best interest to do
so.
How to Purchase Class A Shares (Front-Payment Class Shares)
The following table shows the amount of the sales charge
to a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions") for purchases of
Class A Shares:
<TABLE>
<S> <C> <C> <C>
Sales Sales Commis-
Charge Charge sions
as as as
Percentage Approximate Percentage
of Public Percentage of
Amount of Offering of Amount Offering
Purchase Price Invested Price
Less than $25,000...... 4.00% 4.17% 3.00%
$25,000 but less
than $50,000........ 3.75% 3.90% 3.00%
$50,000 but less
than $100,000....... 3.50% 3.63% 2.75%
$100,000 but less
than $250,000....... 3.25% 3.36% 2.75%
$250,000 but less
than $500,000....... 3.00% 3.09% 2.50%
$500,000 but less
than $1,000,000..... 2.50% 2.56% 2.25%
For purchase of $1 million or more see "Purchase of $1 Million or
More," below.
</TABLE>
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing shares for his or their
own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; and (d)
a tax-exempt organization enumerated in Section 501(c)(3) or (13)
of the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the
entire sales charge is reallowed, such selected dealers may be
deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Purchases of $1 Million or More of Class A Shares
Class A Shares issued in purchases of $1 million or more
by a single purchaser are called "CDSC Class A Shares." CDSC
Class A Shares also include certain Class A Shares issued in
purchases of $1 million or more under the program captioned
"Certain Investment Companies - Special Dealer Arrangements,"
below. (CDSC Class A Shares do not include (i) Class A Shares
purchased without sales charge pursuant to the terms described
under "General," below and (ii) Class A Shares purchased in
transactions of less than $1 million and when certain special
dealer arrangements are not in effect under "Certain Investment
Companies" set forth under "Reduced Sales Charges," below.)
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will
pay to any dealer effecting such a purchase an amount equal to 1%
of the sales price of the shares purchased for purchases of $1
million but less than $2.5 million, 0.50 of 1% for purchases of
$2.5 million but less than $5 million, and 0.25 of 1% for
purchases of $5 million or more, if the CDSC Class A Shares
remain outstanding for a period of at least one year. A pro-rata
portion of this fee will be payable for each day the CDSC Class A
Shares are outstanding in the first one-year period following
issuance of such shares. The fee payable for each calendar
quarter will be made within fifteen days of the end of that
quarter.
If you redeem all or part of your CDSC Class A Shares
during the four years after your purchase of such shares, at the
time of redemption you will be required to pay to the Distributor
a special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at
the time of purchase or (ii) the net asset value of your redeemed
CDSC Class A Shares at the time of redemption (the "Redemption
Value"). The special charge will be an amount equal to 1% of the
Redemption Value if the redemption occurs within the first two
years after purchase, and 0.50 of 1% of the Redemption Value if
the redemption occurs within the third or fourth year after
purchase. The special charge will apply to redemptions of CDSC
Class A Shares purchased without a sales charge pursuant to a
Letter of Intent, as described below under "Reduced Sales
Charges." The special charge does not apply to shares acquired
through the reinvestment of dividends on CDSC Class A Shares or
to any CDSC Class A Shares held for more than four years after
purchase. In determining whether the special charge is
applicable, it will be assumed that the CDSC Class A Shares you
have held the longest are the first CDSC Class A Shares to be
redeemed, unless you instruct the Agent otherwise. It will also
be assumed that if you have both CDSC Class A Shares and non-CDSC
Class A Shares the non-CDSC Class A Shares will be redeemed
first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Systematic Payroll Investments
If your employer has established with the Trust a
Systematic Payroll Investment Plan ("Payroll Plan") you may
arrange for systematic investments into the Trust through a
Payroll Plan. In order to participate in a Payroll Plan, you
should make arrangements with your own employer's payroll
department, and you must complete and sign any special
application forms which may be required by your employer. You
must also complete the Application included in the Prospectus.
Once your application is received and put into effect, under a
Payroll Plan the employer will make a deduction from payroll
checks in an amount you determine, and will remit the proceeds to
the Trust. An investment in the Trust will be made for you at the
offering price, which includes applicable sales charges
determined as described above, when the Trust receives the funds
from your employer. The Trust will send a confirmation of each
transaction to you. To change the amount of or to terminate the
payroll investment program (which could take up to ten days), you
must notify your employer.
Reduced Sales Charges for Certain Purchases of Class A
Shares
Right of Accumulation: If you are a "Single purchaser"
you may benefit from a reduction of the sales charge in
accordance with the above schedule for subsequent purchases of
Class A Shares if the cumulative value (at cost or current net
asset value, whichever is higher) of Class A Shares you have
previously purchased with a sales charge, together with Class A
Shares of your subsequent purchase with such a charge, amounts to
$25,000 or more.
Letters of Intent: The foregoing schedule of reduced
sales charges will also be available to "single purchasers" who
enter into a written Letter of Intent (included in the
Application) providing for the purchase, within a thirteen-month
period, of Class A Shares of the Trust through a single selected
dealer or through the Distributor. Class A Shares of the Trust
which you previously purchased during a 90-day period prior to
the date of receipt by the Distributor of your Letter of Intent
and which you still own may also be included in determining the
applicable reduction. For further details, including escrow
provisions, see the Letter of Intent provisions of the
Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Trust's Trustees and officers,
by the directors, officers and certain employees, retired
employees and representatives of the Adviser and its parent and
affiliates, the Administrator and the Distributor, by selected
dealers and brokers and their officers and employees, by certain
persons connected with firms providing legal, advertising or
public relations assistance, by certain family members of, and
plans for the benefit of, the foregoing, and for the benefit of
trust or similar clients of banking institutions over which these
institutions have full investment authority if the Distributor
has entered into an agreement relating to such purchases. Except
for the last category, purchasers must give written assurance
that the purchase is for investment and that the Class A Shares
will not be resold except through redemption. There may be tax
consequences of these purchases. Such purchasers should consult
their own tax counsel. Class A Shares may also be issued at net
asset value in a merger, acquisition or exchange offer made
pursuant to a plan of reorganization to which the Trust is a
party.
The Trust permits the sale of its Class A Shares at
prices that reflect the reduction or elimination of the sales
charge to investors who are members of certain qualified groups
meeting the following requirements. A qualified group (i) is a
group or association, or a category of purchasers who are
represented by a fiduciary, professional or other representative
(other than a registered broker-dealer), which (ii) satisfies
uniform criteria which enable the Distributor to realize
economies of scale in its costs of distributing shares; (iii)
gives its endorsement or authorization (if it is a group or
association) to an investment program to facilitate solicitation
of its membership by a broker or dealer; and (iv) complies with
the conditions of purchase that are set forth in any agreement
entered into between the Trust and the group, representative or
broker or dealer. At the time of purchase you must furnish the
Distributor with information sufficient to permit verification
that the purchase qualifies for a reduced sales charge, either
directly or through a broker or dealer.
Certain Investment Companies: Class A Shares of the Trust
may be purchased at net asset value without sales charge (except
as set forth below under "Special Dealer Arrangements") to the
extent that the aggregate net asset value of such Class A Shares
does not exceed the proceeds from a redemption (a "Qualified
Redemption"), made within 120 days prior to such purchase, of
shares of another investment company on which a sales charge ,
including a contingent deferred sales charge , has been paid.
Additional information is available from the Distributor.
To qualify, the following special procedures must be
followed:
1. A completed Application (included in the Prospectus) and
payment for the shares to be purchased must be sent to the
Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
Suite 2300, New York, NY 10017 and should not be sent to the
Shareholder Servicing Agent of the Trust, Administrative
Data Management Corp. (This instruction replaces the mailing
address contained on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective
shareholder has made a Qualified Redemption in an amount at
least equal to the net asset value of the Class A Shares to
be purchased. Satisfactory evidence includes a confirmation
of the date and the amount of the redemption from the
investment company, its transfer agent or the investor's
broker or dealer, or a copy of the investor's account
statement with the investment company reflecting the
redemption transaction.
3. You must complete and return to the Distributor a
Transfer Request Form, which is available from the
Distributor.
The Trust reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Trust)
will pay to any dealer effecting a purchase of Class A Shares of
the Trust of $1 million or more using the proceeds of a Qualified
Redemption the same amounts described under "Purchases of $1
Million or More," above on the same terms and conditions. Class A
Shares of the Trust issued in such a transaction will be CDSC
Class A Shares and if you thereafter redeem all or part of such
shares during the four-year period from the date of purchase you
will be subject to the special contingent deferred sales charge
described under "Purchases of $1 Million or More," above, on the
same terms and conditions. Whenever the Special Dealer
Arrangements are in effect the Prospectus will be
supplemented.
How to Purchase Class C Shares (Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered
at net asset value with no sales charge payable at purchase. A
level charge is imposed for service and distribution fees for the
first six years after the date of purchase at the aggregate
annual rate of 1% of the average annual net assets of the Trust
represented by the Class C Shares. In addition, Class C Shares
are subject to a contingent deferred sales charge ("CDSC") if
redeemed before you have held them for 18 months from the date of
purchase at the rate of 1%, calculated on the net asset value of
the Class C Shares at the time of purchase or of redemption,
whichever is less. There is no CDSC after Class C Shares have
been held beyond the applicable period. The CDSC does not apply
to shares acquired through the reinvestment of dividends on Class
C Shares.
The Distributor will pay to any dealer effecting a
purchase of Class C Shares an amount equal to 1% of the sales
price of the Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Trust. Additional compensation may
include payment or partial payment for advertising of the Trust's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Trust's shares to qualify for
the incentives to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of shares of the Trust effected
through such participating dealers, whether retained by the
Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Trust will affect the price you pay for shares or
the amount that the Trust will receive from such sales. Any of
the foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and Dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Trust a
Systematic Payroll Investment Plan ("Payroll Plan") you may
arrange for systematic investments into the Trust through a
Payroll Plan. Investments can be made in either Class A Shares or
Class C Shares. In order to participate in a Payroll Plan, you
should make arrangements with your own employer's payroll
department, and you must complete and sign any special
application forms which may be required by your employer. You
must also complete the Application included in the Prospectus.
Once your application is received and put into effect, under a
Payroll Plan the employer will make a deduction from payroll
checks in an amount you determine, and will remit the proceeds to
the Trust. An investment in the Trust will be made for you at the
offering price, which includes applicable sales charges
determined as described above, when the Trust receives the funds
from your employer. The Trust will send a confirmation of each
transaction to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Trust (rounded to the nearest 1/1000th
of a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you
so request in writing to the Agent. All share certificates
previously issued by the Trust represent Class A Shares. No
certificates will be issued for fractional Class A shares or if
you have elected Automatic Investment or Telephone Investment for
Class A Shares (see "How to Invest in the Trust" above) or
Expedited Redemption (see "How to Redeem Your Investment" below).
If certificates for Class A Shares are issued at your request,
Expedited Redemption Methods described below will not be
available. In addition, you may incur delay and expense if you
lose the certificates.
The Trust and the Distributor reserve the right to reject
any order for the purchase of shares. In addition, the offering
of shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan")
under Rule 12b-1 (the "Rule") under the 1940 Act. The Rule
provides in substance that an investment company may not engage
directly or indirectly in financing any activity which is
primarily intended to result in the sale of its shares except
pursuant to a written plan adopted under the Rule. The Plan has
three parts.
Under the Plan, the Trust is authorized to make payments
with respect to Class A Shares ("Class A Permitted Payments") to
Qualified Recipients, which Permitted Payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent, which may not exceed, for any fiscal year of
the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Plan are not accruable or for any
fiscal year which is not a full fiscal year) 0.15 of 1% of the
average annual net assets represented by the Class A Shares of
the Trust. Such payments shall be made only out of the Trust
assets allocable to the Class A Shares. "Qualified Recipients"
means broker-dealers or others selected by the Distributor,
including but not limited to any principal underwriter of the
Trust, with which the Distributor has entered into written
agreements and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Class A Shares or servicing of accounts of
shareholders owning Class A Shares.
Permitted Payments under the Plan commenced July 1, 1994.
Until February ***, 1996, all outstanding shares of the Trust
were what are currently designated Class A Shares. During the
fiscal year ended June 30, 1995, $554,324 was paid to Qualified
Recipients under the Plan as then in effect, of which $16,689 was
retained by the Distributor. (See the Additional Statement for a
description of the Distribution Plan.)
Whenever the Trust makes Class A Permitted Payments, the
aggregate annual rate of the advisory fee and administration fee
otherwise payable by the Trust will be reduced from 0.50 of 1% to
0.40 of 1% of the Trust's average annual net assets. (See
"Management Arrangements.")
Under another part of the Plan, the Trust is authorized
to make payments with respect to Class C Shares ("Class C
Permitted Payments"), to Qualified Recipients. Class C Permitted
Payments shall be made through the Distributor or shareholder
servicing agent as disbursing agent, and may not exceed, for any
fiscal year of the Trust (as adjusted for any part or parts of a
fiscal year during which payments under the Plan are not
accruable or for any fiscal year which is not a full fiscal year)
0.75 of 1% of the average annual net assets represented by the
Class C Shares of the Trust. Such payments shall be made only out
of the Trust assets allocable to the Class C Shares. "Class C
Qualified Recipients" means broker-dealers or others selected by
the Distributor, including but not limited to any principal
underwriter of the Trust, with which the Distributor has entered
into written agreements and which have rendered assistance
(whether direct, administrative, or both) in the distribution
and/or retention of the Trust's Class C Shares or servicing of
accounts of shareholders owning Class C Shares. Payments with
respect to Class C Shares during the first year after purchase
are paid to the Distributor and thereafter to other Qualified
Recipients.
Another part of the Plan is designed to protect against any
claim against or involving the Trust that some of the expenses
which might be considered to be sales-related which the Trust
pays or may pay come within the purview of the Rule. The Trust
believes that except for Permitted Payments it is not financing
any such activity and does not consider any payment enumerated in
this part of the Plan as so financing any such activity. However,
it might be claimed that some of the expenses the Trust pays come
within the purview of the Rule. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Trust shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. See the Additional Statement.
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Trust is
authorized to make payments with respect to Class C Shares
("Service Fees") to Qualified Recipients. Service Fees shall be
paid through the Distributor or shareholder servicing agent as
disbursing agent, and may not exceed, for any fiscal year of the
Trust (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year) 0.25 of 1% of the average
annual net assets represented by the Class C Shares of the Trust.
Such payments shall be made only out of the Trust assets
represented by the Class C Shares. "Service Fee Qualified
Recipients" means broker-dealers or others selected by the
Distributor, including but not limited to any principal
underwriter of the Trust, with which the Distributor has entered
into written agreements and which have agreed to provide personal
services to holders of Class C Shares and/or maintenance of Class
C shareholder accounts. See the Additional Statement. Service
Fees with respect to Class C Shares will be paid to the
Distributor.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net
asset value next determined after acceptance of your redemption
request at the Agent. For redemptions of Class C Shares and CDSC
Class A Shares, at the time of redemption a sufficient number of
additional shares will be redeemed to pay for any applicable
contingent deferred sales charge. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Trust, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. Except for CDCS Class A Shares (see "Purchases
of $1 Million or More") there are no redemption fees or
withdrawal penalties for Class A Shares. Class C Shares are
subject to a contingent deferred sales charge if redeemed before
they have been held 18 months from the date of purchase. (See
"Alternative Purchase Plans.") A redemption may result in a
transaction taxable to you. If you own both Class A Shares and
Class C Shares and do not specify which you wish to redeem, it
will be assumed that you wish to redeem Class A Shares.
If a selected dealer or other financial institution
serves as shareholder of record for your shares, you must redeem
through those institutions, that institution, which is
responsible for the prompt transmission of redemption requests.
If your shares are registered in your name at the Trust and a
selected dealer or other institution maintains records of your
account, that institution can assist you with your redemption; in
some cases, you must redeem through that institution. In all
other cases, you may make a redemption request directly to the
Agent using the procedures described below.
For your convenience the Trust offers expedited
redemption for all classes of shares to provide you with a high
level of liquidity for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name and the
check is sent to your address of record, provided that
there has not been a change of your address of record
during the 30 days preceding your redemption request.
You can make only one request for telephone redemption
by check in any 7-day period.
See "Redemption Payments", below for payment methods.
Your name, account number and address of record must be
supplied.
To redeem an investment by this method, telephone:
800-437-1000 toll free or 908-855-5731
Note: The Trust, the Agent, and the Distributor will not
be responsible for any losses resulting from unauthorized
telephone transactions if the Agent follows reasonable procedures
designed to verify the identity of the caller. The Agent will
request some or all of the following information: account name(s)
and number, name of the caller, the social security number
registered to the account and personal identification. The Agent
may also record calls. You should verify the accuracy of
confirmation statements immediately upon receipt.
2. By FAX or Mail. You may also request redemption
payments to a predesignated Financial Institution account by
a letter of instruction sent to: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, by FAX at
908-855-5730 or by mail at 581 Main Street, Woodbridge, NJ
07095-1198, indicating account name(s), account number,
amount to be redeemed, and any payment directions, signed by
the registered holder(s). Signature guarantees are not
required. See "Redemption Payments", below for payment
methods.
If you wish to use the above procedures you should so elect
on the Expedited Redemption section of the Application or the
Ready Access Features form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s) of
the shareholder(s) as registered with the Trust. You may change
the designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed should be sent in blank (unsigned) to
the Trust's Shareholder Servicing Agent: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main
Street, Woodbridge, NJ 07095-1198, with payment
instructions. A stock assignment form signed by the
registered shareholder(s) exactly as the account is
registered must also be sent to the Shareholder Servicing
Agent.
For your own protection, it is essential that
certificates be mailed separately from signed redemption
documentation. Because of possible mail problems, it is also
recommended that certificates be sent by registered mail, return
receipt requested.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Additional documentation may be
required where shares are held by certain types of shareholders
such as corporations, partnerships, trustees or executors, or if
redemption is requested by other than the shareholder of record.
If redemption proceeds of $50,000 or less are payable to the
record holder and are to be sent to the record address, no
signature guarantee is required. In all other cases, signatures
must be guaranteed by a member of a national securities exchange,
a U.S. bank or trust company, a state-chartered savings bank, a
federally chartered savings and loan association, a foreign bank
having a U.S. correspondent bank, a participant in the Securities
Transfer Association Medallion Program (STAMP), The Stock
Exchanges Medallion Program (SEMP) or The New York Stock
Exchange, Inc. Medallion Signature Program (MSP). A notary public
is not an acceptable signature guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the Trust, and you have not
elected Expedited Redemption to a predesignated Financial
Institution account, you must use the Regular Redemption
Method. Under this redemption method you should send a
letter of instruction to: Administrative Data Management
Corp., Attn: Aquilasm Group of Funds, 581 Main Street,
Woodbridge, NJ 07095-1198, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the
Trust);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Trust may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Trust has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Trust
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If you use a
dealer to arrange for a redemption, it may charge you a fee for
this service.
The Trust will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or valuation of the
net asset value of, the portfolio securities to be unreasonable
or impracticable; or (iii) for such other periods as the
Securities and Exchange Commission may permit. Payment for
redemption of shares recently purchased by check (irrespective of
whether the check is a regular check or a certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment may be delayed up to 15 days or until (i) the purchase
check or Automatic Investment or Telephone Investment has been
honored or (ii) the Agent has received assurances by telephone or
in writing from the Financial Institution on which the purchase
check was drawn, or from which the funds for Automatic Investment
or Telephone Investment were transferred, satisfactory to the
Agent and the Trust, that the purchase check or Automatic
Investment or Telephone Investment will be honored. Possible
delays in payment of redemption proceeds can be eliminated by
using wire payments or Federal Reserve drafts to pay for
purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Trust to
make payment wholly or partly in cash, the Trust may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Trust, in lieu of cash,
in conformity with applicable rules of the Securities and
Exchange Commission. See the Additional Statement for details.
The Trust has the right to compel the redemption of
shares held in any account if the aggregate net asset value of
such shares is less than $500 as a result of shareholder
redemptions or failure to meet the minimum investment level
under an Automatic Purchase Program. If the Board elects to do
this shareholders who are affected will receive prior written
notice and will be permitted 60 days to bring their accounts up
to the minimum before this redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of
a redemption of shares of the Trust of the same Class as the
shares redeemed at the net asset value next determined after the
Agent receives your reinvestment order. In the case of Class C
Shares or CDSC Class A Shares on which a contingent deferred
sales charges was deducted at the time of redemption, the
Distributor will refund to you the amount of such sales charge,
which will be added to the amount of the reinvestment. The Class
C Shares or CDSC Class A Shares issued on reinvestment will be
deemed to have been outstanding from the date of your original
purchase of the redeemed shares, less the period from redemption
to reinvestment. The reinvestment privilege for any class may be
exercised only once a year, unless otherwise approved by the
Distributor. If you have realized a gain on the redemption of
your shares, the redemption transaction is taxable, and
reinvestment will not alter any capital gains tax payable. If
there has been a loss on the redemption, some or all of the loss
may be tax deductible, depending on the amount reinvested and the
length of time between the redemption and the reinvestment. You
should consult your own tax advisor on this matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own
or purchase shares Class A Shares of the Trust having a net asset
value of at least $5,000. The Automatic Withdrawal plan is not
available for Class C Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
Class A Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. See the
Automatic Withdrawal Plan provisions of the Application included
in the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.
Purchase of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, a Planholder may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Trust's Trustees and officers and provides
further information about them.
The Advisory Agreement
Bank One, Arizona, NA (the "Adviser"), formerly The Valley
National Bank of Arizona, supervises the investment program of
the Trust and the composition of its portfolio.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and for either keeping the accounting records of the
Trust, including the computation of the net asset value per share
and the dividends, or, at the Adviser's expense and
responsibility, delegating these accounting duties in whole or in
part to a company satisfactory to the Trust. The Advisory
Agreement states that the Adviser shall, at its expense, provide
to the Trust all office space and facilities, equipment and
clerical personnel necessary for the carrying out of the
Adviser's duties under the Advisory Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Trust and of
those Trustees, if any, who are affiliated with the Adviser.
Under the Advisory Agreement, the Trust bears the cost of
preparing and setting in type its prospectuses, statements of
additional information, and reports to shareholders and the costs
of printing or otherwise producing and distributing those copies
of such prospectuses, statements of additional information and
reports as are sent to its shareholders. Under the Advisory
Agreement, all costs and expenses not expressly assumed by the
Adviser or by the Administrator under the Administration
Agreement or by the Trust's Distributor (principal underwriter)
are paid by the Trust. The Advisory Agreement lists examples of
such expenses borne by the Trust, the major categories of such
expenses being: legal and audit expenses, custodian and transfer
agent, or shareholder servicing agent fees and expenses, stock
issuance and redemption costs, certain printing costs,
registration costs of the Trust and its shares under Federal and
State securities laws, interest, taxes and brokerage commissions,
and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Trust pays a fee
payable monthly and computed on the net asset value of the Trust
as of the close of business each business day at the annual rate
of 0.25 of 1% of such net assets, provided, however, that for any
day that the Trust pays or accrues a fee under the Distribution
Plan of the Trust based upon the assets of the Trust, the annual
investment advisory fee shall be payable at the annual rate of
0.20 of 1% of such net asset value. Since the Administrator also
receives a fee from the Trust under the Administration Agreement
and the Trust pays or accrues a fee under the Distribution Plan
of the Trust based upon the assets of the Trust, the total
investment advisory and administration fees which the Trust
currently pays are at the annual rate of 0.40 of 1% of such net
assets, but for any day on which the Trust does not pay or accrue
a fee under the Distribution Plan, these may be as much as 0.50
of 1%; see below. Payments under the Distribution Plan with
respect to assets of the Trust began July 1, 1994 and as of that
date the Advisory and Administration fees were reduced as
described above. The Adviser and the Administrator may, in order
to attempt to achieve a competitive yield on the shares of the
Trust, each waive all or part of any such fees. In practice, the
rate of these fee waivers tends to decline as assets of the Trust
increase.
The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to one-half of the amount, if
any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the
lesser of (i) 2.5% of the first $30 million of average annual net
assets of the Trust plus 2% of the next $70 million of such
assets and 1.5% of such assets in excess of $100 million, or (ii)
25% of the Trust's total annual investment income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Trust; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Trust or of any
other investment company or companies having the same investment
adviser, sub-adviser, administrator or principal underwriter as
the Trust.
The Trust's Custodian is an affiliate of the Adviser. It is
expected that another banking subsidiary of the Adviser's parent,
Banc One Corporation will provide a credit facility to the Trust.
The Administration Agreement
Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at
its own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as
is necessary in connection with the maintenance of the
headquarters of the Trust and pays all compensation of the
Trust's Trustees, officers and employees who are affiliated
persons of the Administrator.
Under the Administration Agreement, subject to the control
of the Trust's Board of Trustees, the Administrator provides all
administrative services to the Trust other than those relating to
its investment portfolio and the maintenance of its accounting
books and records. Such administrative services include but are
not limited to maintaining books and records (other than
accounting books and records) of the Trust, and overseeing all
relationships between the Trust and its transfer agent,
custodian, legal counsel, auditors and principal underwriter,
including the negotiation of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters
which are necessary or desirable for effective operation of the
Trust and for the sale, servicing, or redemption of the Trust's
shares. See the Additional Statement for a further description of
functions listed in the Administration Agreement as part of such
duties.
Under the Administration Agreement, the Trust pays a fee
payable monthly and computed on the net asset value of the Trust
at the end of each business day at the annual rate of 0.25 of 1%
of such net asset value, provided, however, that for any day that
the Trust pays or accrues a fee under the Distribution Plan of
the Trust based upon the assets of the Trust, the annual
administration fee will be payable at the annual rate of 0.20 of
1% of such net asset value. The administration fee was so reduced
as of July 1, 1994. See "Advisory Agreement," above. The
Administrator has agreed that the above fee shall be reduced, but
not below zero, by an amount equal to one-half of the amount, if
any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the
lesser of (i) 2.5% of the first $30 million of average annual net
assets of the Trust plus 2% of the next $70 million of such
assets and 1.5% of such assets in excess of $100 million, or (ii)
25% of the Trust's total annual investment income.
Information about the Adviser
The Adviser serves Arizona through 257 offices located in
communities throughout the state's 15 counties. Through the
Adviser and other subsidiaries, the Adviser's parent corporation,
Banc One Arizona Corporation, formerly known as Valley National
Corporation, provides a full range of financial services,
including commercial banking and trust services, to individuals,
businesses and governments, throughout Arizona and the
Southwestern Region of the United States. The Trust Division of
the Adviser had, as of June 30, 1995, approximately $8.0 billion
of assets under administration, not including any other
registered investment companies but including approximately $1.2
billion in municipal bonds.
The Adviser is a subsidiary of BANC ONE CORPORATION
("Banc One"), based in Columbus, Ohio. Banc One is a multi-bank
holding company, incorporated under the laws of the State of
Ohio. As of June 30, 1995, Banc One indirectly owned all of the
stock of 65 banks operating with more than 1,408 offices in the
states of Arizona, Colorado, Illinois, Indiana, Kentucky, Ohio,
Oklahoma, Texas, Utah, West Virginia and Wisconsin. As of that
date, Banc One, its affiliated banks and its non-bank
subsidiaries had total assets of approximately $86.8 billion.
Todd Curtis is the officer of the Adviser who manages the
Trust's portfolio. He has served as such since the inception of
the Trust in March, 1986. Mr. Curtis is Vice President and Senior
Portfolio Manager of Banc One Investment Advisors and held
similar positions with The Valley National Bank of Arizona, NA,
the name of the Adviser before it was acquired by BANC ONE
CORPORATION. He is a member of the Adviser's fixed income policy
committee. He is a graduate of Cornell College, has received an
MBA degree from Arizona State University and is a Chartered
Financial Analyst.
When the acquisition was completed, the prior advisory
agreement between the Trust and the Adviser then in effect
terminated, as such completion was an "assignment" of that
agreement as that term is defined in the 1940 Act. To provide
continuity of management of the Trust's portfolio by the Adviser,
the Advisory Agreement was approved by the Trust's Board of
Trustees (including a majority of the Trustees who are not
"interested persons") at a meeting held on June 6, 1992, and by
the holders of the Trust's shares at a meeting held on October
26, 1992; it went into effect upon completion of the merger.
For the Trust's fiscal year ended June 30, 1995, fees of
$739,438 were payable to each of the Adviser and the
Administrator.
Information about the Administrator and the Distributor
The Trust's Administrator is founder and administrator
to the Aquilasm Group of Funds, which consists of tax-free
municipal bond funds, money market funds and an equity fund. As
of December 31, 1995, these funds had aggregate assets of
approximately $2.7 billion, of which approximately $1.9 billion
consisted of assets of tax-free municipal bond funds. The
Administrator, which was founded in 1984, is controlled by Mr.
Lacy B. Herrmann (directly, through a trust and through share
ownership by his wife). See the Additional Statement for
information on Mr. Herrmann.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds,
six money market funds and an equity fund) including the Trust.
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs
relating to prospectuses and reports as well as the costs of
supplemental sales literature, advertising and other promotional
activities.
At the date of the Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned by Mr. Herrmann, will be owned by certain
directors and/or officers of the Administrator and/or the
Distributor including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Trust since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Trust's
dividends will also vary. Dividends and other distributions paid
by the Trust with respect to Class A Shares and Class C Shares
are calculated at the same time and in the same manner. The
per-share dividends of Class C Shares will be lower than the per
share dividends on the Class A Shares as a result of the higher
service and distribution fees applicable to those shares.
It is the Trust's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. Shareholders may 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.
Redeemed shares continue to earn dividends through and
including the day which is the earlier of (i) the day before the
day on which the redemption proceeds are mailed, wired or
transferred by the facilities of the Automated Clearing House by
the Agent or paid by the Agent to a selected dealer; or (ii) the
day which is the third day on which the New York Stock Exchange
is open after the day on which the net asset value of the
redeemed shares has been determined (see "How To Redeem Your
Investment").
Net investment income includes amounts of income from the
Arizona Obligations in the Trust's portfolio which are allocated
as "exempt-interest dividends" (see below) and is therefore
exempt from regular Federal income tax. This allocation will be
made by the use of one designated percentage applied uniformly to
all income dividends declared during the Trust's tax year. Such
designation will normally be made in the first month after the
end of each of the Trust's fiscal years as to income dividends
paid in the prior year. It is possible that in certain
circumstances, a small portion of the dividends paid by the Trust
will be subject to income taxes. During the Trust's fiscal year
ended June 30, 1995, 98.05% of the Trust's dividends were
"exempt-interest dividends." For the calendar year 1995, ***% of
the total dividends paid were taxable. (These amounts relate to
dividends on Class A shares; no Class C Shares were outstanding
during that period. The percentage of income designated as
tax-exempt for any particular dividend may be different from the
percentage of the Trust's income that was tax-exempt during the
period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be
paid out after that date; the Trust may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Trust may be required to
impose backup withholding at a rate of 31% upon payment of
redemptions to shareholders, and from short- and long-term gains
distributions (if any), if shareholders do not comply with
provisions of the law relating to the furnishing of taxpayer
identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Trust of the same class at net asset value on the record date for
the dividend or distribution or other date fixed by the Board of
Trustees. An election to receive cash will continue in effect
until written notification of a change is received by the Agent.
All shareholders, whether their dividends are received in cash or
are being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Trust are not
entitled to any deduction for dividends received from the
Trust.
Tax Information
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. However, the Code contains a number
of complex tests relating to such qualification and it is
possible although not likely that the Trust might not meet one or
more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary
corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends," as discussed below.
The Trust intends to qualify during each fiscal year under
the Code to pay exempt-interest dividends to its shareholders.
Exempt-interest dividends which are derived from net income
earned by the Trust on Arizona Obligations will be excludable
from gross income of the shareholders for regular Federal income
tax purposes. Capital gains dividends are not included in
exempt-interest dividends. Although tax-exempt dividends are not
taxed, each taxpayer must report the total amount of tax-exempt
interest (including exempt-interest dividends from the Trust)
received or acquired during the year.
The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Trust on the sale of municipal
obligations acquired after April 30, 1993 at a price which is
less than face or redemption value be included as ordinary income
to the extent such gains do not exceed such discount or that the
discount be amortized and included ratably in taxable income.
There is an exception to the foregoing treatment if the amount of
the discount is less than 0.25% of face or redemption value
multiplied by the number of years from acquisition to maturity.
The Trust will report such ordinary income in the years of sale
or redemption rather than amortize the discount and report it
ratably. To the extent the resultant ordinary taxable income is
distributed to shareholders, it will be taxable to them as
ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Trust distributes and so designates)
are reportable by shareholders as long-term capital gains. This
is the case whether the shareholder takes the distribution in
cash or elects to have the distribution reinvested in Trust
shares and regardless of the length of time the shareholder has
held his or her shares. Capital gains are taxed at the same rates
as ordinary income, except that for individuals, trusts and
estates the maximum tax rate on capital gains distributions is
28% even if the applicable rate on ordinary income for such
taxpayers is higher than 28%.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Trust are
not distributed but carried forward by the Trust to offset gains
in later years and thereby lessen the later-year capital gains
distributions and amounts taxed to shareholders.
The Trust's gains or losses on sales of Arizona Obligations
will be long-term or short-term depending upon the length of time
the Trust has held such obligations. Capital gains and losses of
the Trust will also include gains and losses on Futures and
options, if any, including gains and losses actually realized on
sales and exchanges and gains and losses deemed to be realized.
Those deemed to be realized are on Futures and options held by
the Trust at year-end, which are "marked to the market," that is,
deemed sold for fair market value. Net gains or losses realized
and deemed realized on Futures and options will be reportable by
the Trust as long-term to the extent of 60% of the gains or
losses and short-term to the extent of 40% regardless of the
actual holding period of such investments.
Information as to the tax status of the Trust's dividends
and distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase shares of the Trust may not be
deducted for regular Federal tax purposes. In addition, under
rules used by the Internal Revenue Service for determining when
borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Trust
may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the
purchase of shares. The receipt of exempt-interest dividends from
the Trust by an individual shareholder may result in some portion
of any social security payments or railroad retirement benefits
received by the shareholder or the shareholder's spouse being
included in taxable income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
or private activity bonds should consult their own tax advisers
before purchasing shares.
While interest from all Arizona Obligations is tax-exempt
for purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7,
1986, constitutes a tax preference for both individuals and
corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the
taxpayer's return. The Trust will not invest in the types of
Arizona Obligations which would give rise to interest that would
be subject to alternative minimum taxation if more than 20% of
its net assets would be so invested, and may refrain from
investing in that type of bond completely. The 20% limit is a
fundamental policy of the Trust.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current
earnings, this adjustment will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax.
As of the date of the Prospectus, Congress is considering a
number of changes affecting taxation. It is not possible to
predict which, if any, of such changes will become law.
Tax Effects of Redemptions
Normally, when you redeem shares of the Trust you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. If you are required to pay a conditional deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. Your gain or loss will be long-term
if you held the redeemed shares for over a year, and short-term,
if for a year or less. However, if shares held for six months or
less are redeemed and you have a loss, two special rules apply:
the loss is reduced by the amount of exempt-interest dividends,
if any, which you received on the redeemed shares, and any loss
over and above the amount of such exempt-interest dividends is
treated as a long-term loss to the extent you have received
capital gains dividends on the redeemed shares.
Arizona Tax Information
In the opinion of special Arizona counsel for the Trust,
under existing law, shareholders of the Trust will not be subject
to Arizona income tax on exempt-interest dividends received from
the Trust to the extent that such dividends are attributable to
interest on tax-exempt obligations of the State of Arizona and
its political subdivisions ("Local Obligations") or on
obligations issued by the Territories of Guam, Northern Mariana
Islands, Puerto Rico and the Virgin Islands ("Territorial
Obligations"). Other distributions from the Trust, including
those related to long-term and short-term capital gains, will be
subject to Arizona income tax.
In the event that interest paid on any Local Obligation is
determined to be includable in federal gross income, the Trust
has been advised by special Arizona counsel that, in its opinion,
exempt-interest dividends received by the shareholders of the
Trust attributable to interest on Local Obligations will,
nevertheless, not be subject to Arizona income taxes.
Although interest on Territorial Obligations is included in
Arizona gross income by Arizona law, applicable federal laws
specifically exempt such income from state and local taxation.
The Trust has been advised by special Arizona counsel that, in
its opinion, the applicable federal laws will preempt any
contrary result under Arizona law such that exempt-interest
dividends attributable to interest paid on Territorial
Obligations will be exempt from Arizona income taxes.
Arizona law does not permit a deduction for interest paid or
accrued on indebtedness incurred or continued to purchase or
carry obligations, the interest on which is exempt from Arizona
income tax.
Shareholders of the Trust should consult their tax advisers
about other state and local tax consequences of their investment
in the Trust.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Trust and certain tax-free municipal bond funds and an
equity fund (the "Bond or Equity Funds") and certain money market
funds (the "Money-Market Funds"), all of which are sponsored by
Aquila Management Corporation and Aquila Distributors, Inc., and
have the same Administrator and Distributor as the Trust. All
exchanges are subject to certain conditions described below. As
of the date of the Prospectus, the Aquila-sponsored Bond or
Equity Funds are this Trust, Aquila Rocky Mountain Equity Fund,
Hawaiian Tax-Free Trust, 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-sponsored Money-Market Funds are Capital Cash Management
Trust, Pacific Capital Cash Assets Trust (Original Shares),
Pacific Capital Tax-Free Cash Assets Trust (Original Shares),
Pacific Capital U.S. Treasuries Cash Assets Trust (Original
Shares), Prime Cash Fund and Churchill Cash Reserves Trust.
Class A Shares of the Trust can be exchanged only into
Class A Shares of any Bond or Equity Fund or into shares of the
Money-Market Funds. Class C Shares can be exchanged only into
Class C Shares of any Bond or Equity Fund that offers Class C
Shares or into shares of the Money-Market Funds. At the date of
the Prospectus it is expected that all of the Bond and Equity
Funds will offer Class C Shares by April 30, 1996.
Class A Shares Exchange Privilege
Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A Shares of any
Bond or Equity Fund, those shares (and any shares acquired as a
result of reinvestment of dividends and/or distributions) may be
exchanged any number of times between Money-Market Funds and Bond
or Equity Funds without the payment of any additional sales
charge.
CDSC Class A Shares of the Trust (see "Purchases of $1
Million or More" and Special Dealer Arrangements") can be
exchanged for CDSC Class A Shares of a Bond or Equity Fund or
into a Money-Market Fund. The CDSC Class A Shares will not be
subject to a contingent deferred sales charge at the time of
exchange, but the contingent deferred sales charge will be
payable upon a redemption which occurs before the expiration of
the applicable holding period of any CDSC Class A Shares or any
shares of a Money-Market Fund received on exchange for CDSC Class
A Shares. (The contingent deferred sales charge does not apply to
any shares acquired as a result of reinvestment of dividends
and/or distributions.) For purposes of computing the time period
for the applicable contingent deferred sales charge, the length
of time of ownership of CDSC Class A Shares will be determined by
the time of original purchase and not by the time of the
exchange. Any period of 30 days or more during which any
Money-Market shares received on an exchange of CDSC Class A
Shares are held is not counted in computing the period of
ownership of CDSC Class A Shares. (See "Alternative Purchase
Plans.")
Class C Shares Exchange Privilege
Under the Class C exchange privilege, Class C Shares (and
any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and for Class C Shares of Bond or
Equity Funds. Class C Shares will not be subject to a contingent
deferred sales charge at the time of exchange, but the contingent
deferred sales charge will be payable upon redemption which
occurs before the expiration of the applicable holding period of
any Class C Shares or any shares of a Money-Market Fund received
on exchange for Class C Shares. (The contingent deferred sales
charge does not apply to any shares acquired as a result of
reinvestment of dividends and/or distributions.) For purposes of
computing the time period for the applicable contingent deferred
sales charge or for the conversion of Class C Shares into Class
A Shares, the length of time of ownership of Class C shares will
be determined by time of original purchase and not by the time of
the exchange. Any period of 30 days or more during which any
Money-Market shares received on an exchange of Class C Shares are
held is not counted in computing the period of ownership of Class
C Shares. (See "Alternative Purchase Plans.")
Eligible Shares
The "Class A Eligible Shares" of any Bond or Equity Fund
are those Class A Shares which were (a) acquired by direct
purchase with payment of any applicable sales charge, or which
were received in exchange for shares of another Bond or Equity
Fund on which any applicable sales charge was paid; (b) acquired
by exchange for shares of a Money-Market Fund with payment of the
applicable sales charge; (c) acquired in one or more exchanges
between shares of a Money-Market Fund and a Bond or Equity Fund
so long as the shares of the Bond or Equity Fund were originally
purchased as set forth in (a) or (b); (d) acquired on conversion
of Class C Shares or (e) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class A Eligible
Shares.
The "CDSC Class A Eligible Shares" of any Bond or Equity
Fund are those CDSC Class A Shares which were (a) acquired by
direct purchase in the amount of $1 million or more without a
sales charge or in certain purchases when Special Dealer
Arrangements are in effect or which were received in exchange for
CDSC Class A Shares of another Bond or Equity Fund acquired under
the same conditions; (b) acquired by exchange for shares of a
Money-Market Fund under the same conditions; (c) acquired in one
or more exchanges between shares of a Money-Market Fund and a
Bond or Equity Fund so long as the shares of the Bond or Equity
Fund were originally purchased as set forth in (a) or (b); or (d)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise CDSC Class A Eligible Shares.
The "Class C Eligible Shares" of any Bond or Equity Fund
are those shares which were (a) acquired by direct purchase
including by exchange from a Money-Market Fund, or which were
received in exchange for shares of Class C Shares of another Bond
or Equity Fund ; or (b) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class C Eligible
Shares.
If you own Class A or Class C Eligible Shares of any Bond
or Equity Fund, you may exchange them for shares of any Money
Market Fund or the Class A or Class C Shares, respectively, of
any other Bond or Equity Fund without payment of any sales charge
or CDSC. The shares received will continue to be Class A or Class
C Eligible shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for Class A Shares of any Bond or
Equity Fund without payment of any sales charge.
If you own shares of a Money-Market Fund which you have
acquired by exchange for CDSC Class A Eligible Shares of any Bond
or Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for CDSC Class A shares of any
Bond or Equity Fund but you will be required to pay the
applicable contingent deferred sales charge if you redeem such
shares before you have held CDSC Class A Shares for four years.
You will also be required to pay the applicable contingent
deferred sales charge if you redeem such shares of a Money-Market
fund before you have held CDSC Class A Shares for four years. The
running of the four-year period is suspended during the period
you hold shares of a Money-Market Fund received in exchange for
CDSC Class A Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for Class C Shares of any Bond or
Equity Fund, but you will be required to pay the applicable
contingent deferred sales charge if you redeem such Class C
shares before you have held Class C Shares for 18 months. You
will also be required to pay the applicable contingent deferred
sales charge if you redeem such shares of a Money-Market fund
before you have held Class C Shares for 18 months. The running of
the 18-month CDSC period and the six-year conversion period for
Class C Shares is suspended during the period you hold shares of
a Money-Market Fund received in exchange for Class C Shares.(See
"Alternative Purchase Plans.")
Shares of a Money-Market Fund may be exchanged for shares
of another Money-Market Fund or for Class A Shares or Class C
Shares of a Bond or Equity Fund; however, if the shares of a
Money-Market Fund were not acquired by exchange of Eligible
Shares of a Bond or Equity Fund or of shares of a Money-Market
Fund acquired in such an exchange, they may be exchanged for
Class A Shares of a Bond or Equity Fund only upon payment of the
applicable sales charge.
This Trust, as well as the Money-Market Funds and other
Bond or Equity Funds, reserves the right to reject any exchange
into its shares, if shares of the fund into which exchange is
desired are not available for sale in your state of residence.
The 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; (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal
to the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
If a selected dealer or other financial institution serves
as shareholder of record for your shares, you must effect an
exchange through that institution, which is responsible for the
prompt transmission of your request. If your shares are
registered in your name at the Trust and a selected dealer or
other institution maintains records of your account, that
institution can assist you with your exchange; in some cases, you
must effect exchanges through that institution. In all other
cases, you may make an exchange request directly to the Agent
using the procedures described below.
If you have elected the Telephone Exchange feature on the
Application, the Agent will accept telephone exchange
instructions from anyone. To make a telephone exchange telephone:
800-437-1000 toll free or 908-855-5731
Note the Trust, the Agent, and the Distributor will not
be responsible for any losses resulting from unauthorized
telephone transactions if the Agent follows reasonable procedures
designed to verify the identity of the caller. The Agent will
request some or all of the following information: account name(s)
and number, name of the caller, the social security number
registered to the account and personal identification. The Agent
may also record calls. You should verify the accuracy of
confirmation statements immediately upon receipt.
If you have not elected the Telephone Exchange feature,
you must complete and return a form which is available from the
Distributor.
Exchanges will be effected at the relative exchange
prices of the shares being exchanged next determined after
receipt by the Agent of your exchange request. The exchange
prices will be the respective net asset values of the shares,
unless a sales charge is to be deducted in connection with an
exchange of shares, in which case the exchange price of shares of
a Bond or Equity Fund will be their public offering price. Prices
for exchanges are determined in the same manner as for purchases
of the Trust's shares. See "How to Invest in the Trust".
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see the Additional Statement); no representation is made as to
the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid
by Pacific Capital Tax-Free Cash Assets Trust (a tax-free
Money-Market Fund) are exempt from regular Federal income tax,
and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Treasuries Cash Assets Trust (which invests
in U.S. Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund are taxable.
If your state of residence is not the same as that of the issuers
of obligations in which a tax-free municipal Bond Fund or a
tax-free Money-Market Fund invests, the dividends from that fund
may be subject to income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of such a Bond Fund or a tax-free Money-Market Fund under
the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Trust's
performance including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes sales charge) for 1- and 5-year periods and for a period
since the inception of the Trust, to the extent applicable,
through the end of such periods, assuming reinvestment (without
sales charge) of all distributions. The Trust may also furnish
total return quotations for other periods or based on
investments at various sales charge levels or at net asset value.
For such purposes total return equals the total of all income and
capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price. See the Additional Statement.
Current yield reflects the income per share earned by each
of the Trust's portfolio investments; it is calculated by (i)
dividing the Trust's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable
investment that would be required to produce an after-tax yield
equivalent to that of the Trust, which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
the Trust's yield (calculated as indicated) by one minus a stated
income tax rate and by adding the product to the taxable portion
(if any) of the Trust's yield. See the Additional Statement.
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities
and Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will
be paid to the Trust's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted
to shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the
Trust during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Trust's distribution rate (calculated as
indicated above). The current distribution rate, unlike yield
figures, is not limited to investment performance, but takes into
account expenses as well; it also differs from the current yield
computation because it could include distributions to
shareholders from sources, if any, other than dividends and
interest, such as short-term capital gains or return of capital.
If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Trust's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge on the purchase of shares, but not on reinvestment
of income dividends. The investment results of the Trust, like
all other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent what
an investment may earn in the future or what the Trust's yield,
tax equivalent yield, distribution rate, taxable equivalent
distribution rate or total return may be in any future period.
The annual report of the Trust contains additional performance
information that will be made available upon request and without
charge.
Description of the Trust and its Shares
The Trust is an open-end, non-diversified management
investment company organized in 1985 as a Massachusetts business
trust. It commenced operations in June, 1986. (See "Investment of
the Trust's Assets" for further information about the Trust's
status as "non-diversified"). The Declaration of Trust permits
the Trustees to issue an unlimited number of full and fractional
shares and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the
proportionate beneficial interests in the Trust. Each share
represents an equal proportionate interest in the Trust with each
other share of its class; shares of the respective classes
represent proportionate interests in the Trust in accordance with
their respective net asset values. Upon liquidation of the Trust,
shareholders are entitled to share pro-rata in the net assets of
the Trust available for distribution to shareholders, in
accordance with the respective net asset values of the shares of
each of the Trust's classes at that time. All shares are
presently divided into three classes; however, if they deem it
advisable and in the best interests of shareholders, the Board of
Trustees of the Trust may create additional classes of shares
(subject to rules and regulations of the Securities and Exchange
Commission or by exemptive order) or the Board of Trustees may,
at its own discretion, create additional series of shares, each
of which may have separate assets and liabilities (in which case
any such series will have a designation including the word
"Series"). See the Additional Statement for further information
about possible additional series. Shares are fully paid and
non-assessable, except as set forth under the caption "General
Information" in the Additional Statement; the holders of shares
have no pre-emptive or conversion rights.
Description of Institutional Class Shares
The Trust also has Institutional Class Shares ("Class Y
Shares"). Class Y Shares are offered only to institutions acting
for investors in a fiduciary, advisory, agency, custodial or
similar capacity, and are not offered directly to retail
customers. Class Y Shares are offered at net asset value with no
sales charge, no redemption fee, no contingent deferred sales
charge and no distribution fee. Institutional Class Shares are
not offered by this Prospectus.
Ownership of Shares of the Trust
Of the shares of the Trust outstanding on *** [a date
within 30 days of the date of the Prospectus] ***, all of which
were Class A Shares, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
P.O. Box 30561, New Brunswick, NJ, held of record ***** shares
(***%). The Trust's management is not aware of any person
beneficially owning more than 5% of its outstanding shares as of
such date. On the basis of information received from those
holders the Trust's management believes that all of these shares
are held for the benefit of brokerage clients.
Voting Rights
At any meeting of shareholders, shareholders are entitled
to one vote for each dollar of net asset value (determined as of
the record date for the meeting) per share held (and
proportionate fractional votes for fractional dollar amounts).
Shareholders will vote on the election of Trustees and on other
matters submitted to the vote of shareholders. Shares vote by
classes on any matter specifically affecting one or more classes,
such as an amendment of an applicable part of the Distribution
Plan. No amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of a majority of the
outstanding shares of the Trust, except that the Trust's Board of
Trustees may change the name of the Trust. The Trust may be
terminated (i) upon the sale of its assets to another issuer, or
(ii) upon liquidation and distribution of the assets of the
Trust, in either case if such action is approved by the vote of
the holders of a majority of the outstanding shares of the Trust.
If not so terminated, the Trust will continue indefinitely.
<PAGE>
This table relates only to Class Y Shares and does not relate to the
shares offered by this Prospectus. It is provided for your information
only.
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
TABLE OF EXPENSES
<S> <C>
Class Y
Shareholder Transaction Expenses Shares
Maximum Sales Charge Imposed on Purchases None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fees None
Exchange Fee None
Annual Trust Operating Expenses (1)
(as a percentage of average net assets)
Investment Advisory Fee 0.20%
All other expenses 0.39%
Administration Fee 0.20%
Other Expenses 0.19%
Total Trust Operating Expenses 0.59%
Example (2)
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and
redemption at the end of each time period:
1 Year $6
3 Years 19
5 Years 33
10 Years 74
<FN>
(1) Estimated based upon actual expenses incurred by the Trust during its
most recent fiscal year. During that period, only Class A shares were
outstanding.
</FN>
<FN>
(2) The expense example is based upon the above annual Trust
operating expenses. It is also based upon amounts at the
beginning of each year which includes the prior year's
assumed results. A year's results consist of an assumed
5% annual return less total annual operating expenses; the
expense ratio was applied to an assumed average balance (the year's
starting investment plus one-half the year's results). Each
figure represents the cumulative expenses so determined for
the period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL FUNDS USE THE
5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE.
The purpose of the above table is to assist the investor in understanding
the various costs that an investor in the Trust will bear directly or
indirectly. The assumed 5% annual return should not be interpreted as a
prediction of an actual return, which may be higher or lower.
<PAGE>
APPLICATION FOR TAX-FREE TRUST OF ARIZONA
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
1-800-437-1000
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship unless
otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodians First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minors First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minors Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employers Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident andnot 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
Make check payable to: TAX-FREE TRUST OF ARIZONA
Please indicate class of shares:
__ Front-Payment Class Shares ("Class A Shares")
__ Level-Payment Class Shares ("Class C Shares")
If no share class is is marked, investment will automatically be made in
Class A Shares.
Amount of investment $________________ Minimum initial investment $1,000
OR
___ Check enclosed for $_________________ (Minimum $100)
You must complete Step 3, Section A for Automatic Investments of at least
$100 per month, complete Step 4, Sections A & B and ATTACH A PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend.
(A Financial Institution is a commercial bank, savings bank or credit
union.)
___ Mail check to my/our address listed in Step 1.
C. LETTER OF INTENT
APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this application
___ Yes ___ No
I/We intend to invest in Class A Shares of the Trust during the 13-month
period from the date of my/our first purchase pursuant to this Letter (which
purchase cannot be more than 90 days prior to the date of this Letter), an
aggregate amount (excluding any reinvestment of dividends or distributions)
of at least $25,000 which, together with my/our present holdings of Trust
shares (at public offering price on date of this Letter), will equal or
exceed the minimum amount checked below:
___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000
___ $500,000 ___ $1,000,000 ___ $2,500,000 ___ $5,000,000
<PAGE>
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 Tax-Free Trust of Arizona 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
Trust toll-free at 1-800-437-1000. 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)
APPLICABLE TO CLASS A SHARES ONLY.
Application must be received in good order at least 2 weeks prior to 1st
actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account, subject
to the terms of the Automatic Withdrawal Plan Provisions set forth below. To
realize the amount stated below, Administrative Data Management Corp. (the
Agent) is authorized to redeem sufficient shares from this account at the
then current Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable to
a Financial Institution for your account, indicate Financial Institution
name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquila SM Group of Funds by telephone.
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-437-1000
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus.
Except for gross negligence in acting upon such telephone instructions to
execute an exchange, and subject to the conditions set forth herein, I/we
understand and agree to hold harmless the Agent, each of the Aquila Funds,
and their respective officers, directors, trustees, employees, agents and
affiliates against any liability, damage, expense, claim or loss, including
reasonable costs and attorneys fees, resulting from acceptance of, or acting
or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
TO MAKE AN EXPEDITED REDEMPTION, CALL THE AGENT AT 1-800-437-1000
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
<PAGE>
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the Agent,
Administrative Data Management Corp., and to pay such sums in accordance
therewith, provided my/our account has sufficient funds to cover such drafts
or debits. I/We further agree that your treatment of such orders will be the
same as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you receive
my/our written instructions to cancel this service. I/We also agree that if
any such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
Financial Institution Account Number _______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted
pursuant to the above authorization shall be subject to the
provisions of the Operating Rules of the National Automated
Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic
debit in the normal course of business initiated by the Agent
(except any loss due to your payment of any amount drawn against
insufficient or uncollected funds), provided that you promptly
notify us in writing of any claim against you with respect to
the same, and further provided that you will not settle or
pay or agree to settle or pay any such claim without the written
permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and expenses
in the event that you dishonor, with or without cause, any such electronic
debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the 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. I/We acknowledge that shares purchased either through
Automatic Investment or Telephone Investment are subject to applicable
sales 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 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 Trust, Corporations or Associations, this form must be accompanied by
proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
<PAGE>
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 Trusts 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
1-800-437-1020 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.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor
is entitled to make each purchase at the public offering price
applicable to a single transaction of the dollar amount checked
above, and agrees to be bound by the terms and conditions applicable to
Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the investor's
first purchase do not aggregate $25,000, or, if such purchases added to the
investor's present holdings do not aggregate the minimum amount specified
above, the investor will pay the increased amount of sales charge prescribed
in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be
at the rate applicable to the minimum amount of the investor's specified
intended purchases checked above. If the investor's actual purchases do not
reach this minimum amount, the commissions previously paid to the
dealer will be adjusted to the rate applicable to the investor's total
purchases. If the investor's purchases exceed the dollar amount of the
investor's intended purchases and pass the next commission break-point,
the investor shall receive the lower sales charge, provided that the
dealer returns to the Distributor the excess of commissions previously
allowed or paid to him over that which would be applicable to the
amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of
Intent in placing any future purchase orders for the investor
while this Letter is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3% of
the dollar amount specified in the Letter of Intent (computed to the
nearest full share) shall be held in escrow in shares of the Trust by the
Agent. All dividends and any capital distributions on the escrowed shares
will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to completion
of the purchase requirement under the Letter will be deducted from the
amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchases, the investor
must remit to the Distributor an amount equal to the difference between
the dollar amount of sales charges actually paid and the amount of
sales charges which would have been paid if the total amount
purchased had been made at a single time. If such difference in sales
charges is not paid within twenty days after receipt of a request
from the Distributor or the dealer, the Distributor will, within sixty
days after the expiration of the Letter, redeem the number of escrowed
shares necessary to realize such difference in sales charges. Full
shares and any cash proceeds for a fractional share remaining after
such redemption will be released to the investor. The escrow of shares
will not be released until any additional sales charge due has been
paid as stated in this section.
4. By checking Box 2c and signing the Application, the investor irrevocably
constitutes and appoints the Agent or the Distributor as his attorney to
surrender for redemption any or all escrowed shares on the books of the
Trust.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Trust purchased for and
held under the Plan, but the Agent will credit all such shares to the
Planholder on the records of the Trust. Any share certificates now held by
the Planholder may be surrendered unendorsed to the Agent with the
application so that the shares represented by the certificate may be held
under the Plan.
3. Dividends and distributions will be reinvested in shares of the Trust at
Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of business
on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice (in
proper form in accordance with the requirements of the then current
Prospectus of the Trust) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Trust's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Trust. The Agent will also terminate the Plan upon receipt
of evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of the Plan by the Agent or the Trust, shares
remaining unredeemed will be held in an uncertificated account in the name
of the Planholder, and the account will continue as a dividend-
reinvestment, uncertificated account unless and until proper instructions
are received from the Planholder, his executor or guardian, or as
otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action taken
or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for the
Trust, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may be
made, such investment should normally be an amount equivalent to three
times the annual withdrawal or $5,000, whichever is less.
<PAGE>
[Prospectus cover]
INVESTMENT ADVISER
Bank One, Arizona, NA
Bank One Center
241 North Central Avenue
Phoenix, Arizona 85004
ADMINISTRATOR AND FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Arthur K. Carlson
Thomas W. Courtney
William L. Ensign
Diana P. Herrmann
John C. Lucking
Anne J. Mills
William T. Quinsler
OFFICERS
Lacy B. Herrmann, President
William C. Wallace, Senior Vice President
Susan A. Cook, Vice President
Kristian P. Kjolberg, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
Table of Contents
HIGHLIGHTS 2
TABLE OF EXPENSES 4
FINANCIAL HIGHLIGHTS 5
INTRODUCTION 6
INVESTMENT OF THE TRUST'S ASSETS 6
INVESTMENT RESTRICTIONS 12
NET ASSET VALUE PER SHARE 12
HOW TO INVEST IN THE TRUST 13
HOW TO REDEEM YOUR INVESTMENT 18
AUTOMATIC WITHDRAWAL PLAN 21
MANAGEMENT ARRANGEMENTS 22
DIVIDEND AND TAX INFORMATION 25
EXCHANGE PRIVILEGE 28
GENERAL INFORMATION 30
APPLICATION AND LETTER OF INTENT
LOGO
A TAX-FREE
INCOME INVESTMENT
PROSPECTUS
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
Tax-Free Trust of Arizona
380 Madison Avenue, Suite 2300
New York, New York 10017
800-437-1020
212-697-6666
Prospectus March ***, 1996
Institutional Class Shares
Class Y Shares
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Arizona and
regular Federal income taxes as is consistent with preservation of
capital by investing in municipal obligations which pay interest
exempt from Arizona State and Federal income taxes. These municipal
obligations must, at the time of purchase, either be rated within
the four highest credit ratings (considered as investment grade)
assigned by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or, if unrated, be determined to be of comparable
quality by the Trust's Adviser, Bank One, Arizona, NA.
There are three classes of shares of the Trust: Institutional
Class Shares ("Class Y Shares") are offered only to institutions
acting for investors in a fiduciary, advisory, agency custodial or
similar capacity, and are not offered directly to retail customers.
Class Y Shares are offered at net asset value with no sales charge,
no redemption fee, no contingent deferred sales charge and no
distribution fee. (See "How to Purchase Class Y Shares.") The other
classes, Front-Payment Class Shares ("Class A Shares") and Level-
Payment Class Shares ("Class C Shares") are not offered by this
prospectus. See "General Information - Description of Classes."
The Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information about the Trust dated March ***, 1996 (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Trust's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Trust and its management not included in the
Prospectus. The Additional Statement is incorporated by reference
in its entirety in the Prospectus. Only when you have read both the
Prospectus and the Additional Statement are all material facts
about the Trust available to you.
Shares of the Trust are not deposits in, obligations of or
guaranteed or endorsed by Bank One Arizona, NA, Banc One
Corporation or its bank or non-bank affiliates or by any other
bank. Shares of the Trust are not insured or guaranteed by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or
any other governmental agency or government sponsored agency of the
Federal Government or any State.
An investment in the Trust involves investment risks,
including possible loss of the principal amount invested.
For Purchase, Redemption or Account inquiries contact
The Trust's Transfer Agent: Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-437-1000 toll free or 908-855-5731
For General Inquiries & Yield Information,
Call 800-437-1020 toll free or 212-986-8826
The Prospectus Should Be Read and Retained For Future
Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HIGHLIGHTS
Tax-Free Trust of Arizona (the "Trust"), founded by
Aquila Management Corporation in 1986 and one of the Aquilasm
Group of Funds, is an open-end mutual fund which invests in
tax-free municipal bonds, the kind of obligations issued by the
State of Arizona, its counties and various other local
authorities to finance such long-term projects as schools, roads,
hospitals water facilities and other vital public purpose
projects throughout Arizona. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the
Trust invests pay interest which is exempt from both regular
Federal and State of Arizona income taxes. Dividends paid by the
Trust from this income are likewise free of both such taxes. It
is, however, possible that in certain circumstances, a small
portion of the dividends paid by the Trust will be subject to
income taxes. In addition, the Federal alternative minimum tax
("AMT") may apply to some investors, but its impact will be
limited, since not more than 20% of the Trust's net assets can be
invested in obligations paying interest which is subject to this
tax. The receipt of exempt-interest dividends from the Trust may
result in some portion of social security payments or railroad
retirement benefits being included in taxable income. Capital
gains distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Investment Grade - The Trust will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard and Poor's Corporation, or are
determined by the Adviser to be of comparable quality. In general
there are nine separate credit ratings, ranging from the highest
to the lowest credit ratings for municipal obligations.
Obligations within the top four ratings are considered
"investment grade" but those in the fourth rating may have
speculative characteristics as well. (See "Investment of the
Trust's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $100 or more each month. See the
Application which is in the back of the Prospectus. (See "How to
Invest in the Trust," which includes applicable sales charge
information.)
Alternative Purchase Plans - The Trust provides
alternative ways to invest. (See "Description of the Trust and
its Shares.") For this purpose the Trust offers classes of
shares, which differ in their expense levels and sales charges:
Institutional Class Shares ("Class Y Shares")
are offered by this Prospectus. Class Y
Shares are offered only to institutions
acting for investors in a fiduciary,
advisory, agency custodial or similar
capacity, and are not offered directly to
retail customers. Class Y Shares are offered
at net asset value with no sales charge no
redemption fee, no contingent deferred sales
charge and no distribution fee. (See "How to
Purchase Class Y Shares.")
The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares") are
not offered by this prospectus. See "General Information -
Description of Classes."
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to
you, directly deposited into your financial institution account
or automatically reinvested without sales charge in additional
shares of the Trust at the then-current net asset value. Specific
classes of shares will have different dividend amounts due to
their particular expense levels. (See "Dividend and Tax
Information.")
Additional Investments - You may make additional
investments at any time and in any amount, directly, or if in an
amount of $50 or more, through the convenience of having your
investment electronically transferred from your financial
institution account into the Trust by Automatic Investment or
Telephone Investment. (See "How to Invest in the Trust.")
Many Different Issues - You have the advantages of a
portfolio which consists of over 235 issues with different
maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - The Trust provides you with
experienced, locally-based professional investment management by
Bank One, Arizona, NA, formerly The Valley National Bank of
Arizona, which serves as the Trust's Investment Adviser. The
Trust currently pays fees at a rate of up to 0.20 of 1% of
average annual net assets to each of its Adviser and
Administrator. Total advisory and administration fees are at a
rate of 0.40 of 1% of average annual net assets, although some or
all of these fees may be waived. (See "Table of Expenses" and
"Management Arrangements.")
The Adviser is a subsidiary of BANC ONE CORPORATION
("Banc One"), based in Columbus, Ohio. The Adviser serves Arizona
through 257 offices located in communities throughout the state's
15 counties. The Trust Division of the Adviser had, as of June
30, 1995, approximately $8.0 billion of assets under
administration, not including any other registered investment
companies but including approximately $1.2 billion in municipal
bonds. Banc One is a multi-bank holding company, incorporated
under the laws of the State of Ohio. As of June 30, 1995, Banc
One indirectly owned all of the stock of 65 banks operating with
more than 1,408 offices in the states of Arizona, Colorado,
Illinois, Indiana, Kentucky, Ohio, Oklahoma, Texas, Utah, West
Virginia and Wisconsin. As of that date, Banc One, its affiliated
banks and its non-bank subsidiaries had total assets of
approximately $86.8 billion.
Redemptions - Liquidity - You may redeem any amount of
your Class Y Shares account on any business day at the next
determined net asset value by telephone, FAX or mail request,
with proceeds being sent to a predesignated financial
institution, if you have elected Expedited Redemption. Proceeds
will be wired or transferred through the facilities of the
Automated Clearing House, wherever possible, upon request, if in
an amount of $1,000 or more, or will be mailed. For these and
other redemption procedures see "How to Redeem Your Investment."
There are no redemption fees for redemption of Class Y shares.
Certain Stabilizing Measures - The Trust will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
changes in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class Y Shares of the Trust
into Class Y Shares of other Aquila-sponsored tax-free municipal
bond mutual funds, or an equity fund. You may also exchange them
into shares of certain Aquila sponsored money market funds. The
exchange prices will be the respective net asset values of the
shares. (See "Exchange Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Trust's portfolio securities, which fluctuate with market
conditions including prevailing interest rates. Accordingly when
shares are redeemed the proceeds may be more or less than
original cost. (See "Factors Which May Affect the Value of the
Trust's Investments and Their Yields.") The Trust's assets, being
primarily or entirely Arizona issues, are subject to economic and
other conditions affecting Arizona. (See "Risks and Special
Considerations Regarding Investment in Arizona Obligations.")
Moreover, the Trust is classified as a "non-diversified"
investment company, because it may choose to invest in the
obligations of a relatively limited number of issuers. (See
"Investment of the Trust's Assets.") The Trust may also, to a
limited degree, buy and sell futures contracts and options on
futures contracts, although since inception the Trust has not
done so and has no present intention to do so. There may be risks
associated with these practices. (See "Certain Stabilizing
Measures.")
Statements and Reports - You will receive statements of
your account monthly as well as each time you add to your account
or take money out. Additionally, you will receive a Semi-Annual
Report and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
TABLE OF EXPENSES
<S> <C>
Class Y
Shareholder Transaction Expenses Shares
Maximum Sales Charge Imposed on Purchases None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fees None
Exchange Fee None
Annual Trust Operating Expenses (1)
(as a percentage of average net assets)
Investment Advisory Fee 0.20%
All other expenses 0.39%
Administration Fee 0.20%
Other Expenses 0.19%
Total Trust Operating Expenses 0.59%
Example (2)
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and
redemption at the end of each time period:
1 Year $6
3 Years 19
5 Years 33
10 Years 74
<FN>
(1) Estimated based upon actual expenses incurred by the Trust during its
most recent fiscal year. During that period, only Class A shares were
outstanding.
</FN>
<FN>
(2) The expense example is based upon the above annual Trust operating
expenses. It is also based upon amounts at the beginning of each
year which includes the prior year's assumed results. A year's
results consist of an assumed 5% annual return less total annual
operating expenses; the expense ratio was applied to an assumed
average balance (the year's starting investment plus one-half the
year's results). Each figure represents the cumulative expenses so
determined for the period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL FUNDS USE THE
5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE.
The purpose of the above table is to assist the investor in understanding
the various costs that an investor in the Trust will bear directly or
indirectly. The assumed 5% annual return should not be interpreted as a
prediction of an actual return, which may be higher or lower.
<PAGE>
The following historical financial information applies only to shares of
the Trust which have been designated Class A Shares, upon adoption of
the class structure described in the Prospectus. Class A Shares are not
offered by this Prospectus. Similar information does not exist for Class
Y Shares which are offered by this Prospectus.
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to the five
years ended June 30, 1995 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is included in the Trust's
financial statements contained in its Annual Report, which are
incorporated by reference into the Additional Statement. The information
provided in the table should be read in conjunction with the financial
statements and related notes. On April 2, 1990, Aquila Management
Corporation, originally the Trust's Administrator and Supplemental
Adviser, became Administrator only.
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.16 $10.84 $10.36 $9.92 $9.77
Income from Investment
Operations:
Net investment income 0.56 0.57 0.62 0.66 0.66
Net gain (loss) on
securities (both
realized and
unrealized) 0.21 (0.60) 0.54 0.43 0.15
Total from Investment
Operations 0.77 (0.03) 1.16 1.09 0.81
Less Distributions:
Dividends from net
investment income (0.56) (0.57) (0.62) (0.65) (0.66)
Distributions from
capital gains - (0.08) (0.06) - -
Total Distributions (0.56) (0.65) (0.68) (0.65) (0.66)
Net Asset Value, End
of Period $10.37 $10.16 $10.84 $10.36 $9.92
Total Return (not
reflecting sales load) 7.89% (0.38)% 11.45% 11.36% 8.57%
Ratios/Supplemental Data
Net Assets, End of
Period (in thousands) $380,745 $372,093 $349,920 $237,433 $175,342
Ratio of Expenses to
Average Net Assets 0.74% 0.70% 0.65% 0.57% 0.58%
Ratio of Net Investment
Income to Average
Net Assets 5.55% 5.36% 5.76% 6.37% 6.68%
Portfolio Turnover
Rate 34.44% 31.20% 18.78% 23.53% 26.83%
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees and the expense offset in custodian fees for uninvested
cash balances would have been:
Net Investment Income $0.56 $0.57 $0.61 $0.65 $0.65
Ratio of Expenses to
Average Net Assets 0.74% 0.71% 0.73% 0.70% 0.74%
Ratio of Net Investment
Income to Average
Net Assets 5.55% 5.35% 5.67% 6.24% 6.52%
<CAPTION>
1990 1989 1988 1987 1986*
<C> <C> <C> <C> <C>
$9.88 $9.47 $9.45 $9.46 $9.60
0.66 0.67 0.67 0.66 0.18
(0.11) 0.41 0.02 (0.01) (0.14)
0.55 1.08 0.69 0.65 0.04
(0.66) (0.67) (0.67) (0.66) (0.18)
- - - - -
(0.66) (0.67) (0.67) (0.66) (0.18)
$9.77 $9.88 $9.47 $9.45 $9.46
5.84% 11.86% 7.68% 7.07% 1.20%(1)
$121,026 $101,584 $83,437 $74,910 $13,012
0.58% 0.53% 0.51% 0.34% 0.44%(2)
6.66% 6.76% 6.95% 7.00% 6.00%(2)
31.11% 24.87% 22.41% 17.19% -
$0.64 $0.64 $0.64 $0.61 $0.16
0.77% 0.78% 0.88% 0.88% 1.00%(2)
6.47% 6.50% 6.58% 6.47% 5.54%(2)
<FN>
(1)Not annualized.
</FN>
<FN>
(2)Annualized.
</FN>
<FN>
*For the period from March 13, 1986 (commencement of operations) to June 30,
1986.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable
investment for individuals, corporations, institutions and
fiduciaries who seek income exempt from Arizona State and regular
Federal income taxes.
You may invest in shares of the Trust as an alternative
to direct investments in Arizona Obligations, as defined below,
which may include obligations of certain non-Arizona issuers. The
Trust offers you the opportunity to keep assets fully invested in
a vehicle that provides a professionally managed portfolio of
Arizona Obligations which may, but not necessarily will, be more
diversified, higher yielding, more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Arizona Obligations. Through the convenience of a
single security consisting of shares of the Trust, you are also
relieved of the inconvenience associated with direct investments
of fixed denominations, including the selecting, purchasing,
handling, monitoring call provisions and safekeeping of Arizona
Obligations.
Arizona Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes; and floating
and variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities
such as highways, bridges, schools, hospitals, housing, mass
transportation, streets, and water and sewer works. Other public
purposes for which municipal obligations may be issued include
the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the obtaining of funds to lend
to other public institutions and facilities.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Arizona State and
regular Federal income taxes as is consistent with the
preservation of capital, the Trust will invest in Arizona
Obligations (as defined below). There is no assurance that the
Trust will achieve its objective, which is a fundamental policy
of the Trust. (See "Investment Restrictions.")
As used in the Prospectus and the Additional Statement,
the term "Arizona Obligations" means obligations, including those
of certain non-Arizona issuers, of any maturity which pay
interest which, in the opinion of bond counsel or other
appropriate counsel, is exempt from regular Federal income taxes
and Arizona income taxes. Although exempt from regular Federal
income tax, interest paid on certain types of Arizona
Obligations, and dividends which the Trust might pay from this
interest, are preference items as to the Federal alternative
minimum tax; for further information, see "Dividend and Tax
Information." As a fundamental policy, at least 80% of the
Trust's net assets will be invested in Arizona Obligations the
income paid upon which will not be subject to the alternative
minimum tax; accordingly, the Trust can invest up to 20% of its
net assets in obligations which are subject to the Federal
alternative minimum tax. The Trust may refrain entirely from
purchasing these types of Arizona Obligations. See "Dividends and
Tax information."
The non-Arizona bonds or other obligations the interest
on which is exempt under present law from regular Federal and
Arizona income taxes are the bonds or other obligations issued by
or under the authority of Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands. The Trust will not purchase
Arizona Obligations of non-Arizona issuers unless Arizona
Obligations of Arizona issuers of the desired quality, maturity
and interest rate are not available. As an Arizona-oriented fund,
at least 65% of the Trust's total assets will be invested in
Arizona Obligations of Arizona issuers. The Trust invests only in
Arizona Obligations and, possibly, in Futures and options on
Futures (see below) for protective (hedging) purposes.
In general, there are nine separate credit ratings,
ranging from the highest to the lowest quality standards for
municipal obligations. So that the Trust will have a portfolio of
quality-oriented (investment grade) securities, the Arizona
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations
so rated, by Bank One, Arizona, NA (the "Adviser"), the Trust's
investment adviser (subject to the direction and control of the
Trust's Board of Trustees). Municipal obligations rated in the
fourth highest credit rating are considered by such rating
agencies to be of medium quality and thus may present investment
risks not present in more highly rated obligations. Such bonds
lack outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. If after purchase the rating of
any rated Arizona Obligation is downgraded such that it could not
then be purchased by the Trust, or, in the case of an unrated
Arizona Obligation, if the Adviser determines that the unrated
obligation is no longer of comparable quality to those rated
obligations which the Trust may purchase, it is the current
policy of the Trust to cause any such obligation to be sold as
promptly thereafter as the Adviser in its discretion determines
to be consistent with the Trust's objectives; such obligation
remains in the Trust's portfolio until it is sold. In addition,
because a downgrade often results in a reduction in the market
price of a downgraded obligation, sale of such an obligation may
result in a loss. See Appendix A to the Additional Statement for
further information as to these ratings. The Trust can purchase
industrial development bonds only if they meet the definition of
Arizona Obligations, i.e., the interest on them is exempt from
Arizona State and regular Federal income taxes.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). The Trust also intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code
(the "Code"). One of the tests for such qualification under the
Code is, in general, that at the end of each fiscal quarter of
the Trust, at least 50% of its assets must consist of (i) cash;
and (ii) securities which, as to any one issuer, do not exceed 5%
of the value of the Trust's assets. If the Trust had elected to
register under the 1940 Act as a "diversified" investment
company, it would have to meet the same test as to 75% of its
assets. The Trust may therefore not have as much diversification
among securities, and thus diversification of risk, as if it had
made this election under the 1940 Act. In general, the more the
Trust invests in the securities of specific issuers, the more the
Trust is exposed to risks associated with investments in those
issuers. The Trust's assets, being primarily or entirely Arizona
issues, are accordingly subject to economic and other conditions
affecting Arizona. (See "Risk Factors and Special Considerations
Regarding Investment in Arizona Obligations.")
Certain Stabilizing Measures
The Trust will employ such traditional measures as
varying maturities, upgrading credit standards for portfolio
purchases, broadening diversification and increasing its position
in cash and cash equivalents in attempting to protect against
declines in the value of its investments and other market risks.
There can, however, be no assurance that these will be
successful. Although the Trust has no current intention of using
futures and options, to the limited degree described below, these
may be used to attempt to hedge against changes in the market
price of the Trust's Arizona Obligations caused by interest rate
fluctuations. Futures and options could also provide a hedge
against increases in the cost of securities the Trust intends to
purchase.
Although it does not currently do so, and since inception
has not done so, the Trust may buy and sell futures contracts
relating to indices on municipal bonds ("Municipal Bond Index
Futures") and to U.S. government securities ("U.S. Government
Securities Futures"); both kinds of futures contracts are
"Futures." The Trust may also write and purchase put and call
options on Futures. As a matter of fundamental policy the Trust
will not buy or sell a Future or an option on a Future if
thereafter more than 10% of its net assets would be in initial or
variation margin on such Futures and options on them, and in
premiums on such options. Under an applicable regulatory rule,
the Trust will not enter into Futures or options for which the
aggregate initial margins and premiums paid for options exceed 5%
of the fair market value of the Trust's assets. (See the
Additional Statement.) Under normal market conditions, the Trust
cannot purchase or sell Municipal Bond Index Futures, U.S.
Government Securities Futures, or options on Futures if
thereafter more than 20% of its total assets would consist of
cash, margin deposits on such Futures and margin deposits and
premiums on such options, except for temporary defensive
purposes, i.e., in anticipation of a decline or possible decline
in the value of Arizona Obligations.
The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Trust's portfolio and
the prices of Futures or options purchased or sold by the Trust;
(ii) incorrect forecasts by the Adviser concerning interest rates
which may result in the hedge being ineffective; and (iii)
possible lack of a liquid secondary market for a Future or
option; the resulting inability to close a Futures or options
position could adversely affect the Trust's hedging ability. For
a hedge to be completely effective, the price change of the
hedging instrument should equal the price change of the security
being hedged. The risk of imperfect correlation of these price
changes is increased as the composition of the Trust's portfolio
is divergent from the debt securities underlying the hedging
instrument. To date, the Adviser has had no experience in the use
of Futures or options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits"
established by commodity exchanges which restrict the amount of
change in the contract price allowed during a single trading day.
Thus, once a daily limit is reached, no further trades may be
entered into beyond the limit, thereby preventing the liquidation
of open positions. Prices have in the past reached the daily
limit on a number of consecutive trading days. For further
information about Futures and options, see the Additional
Statement.
When and if the Trust determines to use Futures or
options, the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30 days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.
Participation Interests
The Trust may purchase from financial institutions
participation interests in Arizona Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Trust an
undivided interest in the underlying Arizona Obligations in the
proportion that the Trust's participation interest bears to the
total amount of the underlying Arizona Obligations. All such
participation interests must meet the Trust's credit
requirements. See "Limitation to 10% as to Certain
Investments."
When-Issued and Delayed Delivery Purchases
The Trust may buy Arizona Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring
them. The Arizona Obligations 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 cannot 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. If the
Trust chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Trust places an amount of assets equal in
value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account with the Custodian, which is marked to market
every business day. See the Additional Statement for further
information.
Limitation to 10% as to Certain Investments
The Trust cannot purchase Arizona Obligations that are
not readily marketable if thereafter more than 10% of its net
assets would consist of such investments. However, this 10% limit
does not include any Arizona Obligations as to which the Trust
can exercise the right to demand payment in full within seven
days and as to which there is a secondary market. Floating and
variable rate demand notes and participation interests (including
municipal lease/purchase obligations) are considered illiquid
unless determined by the Board of Trustees to be readily
marketable. See the Additional Statement.
Current Policy as to Certain Obligations
The Trust will not invest more than 25% of its total
assets in (i) Arizona Obligations the interest on which is paid
from revenues of similar type projects or (ii) industrial
development bonds, unless the Prospectus and/or the Additional
Statement are supplemented to reflect the change and to give
additional information.
Factors Which May Affect the Value
of the Trust's Investments and Their Yields
The value of the Arizona Obligations in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Trust buys Arizona Obligations, the value of these
obligations may go down; if these rates go down, the value of
these obligations may go up. Changes in value and yield based on
changes in prevailing interest rates may have different effects
on short-term Arizona Obligations than on long-term obligations.
Long-term obligations (which often have higher yields) may
fluctuate in value more than short-term ones. For this reason,
the Trust may, to achieve a defensive position, shorten the
average maturity of its portfolio.
Risk Factors and Special Considerations
Regarding Investment in Arizona Obligations
The following is a discussion of the general factors that
might influence the ability of Arizona issuers to repay principal
and interest when due on the Arizona Obligations contained in the
portfolio of the Trust. Such information is derived from sources
that are generally available to investors and is believed by the
Trust to be accurate, but has not been independently verified and
may not be complete.
The composition of the Arizona economy has changed
significantly in recent years. Arizona has shifted from a
resource-based economy to one based on high-tech manufacturing,
construction and services. The construction sector recently has
shown an upturn from the cyclical lows associated with several
factors. These factors included a slowing in the rate of growth
of population, over-built conditions in most sub-markets and less
favorable tax treatments. The problems associated with the
phenomenal growth experienced during the 1980's boom, i.e., air
quality, transportation and public infrastructure, are being
addressed by the Arizona legislature and other public bodies.
Most cities in Arizona derive a large portion of their
operating revenues from state-shared sales tax and state-shared
income taxes. As these revenues began to grow at slower rates, or
in some cases to decline, city management found their ability to
trim operating budgets restricted by the relative inflexibility
of fixed debt-service costs. As such, many Arizona municipalities
took advantage of the low interest rate environment during 1992
and 1993 by refinancing outstanding higher coupon bonds to reduce
debt service requirements. Bond funding for new capital
improvements has slowed due to slower economic growth,
insufficient assessed valuation growth and the slower growth of
operating revenues.
Officials throughout the state have been challenged to
manage budgetary strain and set priorities with fewer available
resources. Whether municipalities can maintain fiscal stability
will become increasingly dependent on growth expectations and
municipalities' willingness to reduce spending and manage
revenues. The period of double-digit increases in the tax base
and population and the tax revenues generated by such growth
appears to be over. As such, Arizona municipalities will have to
adapt to a changing and more constricted fiscal environment.
One of the most significant issues facing Arizona
municipalities is the ability to provide water. The Central
Arizona Project is a three hundred thirty-five mile long water
conveyance system designed to take water from the Colorado River
and deliver it to the Phoenix and Tucson metropolitan areas, to
Indian reservations and to farms for irrigation. The project has
been completed to Tucson, but the start of Arizona's obligation
to repay the Federal government its $1.8 billion share of the
project's costs is still subject to negotiation among the
parties. However, demand for the water is currently only
one-third of capacity. The price of water could increase
substantially for cities to cover the cost of the project.
Currently plans are being discussed to maintain the project's
finances and to boost the demand for the water, thus spreading
the projects costs to all its intended users.
In July, 1994, the Supreme Court of Arizona reversed a
lower court ruling and held that the State's statutory scheme for
financing public education is not in compliance with the State's
constitution. The case was remanded to the lower court to
determine whether, in a reasonable time, the Arizona legislature
has taken action to remedy the financing scheme to bring it into
compliance. The Supreme Court has also ruled that its ruling will
be prospective only and that bonded indebtedness incurred under
existing statutes as long as they are in effect are valid and
enforceable. In late 1995, the legislature failed to reach
agreement on a proposed solution. It is not possible to predict
what further court or legislative action will be taken or what
effect such action may have on Arizona Obligations in the Trust's
portfolio or the supply of new Arizona Obligations in the
future.
In October, 1995, a group of taxpayers filed suit against
a municipality challenging the practice used by some localities
in Arizona pursuant to which so-called "Capital Appreciation
Bonds" ("CAB"s) are issued. CABs are zero-coupon bonds that pay
no current interest. The Trust does not own any CABs but does own
conventional issues of localities that have issued CABs. The suit
challenges the further practice whereby a municipality includes
in its bonded indebtedness only the initial principal amount of
its CABs. Under this practice, because the entire principal
amount of the CABs is not included, the municipality can issue
additional conventional bonds without exceeding its legal debt
limit. The legality of the practice is also being considered
before other Arizona agencies and the legislature. It is not
possible to predict the outcome of the suit or these other
actions. However, if CABs were held illegal, it might not be
possible to collect the principal of the CABs when due, and if
CABs were required to be added to bonded indebtedness of the
municipalities that have issued them, there might be an impact on
the overall financial condition of such municipalities. Any of
these matters could adversely affect the liquidity of the market
for Arizona bonds and the supply of new issues.
Inasmuch as the Arizona Obligations in which the Trust
may invest from time to time include general obligation bonds,
revenue bonds, industrial development bonds, and special tax
assessment bonds, and the sensitivity of each of these types of
investments to the general and economic factors discussed above
may vary significantly, no assurance can be given as to the
effect, if any, that these factors, individually or in the
aggregate, may have on any individual Arizona Obligation or on
the Trust as a whole.
Obligations of non-Arizona issuers are subject to general
economic and other factors affecting those issuers.
INVESTMENT RESTRICTIONS
The Trust has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and Additional Statement as "fundamental policies,"
cannot be changed unless the holders of a "majority," as defined
in the 1940 Act, of the Trust's outstanding shares vote to change
them. (See the Additional Statement for a definition of such a
majority.) All other policies can be changed from time to time by
the Board of Trustees without shareholder approval. Some of the
more important of the Trust's fundamental policies, not otherwise
identified in the Prospectus, are set forth below; others are
listed in the Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than the
Arizona Obligations meeting the standards stated under
"Investment of the Trust's Assets"; the Trust can also purchase
and sell Futures and options on them within the limits there
discussed.
2. The Trust has industry investment requirements.
The Trust cannot buy the obligations 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; the Trust
will consider that a non-governmental user of facilities financed
by industrial development bonds is an issuer in an industry.
3. The Trust cannot make loans.
The Trust can buy those Arizona Obligations which it is
permitted to buy (see "Investment of the Trust's Assets"); this
is investing, not making a loan. The Trust cannot lend its
portfolio securities.
4. The Trust can borrow only 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. However, this shall not
prohibit margin arrangements in connection with the purchase or
sale of Municipal Bond Index Futures, U.S. Government Securities
Futures or options on them, or the payment of premiums on those
options. Interest on borrowings would reduce the Trust's income.
Except in connection with borrowings, the Trust will not issue
senior securities. The Trust will not purchase any Arizona
Obligations, Futures or options on Futures while it has any
outstanding borrowings which exceed 5% of the value of its total
assets.
NET ASSET VALUE PER SHARE
The Trust's net asset value and offering price per share
of each class are determined as of 4:00 p.m. New York time on
each day that the New York Stock Exchange is open (a "business
day"). However, Futures and options on them are valued at the
close of the principal commodities exchange on which they are
traded, which may be later than 4:00 p.m. New York time. The net
asset value per share is determined by dividing the value of the
net assets of the Trust (i.e., the value of the assets less
liabilities) by the total number of shares outstanding.
Determination of the value of the Trust's assets is subject to
the direction and control of the Trust's Board of Trustees. In
general it is based on market value, except that Arizona
Obligations maturing in 60 days or less are generally valued at
amortized cost; see the Additional Statement for further
information.
HOW TO INVEST IN THE TRUST
Institutional Class Shares (Class Y Shares) are offered
only to institutional investors for investments held in a
fiduciary, advisory, agency, custodial or similar capacity, or
through them to their clients, and are not offered to directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee. (See "How to Purchase Class
Y Shares" and "Alternative Purchase Plans.")
Class Y Shares of the Trust may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to Administrative Data
Management Corp. (the "Agent") at the address on the Application.
There is no sales charge on initial or subsequent investments.
You are urged to complete an Application and send it to the Agent
so that expedited shareholder services can be established at the
time of your investment.
The minimum initial investment for Class Y Shares is
$1,000, except as otherwise stated in the Prospectus or
Additional Statement. You may also make an initial investment of
at least $100 by establishing an Automatic Investment Program for
Automatic investments of at least $100 per month and paying at
least $100.(See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank, credit
union or a United States branch of a foreign commercial bank
(each of which is a "Financial Institution"). You may make
subsequent investments in Class Y Shares any amount (unless you
have an Automatic Withdrawal Plan). Your subsequent investment
may be made through a selected dealer or by forwarding payment to
the Agent, with the name(s) of account owner(s), the account
number and the name of the Trust. With subsequent investments,
please send the pre-printed stub attached to the Trust's
confirmations.
Subsequent investments of $50 or more in Class Y Shares
can be made by electronic funds transfer from your demand account
at a Financial Institution. To use electronic funds transfer for
your purchases, your Financial Institution must be a member of
the Automated Clearing House and the Agent must have received
your completed Application designating this feature, or, after
your account has been opened, a Ready Access Features form
available from the Distributor or the Agent. A pre-determined
amount can be regularly transferred for investment ("Automatic
Investment"), or single investments can be made upon receipt by
the Agent of telephone instructions from anyone ("Telephone
Investment"). The maximum amount of each Telephone Investment is
$50,000. Upon 30 days' written notice to shareholders, the Trust
may modify or terminate these investment methods at any time or
charge a service fee, although no such fee is currently
contemplated.
The offering price for Class Y Shares is the net asset
value per share. The offering price determined on any day applies
to all purchase orders received by the Agent from selected
dealers that day, except that orders received by it after 4:00
p.m. New York time will receive that day's offering price only if
such orders were received by selected dealers from customers
prior to such time and transmitted to the Distributor prior to
its close of business that day (normally 5:00 p.m. New York
time); if not so transmitted, such orders will be filled at the
next determined offering price. Selected dealers are required to
transmit orders promptly. Investments by mail are made at the
offering price next determined after receipt of the purchase
order by the Agent. Purchase orders received on other than a
business day will be executed on the next succeeding business
day. Purchases by Automatic Investment and Telephone Investment
will be executed on the first business day occurring on or after
the date an order is considered received by the Agent at the
price determined on that day. In the case of Automatic Investment
your order will be executed on the date you specified for
investment at the price determined on that day. If that day is
not a business day your order will be executed at the price
determined on the next business day. In the case of Telephone
Investment your order will be filled at the next determined
offering price. If your order is placed after the time for
determining the net asset value of the Trust shares for any day
it will be executed at the price determined on the following
business day. The sale of shares will be suspended during any
period when the determination of net asset value is suspended and
may be suspended by the Distributor when the Distributor judges
it in the Trust's best interest to do so.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Trust. Additional compensation may
include payment or partial payment for advertising of the Trust's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Trust's shares to qualify for
the incentives to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Trust
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Trust will affect the price you pay for shares or
the amount that the Trust will receive from such sales. Any of
the foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and Dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Trust (rounded to the nearest 1/1000th
of a share). No Share certificates will be issued for Class Y
Shares.
The Trust and the Distributor reserve the right to reject
any order for the purchase of shares. In addition, the offering
of shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan")
under Rule 12b-1 (the "Rule") under the 1940 Act. The Rule
provides in substance that an investment company may not engage
directly or indirectly in financing any activity which is
primarily intended to result in the sale of its shares except
pursuant to a written plan adopted under the Rule. No payments
under the Plan from assets represented by Class Y Shares are
authorized.
The Plan contains provisions designed to protect against
any claim against or involving the Trust that some of the
expenses which might be considered to be sales-related which the
Trust pays or may pay come within the purview of the Rule. The
Trust believes that except for payments made with respect to
Class A Shares and Class C Shares it is not financing any such
activity and does not consider any payment enumerated in such
provisions as so financing any such activity. If and to the
extent that any payment as specifically listed in the Plan (see
the Additional Statement) is considered to be primarily intended
to result in or as indirect financing of any activity which is
primarily intended to result in the sale of Trust shares, these
payments are authorized under the Plan. In addition, if the
Administrator, out of its own funds, makes payment for
distribution expenses such payments are authorized. See the
Additional Statement.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your Class Y Shares at
the net asset value next determined after acceptance of your
redemption request at the Agent. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Trust, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. There are no redemption fees or penalties on
redemption of Class Y Shares. A redemption may result in a
transaction taxable to you.
If a selected dealer or other financial institution
serves as shareholder of record for your shares, you must redeem
through that institution, which is responsible for the prompt
transmission of redemption requests. If your shares are
registered in your name at the Trust and a selected dealer or
other institution maintains records of your account, that
institution can assist you with your redemption; in some cases,
you must redeem through that institution. In all other cases, you
may make a redemption request directly to the Agent using the
procedures described below.
For your convenience the Trust offers expedited
redemption for Class Y Shares to provide you with a high level of
liquidity for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Trust and the check is sent to your address of record,
provided that there has not been a change of your
address of record during the 30 days preceding your
redemption request. You can make only one request for
telephone redemptions by check in any 7-day period.
See "Redemption Payments", below for payment methods.
Your name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-437-1000 toll free or 908-855-5731
Note: The Trust, the Agent, and the Distributor will not
be responsible for any losses resulting from unauthorized
telephone transactions if the Agent follows reasonable procedures
designed to verify the identity of the caller. The Agent will
request some or all of the following information: account name(s)
and number, name of the caller and the social security number
registered to the account and personal identification. The Agent
may also record calls. You should verify the accuracy of
confirmation statements immediately upon receipt.
2. By FAX or Mail. You may also request redemption
payments to a predesignated Financial Institution account by
a letter of instruction sent to: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, by FAX at
908-855-5730 or by mail at 581 Main Street, Woodbridge, NJ
07095-1198, indicating account names(s), account number,
amount to be redeemed, and any payment directions, signed by
the registered holder(s). Signature guarantees are not
required. See "Redemption Payments", below for payment
methods.
If you wish to use the above procedures you should so
elect on the Expedited Redemption section of the Application or
the Ready Access Features form and provide the required
information concerning your Financial Institution account number.
The Financial Institution account must be in the exclusive
name(s) of the shareholder(s) as registered with the Trust. You
may change the designated Financial Institution account at any
time by completing and returning a Ready Access Features form.
For protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
If you own Class Y shares registered on the books of the
Trust, and you have not elected Expedited Redemption to a
predesignated Financial Institution account, you must use the
Regular Redemption Method. Under this redemption method you
should send a letter of instruction to: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main Street,
Woodbridge, NJ 07095-1198, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the
Trust);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
below.
For your redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Additional documentation may be
required where shares are held by certain types of shareholders
such as corporations, partnerships, trustees or executors, or if
redemption is requested by other than the shareholder of record.
If redemption proceeds of $50,000 or less are payable to the
record holder and are to be sent to the record address, no
signature guarantee is required. In all other cases, signatures
must be guaranteed by a member of a national securities exchange,
a U.S. bank or trust company, a state-chartered savings bank, a
federally chartered savings and loan association, a foreign bank
having a U.S. correspondent bank, a participant in the Securities
Transfer Association Medallion Program (STAMP), The Stock
Exchanges Medallion Program (SEMP) or The New York Stock
Exchange, Inc. Medallion Signature Program (MSP). A notary public
is not an acceptable signature guarantor.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Trust may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Trust has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Trust
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee.
If you use a dealer to arrange for a redemption, it may charge
you a fee for this service.
The Trust will normally make payment for all shares
redeemed on the next business day (see "Net Asset Value Per
Share") following acceptance of the redemption request made in
compliance with one of the redemption methods specified above.
Except as set forth below, in no event will payment be made more
than seven days after acceptance of such a redemption request.
However, the right of redemption may be suspended or the date of
payment postponed (i) during periods when the New York Stock
Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the
Securities and Exchange Commission by rule or regulation; (ii)
during periods in which an emergency, as determined by the
Securities and Exchange Commission, exists which causes disposal
of, or valuation of the net asset value of, the portfolio
securities to be unreasonable or impracticable; or (iii) for such
other periods as the Securities and Exchange Commission may
permit. Payment for redemption of shares recently purchased by
check (irrespective of whether the check is a regular check or a
certified, cashier's or official bank check) or by Automatic
Investment or Telephone Investment may be delayed up to 15 days
or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Trust, that the
purchase check or Automatic Investment or Telephone Investment
will be honored. Possible delays in payment of redemption
proceeds can be eliminated by using wire payments or Federal
Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Trust to
make payment wholly or partly in cash, the Trust may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Trust, in lieu of cash,
in conformity with applicable rules of the Securities and
Exchange Commission. See the Additional Statement for
details.
The Trust has the right to compel the redemption of
shares held in any account if the aggregate net asset value of
such shares is less than $500 as a result of shareholder
redemptions or failure to meet the minimum investment level under
an Automatic Purchase Program. If the Board elects to do this
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own
or purchase shares Class Y Shares of the Trust having a net asset
value of at least $5,000. Under an Automatic Withdrawal Plan you
will receive a monthly or quarterly check in a stated amount, not
less than $50. If such a plan is established, all dividends and
distributions must be reinvested in your shareholder account.
Redemption of shares to make payments under the Automatic
Withdrawal Plan will give rise to a gain or loss for tax
purposes. See the Automatic Withdrawal Plan provisions of the
Application included in the Prospectus, the Additional Statement
under "Automatic Withdrawal Plan," and "Dividend and Tax
Information" below.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Trust are managed under
the direction and control of its Board of Trustees. The
Additional Statement lists the Trust's Trustees and officers and
provides further information about them.
The Advisory Agreement
Bank One, Arizona, NA (the "Adviser"), formerly The
Valley National Bank of Arizona, supervises the investment
program of the Trust and the composition of its portfolio.
The services of the Adviser are rendered under an
Investment Advisory Agreement (the "Advisory Agreement") which
provides, subject to the control of the Board of Trustees, for
investment supervision and for either keeping the accounting
records of the Trust, including the computation of the net asset
value per share and the dividends, or, at the Adviser's expense
and responsibility, delegating these accounting duties in whole
or in part to a company satisfactory to the Trust. The Advisory
Agreement states that the Adviser shall, at its expense, provide
to the Trust all office space and facilities, equipment and
clerical personnel necessary for the carrying out of the
Adviser's duties under the Advisory Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Trust and of
those Trustees, if any, who are affiliated with the Adviser.
Under the Advisory Agreement, the Trust bears the cost of
preparing and setting in type its prospectuses, statements of
additional information, and reports to shareholders and the costs
of printing or otherwise producing and distributing those copies
of such prospectuses, statements of additional information and
reports as are sent to its shareholders. Under the Advisory
Agreement, all costs and expenses not expressly assumed by the
Adviser or by the Administrator under the Administration
Agreement or by the Trust's Distributor (principal underwriter)
are paid by the Trust. The Advisory Agreement lists examples of
such expenses borne by the Trust, the major categories of such
expenses being: legal and audit expenses, custodian and transfer
agent, or shareholder servicing agent fees and expenses, stock
issuance and redemption costs, certain printing costs,
registration costs of the Trust and its shares under Federal and
State securities laws, interest, taxes and brokerage commissions,
and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Trust pays a fee
payable monthly and computed on the net asset value of the Trust
as of the close of business each business day at the annual rate
of 0.25 of 1% of such net assets, provided, however, that for any
day that the Trust pays or accrues a fee under the Distribution
Plan of the Trust based upon the assets of the Trust, the annual
investment advisory fee shall be payable at the annual rate of
0.20 of 1% of such net asset value. Since the Administrator also
receives a fee from the Trust under the Administration Agreement
and the Trust pays or accrues a fee under the Distribution Plan
of the Trust based upon the assets of the Trust, the total
investment advisory and administration fees which the Trust
currently pays are at the annual rate of 0.40 of 1% of such net
assets, but for any day on which the Trust does not pay or accrue
a fee under the Distribution Plan, these may be as much as 0.50
of 1%; see below. Payments under the Distribution Plan with
respect to assets of the Trust began July 1, 1994 and as of that
date the Advisory and Administration fees were reduced as
described above. The Adviser and the Administrator may, in order
to attempt to achieve a competitive yield on the shares of the
Trust, each waive all or part of any such fees. In practice, the
rate of these fee waivers tends to decline as assets of the Trust
increase.
The Adviser agrees that the above fee shall be reduced,
but not below zero, by an amount equal to one-half of the amount,
if any, by which the total expenses of the Trust in any fiscal
year, exclusive of taxes, interest and brokerage fees, shall
exceed the lesser of (i) 2.5% of the first $30 million of average
annual net assets of the Trust plus 2% of the next $70 million of
such assets and 1.5% of such assets in excess of $100 million, or
(ii) 25% of the Trust's total annual investment income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Trust; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Trust or of any
other investment company or companies having the same investment
adviser, sub-adviser, administrator or principal underwriter as
the Trust.
The Trust's Custodian is an affiliate of the Adviser. It
is expected that another banking subsidiary of the Adviser's
parent, Banc One Corporation will provide a credit facility to
the Trust.
The Administration Agreement
Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at
its own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as
is necessary in connection with the maintenance of the
headquarters of the Trust and pays all compensation of the
Trust's Trustees, officers and employees who are affiliated
persons of the Administrator.
Under the Administration Agreement, subject to the
control of the Trust's Board of Trustees, the Administrator
provides all administrative services to the Trust other than
those relating to its investment portfolio and the maintenance of
its accounting books and records. Such administrative services
include but are not limited to maintaining books and records
(other than accounting books and records) of the Trust, and
overseeing all relationships between the Trust and its transfer
agent, custodian, legal counsel, auditors and principal
underwriter, including the negotiation of agreements in relation
thereto, the supervision and coordination of the performance of
such agreements, and the overseeing of all administrative matters
which are necessary or desirable for effective operation of the
Trust and for the sale, servicing, or redemption of the Trust's
shares. See the Additional Statement for a further description of
functions listed in the Administration Agreement as part of such
duties.
Under the Administration Agreement, the Trust pays a fee
payable monthly and computed on the net asset value of the Trust
at the end of each business day at the annual rate of 0.25 of 1%
of such net asset value, provided, however, that for any day that
the Trust pays or accrues a fee under the Distribution Plan of
the Trust based upon the assets of the Trust, the annual
administration fee will be payable at the annual rate of 0.20 of
1% of such net asset value. The administration fee was so reduced
as of July 1, 1994. See "Advisory Agreement," above. The
Administrator has agreed that the above fee shall be reduced, but
not below zero, by an amount equal to one-half of the amount, if
any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the
lesser of (i) 2.5% of the first $30 million of average annual net
assets of the Trust plus 2% of the next $70 million of such
assets and 1.5% of such assets in excess of $100 million, or (ii)
25% of the Trust's total annual investment income.
Information about the Adviser
The Adviser serves Arizona through 257 offices located in
communities throughout the state's 15 counties. Through the
Adviser and other subsidiaries, the Adviser's parent corporation,
Banc One Arizona Corporation, formerly known as Valley National
Corporation, provides a full range of financial services,
including commercial banking and trust services, to individuals,
businesses and governments, throughout Arizona and the
Southwestern Region of the United States. The Trust Division of
the Adviser had, as of June 30, 1995, approximately $8.0 billion
of assets under administration, not including any other
registered investment companies but including approximately $1.2
billion in municipal bonds.
The Adviser is a subsidiary of BANC ONE CORPORATION
("Banc One"), based in Columbus, Ohio. Banc One is a multi-bank
holding company, incorporated under the laws of the State of
Ohio. As of June 30, 1995, Banc One indirectly owned all of the
stock of 65 banks operating with more than 1,408 offices in the
states of Arizona, Colorado, Illinois, Indiana, Kentucky, Ohio,
Oklahoma, Texas, Utah, West Virginia and Wisconsin. As of that
date, Banc One, its affiliated banks and its non-bank
subsidiaries had total assets of approximately $86.8 billion.
Todd Curtis is the officer of the Adviser who manages the
Trust's portfolio. He has served as such since the inception of
the Trust in March, 1986. Mr. Curtis is Vice President and Senior
Portfolio Manager of Banc One Investment Advisors and held
similar positions with The Valley National Bank of Arizona, NA,
the name of the Adviser before it was acquired by BANC ONE
CORPORATION. He is a member of the Adviser's fixed income policy
committee. He is a graduate of Cornell College, has received an
MBA degree from Arizona State University and is a Chartered
Financial Analyst.
When the acquisition was completed, the prior advisory
agreement between the Trust and the Adviser then in effect
terminated, as such completion was an "assignment" of that
agreement as that term is defined in the 1940 Act. To provide
continuity of management of the Trust's portfolio by the Adviser,
the Advisory Agreement was approved by the Trust's Board of
Trustees (including a majority of the Trustees who are not
"interested persons") at a meeting held on June 6, 1992, and by
the holders of the Trust's shares at a meeting held on October
26, 1992; it went into effect upon completion of the merger.
For the Trust's fiscal year ended June 30, 1995, fees of
$739,438 were payable to each of the Adviser and the
Administrator.
Information about the Administrator and the Distributor.
The Trust's Administrator is founder and administrator to
the Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and an equity fund. As of December
31, 1995, these funds had aggregate assets of approximately $2.7
billion, of which approximately $1.9 billion consisted of assets
of tax-free municipal bond funds. The Administrator, which was
founded in 1984, is controlled by Mr. Lacy B. Herrmann (directly,
through a trust and through share ownership by his wife). See the
Additional Statement for information on Mr. Herrmann.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds,
six money market funds and an equity fund) including the Trust.
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs
relating to prospectuses and reports as well as the costs of
supplemental sales literature, advertising and other promotional
activities.
At the date of the Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned by Mr. Herrmann, will be owned by certain
directors and/or officers of the Administrator and/or the
Distributor including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Trust since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Trust's
dividends will also vary. Dividends and other distributions paid
by the Trust with respect to all classes of the Trust's shares
are calculated at the same time and in the same manner.
It is the Trust's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. Shareholders may 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.
Redeemed shares continue to earn dividends through and
including the day which is the earlier of (i) the day before the
day on which the redemption proceeds are mailed, wired or
transferred by the facilities of the Automated Clearing House by
the Agent or paid by the Agent to a selected dealer; or (ii) the
day which is the third day on which the New York Stock Exchange
is open after the day on which the net asset value of the
redeemed shares has been determined (see "How To Redeem Your
Investment").
Net investment income includes amounts of income from the
Arizona Obligations in the Trust's portfolio which are allocated
as "exempt-interest dividends" (see below) and is therefore
exempt from regular Federal income tax. This allocation will be
made by the use of one designated percentage applied uniformly to
all income dividends declared during the Trust's tax year. Such
designation will normally be made in the first month after the
end of each of the Trust's fiscal years as to income dividends
paid in the prior year. It is possible that in certain
circumstances, a small portion of the dividends paid by the Trust
will be subject to income taxes. During the Trust's fiscal year
ended June 30, 1995, 98.05% of the Trust's dividends were
"exempt-interest dividends." For the calendar year 1995, ***% of
the total dividends paid were taxable. (These amounts relate to
dividends on shares now denominated Class A shares; no Class Y
Shares were outstanding during that period. The percentage of
income designated as tax-exempt for any particular dividend may
be different from the percentage of the Trust's income that was
tax-exempt during the period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be
paid out after that date; the Trust may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Trust may be required to
impose backup withholding at a rate of 31% upon payment of
redemptions to shareholders, and from short- and long-term gains
distributions (if any), if shareholders do not comply with
provisions of the law relating to the furnishing of taxpayer
identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested. in full and fractional shares of the
Trust of the same class at net asset value on the record date for
the dividend or distribution or other date fixed by the Board of
Trustees. An election to receive cash will continue in effect
until written notification of a change is received by the Agent.
All shareholders, whether their dividends are received in cash or
are being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Trust are not
entitled to any deduction for dividends received from the
Trust.
Tax Information
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. However, the Code contains a number
of complex tests relating to such qualification and it is
possible although not likely that the Trust might not meet one or
more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary
corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends," as discussed below.
The Trust intends to qualify during each fiscal year
under the Code to pay exempt-interest dividends to its
shareholders. Exempt-interest dividends which are derived from
net income earned by the Trust on Arizona Obligations will be
excludable from gross income of the shareholders for regular
Federal income tax purposes. Capital gains dividends are not
included in exempt-interest dividends. Although tax-exempt
dividends are not taxed, each taxpayer must report the total
amount of tax-exempt interest (including exempt-interest
dividends from the Trust) received or acquired during the
year.
The Omnibus Budget Reconciliation Act of 1993 requires
that either gains realized by the Trust on the sale of municipal
obligations acquired after April 30, 1993 at a price which is
less than face or redemption value be included as ordinary income
to the extent such gains do not exceed such discount or that the
discount be amortized and included ratably in taxable income.
There is an exception to the foregoing treatment if the amount of
the discount is less than 0.25% of face or redemption value
multiplied by the number of years from acquisition to maturity.
The Trust will report such ordinary income in the years of sale
or redemption rather than amortize the discount and report it
ratably. To the extent the resultant ordinary taxable income is
distributed to shareholders, it will be taxable to them as
ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Trust distributes and so designates)
are reportable by shareholders as long-term capital gains. This
is the case whether the shareholder takes the distribution in
cash or elects to have the distribution reinvested in Trust
shares and regardless of the length of time the shareholder has
held his or her shares. Capital gains are taxed at the same rates
as ordinary income, except that for individuals, trusts and
estates the maximum tax rate on capital gains distributions is
28% even if the applicable rate on ordinary income for such
taxpayers is higher than 28%.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Trust are
not distributed but carried forward by the Trust to offset gains
in later years and thereby lessen the later-year capital gains
distributions and amounts taxed to shareholders.
The Trust's gains or losses on sales of Arizona
Obligations will be long-term or short-term depending upon the
length of time the Trust has held such obligations. Capital gains
and losses of the Trust will also include gains and losses on
Futures and options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed to be
realized. Those deemed to be realized are on Futures and options
held by the Trust at year-end, which are "marked to the market,"
that is, deemed sold for fair market value. Net gains or losses
realized and deemed realized on Futures and options will be
reportable by the Trust as long-term to the extent of 60% of the
gains or losses and short-term to the extent of 40% regardless of
the actual holding period of such investments.
Information as to the tax status of the Trust's dividends
and distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by
shareholders to enable them to purchase shares of the Trust may
not be deducted for regular Federal tax purposes. In addition,
under rules used by the Internal Revenue Service for determining
when borrowed funds are deemed used for the purpose of purchasing
or carrying particular assets, the purchase of shares of the
Trust may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the
purchase of shares. The receipt of exempt-interest dividends from
the Trust by an individual shareholder may result in some portion
of any social security payments or railroad retirement benefits
received by the shareholder or the shareholder's spouse being
included in taxable income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
or private activity bonds should consult their own tax advisers
before purchasing shares.
While interest from all Arizona Obligations is tax-exempt
for purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7,
1986, constitutes a tax preference for both individuals and
corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the
taxpayer's return. The Trust will not invest in the types of
Arizona Obligations which would give rise to interest that would
be subject to alternative minimum taxation if more than 20% of
its net assets would be so invested, and may refrain from
investing in that type of bond completely. The 20% limit is a
fundamental policy of the Trust.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current
earnings, this adjustment will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax.
As of the date of the Prospectus, Congress is considering
a number of changes affecting taxation. It is not possible to
predict which, if any, of such changes will become law.
Tax Effects of Redemptions
Normally, when you redeem shares of the Trust you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. The gain or loss will be long-term if you held
the redeemed shares for over a year, and short-term, if for a
year or less. However, if shares held for six months or less are
redeemed and you have a loss, two special rules apply: the loss
is reduced by the amount of exempt-interest dividends, if any,
which you received on the redeemed shares, and any loss over and
above the amount of such exempt-interest dividends is treated as
a long-term loss to the extent you have received capital gains
dividends on the redeemed shares.
Arizona Tax Information
In the opinion of special Arizona counsel for the Trust,
under existing law, shareholders of the Trust will not be subject
to Arizona income tax on exempt-interest dividends received from
the Trust to the extent that such dividends are attributable to
interest on tax-exempt obligations of the State of Arizona and
its political subdivisions ("Local Obligations") or on
obligations issued by the Territories of Guam, Northern Mariana
Islands, Puerto Rico and the Virgin Islands ("Territorial
Obligations"). Other distributions from the Trust, including
those related to long-term and short-term capital gains, will be
subject to Arizona income tax.
In the event that interest paid on any Local Obligation
is determined to be includable in federal gross income, the Trust
has been advised by special Arizona counsel that, in its opinion,
exempt-interest dividends received by the shareholders of the
Trust attributable to interest on Local Obligations will,
nevertheless, not be subject to Arizona income taxes.
Although interest on Territorial Obligations is included
in Arizona gross income by Arizona law, applicable federal laws
specifically exempt such income from state and local taxation.
The Trust has been advised by special Arizona counsel that, in
its opinion, the applicable federal laws will preempt any
contrary result under Arizona law such that exempt-interest
dividends attributable to interest paid on Territorial
Obligations will be exempt from Arizona income taxes.
Arizona law does not permit a deduction for interest paid
or accrued on indebtedness incurred or continued to purchase or
carry obligations, the interest on which is exempt from Arizona
income tax.
Shareholders of the Trust should consult their tax
advisers about other state and local tax consequences of their
investment in the Trust.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Trust and certain tax-free municipal bond funds and an
equity fund (the "Bond or Equity Funds") and certain money market
funds (the "Money-Market Funds"), all of which are sponsored by
Aquila Management Corporation and Aquila Distributors, Inc., and
have the same Administrator and Distributor as the Trust. All
exchanges are subject to certain conditions described below. As
of the date of the Prospectus, the Aquila-sponsored Bond or
Equity Funds are this Trust, Aquila Rocky Mountain Equity Fund,
Hawaiian Tax-Free Trust, 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-sponsored Money-Market Funds are Capital Cash Management
Trust, Pacific Capital Cash Assets Trust (Original Shares),
Pacific Capital Tax-Free Cash Assets Trust (Original Shares),
Pacific Capital U.S. Treasuries Cash Assets Trust (Original
Shares), Prime Cash Fund and Churchill Cash Reserves Trust.
Class Y Shares of the Trust may be exchanged only for
Class Y Shares of the Bond or Equity Funds or for shares of a
Money-Market Fund.
Under the Class Y exchange privilege, once Class Y Shares
of any Bond or Equity Fund have been purchased, those shares (and
any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and Class Y Shares of the Bond or
Equity Funds without the payment of any sales charge.
The "Class Y Eligible Shares" of any Bond or Equity Fund
are those shares which were (a) acquired by direct purchase
including by exchange by an institutional investor from a Money-
Market Fund, or which were received in exchange for shares of
Class Y Shares another Bond or Equity Fund; or (b) acquired as a
result of reinvestment of dividends and/or distributions on
otherwise Class Y Eligible Shares. Shares of a Money-Market Fund
not acquired in exchange of Class Y Eligible Shares of a Bond or
Equity Fund can be exchanged for Class Y Shares of a Bond or
Equity Fund only by persons eligible to make an initial purchase
of Class Y Shares.
This 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; (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal
to the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
If a selected dealer or other financial institution
serves as shareholder of record for your shares, you must effect
an exchange through that institution, which is responsible for
the prompt transmission of your request. If your shares are
registered in your name at the Trust and a selected dealer or
other institution maintains records of your account, that
institution can assist you with your exchange; in some cases, you
must effect exchanges through that institution. In all other
cases, you may make an exchange request directly to the Agent
using the procedures described below.
If you have elected the Telephone Exchange feature on the
Application, the Agent will accept telephone exchange
instructions from anyone. To make a telephone exchange telephone:
800-437-1000 toll free or 908-855-5731
Note: The Trust, the Agent, and the Distributor will not
be responsible for any losses resulting from unauthorized
telephone transactions if the Agent follows reasonable procedures
designed to verify the identity of the caller. The Agent will
request some or all of the following information: account name(s)
and number, name of the caller, the social security number
registered to the account and personal identification. The Agent
may also record calls. You should verify the accuracy of
confirmation statements immediately upon receipt.
If you have not elected the Telephone Exchange feature,
you must complete and return a form which is available from the
Distributor.
Exchanges of Class Y Shares will be effected at the
relative net asset values of the Class Y Shares being exchanged
next determined after receipt by the Agent of your exchange
request. Prices for exchanges are determined in the same manner
as for purchases of the Trust's shares. See "How to Invest in the
Trust".
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see the Additional Statement); no representation is made as to
the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid
by Pacific Capital Tax-Free Cash Assets Trust (a tax-free
Money-Market Fund) are exempt from regular Federal income tax,
and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Treasuries Cash Assets Trust (which invests
in U.S. Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund are taxable.
If your state of residence is not the same as that of the issuers
of obligations in which a tax-free municipal Bond Fund or a
tax-free Money-Market Fund invests, the dividends from that fund
may be subject to income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of such a Bond Fund or a tax-free Money-Market Fund under
the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Trust's
performance including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes sales charge) for 1- and 5-year periods and for a period
since the inception of the Trust, to the extent applicable,
through the end of such periods, assuming reinvestment (without
sales charge) of all distributions. The Trust may also furnish
total return quotations for other periods or based on investments
at various sales charge levels or at net asset value. For such
purposes total return equals the total of all income and capital
gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price. See the Additional Statement.
Current yield reflects the income per share earned by
each of the Trust's portfolio investments; it is calculated by
(i) dividing the Trust's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable
investment that would be required to produce an after-tax yield
equivalent to that of the Trust, which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
the Trust's yield (calculated as indicated) by one minus a stated
income tax rate and by adding the product to the taxable portion
(if any) of the Trust's yield. See the Additional Statement.
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities
and Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will
be paid to the Trust's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted
to shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the
Trust during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Trust's distribution rate (calculated as
indicated above). The current distribution rate, unlike yield
figures, is not limited to investment performance, but takes into
account expenses as well; it also differs from the current yield
computation because it could include distributions to
shareholders from sources, if any, other than dividends and
interest, such as short-term capital gains or return of capital.
If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Trust's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge on the purchase of shares, but not on reinvestment
of income dividends. The investment results of the Trust, like
all other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent what an
investment may earn in the future or what the Trust's yield, tax
equivalent yield, distribution rate, taxable equivalent
distribution rate or total return may be in any future period.
The annual report of the Trust contains additional performance
information that will be made available upon request and without
charge.
Description of the Trust and its Shares
The Trust is an open-end, non-diversified management
investment company organized in 1985 as a Massachusetts business
trust. It commenced operations in June, 1986. (See "Investment of
the Trust's Assets" for further information about the Trust's
status as "non-diversified"). The Declaration of Trust permits
the Trustees to issue an unlimited number of full and fractional
shares and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the
proportionate beneficial interests in the Trust. Each share
represents an equal proportionate interest in the Trust with each
other share of its class; shares of the respective classes
represent proportionate interests in the Trust in accordance with
their respective net asset values. Upon liquidation of the Trust,
shareholders are entitled to share pro-rata in the net assets of
the Trust available for distribution to shareholders, in
accordance with the respective net asset values of the shares of
each of the Trust's classes at that time. All shares are
presently divided into three classes; however, if they deem it
advisable and in the best interests of shareholders, the Board of
Trustees of the Trust may create additional classes of shares
(subject to rules and regulations of the Securities and Exchange
Commission or by exemptive order) or the Board of Trustees may,
at its own discretion, create additional series of shares, each
of which may have separate assets and liabilities (in which case
any such series will have a designation including the word
"Series"). See the Additional Statement for further information
about possible additional series. Shares are fully paid and
non-assessable, except as set forth under the caption "General
Information" in the Additional Statement; the holders of shares
have no pre-emptive or conversion rights.
Alternative Purchase Plans
The other two classes of shares of the Trust are:
* Front-Payment Class Shares ("Class A Shares")
are offered to anyone at net asset value plus
a sales charge, paid at the time of purchase,
at the maximum rate of 4.0% of the public
offering price, with lower rates for larger
purchases. Class A Shares are subject to an
asset retention service fee under the Trust's
Distribution Plan at the rate of 0.15 of 1%
of the average annual net assets represented
by the Class A Shares.
* Level-Payment Class Shares ("Class C Shares")
are offered to anyone at net asset value with
no sales charge payable at the time of
purchase and a level charge for service and
distribution fees for six years after the
date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the
Class C Shares. Six years after the date of
purchase Class C Shares are automatically
converted to Class A Shares. In addition,
Class C Shares are subject to a contingent
deferred sales charge ("CDSC") if redeemed
before they have been held for 18 months from
the date of purchase; this charge is 1%,
calculated on the net asset value of the
Class C Shares at the time of purchase or at
redemption, whichever is less. There is no
CDSC after Class C Shares have been held
beyond the applicable period.
Class A Shares and Class C Shares are fully described in
a separate prospectus relating to those classes. Class A Shares
and Class C Shares are not offered by this Prospectus.
The primary distinction among the Trust's three classes
of shares lies in their sales charge structures and ongoing
expenses, as described below. All three classes represent
interests in the same portfolio of Arizona Obligations and have
the same rights, except that each class bears the separate
expenses of its Distribution Plan and has exclusive voting rights
with respect to its Plan. There are no Distribution fees with
respect to Class Y Shares.
Dividends and other distributions paid by the Trust with
respect to shares of each Class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
the Class C shares will be lower than those paid on the Class A
and Y shares because Class C shares bear higher Distribution and
service fees. Dividends on Class A shares will be lower than
those on Class Y shares because Class A shares bear a
Distribution fee and Class Y shares do not. Class A Shares and
Class C Shares are not offered by this prospectus.
The Trust's Distribution Plan has three parts. In
addition to the defensive provisions described above, Part I of
the Plan authorizes payments to certain defined Qualified
Recipients of an asset retention service fee payable at the
annual rate of 0.15 of 1% of the average annual net assets of the
Trust represented by the Class A Shares of the Trust. Such
payments shall be made only out of the Trust assets allocable to
the Class A Shares. Under another part of the Plan (Part II), the
Trust is authorized to make payments with respect to Class C
Shares which may not exceed for any fiscal year of the Trust 0.75
of 1% of the average annual net assets represented by the Class C
Shares of the Trust. Such payments shall be made only out of the
Trust assets allocable to the Class C Shares. See the Additional
Statement. The Trust has also adopted a Shareholder Services Plan
under which the Trust is authorized to make payments with respect
to Class C Shares which may not exceed for any fiscal year of the
Trust 0.25 of 1% of the average annual net assets represented by
the Class C Shares of the Trust. Such payments shall be made only
out of the Trust assets allocable to the Class C Shares. See the
Additional Statement.
Class A Shares and Class C Shares have an exchange
privilege under which such shares can be exchanged into
corresponding classes of Shares of the Bond and Equity Funds or
into shares of the Money-Market Funds.
Ownership of Shares of the Trust
Of the shares of the Trust outstanding on *** [a date
within 30 days of the date of the Prospectus] ***, all of which
were Class A Shares, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
P.O. Box 30561, New Brunswick, NJ, held of record ***** shares
(***%). The Trust's management is not aware of any person
beneficially owning more than 5% of its outstanding shares as of
such date. On the basis of information received from those
holders the Trust's management believes that all of these shares
are held for the benefit of brokerage clients.
Voting Rights
At any meeting of shareholders, shareholders are entitled
to one vote for each dollar of net asset value (determined as of
the record date for the meeting) per share held (and
proportionate fractional votes for fractional dollar amounts).
Shareholders will vote on the election of Trustees and on other
matters submitted to the vote of shareholders. Shares vote by
classes on any matter specifically affecting one or more classes,
such as an amendment of an applicable part of the Distribution
Plan. No amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of a majority of the
outstanding shares of the Trust, except that the Trust's Board of
Trustees may change the name of the Trust. The Trust may be
terminated (i) upon the sale of its assets to another issuer, or
(ii) upon liquidation and distribution of the assets of the
Trust, in either case if such action is approved by the vote of
the holders of a majority of the outstanding shares of the Trust.
If not so terminated, the Trust will continue indefinitely.
<PAGE>
This table relates only to Class A Shares and Class C Shares and does not
relate to the shares offered by this Prospectus. It is provided for your
information only.
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
TABLE OF EXPENSES
<S> <C> <C>
Class A Class C
Shareholder Transaction Expenses Shares Shares
Maximum Sales Charge Imposed on Purchases 4.00% None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Deferred Sales Charge None(1) 1.00%(2)
Redemption Fees None None
Exchange Fee None None
Annual Trust Operating Expenses (3)
(as a percentage of average net assets)
Investment Advisory Fee 0.20% 0.20%
12b-1 Fee None 0.75%
All other expenses 0.54% 0.64%
Administration Fee 0.20% 0.20%
Service Fee 0.15% 0.25%
Other Expenses 0.19% 0.19%
Total Trust Operating Expenses 0.74% 1.59%
Example +
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and
redemption at the end of each time period:
1 Year $47 $26 *
3 Years 63 60 *
5 Years 80 87
10 Years 128 189
<FN>
* Assuming a 5% annual return and no redemption,
the expenses would be $16 for 1 year and $50
for 3 years, respectively.
</FN>
<FN>
+ The expense example is based upon the above shareholder transaction
expenses (in the case of Class A shares, this includes a sales charge of $40
for a $1,000 investment) and annual Trust operating expenses. It is also
based upon amounts at the beginning of each year which includes the prior
year's assumed results. A year's results consist of an assumed 5% annual
return less total annual operating expenses; the expense ratio was applied
to an assumed average balance (the year's starting investment plus one-half
the year's results). Each figure represents the cumulative expenses so
determined for the period specified.
</FN>
<FN>
(1) Certain shares purchased in transactions of $1 million or more without a
sales charge may be subject to a contingent deferred sales charge of up
to 1% upon redemption during the first four years after purchase. See
"Purchases of $1 Million or More" on page XX.
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds of the shares (or on the original price, whichever is lower) if
redeemed during the first 18 months after purchase.
</FN>
<FN>
(3) Estimated based upon actual expenses incurred by the Trust during its
most recent fiscal year. During that period, only Class A shares were
outstanding.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL FUNDS USE THE 5%
ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE. THE
EXAMPLE ALSO REFLECTS THE MAXIMUM SALES CHARGE. (SEE "HOW TO INVEST IN THE
TRUST").
The purpose of the above table is to assist the investor in understanding the
various costs that an investor in the Trust will bear directly or indirectly.
The assumed 5% annual return should not be interpreted as a prediction of an
actual return, which may be higher or lower.
<PAGE>
APPLICATION FOR TAX-FREE TRUST OF ARIZONA
INSTITUTIONAL CLASS SHARES
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
1-800-437-1000
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship unless
otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodians First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minors First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minors Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employers Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident andnot 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
Make check payable to: TAX-FREE TRUST OF ARIZONA
Amount of investment $ _________________ Minimum initial investment $1,000
OR
____ Check enclosed for $_______________ (Minimum $100)
You must complete Step 3, Section A for Automatic Investments of at least
$100 per month, complete Step 4 Sections A & B and ATTACH A PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend.
(A Financial Institution is a commercial bank, savings bank or credit
union.)
___ Mail check to my/our address listed in Step 1.
<PAGE>
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 Tax-Free Trust of Arizona 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
Trust toll-free at 1-800-437-1000. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior to 1st
actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account, subject
to the terms of the Automatic Withdrawal Plan Provisions set forth below. To
realize the amount stated below, Administrative Data Management Corp. (the
Agent) is authorized to redeem sufficient shares from this account at the
then current Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable to
a Financial Institution for your account, indicate Financial Institution
name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the Aquila SM Group of Funds by telephone.
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-437-1000
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus.
Except for gross negligence in acting upon such telephone instructions to
execute an exchange, and subject to the conditions set forth herein, I/we
understand and agree to hold harmless the Agent, each of the Aquila Funds,
and their respective officers, directors, trustees, employees, agents and
affiliates against any liability, damage, expense, claim or loss, including
reasonable costs and attorneys fees, resulting from acceptance of, or acting
or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
TO MAKE AN EXPEDITED REDEMPTION, CALL THE AGENT AT 1-800-437-1000
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
<PAGE>
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the Agent,
Administrative Data Management Corp., and to pay such sums in accordance
therewith, provided my/our account has sufficient funds to cover such drafts
or debits. I/We further agree that your treatment of such orders will be the
same as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you receive
my/our written instructions to cancel this service. I/We also agree that if
any such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
Financial Institution Account Number _______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant to
the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit
in the normal course of business initiated by the Agent (except
any loss due to your payment of any amount drawn against insufficient
or uncollected funds), provided that you promptly notify us in
writing of any claim against you with respect to the same, and further
provided that you will not settle or pay or agree to settle or pay any
such claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and expenses
in the event that you dishonor, with or without cause, any such electronic
debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the 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. I/We acknowledge that shares purchased either through
Automatic Investment or Telephone Investment are subject to applicable
sales 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 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 Trust, Corporations or Associations, this form must be accompanied by
proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
<PAGE>
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 Trusts 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
1-800-437-1020 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.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who
executed the Plan authorization.
2. Certificates will not be issued for shares of the Trust purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Trust. Any share
certificates now held by the Planholder may be surrendered
unendorsed to the Agent with the application so that the shares
represented by the certificate may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Trust at
Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of business
on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice (in
proper form in accordance with the requirements of the then current
Prospectus of the Trust) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Trust's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Trust. The Agent will also terminate the Plan upon receipt
of evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of the Plan by the Agent or the Trust, shares
remaining unredeemed will be held in an uncertificated account in the name
of the Planholder, and the account will continue as a dividend-
reinvestment, uncertificated account unless and until proper instructions
are received from the Planholder, his executor or guardian, or as
otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action taken
or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for the
Trust, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever
is less.
<PAGE>
INVESTMENT ADVISER
Bank One, Arizona, NA
Bank One Center
241 North Central Avenue
Phoenix, Arizona 85004
ADMINISTRATOR AND FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Arthur K. Carlson
Thomas W. Courtney
William L. Ensign
Diana P. Herrmann
John C. Lucking
Anne J. Mills
William T. Quinsler
OFFICERS
Lacy B. Herrmann, President
William C. Wallace, Senior Vice President
Susan A. Cook, Vice President
Kristian P. Kjolberg, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
Table of Contents
HIGHLIGHTS 2
TABLE OF EXPENSES 4
FINANCIAL HIGHLIGHTS 5
INTRODUCTION 6
INVESTMENT OF THE TRUST'S ASSETS 6
INVESTMENT RESTRICTIONS 12
NET ASSET VALUE PER SHARE 12
HOW TO INVEST IN THE TRUST 13
HOW TO REDEEM YOUR INVESTMENT 18
AUTOMATIC WITHDRAWAL PLAN 21
MANAGEMENT ARRANGEMENTS 22
DIVIDEND AND TAX INFORMATION 25
EXCHANGE PRIVILEGE 28
GENERAL INFORMATION 30
APPLICATION
LOGO
A TAX-FREE
INCOME INVESTMENT
PROSPECTUS
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
Tax-Free Trust of Arizona
380 Madison Avenue, Suite 2300
New York, New York 10017
800-437-1020
212-697-6666
Statement
of Additional Information March ***, 1996
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. The Additional Statement should be
read in conjunction with the Prospectus (the "Prospectus") dated
March ***, 1996 of Tax-Free Trust of Arizona (the "Trust"), which
may be obtained from the Trust's transfer and shareholder servicing
agent, Administrative Data Management Corp., by writing to: 581
Main Street, Woodbridge, New Jersey 07095-1198 or by calling the
following numbers:
800-437-1000 toll free or 908-855-5731
or from Aquila Distributors, Inc., the Trust's Distributor, by
writing to 380 Madison Avenue, Suite 2300, New York, New York
10017; or by calling: 800-437-1020 toll free or 212-986-8826
The Annual Report of the Trust for the fiscal year ended
June 30, 1995 and the Semi-Annual report of the Trust for the six
months ended December 31, 1995 will be delivered with the
Additional Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . . .2
Municipal Bonds. . . . . . . . . . . . . . . . . . . . . . . . .7
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . .8
Investment Restrictions. . . . . . . . . . . . . . . . . . . . 11
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . 12
Shareholder Services Plan
Limitation of Redemptions in Kind. . . . . . . . . . . . . . . 15
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 15
Additional Information as to Management Arrangements . . . . . 21
Computation of Net Asset Value . . . . . . . . . . . . . . . . 25
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 26
Additional Tax Information . . . . . . . . . . . . . . . . . . 26
General Information. . . . . . . . . . . . . . . . . . . . . . 27
Conversion of Class C Shares
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 29
<PAGE>
INVESTMENT OF THE TRUST'S ASSETS
The investment objective and policies of the Trust are
described in the Prospectus, which refers to the matters
described below. See the Prospectus for the definition of
"Arizona Obligations."
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds
and notes which they undertake to rate. It should be emphasized,
however, that ratings are general and not absolute standards of
quality. Consequently, obligations with the same maturity, stated
interest rate and rating may have different yields, while
obligations of the same maturity and stated interest rate with
different ratings may have the same yield. See Appendix A to this
Additional Statement for further information about the ratings of
Moody's and S&P as to the various rated Arizona Obligations which
the Trust may purchase.
The table below gives information as to the percentage of
Trust assets invested, as of June 30, 1995, in Arizona
Obligations in the various rating categories.
<TABLE>
<S> <C>
Highest rating (1) . . . . . . . . . . . . . . . .48.3%
Second highest rating (2). . . . . . . . . . . . .28.2%
Third highest rating (3) . . . . . . . . . . . . .11.7%
Fourth highest rating and below (4). . . . . . . . 9.8%
Unrated Obligations. . . . . . . . . . . . . . . 2.0%
100.0%
<FN>
(1) Aaa of Moody's or AAA of S&P.
</FN>
<FN>
(2) Aa of Moody's or AA of S&P.
</FN>
<FN>
(3) A of Moody's or A of S&P.
</FN>
<FN>
(4) Baa of Moody's or BBB of S&P.
</FN>
</TABLE>
When-Issued and Delayed Delivery Obligations
The Trust may purchase Arizona Obligations on a when-issued
or delayed delivery basis. The purchase price and the interest
rate payable on the Arizona Obligations are fixed on the
transaction date. At the time the Trust makes the commitment to
purchase Arizona Obligations on a when-issued or delayed delivery
basis, it will record the transaction and thereafter reflect the
value each day of such Arizona Obligations 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 Arizona Obligations. To facilitate such acquisitions, the
Trust will maintain with the Custodian a separate account with
portfolio Arizona Obligations in an amount at least equal to such
commitments, which will be marked to market every day. On
delivery dates for such transactions, the Trust will meet its
commitments by selling the Arizona Obligations held in the
separate account and/or from cash flow.
Futures Contracts and Options
Although it does not currently use such instruments, the
Trust is permitted to purchase and sell futures contracts
relating to municipal bond indices ("Municipal Bond Index
Futures") and to U.S. Government securities ("U.S. Government
Securities Futures," together referred to as "Futures"), and
exchange-traded options based on Futures as a possible means to
protect the asset value of the Trust during periods of changing
interest rates, although in fact the Trust may never do so. The
following discussion is intended to explain briefly the workings
of Futures and options on them which would be applicable if the
Trust were to use them.
Unlike when the Trust purchases or sells an Arizona
Obligation, no price is paid or received by the Trust upon the
purchase or sale of a Future. Initially, however, when such
transactions are entered into, the Trust will be required to
deposit with the futures commission merchant ("broker") an amount
of cash or Arizona Obligations equal to a varying specified
percentage of the contract amount. This amount is known as
initial margin. Subsequent payments, called variation margin, to
and from the broker, will be made on a daily basis as the price
of the underlying index or security fluctuates making the Future
more or less valuable, a process known as marking to market.
Insolvency of the broker may make it more difficult to recover
initial or variation margin. Changes in variation margin are
recorded by the Trust as unrealized gains or losses. Margin
deposits do not involve borrowing by the Trust and may not be
used to support any other transactions. At any time prior to
expiration of the Future, the Trust may elect to close the
position by taking an opposite position which will operate to
terminate the Trust's position in the Future. A final
determination of variation margin is then made. Additional cash
is required to be paid by or released to the Trust and it
realizes a gain or a loss. Although Futures by their terms call
for the actual delivery or acceptance of cash, in most cases the
contractual obligation is fulfilled without having to make or
take delivery. All transactions in the futures markets are
subject to commissions payable by the Trust and are made, offset
or fulfilled through a clearing house associated with the
exchange on which the contracts are traded. Although the Trust
intends to buy and sell Futures only on an exchange where there
appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular
Future at any particular time. In such event, or in the event of
an equipment failure at a clearing house, it may not be possible
to close a futures position.
Municipal Bond Index Futures currently are based on a
long-term municipal bond index developed by the Chicago Board of
Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index").
Financial futures contracts based on the Municipal Bond Index
began trading on June 11, 1985. The Municipal Bond Index is
comprised of 40 tax-exempt municipal revenue and general
obligation bonds. Each bond included in the Municipal Bond Index
must be rated A or higher by Moody's or Standard & Poor's and
must have a remaining maturity of 19 years or more. Twice a month
new issues satisfying the eligibility requirements are added to,
and an equal number of old issues are deleted from, the Municipal
Bond Index. The value of the Municipal Bond Index is computed
daily according to a formula based on the price of each bond in
the Municipal Bond Index, as evaluated by six dealer-to-dealer
brokers.
The Municipal Bond Index futures contract is traded only on
the CBT. Like other contract markets, the CBT assures performance
under futures contracts through a clearing corporation, a
nonprofit organization managed by the exchange membership which
is also responsible for handling daily accounting of deposits or
withdrawals of margin.
There are at present U.S. Government financial futures
contracts based on long-term Treasury bonds, Treasury notes, GNMA
Certificates and three-month Treasury bills. U.S. Government
Securities Futures have traded longer than Municipal Bond Index
Futures, and the depth and liquidity available in the trading
markets for them are in general greater.
Call Options on Futures Contracts. The Trust may also
purchase and sell exchange related call and put options on
Futures. The purchase of a call option on a Future is analogous
to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the
Future upon which it is based, or upon the price of the
underlying debt securities, it may or may not be less risky than
ownership of the Futures contract or underlying debt securities.
Like the purchase of a futures contract, the Trust may purchase a
call option on a Future to hedge against a market advance when
the Trust is not fully invested.
The writing of a call option on a Future constitutes a
partial hedge against declining prices of the securities which
are deliverable upon exercise of the Future. If the price at
expiration of the Future is below the exercise price, the Trust
will retain the full amount of the option premium which provides
a partial hedge against any decline that may have occurred in the
Trust's portfolio holdings.
Put Options on Futures Contracts. The purchase of put
options on a Future is analogous to the purchase of protective
put options on portfolio securities. The Trust may purchase a put
option on a Future to hedge the Trust's portfolio against the
risk of rising interest rates.
The writing of a put option on a Future constitutes a
partial hedge against increasing prices of the securities which
are deliverable upon exercise of the Future. If the Future price
at expiration is higher than the exercise price, the Trust will
retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities
which the Trust intends to purchase.
The writer of an option on a Future is required to deposit
initial and variation margin pursuant to requirements similar to
those applicable to Futures. Premiums received from the writing
of an option will be included in initial margin. The writing of
an option on a Future involves risks similar to those relating to
Futures.
Risk Factors in Futures Transactions and Options
One risk in employing Futures or options on Futures to
attempt to protect against the price volatility of the Trust's
Arizona Obligations is that the Adviser could be incorrect in its
expectations as to the extent of various interest rate movements
or the time span within which the movements take place. For
example, if the Trust sold a Future in anticipation of an
increase in interest rates, and then interest rates went down
instead, the Trust would lose money on the sale.
Another risk as to Futures or options on them arises because
of the imperfect correlation between movement in the price of the
Future and movements in the prices of the Arizona Obligations
which are the subject of the hedge. The risk of imperfect
correlation increases as the composition of the Trust's portfolio
diverges from the municipal bonds included in the applicable
index or from the security underlying the U.S. Government
Securities Futures. The price of the Future or option may move
more than or less than the price of the Arizona Obligations being
hedged. If the price of the Future or option moves less than the
price of the Arizona Obligations which are the subject of the
hedge, the hedge will not be fully effective but, if the price of
the Arizona Obligations being hedged has moved in an unfavorable
direction, the Trust would be in a better position than if it had
not hedged at all. If the price of the Arizona Obligations being
hedged has moved in a favorable direction, this advantage will be
partially offset by the Future or option. If the price of the
Future or option moved more than the price of the Arizona
Obligations, the Trust will experience either a loss or gain on
the Future or option which will not be completely offset by
movements in the price of the Arizona Obligations which are the
subject of the hedge. To compensate for the imperfect correlation
of movements in the price of the Arizona Obligations being hedged
and movements in the price of the Futures or options, the Trust
may buy or sell Futures or options in a greater dollar amount
than the dollar amount of the Arizona Obligations being hedged if
the historical volatility of the prices of the Arizona
Obligations being hedged is less than the historical volatility
of the debt securities underlying the hedge. It is also possible
that, where the Trust has sold Futures or options to hedge its
portfolio against decline in the market, the market may advance
and the value of the Arizona Obligations held in the Trust's
portfolio may decline. If this occurred the Trust would lose
money on the Future or option and also experience a decline in
value of its portfolio securities.
Where Futures or options are purchased to hedge against a
possible increase in the price of Arizona Obligations before the
Trust is able to invest in them in an orderly fashion, it is
possible that the market may decline instead; if the Trust then
concludes not to invest in them at that time because of concern
as to possible further market decline or for other reasons, the
Trust will realize a loss on the Futures or options that is not
offset by a reduction in the price of the Arizona Obligations
which it had anticipated purchasing.
The particular municipal bonds comprising the index
underlying Municipal Bond Index Futures will vary from the bonds
held by the Trust. The correlation of the hedge with such bonds
may be affected by disparities in the average maturity, ratings,
geographical mix or structure of the Trust's investments as
compared to those comprising the Index, and general economic or
political factors. In addition, the correlation between movements
in the value of the Municipal Bond Index may be subject to change
over time, as additions to and deletions from the Municipal Bond
Index alter its structure. The correlation between U.S.
Government Securities Futures and the municipal bonds held by the
Trust may be adversely affected by similar factors and the risk
of imperfect correlation between movements in the prices of such
Futures and the prices of Municipal Bonds held by the Trust may
be greater.
Trading in Municipal Bond Index Futures may be less liquid
than that in other Futures. The trading of Futures and options
also is subject to certain market risks, such as inadequate
trading activity or limits on upward or downward price movements,
which could at times make it difficult or impossible to liquidate
existing positions.
Regulatory Aspects of Futures and Options
The Trust will, due to requirements under the Investment
Company Act of 1940 (the "1940 Act"), deposit in a segregated
account with its custodian bank Arizona Obligations maturing in
one year or less or cash, in an amount equal to the fluctuating
market value of long Futures or options it has purchased, less
any margin deposited on long positions.
The Trust must operate within certain restrictions as to its
long and short positions in Futures under a rule (the "CFTC
Rule") adopted by the Commodity Futures Trading Commission
("CFTC") under the Commodity Exchange Act (the "CEA") to be
eligible for the exclusion provided by the CFTC Rule as a
"commodity pool operator" (as defined under the CEA), and must
represent to the CFTC that the Trust will operate within such
restrictions. Under these restrictions the Trust will not, as to
any positions, whether long, short or a combination thereof,
enter into Futures or options for which the aggregate initial
margins and premiums paid for options exceed 5% of the fair
market value of its assets. Under the restrictions, the Trust
also must, as to its short positions, use Futures and options
solely for bona-fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA. As to the
Trust's long positions which are used as part of its portfolio
strategy and are incidental to its activities in the underlying
cash market, the "underlying commodity value" (see below) of its
Futures must not exceed the sum of (i) cash set aside in an
identifiable manner, or short-term U.S. debt obligations or other
U.S. dollar-denominated high quality short-term money market
instruments so set aside, plus any funds deposited as margin;
(ii) cash proceeds from existing investments due in 30 days and
(iii) accrued profits held at the futures commission merchant.
(There is described above the segregated account which the Trust
must maintain with its custodian bank as to its Futures and
options activities due to requirements other than those of the
CFTC Rule; the Trust will, as to long positions, be required to
abide by the more restrictive of this other requirement or the
above requirements of the CFTC Rule.) The "underlying commodity
value" of a Future or option is computed by multiplying the size
of the Future by the daily settlement price of the Future or
option.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average
value of such securities during the year, excluding certain
short-term securities. Since the turnover rate of the Trust will
be affected by a number of factors (see below), the Trust is
unable to predict what rate the Trust will have in any particular
period or periods, although the rate is not expected to exceed
100%. The factors which may affect the rate include (i) assuming
or moving away from a defensive position; a defensive position
could be assumed by shortening the average maturity of the
portfolio; (ii) the possible necessary sales of Arizona
Obligations to meet redemptions; and (iii) the possibility of
purchasing or selling Arizona Obligations without regard to the
length of time these obligations have been held to attempt to
take advantage of short-term differentials in yields on these
obligations with the objective of seeking exempt-interest income
while conserving capital. Short-term trading increases portfolio
turnover and transaction costs. However, the rate could be
substantially higher or lower in any particular period.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General
obligation bonds are secured by the issuer's pledge of its full
faith, credit and unlimited taxing power for the payment of
principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or
class of facilities or projects or, in a few cases, from the
proceeds of a special excise or other tax, but are not supported
by the issuer's power to levy unlimited general taxes. There are,
of course, variations in the security of municipal bonds, both
within a particular classification and between classifications,
depending on numerous factors. The yields of municipal bonds
depend on, among other things, general financial conditions,
general conditions of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of
the issue.
Since the Trust may invest in industrial development bonds
or private activity bonds, the Trust may not be an appropriate
investment for entities which are "substantial users" of
facilities financed by those bonds or for investors who are
"related persons" of such users. Generally, an individual will
not be a "related person" under the Internal Revenue Code unless
such investor or his or her immediate family (spouse, brothers,
sisters and lineal descendants) own directly or indirectly in the
aggregate more than 50 percent of the equity of a corporation or
is a partner of a partnership which is a "substantial user" of a
facility financed from the proceeds of those bonds. A
"substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses a part of [a] facility"
financed from the proceeds of industrial development or private
activity bonds.
As indicated in the Prospectus, there are certain Arizona
Obligations the interest on which is subject to the Federal
alternative minimum tax on individuals. While the Trust may
purchase these obligations, it may, on the other hand, refrain
from purchasing particular Arizona Obligations due to this tax
consequence. Also, as indicated in the Prospectus, the Trust will
not purchase obligations of Arizona issuers the interest on which
is subject to regular Federal income tax. The foregoing may
reduce the number of issuers of obligations which are available
to the Trust.
As stated in the Prospectus, floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. In
determining marketability of any such securities, the Board of
Trustees will consider the following factors, not all of which
may be applicable to any particular issue: the quality, maturity
and coupon rate of the issue, ratings received from the
nationally recognized statistical rating organizations and any
changes or prospective changes in such ratings, the likelihood
that the issuer will continue to appropriate the required
payments for the issue, recent purchases and sales of the same or
similar issues, the general market for municipal securities of
the same or similar quality, the Adviser's opinion as to
marketability of the issue and other factors that may be
applicable to any particular issue.
PERFORMANCE
As noted in the Prospectus, the Trust may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are
subject to rules of the Securities and Exchange Commission
("SEC"). These rules require the use of standardized performance
quotations or, alternatively, that every non-standardized
performance quotation furnished by the Trust be accompanied by
certain standardized performance information computed as required
by the SEC. Current yield and average annual compounded total
return quotations used by the Trust are based on these
standardized methods and are computed separately for each of the
Trust's three classes. Prior to March ***, 1996, the Trust had
outstanding only one class of shares which are currently
designated Class A Shares, Front Payment Class Shares." On that
date the trust began to offer shares of two other classes, Class
C Shares, "Level Payment Class Shares" and Class Y Shares,
"Institutional Class Shares." During the historical periods
listed below, there were no Class C Shares or Class Y Shares
outstanding and the information below relates solely to Class A
Shares. Each of these and other methods that may be used by the
Trust are described in the following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over 1- and 5-year
periods and a period since the inception of the Trust (on March
13, 1986) that would equate an initial hypothetical $1,000
investment to the value such an investment would have if it were
completely redeemed at the end of each such period. The
calculation assumes the maximum sales charge is deducted from the
hypothetical initial $1,000 purchase, that on each reinvestment
date during each such period any capital gains are reinvested at
net asset value, and all income dividends are reinvested at net
asset value, without sales charge (because the Trust does not
impose any sales charge on reinvestment of dividends). The
computation further assumes that the entire hypothetical account
was completely redeemed at the end of each such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations is a one time charge, paid
at the time of initial investment. The greatest impact of this
charge is during the early stages of an investment in the Trust.
Actual performance will be affected less by this one time charge
the longer an investment remains in the Trust.
The average annual compounded rates of return for the Trust
for the 1- and 5-year periods ended June 30, 1995, were 3.61% and
6.81%, respectively. The average annual compounded rate of return
for the Trust from inception to June 30, 1995, was 7.27%. These
figures were calculated according to the following SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1- and 5-year
period or the period since inception, at the end
of each such period.
As discussed in the Prospectus, the Trust may quote total
rates of return in addition to its average annual total return.
Such quotations are computed in the same manner as the Trust's
average annual compounded rate, except that such quotations will
be based on the Trust's actual return for a specified period as
opposed to its average return over the periods described above.
The total returns for the Trust for the 1- and 5-year periods
ended June 30, 1995, were 3.61% and 39.0%, respectively. The
total return for the Trust from inception to June 30, 1995, was
92.06%. In general, actual total rate of return will be lower
than average annual rate of return because the average annual
rate of return reflects the effect of compounding. See discussion
of the impact of the sales charge on quotations of rates of
return, above.
Yield
Current yield reflects the income per share earned by the
Trust's portfolio investments. Current yield is determined by
dividing the net investment income per share earned during a
30-day base period by the maximum offering price per share on the
last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all
shareholders during the base period net of fee waivers and
reimbursements of expenses, if any. The yield for the Trust for
the 30-day period ended on June 30, 1995 (the date of the Trust's
most recent audited financial statements) was 4.62%.
These figures were obtained using the Securities and
Exchange Commission formula:
6
Yield = 2 [(a-b + 1) -1]
----
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers
and reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
Taxable Equivalent Yield
The Trust may also quote a taxable equivalent yield which
shows the taxable yield that would be required to produce an
after-tax yield equivalent to that of a fund which invests in
tax-exempt obligations. Such yield is computed by dividing that
portion of the yield of the Trust (computed as indicated above)
which is tax-exempt by one minus the highest applicable combined
federal and Arizona income tax rate (and adding the result to
that portion of the yield of the Trust that is not tax-exempt, if
any). The taxable equivalent yield for the Trust for the 30-day
period ended on June 30, 1995 (the date of the Trust's most
recent audited financial statements, which are included in the
Trust's annual report for the year ended June 30, 1995) was
8.20%.
The Arizona and the combined Arizona and the Federal income
tax rates upon which the Trust's tax equivalent yield quotations
are based are 6.9% and 44.11%, respectively; the latter rate
reflects currently-enacted Federal income tax law. From time to
time, as any changes to such rates become effective, tax
equivalent yield quotations advertised by the Trust will be
updated to reflect such changes. Any tax rate increases will tend
to make a tax-free investment, such as the Trust, relatively more
attractive than taxable investments. Therefore, the details of
specific tax increases may be used in Trust sales material.
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative
of the amounts which were or will be paid to the Trust's
shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by
(i) dividing the total amount of dividends per share paid by the
Trust during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Trust's current distribution rate (calculated
as indicated above). The current distribution rate can differ
from the current yield computation because it could include
distributions to shareholders from additional sources (i.e.,
sources other than dividends and interest), such as short-term
capital gains.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase shares of the Trust at net asset value, the
Trust may quote a "Current Distribution for Net Asset Value
Investments." This rate is computed by (i) dividing the total
amount of dividends per share paid by the Trust during a recent
30-day period by (ii) the current net asset value of the Trust
and by (iii) annualizing the result. Figures for yield, total
return and other measures of performance for Net Asset Value
Investments may also be quoted. These will be derived as
described above with the substitution of net asset value for
public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used. If distribution rates are quoted in advertising, they will
be accompanied by calculations of current yield in accordance
with the formula of the Securities and Exchange Commission.
INVESTMENT RESTRICTIONS
The Trust has a number of policies concerning what it can
and cannot do. Those that are called fundamental policies cannot
be changed unless the holders of a "majority" (as defined in the
1940 Act) of the Trust's outstanding shares vote to change them.
Under that Act, the vote of the holders of a "majority" of the
Trust's outstanding shares 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 the Trust's 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 securities other than Arizona
Obligations (discussed under "Investment of the Trust's Assets"
in the Prospectus), Municipal Bond Index Futures, U.S. Government
Securities Futures and options on such Futures; therefore the
Trust cannot buy any voting securities, any commodities or
commodity contracts other than Municipal Bond Index Futures and
U.S. Government Securities Futures, any mineral related programs
or leases, any shares of other investment companies or any
warrants, puts, calls or combinations thereof other than on
Futures.
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 1% 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 can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising
control or management of other companies.
3. 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; however, the
Trust can make margin deposits in connection with the purchase or
sale of Municipal Bond Index Futures, U.S. Government Securities
Futures and options on them, and can pay premiums on these
options.
4. 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.
DISTRIBUTION PLAN
The Trust's Distribution Plan has three parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II) and to certain defensive provisions (Part
III).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Trust would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Adviser
or the Distributor. The Distributor will consider shares which
are not Qualified Holdings of such unrelated broker-dealers to be
Qualified Holdings of the Distributor and will authorize
Permitted Payments to the Distributor with respect to such shares
whenever Permitted Payments are being made under the Plan.
Part I of the Plan applies only to the Front Payment Shares
class ("Class A") of shares of the Trust (regardless of whether
such class is so designated or is redesignated by some other
name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Front Payment Shares
or servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient,
all Front Payment shares beneficially owned by such Qualified
Recipient, or beneficially owned by its brokerage customers,
other customers, other contacts, investment advisory clients, or
other clients, if the Qualified Recipient was, in the sole
judgment of the Distributor, instrumental in the purchase and/or
retention of such shares and/or in providing administrative
assistance or other services in relation thereto.
Subject to the direction and control of the Board of
Trustees of the Trust, the Trust may make payments ("Class A
Permitted Payments") to Qualified Recipients, which Class A
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent as disbursing agent,
which may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year) 0.15 of 1% of the average annual
net assets of the Trust represented by the Front Payment Shares
class of shares. Such payments shall be made only out of the
Trust assets allocable to the Front Payment Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class A Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class A Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Front Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and
the manner in which purchases and redemptions of shares of the
Trust may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part I is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part I of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Front Payment Shares class (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level Payment Class and/or of any other class whose shares
are convertible into Front Payment Shares. Part I has continued,
and will, unless terminated as hereinafter provided, continue in
effect, until the April 30 next succeeding such effectiveness,
and from year to year thereafter only so long as such continuance
is specifically approved at least annually by the Trust's
Trustees and its Independent Trustees with votes cast in person
at a meeting called for the purpose of voting on such
continuance. Part I may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part I
applies. Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part I as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class A Plan Agreements with them shall be their
agreements with the Distributor with respect to payments under
Part II.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level Payment Shares
Class ("Class C Shares") of the Trust (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Level Payment Shares
or servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient,
all Level Payment shares beneficially owned by such Qualified
Recipient, or beneficially owned by its brokerage customers,
other customers, other contacts, investment advisory clients, or
other clients, if the Qualified Recipient was, in the sole
judgment of the Distributor, instrumental in the purchase and/or
retention of such shares and/or in providing administrative
assistance or other services in relation thereto.
Subject to the direction and control of the Board of
Trustees of the Trust, the Trust may make payments ("Class C
Permitted Payments") to Qualified Recipients, which Class C
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent as disbursing agent,
which may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year) 0.75 of 1% of the average annual
net assets of the Trust represented by the Level Payment Shares
class of shares. Such payments shall be made only out of the
Trust assets allocable to the Level Payment Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level Payment Shares class. Part II has
continued, and will, unless terminated as hereinafter provided,
continue in effect, until the April 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class C Plan Agreements with them shall be their
agreements with the Distributor with respect to payments under
Part II.
Defensive Provisions (Part III)
Another part of the Plan (Part III) states that if and to
the extent that any of the payments listed below are considered
to be "primarily intended to result in the sale of" shares issued
by the 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 while it is in effect, the selection
and nomination of those Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan states that while it is in effect, the Trust's
Administrator and Distributor shall report at least quarterly to
the Trust's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Fund to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Trust, the Adviser, the Administrator or the Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Trust an accounting,
in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the
fairness of the compensation paid to such affiliated person, not
less often than annually.
The Plan defines as the 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 Board of Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that the Plan will benefit the 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 and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Trust.
SHAREHOLDER SERVICES PLAN
The Trust has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to
Class C Shares of the Trust of "Service Fees" within the meaning
of Article III, Section 26(b)(9) of the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. The
Services Plan applies only to the Class C Shares of shares of
the Trust (regardless of whether such class is so designated or
is redesignated by some other name).
As used in the Services Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to the
Distributor and any other principal underwriter of the Trust, who
have, pursuant to written agreements with the Trust or the
Distributor, agreed to provide personal services to Level-Payment
shareholders and/or maintenance of Level-Payment shareholder
accounts. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Shares beneficially owned by such
Qualified Recipient's customers, clients or other contacts.
"Administrator" shall mean Aquila Management Corporation or any
successor serving as sub-adviser or administrator of the Trust.
Subject to the direction and control of the Board of
Trustees of the Trust, the Trust may make payments ("Service
Fees") to Qualified Recipients, which Service Fees (i) may be
paid directly or through the Distributor or shareholder servicing
agent as disbursing agent and (ii) may not exceed, for any fiscal
year of the Trust (as adjusted for any part or parts of a fiscal
year during which payments under the Services Plan are not
accruable or for any fiscal year which is not a full fiscal year)
0.25 of 1% of the average annual net assets of the Trust
represented by the Level-Payment Class of shares. Such payments
shall be made only out of the Trust assets allocable to the
Level-Payment Shares. The Distributor shall have sole authority
with respect to the selection of any Qualified Recipient or
Recipients and the amount of Service Fees, if any, paid to each
Qualified Recipient, provided that the total Service Fees paid to
all Qualified Recipients may not exceed the amount set forth
above and provided, further, that no Qualified Recipient may
receive more than 0.25 of 1% of the average annual net asset
value of shares sold by such Recipient. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient
and (b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level-Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; and providing such other related services as
the Distributor or a shareholder may request from time to time.
Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined below) may remove any person as
a Qualified Recipient. Amounts within the above limits accrued to
a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While the Services Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Services Plan, the identity
of the Qualified Recipient of each payment, and the purposes for
which the amounts were expended; and (ii) all fees of the Trust
to the Distributor paid or accrued during such quarter. In
addition, if any Qualified Recipient is an "affiliated person,"
as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), of the Trust, the Adviser, the
Administrator or the Distributor, such person shall agree to
furnish to the Distributor for transmission to the Board of
Trustees of the Trust an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Trust and had no direct or indirect financial interest in the
operation of the Service Plan or in any agreements related to the
Service Plan (the "Independent Trustees"), with votes cast in
person at a meeting called for the purpose of voting on the
Service Plan. It is effective as of the date first above written
and will continue in effect for a period of more than one year
from such date only so long as such continuance is specifically
approved at least annually as set forth in the preceding
sentence. It may be amended in like manner and may be terminated
at any time by vote of the Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the Act as now in force
or hereafter amended.
While the Service Plan is in effect, the selection and
nomination of those Trustees of the Trust who are not "interested
persons" of the Trust, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Trust has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Trust is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent
of the net asset value of the Trust during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Trust will have the option of redeeming the
excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting
the assets into cash. The method of valuing securities used to
make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of
the same time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their affiliations,
if any, with the Administrator or the Distributor, and the
principal occupations of such persons during at least the past
five years are set forth below. As of the date of the Additional
Statement, the Trustees and officers of the Trust as a group
owned less than 1% of its outstanding shares. Mr. Herrmann is an
interested person, as that term is defined in the Investment
Company Act of 1940 (the "1940 Act"), of the Trust as an officer
of the Trust and as a Director, officer and shareholder of the
Trust's Distributor. Ms. Herrmann is an interested person of the
Trust as a member of his immediate family. Mr. Carlson and Mr.
Lucking are interested persons of the Trust as security holders
of the Adviser's parent, BANC ONE CORPORATION. Interested
persons are so designated by an asterisk.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder of the Trust and President and a Director of the
Administrator since 1984; Founder, President and Chairman of the
Board of Trustees of Hawaiian Tax-Free Trust since 1984, of
Tax-Free Trust of Oregon since 1986, of Churchill Tax-Free Fund
of Kentucky and Tax-Free Fund of Colorado since 1987 and of
Tax-Free Fund For Utah and Narragansett Insured Tax-Free Income
Fund since 1992, all of which are tax-free municipal bond funds,
and an equity fund, Aquila Rocky Mountain Equity Fund since 1993,
to all of which the Administrator is administrator and which are
referred to as the "Bond and Equity Funds"; Chairman and
President, Chief Executive Officer (Chairman of the Board of
Trustees and/or President) and Trustee of Capital Cash Management
Trust ("CCMT"), since 1981 and Founder and executive officer
(since 1974) of CCMT and its predecessor; Founder, President and
Chairman of the Board of Trustees of Prime Cash Fund since 1982,
of Short Term Asset Reserves and Pacific Capital Cash Assets
Trust since 1984, of Churchill Cash Reserves Trust since 1985, of
Pacific Capital Tax-Free Cash Assets Trust and of Pacific Capital
U.S. Treasuries Cash Assets Trust since 1988 and of Cascades Cash
Fund, 1989-1994, all of which are money market funds to which the
Administrator is administrator and which are referred to as the
"Money Funds"; Vice President, a Director and Secretary since
1981 (formerly Treasurer) of the Distributor, which is
distributor (i.e., principal underwriter) for the Money Funds and
the Bond and Equity Funds; President and a Director of STCM
Management Company, Inc., Adviser to CCMT; Chairman, President
and a Director since 1984 of InCap Management Corporation,
formerly sub-adviser and administrator of Prime Cash Fund and
Short Term Asset Reserves; Director or Trustee of the various
Quest for Value Funds, a group of stock, bond and money market
mutual funds, since 1983; Director of Saratoga Advantage Trust, a
group of mutual funds, since 1994; Trustee of Brown University
since 1990; actively involved for many years in leadership roles
with university, school and charitable organizations.
Philip E. Albrecht, C.F.A., Trustee, 1485 Gulf of Mexico Drive,
Longboat Key, Florida, 34228
Retired; Senior Vice President, Investments of National
Securities & Research Corporation, 1973-1984; Vice President of
Research of Merrill Lynch, Pierce, Fenner & Smith, 1949-1973;
past President of The New York Society of Security Analysts;
former officer and Director of The Financial Analysts Federation;
former officer and Trustee of the Institute of Chartered
Financial Analysts; active in a similar capacity with various
other professional organizations; Trustee of Tax-Free Fund For
Utah since 1992.
Arthur K. Carlson*, Trustee, 8702 North Via La Serena, Paradise
Valley, Arizona 85253
Retired; Senior Vice President and Manager of the Trust Division
of The Valley National Bank of Arizona, 1977-1987; Trustee of
Tax-Free Fund of Colorado, Hawaiian Tax-Free Trust and Pacific
Capital Cash Assets Trust since 1987, of Pacific Capital Tax-Free
Cash Assets Trust and Pacific Capital U.S. Treasuries Cash Assets
Trust since 1988 and of Aquila Rocky Mountain Equity Fund since
1993; previously Vice President of Investment Research at
Citibank, New York City, and prior to that Vice President and
Director of Investment Research of Irving Trust Company, New York
City; past President of The New York Society of Security Analysts
and currently a member of the Phoenix Society of Financial
Analysts; formerly Director of the Financial Analysts Federation;
past Chairman of the Board and, currently, Director of Mercy
Healthcare of Arizona, Phoenix, Arizona since 1990; Director of
Northern Arizona University Foundation since 1990; present or
formerly an officer and/or director of various other community
and professional organizations.
Thomas W. Courtney, C.F.A., Trustee, P.O. Box 580, Sewickley,
Pennsylvania 15143
President of Courtney Associates, Inc., a venture capital firm,
since 1988; General Partner of Trivest Venture Fund, 1983-1988;
President of Investment Counseling, Federated Investors, Inc.,
1975-1982; President of Boston Company Institutional Investors,
Inc., 1970-1975; Director of several privately owned
corporations; formerly a Director of the Financial Analysts
Federation; Trustee of Hawaiian Tax-Free Trust and Pacific
Capital Cash Assets Trust since 1984 and of Pacific Capital
Tax-Free Cash Assets Trust and Pacific Capital U.S. Treasuries
Cash Assets Trust since 1988; Director or Trustee of the various
Quest for Value Funds, a group of stock, bond and money market
mutual funds, since 1983.
William L. Ensign, Trustee, 2928 Cortland Place N.W., Washington,
D.C. 20008
Assistant Architect of the United States Capital, Washington,
D.C. since 1980; formerly President and Chief Executive Officer
of McLeod Ferrara Ensign, a planning, architectural, and interior
design firm, in Washington D.C. and Maryland; a Fellow and former
member of the Board of Directors of the American Institute of
Architects and past President of the Washington-Metropolitan
Chapter of the A.I.A.; active in the National Trust for Historic
Preservation; designee to the Advisory Council on Historic
Preservation; designee to the Zoning Commission of the District
of Columbia since 1989; Trustee of Tax-Free Fund For Utah since
1991; Trustee of Oxford Cash Management Fund, 1983-1989.
Diana P. Herrmann*, Trustee, 380 Madison Avenue, New York, New
York 10017
Senior Vice President and Secretary and formerly Vice President
of the Administrator since 1986 and Director since 1984; Trustee
of Tax-Free Trust of Oregon since 1994 and of Churchill Tax-Free
Fund of Kentucky since 1995; Vice President of InCap Management
Corporation since 1986 and Director since 1983; Vice President and
formerly Assistant Vice President of the Money Funds since 1986;
Assistant Vice President of Oxford Cash Management Fund, 1986-1988;
Assistant Vice President and formerly Loan Officer of European
American Bank, 1981-1986; daughter of the Trust's President; Trustee
of the Leopold Schepp Foundation (academic scholarships) since 1995;
actively involved in mutual fund and trade associations and in
college and other volunteer organizations.
John C. Lucking*, Trustee, 7537 North Central Avenue, Phoenix,
Arizona 85020
Consulting Economist of Bank One Arizona (formerly Valley
National bank of Arizona) since 1994; Chief Economist of that
bank, 1987-1994; Municipal bond analyst and Government Securities
salesman, 1984-1987; Financial Analyst of Phelps Dodge
Corporation (a mining company) 1980-1984; Director of New Mexico
and Arizona Land Company since 1993.
Anne J. Mills, Trustee, 7030 East Shooting Star Way, Scottsdale,
Arizona 85262
Vice President for Business Affairs of Ottawa University since
1992; Director of Customer Fulfillment, U.S. Marketing and
Services Group, IBM Corporation, 1990-1991; Director of Business
Requirements of that Group, 1988-1990; Director of Phase
Management of that Group, 1985-1988; Budget Review Officer of the
American Baptist Churches/USA since 1994; Director of the
American Baptist Foundation since 1985; Trustee of Brown
University; Trustee of Churchill Cash Reserves Trust since 1985,
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 T. Quinsler, Trustee, 5428 East Calle del Medio, Phoenix,
Arizona 85018
Secretary, Assistant Treasurer and Secretary to the Board of
Directors of the Arizona Public Service Company with liaison
responsibilities for pension and other fund management,
1969-1983; registered professional engineer; Director and/or
member of various business and charitable organizations,
including the Phoenix Society of Financial Analysts (past
President), the American Society of Corporate Secretaries, the
National Society of Professional Engineers, the Financial
Analysts Federation and the Arizona Cattle Growers Association;
Director of Utility Services Insurance Company, Ltd., 1970-1984,
Vice President, 1972-1982 and President and Chief Operating
Officer, 1982-1984; Chairman of the Audit Committee for this
Trust 1987-1995.
William C. Wallace, Senior Vice President, 380 Madison Avenue,
New York, New York 10017
Vice President of Capital Cash Management Trust and Pacific
Capital Cash Assets Trust since 1984; Senior Vice President of
Hawaiian Tax-Free Trust since 1985 and Vice President, 1984-1985;
Vice President, 1986-1988; Vice President of Tax-Free Trust of
Oregon since 1986, of Churchill Tax-Free Fund of Kentucky and
Tax-Free Fund of Colorado since 1987, of Pacific Capital Tax-Free
Cash Assets Trust and Pacific Capital U.S. Treasuries Cash Assets
Trust since 1988 and of Narragansett Insured Tax-Free Income Fund
since 1992; Secretary and Director of STCM Management Company,
Inc. since 1974; President of the Distributor since 1995 and
formerly Vice President of the Distributor, 1986-1992; Member of
the Panel of Arbitrators, American Arbitration Association, since
1978; Assistant Vice President, American Stock Exchange, Market
Development Division, and Director of Marketing, American Gold
Coin Exchange, a subsidiary of the American Stock Exchange,
1976-1984.
Susan A. Cook, Vice President, 8712 E. Via de Commercio #9,
Scottsdale, Arizona 85258
Registered Representative of Aquila Distributors, Inc. since
1993; Vice President of Cowen & Company, Members of the New York
Stock Exchange, 1988-1991.
Kristian P. Kjolberg, Vice President, 8712 E. Via de Commercio
#9, Scottsdale, Arizona 85258
Registered Representative of Aquila Distributors, Inc. since
1995; Financial Adviser and Registered Representative of Sentra
Securities Corporation, 1992-1995; Financial Adviser of
Prudential Insurance Company, 1990-1992.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Money Funds and the Bond and
Equity Funds since 1991; Treasurer of the Money Funds and the
Bond and Equity Funds, 1981-1991; formerly Treasurer of the
predecessor of CCMT; Treasurer and Director of STCM Management
Company, Inc., since 1974; Treasurer of Trinity Liquid Assets
Trust, 1982-1986 and of Oxford Cash Management Fund, 1982-1988;
Treasurer of InCap Management Corporation since 1982, of the
Administrator since 1984 and of the Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Money Funds and the Bond and Equity Funds and of
Aquila Distributors, Inc. since 1992; Associate Director of
Furman Selz Incorporated, 1991-1992; Vice President of Scudder,
Stevens & Clark, Inc. and Treasurer of Scudder Institutional
Funds, 1989-1991; Vice President of Lazard Freres Institutional
Funds Group, Treasurer of Lazard Freres Group of Investment
Companies and HT Insight Funds, Inc., 1986-1988; Vice President
of Lehman Management Co., Inc. and Assistant Treasurer of Lehman
Money Market Funds, 1981-1985; Controller of Seligman Group of
Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Money Funds and the Bond and Equity Funds since 1982;
Secretary of Trinity Liquid Assets Trust, 1982-1985 and Trustee
of that Trust, 1985-1986; Secretary of Oxford Cash Management
Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Money Funds and the Bond and Equity
Funds since 1995; Vice President of the Money Funds since 1990;
Vice President of the Administrator since 1990; Investment
Services Consultant and Bank Services Executive of Wright
Investors' Service, a registered investment adviser, 1983-1989;
Member of the American Finance Association, the Western Finance
Association and the Society of Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Money Funds and the Bond and Equity
Funds since 1995; Counsel to the Administrator and the
Distributor since 1995; formerly a Legal Associate for
Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Trust does not pay fees to Trustees affiliated with the
Administrator or to any of the Trust's officers. During the
fiscal year ended June 30, 1995, the Trust paid $63,284 in fees
and reimbursement of expenses to its other Trustees. The Trust
is one of the 14 funds in the Aquilasm Group of Funds, which
consist of tax-free municipal bond funds, money market funds and
an equity fund. The following table lists the compensation of all
Trustees who received compensation from the Trust and the
compensation they received during the Trust's fiscal year from
other funds in the Aquilasm Group of Funds. None of such Trustees
has any pension or retirement benefits from the Trust or any of
the other funds in the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee now
Name Trust Group serves
<S> <C> <C> <C>
Philip E.
Albrecht $5,450 $6,900 2
Arthur K.
Carlson $6,250 $31,843 7
Thomas W.
Courtney $6,282 $26,587 5
William L.
Ensign $0 $0 2
John C.
Lucking $3,600 $3,600 1
Anne J.
Mills $6,364 $28,524 6
William T.
Quinsler $6,400 $6,400 1
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
The Investment Advisory Agreement (the "Advisory Agreement")
between the Trust and Bank One, Arizona, NA (the "Adviser")
contains the provisions described below, in addition to those
described in the Prospectus.
The Advisory Agreement may be terminated by the Adviser at
any time without penalty upon giving the Trust sixty days'
written notice, and may be terminated by the Trust at any time
without penalty upon giving the Adviser sixty days' written
notice, provided that such termination by the Trust shall be
directed or approved by the vote of a majority of all its
Trustees in office at the time or by the vote of the holders of a
majority (as defined in the 1940 Act) of its voting securities at
the time outstanding and entitled to vote; it automatically
terminates in the event of its assignment (as so defined).
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the Adviser is not
liable for any loss sustained by the adoption of any investment
policy or the purchase, sale or retention of any security and
permits the Adviser to act as investment adviser for any other
person, firm or corporation. The Trust agrees to indemnify the
Adviser to the full extent permitted under the Trust's
Declaration of Trust.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the
accuracy or completeness of the Trust's Registration Statement
under the Securities Act of 1933 and the 1940 Act, except for the
information supplied by the Adviser for inclusion therein.
The Advisory Agreement contains the following provisions as
to the Trust's portfolio transactions. In connection with its
duties to arrange for the purchase and sale of the Trust's
portfolio securities, the Adviser shall select such
broker-dealers ("dealers") as shall, in the Adviser's judgment,
implement the policy of the Trust to achieve "best execution,"
i.e., prompt, efficient and reliable execution of orders at the
most favorable net price. The Adviser shall cause the Trust to
deal directly with the selling or purchasing principal or market
maker without incurring brokerage commissions unless the Adviser
determines that better price or execution may be obtained by
paying such commissions; the Trust expects that most transactions
will be principal transactions at net prices and that the Trust
will incur little or no brokerage costs. The Trust understands
that purchases from underwriters include a commission or
concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread
between the bid and asked price. In allocating transactions to
dealers, the Adviser is authorized to consider, in determining
whether a particular dealer will provide best execution, the
dealer's reliability, integrity, financial condition and risk in
positioning the securities involved, as well as the difficulty of
the transaction in question, and thus need not pay the lowest
spread or commission available if the Adviser determines in good
faith that the amount of commission is reasonable in relation to
the value of the brokerage and research services provided by the
dealer, viewed either in terms of the particular transaction or
the Adviser's overall responsibilities as to the accounts as to
which it exercises investment discretion. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the Trust or any other investment
company or companies having the Adviser as its investment adviser
or having the same sub-adviser, Administrator or principal
underwriter as the Trust. Such research may be in written form or
through direct contact with individuals and may include
quotations on portfolio securities and information on particular
issuers and industries, as well as on market, economic or
institutional activities. The Trust recognizes that no dollar
value can be placed on such research services or on execution
services, that such research services may or may not be useful to
the Trust and/or other accounts of the Adviser and that research
received by such other accounts may or may not be useful to the
Trust.
During the fiscal year ended June 30, 1995, all of the
Trust's transactions were principal transactions and no brokerage
commissions were paid.
For the fiscal years ended June 30, 1995 and 1994, the fees
payable to the Adviser under the Advisory Agreement and to the
Administrator under the Administration Agreement were each
$739,438 and $939,765, respectively. For the fiscal year ended
June 30, 1993 fees of $715,199 were paid or accrued to the
Adviser, of which $115,020 was voluntarily waived. For the fiscal
year ended June 30, 1993 fees of $715,199 were paid or accrued to
the Administrator of which $115,020 was voluntarily waived.
Additional Information as to the Administration Agreement
The Administration Agreement (the "Administration
Agreement") between Aquila Management Corporation, as
Administrator, and the Trust contains the provisions described
below in addition to those described in the Prospectus.
Subject to the control of the Trust's Board of Trustees, the
Administrator provides all administrative services to the Trust
other than those relating to its investment portfolio and the
maintenance of its accounting books and records; as part of such
duties, the Administrator (i) provides office space, personnel,
facilities and equipment for the performance of the following
functions and for the maintenance of the Trust's headquarters;
(ii) oversees all relationships between the Trust and its
transfer agent, custodian, legal counsel, auditors and principal
underwriter, including the negotiation, subject to the approval
of the Trust's Board of Trustees, of agreements in relation
thereto, the supervision and coordination of the performance of
such agreements, and the overseeing of all administrative matters
which are necessary or desirable for effective operation and for
the sale, servicing, or redemption of the Trust's shares; (iii)
provides to the Adviser and to the Trust statistical and other
factual information and advice regarding economic factors and
trends, but does not generally furnish advice or make
recommendations regarding the purchase or sale of securities;
(iv) maintains the Trust's books and records (other than
accounting books and records), and prepares (or assists counsel
and auditors in the preparation of) all required proxy
statements, reports to shareholders and Trustees, reports to and
other filings with the Securities and Exchange Commission and any
other governmental agencies, and tax returns, and oversees the
Trust's insurance relationships; (v) prepares, on the Trust's
behalf and at its expense, such applications and reports as may
be necessary to register or maintain the Trust's registration or
that of its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time; and (vi)
responds to any inquiries or other communications from
shareholders and broker-dealers, or if any such inquiry or
communication is more properly to be responded to by the Trust's
shareholder servicing and transfer agent or distributor, oversees
such shareholder servicing and transfer agent's or distributor's
response thereto. Since the Trust pays its own legal and audit
expenses, to the extent that the Trust's counsel and accountants
prepare or assist in the preparation of prospectuses, proxy
statements and reports to shareholders, the costs of such
preparation or assistance are paid by the Trust.
The Administration Agreement may be terminated at any time
without penalty by the Administrator upon sixty days' written
notice to the Trust and the Adviser; it may be terminated by the
Trust at any time without penalty upon giving the Administrator
sixty days' written notice, provided that such termination by the
Trust shall be directed or approved by a vote of a majority of
the Trustees in office at the time, including a majority of the
Trustees who are not interested persons of the Trust. In either
case the notice provision may be waived.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Administration Agreement provides that the Administrator
shall not be liable for any error in judgement or for any loss
suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Administrator in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the
Administration Agreement. The Trust agrees to indemnify the
Administrator to the full extent permitted by the Declaration of
Trust.
Glass-Steagall Act and Certain Other Banking Laws
The Adviser 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 Adviser, it is permitted under current Federal
banking laws to perform the services for the Trust required by
the 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 as the investment adviser to
the Trust.
In the event the Adviser is prohibited from acting as the
Trust's investment adviser, it is probable that the Trust's
Trustees would recommend to the shareholders the selection of
another qualified adviser.
The 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 Adviser may not be involved in the
promotion or distribution of shares of the Trust and that Trust
accounts administered by the 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 Arizona
law, if the portfolios of that investment company or investment
trust consist of investments permitted by the applicable
fiduciary instrument, the Adviser in its capacity as a fiduciary,
may purchase shares of the Trust. Collective investment funds
operated by the Adviser may not purchase shares of the Trust.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Trust's shares is determined as
of 4:00 p.m. New York time on each day that the New York Stock
Exchange is open by dividing the value of the Trust's net assets
by the total number of its shares then outstanding. However,
Futures and options on them are valued at the last sales price on
the principal commodities exchange on which the Future or option
is traded or, if there are no sales, at the mean between the bid
and asked prices as of the close of that exchange; such close may
be later than 4:00 p.m. New York time. Securities having a
remaining maturity of less than sixty days when purchased and
securities originally purchased with maturities in excess of
sixty days but which currently have maturities of sixty days or
less are valued at cost adjusted for amortization of premiums and
accretion of discounts. All other portfolio securities are valued
at the mean between bid and asked quotations which, for Arizona
Obligations, may be obtained from a reputable pricing service or
from one or more broker-dealers dealing in Arizona Obligations,
either of which may, in turn, obtain quotations from
broker-dealers or banks which deal in specific issues. However,
since Arizona Obligations are ordinarily purchased and sold on a
"yield" basis by banks or dealers which act for their own account
and do not ordinarily make continuous offerings, quotations
obtained from such sources may be subject to greater fluctuations
than is warranted by prevailing market conditions. Accordingly,
some or all of the Arizona Obligations in the Trust's portfolio
may be priced, with the approval of the Trust's Board of
Trustees, by differential comparisons to the market in other
municipal bonds under methods which include consideration of the
current market value of tax-free debt instruments having varying
characteristics of quality, yield and maturity. Any securities or
assets for which market quotations are not readily available are
valued at their fair value as determined in good faith under
procedures established by and under the general supervision and
responsibility of the Trust's Board of Trustees. In the case of
Arizona Obligations, such procedures may include "matrix"
comparisons to the prices for other tax-free debt instruments on
the basis of the comparability of their quality, yield, maturity
and other special factors, if any, involved. With the approval of
the Trust's Board of Trustees, the Adviser may at its own expense
and without reimbursement from the Trust employ a pricing
service, bank or broker-dealer experienced in such matters to
perform any of the above described functions.
As indicated above, the net asset value per share of the
Trust's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, that Exchange may close on days not included in that
announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Trust's shares are sold or
issued on a basis other than the maximum public offering price,
that is, the net asset value plus the highest sales charge. Some
of these relate to lower or eliminated sales charges for larger
purchases, whether made at one time or over a period of time as
under a Letter of Intent or right of accumulation. (See the table
of sales charges in the Prospectus.) The reasons for these
quantity discounts are, in general, that (i) they are traditional
and have long been permitted in the industry and are therefore
necessary to meet competition as to sales of shares of other
funds having such discounts; (ii) certain quantity discounts are
required by rules of the National Association of Securities
Dealers, Inc. (as are elimination of sales charges on the
reinvestment of dividends and distributions); and (iii) they are
designed to avoid an unduly large dollar amount of sales charge
on substantial purchases in view of reduced selling expenses.
Quantity discounts are made available to certain related persons
("single purchasers") for reasons of family unity and to provide
a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges are as follows. Exchanges at
net asset value are permitted because a sales charge has already
been paid on the shares exchanged. Sales without sales charge are
permitted to Trustees, officers and certain others due to reduced
or eliminated selling expenses and/or since such sales may
encourage incentive, responsibility and interest and an
identification with the aims and policies of the Trust. Limited
reinvestments of redemptions at no sales charge are permitted to
attempt to protect against mistaken or incompletely informed
redemption decisions. Shares may be issued at no sales charge in
plans of reorganization due to reduced or eliminated sales
expenses and since, in some cases, such issuance is exempted in
the 1940 Act from the otherwise applicable restrictions as to
what sales charge must be imposed. In no case in which there is a
reduced or eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Trust
receives the net asset value per share of all shares sold or
issued.
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases shares of the Trust
having a net asset value of at least $5,000 may establish an
Automatic Withdrawal Plan under which he will receive a monthly
or quarterly check in a stated amount, not less than $50. Stock
certificates will not be issued for shares held under an
Automatic Withdrawal Plan. All dividends and distributions must
be reinvested. Shares will be redeemed on the last business day
of the month or quarter as may be necessary to meet withdrawal
payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate the account. Monthly or quarterly payments paid to
shareholders may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
Any investor who incurs a sales commission when he buys
shares of one mutual fund (the original fund) and who then sells
such shares or exchanges them for shares of a different mutual
fund without having held them at least 91 days must reduce his
tax basis for the shares sold or exchanged to the extent that the
standard sales commission charged for acquiring shares in the
exchange or later acquiring shares of the original fund or
another fund is reduced because of the shareholder's having
owned the original fund shares. The effect of the rule is to
increase the investor's gain or reduce his or her loss on the
original fund shares. The amount of the basis reduction on the
original fund shares, however, is added on the investor's basis
for the fund shares acquired in the exchange or later acquired.
The provision applies to commissions charged after October 3,
1989.
CONVERSION OF CLASS C SHARES
Level Payment Class ("Class C Shares") of the Trust, which
you hold will automatically convert to Front Payment ("Class A
Shares") of the Trust based on the relative net asset values per
share of the two classes as of the close of business on the first
business day of the month in which the sixth anniversary of the
your initial purchase of such Class C Shares occurs. For these
purposes, the date of your initial purchase shall mean (1) the
first business day of the month in which such Class C Shares were
issued to you, or (2) for Class C Shares of the Trust you have
obtained through an exchange or series of exchanges under the
Exchange Privilege (see "Exchange Privilege" in the Prospectus),
the first business day of the month in which you made the
original purchase of Class C Shares so exchanged. For conversion
purposes, Class C Shares purchased through reinvestment of
dividends or other distributions paid in respect of Class C
Shares will be held in a separate sub-account. Each time any
Class C Shares in your regular account (other than those in the
sub-account) covert to Class A Shares, a pro-rata portion of the
Class C Shares in the sub-account will also convert to Class A
Shares. The portion will be determined by the ration that your
Class B Shares then converting to Class A Shares bears to the
total of your Class C Shares not acquired through reinvestment of
dividends and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A and Class C
Shares will not result in "preferential dividends" under the
Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Trust would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Trust has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Trust implements any amendments to its Distribution
Plan that would increase materially the costs that may be borne
under such Distribution Plan by Class A shareholders, Class C
Shares will stop converting into Class A Shares unless a majority
of Class C shareholders, voting separately as a class, approve
the proposal.
GENERAL INFORMATION
Possible Additional Series
If an additional Series were created by the Board of
Trustees, shares of each such Series would be entitled to vote as
a Series only to the extent permitted by the 1940 Act (see below)
or as permitted by the Board of Trustees. Income and operating
expenses would be allocated among the Trust and the additional
series in a manner acceptable to the Board of Trustees.
Under Rule 18f-2 under the 1940 Act, any matter required to
be submitted to shareholder vote is not deemed to have been
effectively acted upon unless approved by the holders of a
"majority" (as defined in that Rule) of the voting securities of
each Series affected by the matter. Such separate voting
requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, Series. A change in
investment policy may go into effect as to one or more Series
whose holders so approve the change, even though the required
vote is not obtained as to the holders of other affected Series.
Indemnification of Shareholders and Trustees
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 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 out of the property of the Trust and provides that
they will not be liable for errors of judgment or mistakes of
fact or law; but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office.
Custodian and Auditors
The Trust's Custodian, Bank One Trust Company, N.A. is
responsible for holding the Trust's assets. The Trust's Custodian
is an affiliate of the Adviser.
The Trust's auditors, KPMG Peat Marwick LLP, perform an
annual audit of the Trust's financial statements.
Underwriting Commissions
During the Trust's fiscal year ended June 30, 1995 the
aggregate dollar amount of sales charges on sales of shares of
the Trust was $944,440 and the amount retained by the Distributor
was $91,923.
Financial Statements
The financial statements of the Trust for the fiscal year
ended June 30, 1995, which are contained in the Annual Report for
that fiscal year, and the financial statements of the Trust for
the six months ended December 31, 1995, which are contained in
the Semi-Annual Report for that period, are hereby incorporated
by reference into the Additional Statement. Those financial
statements have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is incorporated herein
by reference. The financial statements of the Trust for the six
months ended December 31, 1995 are unaudited.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND AND COMMERCIAL PAPER RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and
other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt
being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and
risk.
Standard and Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing
the designation SP-1 are deemed very strong or to have strong
capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a
plus (+) designation. Notes bearing the designation SP-2 are
deemed to have a satisfactory capacity to pay principal and
interest.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's
Investment Grade as MIG 1 through MIG 4. In the case of variable
rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other
representing an evaluation of the degree of risk associated with
the demand feature. The short-term rating assigned to the demand
feature of VRDOs is designated as VMIG. When no rating is applied
to the long or short-term aspect of a VRDO, it will be designated
NR. Issues or the features associated with MIG or VMIG ratings
are identified by date of issue, date of maturity or maturities
or rating expiration date and description to distinguish each
rating from other ratings. Each rating designation is unique with
no implication as to any other similar issue of the same obligor.
MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issuer's
specific structural or credit features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality.
Margins of protection are ample although not
so large as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access
for refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of
an investment security is present and
although not distinctly or predominantly
speculative, there is specific risk.
<PAGE>
[TFTA SAI cover]
Investment Adviser
Bank One, Arizona, NA
Bank One Center
241 North Central Avenue
Phoenix, Arizona 85004
Administrator and Founder
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
Board of Trustees
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Arthur K. Carlson
Thomas W. Courtney
William L. Ensign
Diana P. Herrmann
John C. Lucking
Anne J. Mills
William T. Quinsler
Officers
Lacy B. Herrmann, President
William C. Wallace, Senior Vice President
Susan A. Cook, Vice President
Kristian P. Kjolberg, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
Distributor
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
Transfer and Shareholder Servicing Agent
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
Custodian
Bank One Trust Company, N.A.
100 East Broad Street
Columbia, Ohio 43271
Independent Auditors
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
Counsel
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TAX-FREE TRUST OF ARIZONA
A tax-free
income investment
[LOGO OF EAGLE]
STATEMENT OF
ADDITIONAL
INFORMATION
[LOGO OF EAGLE HEAD]
One Of The
Aquilasm
Group Of Funds
<PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Incorporated by reference into Part B:
Report of Independent Auditors
Statement of Investments as of June 30, 1995
Statement of Assets and Liabilities as of
June 30, 1995
Statement of Operations for the year ended
June 30, 1995
Statement of Changes in Net Assets for the
years ended June 30, 1995 and 1994
Notes to Financial Statements
Included in Part C:
Consent of Independent Auditors
(b) Exhibits:
(1) Amended and Restated Declaration of Trust (vii)
(2) By-laws (i)
(3) Not applicable
(4) Specimen share certificate (ii)
(5) Investment Advisory Agreement (v)
(6) (a) Distribution Agreement (iv)
(6) (b) Sales Agreement for Brokerage Firms (iv)
(6) (c) Sales Agreement for Financial
Institutions (iv)
(6) (d) Sales Agreement for Investment Advisers (v)
(6) (e) Services Agreement (viii)
(7) Not applicable
(8) Custody Agreement (vii)
(9) (a) Transfer Agency Agreement (iii)
(9) (b) Administration Agreement (v)
(10) Opinion & consent of Trust's counsel (viii)
(11) (a) Opinion & consent of Adviser's counsel (ii)
(11) (b) Opinion & consent of Adviser's counsel
regarding state taxes (iii)
(12) Not applicable
(13) Agreement with initial shareholder (ii)
(14) Not applicable
(15) Distribution Plan (viii)
(15) (a) Services Plan (viii)
(16) Schedule for computation of performance
quotations (vii)
(17) Financial Data Schedule (vii)
(18) Plan pursuant to Rule 18f-3
under the 1940 Act (viii)
(i) Filed as an exhibit to Registrant's Initial Regis-
tration Statement dated November 27, 1985 and incor-
porated herein by reference.
(ii) Filed as an exhibit to Registrant's Pre-Effective
Amendment No. 1 dated February 28, 1986 and
incorporated herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 4 dated October 30, 1989 and incorpo-
rated herein by reference.
(iv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 5 dated August 30, 1990 and incorpora-
ted herein by reference.
(v) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 8 dated September 3, 1993 and incorpora-
ted herein by reference.
(vi) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 9 dated October 26, 1994 and incorpora-
ted herein by reference.
(vii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 10 dated October 26, 1995 and incorpora-
ted herein by reference.
(viii) Filed herewith.
ITEM 25. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 26. Number of Holders of Securities
As of September 30, 1995, Registrant had 9,056 holders
of record of its shares.
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Amended and Restated Declaration of
Trust, filed as Exhibit 1 to Registrant's Post-
Effective Amendment No. 5 dated August 30, 1990, is
incorporated herein by reference.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to Trustees, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in that Act and is, therefore, unenforce-
able. In the event that a claim for indemnifica-
tion against such liabilities (other than the pay-
ment by Registrant of expenses incurred or paid by
a Trustee, officer, or controlling person of Regis-
trant in the successful defense of any action,
suit, or proceeding) is asserted by such Trustee,
officer, or controlling person in connection with
the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against pub-
lic policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. Business and Other Connections of Investment
Adviser
Bank One, Arizona, N.A., Registrant's investment
adviser, is a bank. It is a subsidiary of Banc One
Corporation, a bank holding company.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal
underwriter to Aquila Rocky Mountain Equity Fund,
Capital Cash Management Trust, Churchill Cash
Reserves Trust, Churchill Tax-Free Fund of Kentucky,
Hawaiian Tax-Free Trust, Narragansett Insured Tax-
Free Income Fund, Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust,
Pacific Capital U.S. Treasuries Cash Assets Trust,
Prime Cash Fund, Short Term Asset Reserves, Tax-
Free Fund for Utah, Tax-Free Fund of Colorado, and
Tax-Free Trust of Oregon, in addition to serving as
Registrant's principal underwriter.
(b) For information about the Directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange
Act of 1934.
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All such accounts, books, and other documents are
maintained by the adviser, the administrator, the
custodian, and the transfer agent, whose addresses
appear on the back cover pages of the Prospectus
and Statement of Additional Information.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
To the Trustees and Shareholders of
Tax-Free Trust of Arizona:
We consent to the use of our report dated July 31, 1995
incorporated herein by reference and to the reference to our firm
under the heading "Financial Highlights" in the Prospectus.
New York, New York KPMG Peat Marwick LLP
January 9, 1996 /s/KPMG Peat Marwick LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement or Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York, on the 11th day of
January, 1996.
TAX-FREE TRUST OF ARIZONA
(Registrant)
By /s/ Lacy B. Herrmann
-----------------------------
Lacy B. Herrmann, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement or Amendment has been signed below by
the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/Lacy B. Herrmann 1/11/96
_____________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Philip E. Albrecht 1/11/96
_____________________ Trustee ___________
Phillip E. Albrecht
/s/Arthur K. Carlson 1/11/96
_____________________ Trustee ___________
Arthur K. Carlson
/s/Thomas W. Courtney 1/11/96
_____________________ Trustee ___________
Thomas W. Courtney
/s/William L. Ensign 1/11/96
_____________________ Trustee ___________
William L. Ensign
/s/Diana P. Herrmann 1/11/96
_____________________ Trustee ___________
Diana P. Herrmann
/s/John C. Lucking 1/11/96
_____________________ Trustee ___________
John C. Lucking
/s/Anne J. Mills 1/11/96
_____________________ Trustee ___________
Anne J. Mills
/s/William T. Quinsler 1/11/96
______________________ Trustee ___________
William T. Quinsler
/s/Rose F. Marotta 1/11/96
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
TAX-FREE TRUST OF ARIZONA
EXHIBIT INDEX
Exhibit Exhibit Page
Number Name Number
1 Amended and Restated Declaration
of Trust
6 Services Agreement
10 Opinion and Consent of Trust Counsel
15 Distribution Plan
15(a) Services Plan
18 Plan pursuant to Rule 18f-3
<PAGE>
TAX-FREE TRUST OF ARIZONA
SUPPLEMENTAL DECLARATION OF TRUST
AMENDING AND RESTATING THE DECLARATION OF TRUST
SUPPLEMENTAL DECLARATION OF TRUST made October 20, 1995
to the DECLARATION OF TRUST (the "Present Declaration of Trust")
of TAX-FREE TRUST OF ARIZONA (the "Trust").
WHEREAS, paragraph 12 of Article EIGHTH of the Present
Declaration of Trust permits the Trustees of the Trust to amend
or otherwise supplement the Present Declaration of Trust by
making a Supplemental Declaration of Trust, if authorized by vote
of the Trustees and the Shareholders; and
WHEREAS, the making of this Supplemental Declaration of
Trust was duly authorized by the Trustees on June 11, 1995 and by
the shareholders on October 20, 1995, such approval having been
by the vote of the holders of a majority of the shares issued,
outstanding and entitled to vote; and
WHEREAS, the officer of the Trust executing this
Supplemental Declaration of Trust has been authorized and
directed to do so by the Trustees of the Trust and the
shareholders of the Trust on behalf of the Trustees and the
Trust;
NOW, THEREFORE, the Present Declaration of Trust is
amended and restated so that the Declaration of Trust of the
Trust (hereinafter referred to as the "Declaration of Trust")
shall read in its entirety as follows:<PAGE>
WHEREAS, the Trustees desire to establish a trust fund
under the laws of the Commonwealth of Massachusetts, for the
investment and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and
property contributed to the trust fund hereunder shall be held
and managed under this Declaration of Trust IN TRUST as herein
set forth below.
FIRST: This Trust shall be known as TAX-FREE TRUST OF
ARIZONA.
SECOND: Whenever used herein, unless otherwise
required by the context or specifically provided:
1. All terms used in this Declaration of Trust which
are defined in the 1940 Act shall have the meanings given to them
in the 1940 Act.
2. The "Trust" refers to TAX-FREE TRUST OF ARIZONA.
3. "Shareholder" means a record owner of Shares of
the Trust.
4. The "Trustees" refer to the individual trustees in
their capacity as trustees hereunder of the Trust and their
successor or successors for the time being in office as such
trustees.
5. "Shares" means the units of interest into which the
beneficial interest in the Trust shall be divided from time to
time and includes fractions of Shares as well as whole Shares.
6. The "1940 Act" refers to the Investment Company
Act of 1940, as amended from time to time.
7. "Commission" means the Securities and Exchange
Commission.
8. "Board" or "Board of Trustees" means the Board of
Trustees of the Trust.
THIRD: The purpose or purposes for which the Trust is
formed and the business or objects to be transacted, carried on
and promoted by it are as follows:
1. To hold, invest and reinvest its funds, and in
connection therewith to hold part or all of its funds in cash,
and to purchase or otherwise acquire, hold for investment or
otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize
upon, securities (which term "securities" shall for the purposes
of this Declaration of Trust, without limitation of the
generality thereof, be deemed to include any stocks, shares,
bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests
therein, or in any property or assets) created or issued by any
issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality
thereof be deemed to include any persons, firms, associations,
corporations, syndicates, combinations, organizations,
governments, or subdivisions thereof); and to exercise, as owner
or holder of any securities, all rights, powers and privileges in
respect thereof; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value of
any or all such securities.
2. To borrow money and pledge assets in connection
with any of the objects or purposes of the Trust, and to issue
notes or other obligations evidencing such borrowings, to the
extent permitted by the 1940 Act and by the Trust's fundamental
investment policies under the 1940 Act.
3. To issue and sell its Shares in such amounts and
on such terms and conditions, for such purposes and for such
amount or kind of consideration (including without limitation
thereto, securities) now or hereafter permitted by the laws of
the Commonwealth of Massachusetts and by this Declaration of
Trust, as the Trustees may determine.
4. To purchase or otherwise acquire, hold, dispose
of, resell, transfer, reissue or cancel (all without the vote or
consent of the Shareholders of the Trust) its Shares, in any
manner and to the extent now or hereafter permitted by the laws
of Commonwealth of Massachusetts and by this Declaration of
Trust.
5. To conduct its business in all its branches at one
or more offices in the Commonwealth of Massachusetts and
elsewhere in any part of the world, without restriction or limit
as to extent.
6. To carry out all or any of the foregoing objects
and purposes as principal or agent, and alone or with associates
or, to the extent now or hereafter permitted by the laws of the
Commonwealth of Massachusetts, as a member of, or as the owner or
holder of any stock of, or share of interest in, any issuer, and
in connection therewith to make or enter into such deeds or
contracts with any issuers and to do such acts and things and to
exercise such powers, as a natural person could lawfully make,
enter into, do or exercise.
7. To do any and all such further acts and things and
to exercise any and all such further powers as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of all or any of the
foregoing purposes or objects.
The foregoing objects and purposes shall, except as
otherwise expressly provided, be in no way limited or restricted
by reference to, or inference from, the terms of any other clause
of this or any other Articles of this Declaration of Trust, and
shall each be regarded as independent and construed as powers as
well as objects and purposes, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the
general powers of the Trust now or hereafter conferred by the
laws of the Commonwealth of Massachusetts, nor shall the
expression of one thing be deemed to exclude another, though it
be of like nature, not expressed; provided, however, that the
Trust shall not carry on any business, or exercise any powers, in
any state, territory, district or country except to the extent
that the same may lawfully be carried on or exercised under the
laws thereof.
FOURTH: The beneficial interest in the Trust shall at
all times be divided into an unlimited number of transferable
Shares, each such Share having a par value of one cent per Share,
each of which shall represent an equal proportionate interest in
the Trust with each other Share outstanding, none having priority
or preference over another, subject to the further provisions of
this Article FOURTH. The Trustees may from time to time divide
or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the
Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a
Share or multiple thereof.
Subject to the further provisions of Article FOURTH,
the Board of Trustees may, without obtaining any authorization or
vote of the Shareholders of any series or class of Shares,
classify unissued Shares into one or more additional series and
classes which shall, together with the issued Shares of
beneficial interest of the Trust, have such designations as the
Board may determine (but which shall in the case of a series
include the word "Series" and in the case of a class include the
word "Class"). Subject to the distinctions permitted among
classes of the same series established by the Board of Trustees
consistent with the requirements of the 1940 Act and any rule,
regulation or order of the Commission, each Share of a series of
the Trust shall represent an equal interest in the net assets of
the series, and each holder of Shares of a series shall be
entitled to receive such holder's pro-rata share of distributions
of income and capital gains, if any, made with respect to such
series. Upon redemption of the Shares of any series, the
applicable Shareholder shall be paid solely out of funds and
property of such series of the Trust.
All references to Shares in this Declaration of Trust
shall be deemed to be to Shares of any or all series or classes
thereof, as the context may require.
Series and classes shall, subject to any applicable
rule, regulation or order of the Commission or other applicable
law or regulation, have the characteristics set forth in (a)
through and including (h) below.
(a) All consideration received by the Trust for
the issue or sale of Shares of each such series, together with
all income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to the series of Shares with respect to which such assets,
payments, or funds were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust. Such assets, income,
earnings, profits and proceeds thereof, and any asset derived
from any reinvestment of such proceeds, in whatever form the same
may be, are herein referred to as "assets belonging to" such
series.
(b) Dividends or distributions on Shares of any
such series, whether payable in Shares or cash, shall be paid
only out of earnings, surplus or other assets belonging to such
series.
(c) In the event of the liquidation or
dissolution of the Trust, Shareholders of each such series shall
be entitled to receive, as a series, out of the assets of the
Trust available for distribution to Shareholders, but other than
general assets not belonging to any particular series, the assets
belonging to such series; and the assets so distributable to the
Shareholders of any such series shall be distributed among such
Shareholders in proportion to the number of Shares of such series
held by them and recorded on the books of the Trust. In the
event that there are any general assets not belonging to any
particular series of Shares and available for distribution, such
distribution shall be made to the holders of Shares of all series
in proportion to the asset value of the Shares.
(d) The assets belonging to any such series of
Shares shall be charged with the liabilities in respect to such
series and shall be charged with their share of the general
liabilities of the Trust, in proportion to the asset value of the
respective series. The determination of the Board of Trustees
shall be conclusive as to the amount of liabilities, including
accrued expenses and reserves, and as to the allocation of the
same as to a given series, and as to whether the same, or general
assets of the Trust, are allocable to one or more series. The
liabilities so allocated to a series are herein referred to as
"liabilities belonging to" such series.
(e) The Board of Trustees may without the
requirement of Shareholder approval, classify Shares of any
series or divide the Shares of any series into classes, each
class having such different dividend, liquidation, voting and
other rights as the Trustees may determine, and may establish and
designate the specific classes of Shares of each series. The
fact that a series shall have initially been established and
designated without any specific establishment or designation of
classes (i.e., that all Shares of such series are initially of a
single class), or that a series shall have more than one
established and designated class, shall not limit the authority
of the Trustees to establish and designate separate classes, or
one or more further classes, of said series without approval of
the holders of the initial class thereof, or previously
established and designated class or classes thereof, provided
that the establishment and designation of such further separate
classes would not adversely affect the rights of the holders of
the initial or previously established and designated class or
classes.
(f) At all meetings of Shareholders, each
Shareholder of each Share of each such series or class of the
Trust shall be entitled to one vote for each dollar of net asset
value represented by such Share, determined as provided in the
then current Prospectus of such series or class, as of the record
date for such meeting, irrespective of series or class, standing
in his name on the books of the Trust, except that where a vote
of the holders of the Shares of any series or class, or of more
than one series or class, voting by series or class, is required
by the 1940 Act, any rule, regulation or order of the Commission
or other applicable law or regulation as to any proposal, only
the holders of such series or series, or class or classes, voting
by series or class, shall be entitled to vote upon such proposal
and the holders of any other series or class or classes shall not
be entitled to vote thereon. Any fractional Share, if any such
fractional Shares are outstanding, shall carry proportionately
all the rights of a whole Share, including the right to vote and
the right to receive dividends. There shall be no cumulative
voting rights with respect to any Shares or series or class of
Shares of the Trust.
(g) The provisions of Article FIFTH relating to
voting shall apply when the Trust has only one series or class of
Shares outstanding or when the Trust has more than one series or
class of Shares outstanding but which differ only as to their
dividend rights. Otherwise, the provisions of Article FIFTH shall
be subject to the provisions of this Article FOURTH.
(h) When the Trust has more than one series or
class of Shares outstanding: (i) the redemption rights provided
to the holders of the Trust's Shares shall be deemed to apply
only to the assets belonging to the series or class of Shares in
question; and (ii) the net asset value per Share computation as
provided for in Article SEVENTH shall be applied as if each such
series or class of Shares were the Trust as referred to in such
computation, but with its assets limited to the assets belonging
to such series or class and its liabilities limited to the
liabilities belonging to such series or class.
(i) The ownership of Shares shall be recorded in
the books of the Trust or a transfer agent. The Trustees may
make such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust or any
transfer agent, as the case may be, shall be conclusive as to who
are the holders of Shares and as to the number of Shares held
from time to time by each.
(j) The Trustees shall accept investments in the
Trust from such persons and on such terms as they may from time
to time authorize.
(k) Shareholders shall have no pre-emptive or
other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees.
(l) The dividends payable to Shareholders shall,
subject to any applicable rule, regulation or order of the
Commission or other applicable law or regulation, be determined
by the Board and need not be individually declared but may be
declared and paid in accordance with a formula adopted by the
Board.
FIFTH: The following provisions are hereby adopted
with respect to voting Shares of the Trust and certain other
rights:
1. The Shareholders shall have power to vote (i) for
the election of Trustees, (ii) with respect to the amendment
of this Declaration of Trust, (iii) to the same extent as
the shareholders of a Massachusetts business corporation, as
to whether or not a court action, proceeding or claim should
be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, and (iv) with
respect to such additional matters relating to the Trust as
may be required by the 1940 Act or authorized by law, by
this Declaration of Trust, or the By-Laws of the Trust or
any registration statement of the Trust with the Commission
or any State, or as the Trustees may consider desirable.
2. At all meetings of Shareholders each Shareholder
shall be entitled to one vote for each dollar of net asset
value for each Share (determined in the manner described in
the current Prospectus or Prospectuses, if more than one
class or series is outstanding) standing in his name on the
books of the Trust on the date, fixed in accordance with the
By-Laws, for determination of Shareholders entitled to vote
at such meeting except (if so determined by the Board of
Trustees) for Shares redeemed prior to the meeting. Any
fractional Share shall carry proportionately all the rights
of a whole Share, including the right to vote and the right
to receive dividends. The presence in person or by proxy of
the holders of Shares outstanding and entitled to vote
thereat representing one-third of the net asset value of the
Trust as so determined shall constitute a quorum at any
meeting of the Shareholders. If at any meeting of the
Shareholders there shall be less than a quorum present, the
Shareholders present at such meeting may, without further
notice, adjourn the same from time to time until a quorum
shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been
lawfully transacted had the meeting not been adjourned.
3. Each Shareholder, upon request to the Trust in
proper form determined by the Trust, shall be entitled to
require the Trust to redeem all or any part of the Shares
standing in the name of such Shareholder. The method of
computing such net asset value, the time at which such net
asset value shall be computed and the time within which the
Trust shall make payment therefor, shall be determined as
hereinafter provided in Article SEVENTH of this Declaration
of Trust. Notwithstanding the foregoing, the Trustees, when
permitted or required to do so by the 1940 Act, may suspend
the right of the Shareholders to require the Trust to redeem
Shares.
4. No Shareholder shall, as such holder, have any
right to purchase or subscribe for any security of the Trust
which it may issue or sell, other than such right, if any,
as the Trustees, in their discretion, may determine.
5. All persons who shall acquire Shares shall acquire
the same subject to the provisions of this Declaration of
Trust.
SIXTH: Each Trustee shall hold office until the annual
meeting of Shareholders next succeeding his election or until his
successor is duly elected and qualifies. The persons who shall
act as Trustees until the first annual meeting or until their
successors are duly chosen and qualify were the initial Trustees
who executed the Declaration of Trust or any counterpart thereof.
However, the By-Laws of the Trust may fix the number of
Trustees at a number greater than that of the number of initial
Trustees and may authorize the Trustees, by the vote of a
majority of the entire number of Trustees, to increase or
decrease the number of Trustees fixed by this Declaration of
Trust or by the By-Laws within limits specified in the By-Laws,
provided that in no case shall the number of Trustees be less
than three, and to fill the vacancies created by any such
increase in the number of Trustees. Unless otherwise provided by
the By-Laws of the Trust, the Trustees need not be Shareholders.
SEVENTH: The following provisions are hereby adopted
for the purpose of defining, limiting and regulating the powers
of the Trust and of the Trustees and Shareholders.
1. As soon as any Trustee is duly elected by the
Shareholders or the Trustees and shall have accepted this
trust, the Trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any
further act or conveyance, and he shall be deemed a Trustee
hereunder.
2. The death, declination, resignation, retirement,
removal, or incapacity of the Trustees, or any one of them
shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this
Declaration of Trust.
3. The assets of the Trust shall be held separate and
apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any
successor Trustees. All of the assets of the Trust shall at
all times be considered as vested in the Trustees. Except
as provided in this Declaration of Trust, no Shareholder
shall have, as such holder of beneficial interest in the
Trust, any authority, power or right whatsoever to transact
business for or on behalf of the Trust, or on behalf of the
Trustees, in connection with the property or assets of the
Trust, or in any part thereof, except the rights to receive
the income and distributable amounts arising therefrom as
set forth herein.
4. The Trustees in all instances shall act as
principals, and are and shall be free from the control of
the Shareholders. The Trustees shall have full power and
authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider
necessary or appropriate in connection with the management
of the Trust. The Trustees shall not in any way be bound or
limited by present or future laws or customs in regard to
Trust investments, but shall have full authority and power
to make any and all investments which they, in their
uncontrolled discretion, shall deem proper to accomplish the
purposes of this Trust. Subject to any applicable
limitation in this Declaration of Trust or in the By-Laws of
the Trust, the Trustees shall have power and authority:
(a) to adopt By-laws not inconsistent with this
Declaration of Trust providing for the conduct of the
business of the Trust and to amend and repeal them to the
extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint
and terminate such officers as they consider appropriate
with or without cause;
(c) to employ a bank or trust company as
custodian of any assets of the Trust subject to any
conditions set forth in this Declaration of Trust or in the
By-Laws;
(d) to retain a transfer agent and Shareholder
servicing agent, or both;
(e) to provide for the distribution of Shares
either through a principal underwriter or the Trust itself
or both;
(f) to set record dates in the manner provided
for in the By-Laws of the Trust;
(g) to delegate such authority as they consider
desirable to any officers of the Trust and to any agent,
custodian or underwriter;
(h) to vote or give assent, or exercise any
rights of ownership, with respect to stock or other
securities or property held in trust hereunder; and to
execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(i) to exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of
securities held in trust hereunder;
(j) to hold any security or property in a form
not indicating any trust, whether in bearer, unregistered or
other negotiable form; or either in its own name or in the
name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual
practice of Massachusetts business trusts or investment
companies;
(k) to consent to or participate in any plan for
the reorganization, consolidation or merger of any
corporation or concern, any security of which is held in the
Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to
any security held in the Trust;
(l) to compromise, arbitrate, or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy including, but not limited to, claims for taxes;
(m) to make, in the manner provided in the By-
Laws, distributions of income and of capital gains to
Shareholders;
(n) to borrow money to the extent and in the
manner permitted by the 1940 Act and the Trust's fundamental
policy thereunder as to borrowing; and
(o) to enter into investment advisory or
management contracts, subject to the 1940 Act, with any one
or more corporations, partnerships, trusts, associations or
other persons; if the other party or parties to any such
contract are authorized to enter into securities
transactions on behalf of the Trust, such transactions shall
be deemed to have been authorized by all of the Trustees.
5. No one dealing with the Trustees shall be under
any obligation to make any inquiry concerning the authority
of the Trustees, or to see to the application of any
payments made or property transferred by the Trustees or
upon their order.
6. (a) The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time
personally agree to pay by way of subscription to any Shares
or otherwise. Every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the
Trustees relating to the Trust shall include a recitation
limiting the obligation represented thereby to the Trust and
its assets (but the omission of such a recitation shall not
operate to bind any Shareholder).
(b) Except as otherwise provided in this
Declaration of Trust or the By-Laws, whenever this
Declaration of Trust calls for or permits any action to be
taken by the Trustees hereunder, such action shall mean that
taken by the Board of Trustees by vote of the majority of a
quorum of Trustees as set forth from time to time in the By-
Laws of the Trust or as required pursuant to the provisions
of the 1940 Act and the rules and regulations promulgated
thereunder.
(c) The Trustees shall possess and exercise any
and all such additional powers as are reasonably implied
from the powers herein contained such as may be necessary or
convenient in the conduct of any business or enterprise of
the Trust, to do and perform anything necessary, suitable,
or proper for the accomplishment of any of the purposes, or
the attainment of any one or more of the objects, herein
enumerated, or which shall at any time appear conducive to
or expedient for the protection or benefit of the Trust, and
to do and perform all other acts or things necessary or
incidental to the purposes herein before set forth, or that
may be deemed necessary by the Trustees.
(d) The Trustees shall have the power to
determine conclusively whether any moneys, securities, or
other properties of the Trust property are, for the purposes
of this Trust, to be considered as capital or income and in
what manner any expenses or disbursements are to be borne as
between capital and income whether or not in the absence of
this provision such moneys, securities, or other properties
would be regarded as capital or income and whether or not in
the absence of this provision such expenses or disbursements
would ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees
into classes and prescribe the tenure of office of the
several classes, but no class shall be elected for a period
shorter than that from the time of the election following
the division into classes until the next annual meeting and
thereafter for a period shorter than the interval between
annual meetings or for a period longer than five years, and
the term of office of at least one class shall expire each
year.
8. The Shareholders shall have the right to inspect
the records, documents, accounts and books of the Trust,
subject to reasonable regulations of the Trustees, not
contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what
conditions and regulations, such right shall be exercised.
9. Any Trustee, or any officer elected or appointed
by the Trustees or by any committee of the Trustees or by
the Shareholders or otherwise, may be removed at any time,
with or without cause, in such lawful manner as may be
provided in the By-Laws of the Trust.
10. If the By-Laws so provide, the Trustees shall have
power to hold their meetings, to have an office or offices
and, subject to the provisions of the laws of the
Commonwealth of Massachusetts, to keep the books of the
Trust outside of said Commonwealth at such places as may
from time to time be designated by them.
11. Securities held by the Trust shall be voted in
person or by proxy by the President or a Vice-President, or
such officer or officers of the Trust as the Trustees shall
designate for the purpose, or by a proxy or proxies
thereunto duly authorized by the Trustees, except as
otherwise ordered by vote of the holders of a majority of
the Shares outstanding and entitled to vote in respect
thereto.
12. (a) Subject to the provisions of the 1940 Act,
any Trustee, officer or employee, individually, or any
partnership of which any Trustee, officer or employee may be
a member, or any corporation or association of which any
Trustee, officer or employee may be an officer, director,
trustee, employee or stockholder, may be a party to, or may
be pecuniarily or otherwise interested in, any contract or
transaction of the Trust, and in the absence of fraud no
contract or other transaction shall be thereby affected or
invalidated; provided that in case a Trustee, or a
partnership, corporation or association of which a Trustee
is a member, officer, director, trustee, employee or
stockholder is so interested, such fact shall be disclosed
or shall have been known to the Trustees or a majority
thereof; and any Trustee who is so interested, or who is
also a director, officer, trustee, employee or stockholder
of such other corporation or association or a member of such
partnership which is so interested, may be counted in
determining the existence of a quorum at any meeting of the
Trustees which shall authorize any such contract or
transaction, and may vote thereat to authorize any such
contract or transaction, with like force and effect as if he
were not such director, officer, trustee, employee or
stockholder of such other trust or corporation or
association or a member of a partnership so interested.
(b) Specifically, but without limitation of the
foregoing, the Trust may enter into a management, investment
advisory, sub-advisory, administration or underwriting
contract and other contracts with, and may otherwise do
business with any manager, investment adviser, sub-adviser,
or administrator for the Trust, or principal underwriter of
the Shares of the Trust, or any subsidiary or affiliate of
any such manager, investment adviser, sub-adviser or
administrator and/or principal underwriter and may permit
any such firm or corporation to enter into any contracts or
other arrangements with any other firm or corporation
relating to the Trust notwithstanding that the Board of
Trustees of the Trust may be composed in part of partners,
directors, officers or employees of any such firm or
corporation, and officers of the Trust may have been or may
be or become partners, directors, officers or employees of
any such firm or corporation, and in the absence of fraud
the Trust and any such firm or corporation may deal freely
with each other, and no such contract or transaction between
the Trust and any such firm or corporation shall be
invalidated or in any wise affected thereby, nor shall any
Trustee or officer of the Trust be liable to the Trust or to
any Shareholder or creditor thereof or to any other person
for any loss incurred by it or him solely because of the
existence of any such contract or transaction; provided that
nothing herein shall protect any Trustee or officer of the
Trust against any liability to the Trust or to its security
holders 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.
(c) (1) As used in this paragraph the following
terms shall have the meanings set forth below:
(i) the term "indemnitee" shall mean any
present or former Trustee, officer or
employee of the Trust, any present or former
Trustee or officer of another trust or
corporation whose securities are or were
owned by the Trust or of which the Trust is
or was a creditor and who served or serves in
such capacity at the request of the Trust,
any present or former investment adviser,
sub-adviser, administrator or principal
underwriter of the Trust and the heirs,
executors, administrators, successors and
assigns of any of the foregoing; however,
whenever conduct by an indemnitee is referred
to, the conduct shall be that of the original
indemnitee rather than that of the heir,
executor, administrator, successor or
assignee;
(ii) the term "covered proceeding" shall
mean any threatened, pending or completed
action, suit or proceeding, whether civil,
criminal, administrative or investigative, to
which an indemnitee is or was a party or is
threatened to be made a party by reason of
the fact or facts under which he or it is an
indemnitee as defined above;
(iii) the term "disabling conduct" shall
mean willful misfeasance, bad faith, gross
negligence or reckless disregard of the
duties involved in the conduct of the office
in question;
(iv) the term "covered expenses" shall mean
expenses (including attorney's fees),
judgments, fines and amounts paid in
settlement actually and reasonably incurred
by an indemnitee in connection with a covered
proceeding; and
(v) the term "adjudication of liability"
shall mean, as to any covered proceeding and
as to any indemnitee, an adverse
determination as to the indemnitee whether by
judgment, order, settlement, conviction or
upon a plea of nolo contendere or its
equivalent.
(d) The Trust shall not indemnify any indemnitee
for any covered expenses in any covered proceeding if there
has been an adjudication of liability against such
indemnitee expressly based on a finding of disabling
conduct.
(e) Except as set forth in (d) above, the Trust
shall indemnify any indemnitee for covered expenses in any
covered proceeding, whether or not there is an adjudication
of liability as to such indemnitee, if a determination has
been made that the indemnitee was not liable by reason of
disabling conduct by (i) a final decision of the court or
other body before which the covered proceeding was brought;
or (ii) in the absence of such decision, a reasonable
determination, based on a review of the facts, by either (a)
the vote of a majority of a quorum of Trustees who are
neither "interested persons," as defined in the 1940 Act nor
parties to the covered proceeding or (b) an independent
legal counsel in a written opinion; provided that such
Trustees or counsel, in reaching such determination, may but
need not presume the absence of disabling conduct on the
part of the indemnitee by reason of the manner in which the
covered proceeding was terminated.
(f) Covered expenses incurred by an indemnitee in
connection with a covered proceeding shall be advanced by
the Trust to an indemnitee prior to the final disposition of
a covered proceeding upon the request of the indemnitee for
such advance and the undertaking by or on behalf of the
indemnitee to repay the advance unless it is ultimately
determined that the indemnitee is entitled to
indemnification thereunder, but only if one or more of the
following is the case: (i) the indemnitee shall provide a
security for such undertaking; (ii) the Trust shall be
insured against losses arising out of any lawful advances;
or (iii) there shall have been a determination, based on a
review of the readily available facts (as opposed to a full
trial-type inquiry) that there is a reason to believe that
the indemnitee ultimately will be found entitled to
indemnification by either independent legal counsel in a
written opinion or by the vote of a majority of a quorum of
trustees who are neither "interested persons" as defined in
the 1940 Act nor parties to the covered proceeding.
(g) Nothing herein shall be deemed to affect the
right of the Trust and/or any indemnitee to acquire and pay
for any insurance covering any or all indemnitees to the
extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be
entitled to the extent permitted by the 1940 Act.
13. For purposes of the computation of net asset
value, as in this Declaration of Trust referred to, the
following rules shall apply:
(a) The net asset value of each Share of the
Trust tendered to the Trust for redemption shall be
determined as of the close of business on the New York Stock
Exchange next succeeding the tender of such Share;
(b) The net asset value of each Share of the
Trust for the purpose of the issue of such Shares shall be
determined as of the close of business on the New York Stock
Exchange next succeeding the receipt of an order to purchase
such Shares;
(c) The net asset value of each Share of the
Trust, as of time of valuation on any day, shall be the
quotient obtained by dividing the value, as at such time, of
the net assets of the Trust (i.e., the value of the assets
of the Trust less its liabilities exclusive of its surplus)
by the total number of Shares outstanding at such time. The
assets and liabilities of the Trust shall be determined in
accordance with generally accepted accounting principles;
provided, however, that in determining the liabilities of
the Trust there shall be included such reserves for taxes or
contingent liabilities as may be authorized or approved by
the Trustees, and provided further that in determining the
value of the assets of the Trust for the purpose of
obtaining the net asset value, each security listed on the
New York Stock Exchange shall be valued on the basis of the
closing sale at the time of valuation on the business day as
of which such value is being determined; if there be no sale
on such day, then the security shall be valued on the basis
of the mean between closing bid and asked prices on such
day; if no bid and asked prices are quoted for such day,
then the security shall be valued by such method as the
Trustees shall deem in good faith to reflect its fair market
value; securities not listed on the New York Stock Exchange
shall be valued in like manner on the basis of quotations on
any other stock exchange which the Trustees may from time to
time approve for that purpose; readily marketable securities
traded in the over-the-counter market shall be valued at the
mean between their bid and asked prices, or, if the Trustees
shall so determine, at their bid prices; and all other
assets of the Trust and all securities as to which the Trust
might be considered an "underwriter" (as that term is used
in the Securities Act of 1933), whether or not such
securities are listed or traded in the over-the-counter
market, shall be valued by such method as they shall deem in
good faith to reflect their fair market value. In
connection with the accrual of any fee or refund payable to
or by an investment adviser of the Trust, the amount of
which accrual is not definitely determinable as of any time
at which the net asset value of each Share of the Trust is
being determined due to the contingent nature of such fee or
refund, the Trustees are authorized to establish from time
to time formulae for such accrual, on the basis of the
contingencies in question to the date of such determination,
or on such other basis as the Trustees may establish.
(1) Shares to be issued shall be deemed to
be outstanding as of the time of the determination
of the net asset value per share applicable to
such issuance and the net price thereof shall be
deemed to be an asset of the Trust;
(2) Shares to be redeemed by the Trust shall
be deemed to be outstanding until the time of the
determination of the net asset value applicable to
such redemption and thereupon and until paid the
redemption price thereof shall be deemed to be a
liability of the Trust; and
(3) Shares voluntarily purchased or
contracted to be purchased by the Trust pursuant
to the provisions of paragraph 13(d) of this
Article SEVENTH shall be deemed to be outstanding
until whichever is the later of (i) the time of
the making of such purchase or contract of
purchase, and (ii) the time as of which the
purchase price is determined, and thereupon and
until paid, the purchase price thereof shall be
deemed to be a liability of the Trust.
(d) The net asset value of each Share of the
Trust, as of any time other than the close of business on
the New York Stock Exchange of any day, may be determined by
applying to the net asset value as of the close of business
on that Exchange on the preceding business day, computed as
provided in this Article SEVENTH, such adjustments as are
authorized by or pursuant to the direction of the Trustees
and designed reasonably to reflect any material changes in
the market value of securities and other assets held and any
other material changes in the assets or liabilities of the
Trust and in the number of its outstanding Shares which
shall have taken place since the close of business on such
preceding business day.
(e) In addition to the foregoing, the Trustees
are empowered, in their absolute discretion, to establish
other bases or times, or both, for determining the net asset
value of each Share of the Trust in accordance with the 1940
Act and to authorize the voluntary purchase by the Trust,
either directly or through an agent, of Shares of the Trust
upon such terms and conditions and for such consideration as
the Trustees shall deem advisable in accordance with any
such provision, rule or regulation.
(f) Payment of the net asset value of Shares of
the Trust properly surrendered to it for redemption shall be
made by the Trust within seven days after tender of such
Shares to the Trust for such purpose plus any period of time
during which the right of the holders of the Shares of the
Trust to require the Trust to redeem such Shares has been
suspended. Any such payment may be made in portfolio
securities of the Trust and/or in cash, as the Trustees
shall deem advisable, and no Shareholder shall have a right,
other than as determined by the Trustees, to have his Shares
redeemed in kind.
EIGHTH:
1. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of
his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other
general successor) shall be entitled out of the Trust estate
to be held harmless from and indemnified against all loss
and expense arising from such liability. This Trust shall,
upon request by the Shareholder, assume the defense of any
claim made against any Shareholder for any act or obligation
of the Trust and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and
not a partnership is created hereby. No Trustee hereunder
shall have any power to bind personally either the Trust's
officers or any Shareholder. All persons extending credit
to, contracting with or having any claim against the Trust
or the Trustees shall look only to the assets of the Trust
for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of their
agents, whether past, present or future, shall be personally
liable therefor. Nothing in this Declaration of Trust shall
protect a Trustee against any liability to which such
Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the
office of Trustee hereunder.
3. The exercise by the Trustees of their powers and
discretion hereunder in good faith and with reasonable care
under the circumstances then prevailing, shall be binding
upon everyone interested. Subject to the provisions of
paragraph 2 of this Article EIGHTH, the Trustees shall not
be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts
with respect to the meaning and operations of this
Declaration of Trust, and subject to the provisions of
paragraph 2 of this Article EIGHTH, shall be under no
liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any
surety if a bond is required.
4. This Trust shall continue without limitation of
time but subject to the provisions of sub-sections (a), (b)
and (c) of this paragraph 4.
(a) The Trustees, with the favorable vote of the
holders of more than 50% of the outstanding Shares entitled
to vote and if the Trust has outstanding Shares of more
than one series or class, such vote shall be in accordance
with the provisions of Article FIFTH section (2), may sell
and convey the assets of the Trust (which sale may be
subject to the retention of assets for the payment of
liabilities and expenses) to another issuer for a
consideration which may be or include securities of such
issuer. Upon making provision for the payment of
liabilities, by assumption by such issuer or otherwise, the
Trustees shall distribute the remaining proceeds ratably
among the holders of the Shares of the Trust then
outstanding.
(b) The Trustees, with the favorable vote of the
holders of more than 50% of the outstanding Shares entitled
to vote, and if the Trust has outstanding Shares of more
than one series or class, such vote shall be in accordance
with the provisions of Article FIFTH section (2), may at any
time sell and convert into money all the assets of the
Trust. Upon making provision for the payment of all
outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust, the Trustees shall
distribute the remaining assets of the Trust ratably among
the holders of the outstanding Shares.
(c) Upon completion of the distribution of the
remaining proceeds or the remaining assets as provided in
sub-sections (a) and (b), the Trust shall terminate and the
Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and
interest of all parties shall be cancelled and discharged.
5. The original or a copy of this instrument and of
each declaration of trust supplemental hereto shall be kept
at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each
supplemental declaration of trust shall be filed with the
Massachusetts Secretary of State, as well as any other
governmental office where such filing may from time to time
be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not
any such supplemental declarations of trust have been made
and as to any matters in connection with the Trust
hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such
supplemental declaration of trust. In this instrument or in
any such supplemental declaration of trust, references to
this instrument, and all expressions like "herein," "hereof"
and "hereunder" shall be deemed to refer to this instrument
as amended or affected by any such supplemental declaration
of trust. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
6. The trust set forth in this instrument is created
under and is to be governed by and construed and
administered according to the laws of the Commonwealth of
Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
7. The Board of Trustees is empowered to cause the
redemption of the Shares held in any account if the
aggregate net asset value of such Shares (taken at cost or
value, as determined by the Board) has been reduced by a
Shareholder to $500 or less upon such notice to the
Shareholders in question, with such permission to increase
the investment in question and upon such other terms and
conditions as may be fixed by the Board of Trustees in
accordance with the 1940 Act.
8. In the event that any person advances the
organizational expenses of the Trust, such advances shall
become an obligation of the Trust subject to such terms and
conditions as may be fixed by, and on a date fixed by, or
determined in accordance with criteria fixed by the Board of
Trustees, to be amortized over a period or periods to be
fixed by the Board.
9. Whenever any action is taken under this
Declaration of Trust under any authorization to take action
which is permitted by the 1940 Act, such action shall be
deemed to have been properly taken if such action is in
accordance with the construction of the 1940 Act then in
effect as expressed in "no action" letters of the staff of
the Commission or any release, rule, regulation or order
under the 1940 Act or any decision of a court of competent
jurisdiction, notwithstanding that any of the foregoing
shall later be found to be invalid or otherwise reversed or
modified by any of the foregoing.
10. Any action which may be taken by the Board of
Trustees under this Declaration of Trust or its By-Laws may
be taken by the description thereof in the then effective
prospectus relating to the Shares under the Securities Act
of 1933 or in any proxy statement of the Trust rather than
by formal resolution of the Board.
11. Whenever under this Declaration of Trust, the
Board of Trustees is permitted or required to place a value
on assets of the Trust, such action may be delegated by the
Board, and/or determined in accordance with a formula
determined by the Board, to the extent permitted by the 1940
Act.
12. If authorized by vote of the Trustees and the
favorable vote of the holders of more than 50% of the
outstanding Shares entitled to vote, or by any larger vote
which may be required by applicable law in any particular
case, and if the Trust has outstanding Shares of more than
one series or class, such vote shall be in accordance with
the provisions of Article FIFTH section (2), the Trustees
shall amend or otherwise supplement this instrument, by
making a declaration of trust supplemental hereto, which
thereafter shall form a part hereof; however, any such
supplemental declaration of trust may be authorized by the
vote of a majority of the Trustees then in office without
any shareholder vote if the sole purpose of such
supplemental declaration of trust is to change the name of
the Trust; any such Supplemental Declaration of Trust may be
executed by and on behalf of the Trust and the Trustees by
any officer or officers of the Trust.
13. The address of the Trust is 380 Madison Avenue,
Suite 2300, New York, NY 10017. The agent of the Trust in the
Commonwealth of Massachusetts is United Corporate Services, Inc.,
9 Crestway Road, East Boston, Massachusetts 02128.
IN WITNESS WHEREOF, the undersigned have executed
this Supplemental Declaration of Trust on behalf of the Trust and
the Trustees as of the date first above written.
TAX-FREE TRUST OF ARIZONA
/s/ Lacy B. Herrmann
______________________________
Lacy B. Herrmann
President, Chairman of the
Board of Trustees and Trustee
Attest:
/s/ Edward M.W. Hines
______________________________
Secretary
THE UNDERSIGNED, President, Chairman of the Board of
Trustees and Trustee of Tax-Free Trust of Arizona who executed on
behalf of said Trust and its Trustees the foregoing Supplemental
Declaration of Trust, hereby acknowledges, in the name and on
behalf of said Trust and its Trustees, the foregoing Supplemental
Declaration of Trust to be the act of said Trust and its Trustees
and further certifies that to the best of his information,
knowledge and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material
respects, under penalties of perjury.
/s/ Lacy B. Herrmann
________________________________
Lacy B. Herrmann
draft 11/29/95
SHAREHOLDER SERVICING AGREEMENT
Aquila Distributors, Inc. (the "Distributor")
380 Madison Avenue
Suite 2300
New York, NY 10017
Dear Sirs:
TAX-FREE TRUST OF ARIZONA (the "Trust") confirms its
agreement with Aquila Distributors, Inc. (the "Distributor") with
respect to the servicing of shareholder accounts representing
shares of the Level-Payment Class of the Trust. This Agreement
is entered into pursuant to the Trust's Shareholder Services Plan
dated ________, 199__ (the "Plan").
Section 1. Compensation and Services to be Rendered
(a) The Trust will pay the Distributor an annual fee (the
"Service Fee") in compensation for its services in connection
with the servicing of shareholder accounts. The Service Fee paid
will be calculated daily and paid monthly by the Trust at the
annual rate of .25% of the average annual net assets of the Trust
represented by the Level-Payment ("Class C") Shares.
(b) The Service Fee will be used by the Distributor to
provide compensation for ongoing servicing and/or maintenance of
shareholder accounts and to cover an allocable portion of
overhead and other office expenses of the Distributor and/or
selected dealers related to the servicing and/or maintenance of
shareholder accounts. It is understood that compensation may be
paid by the Distributor to persons, including employees of the
Distributor, who respond to inquiries of Level-Payment
Shareholders of the Trust regarding their ownership of shares or
their accounts with the Trust or who provide other similar
services not otherwise required to be provided by the Trust's
investment manager, transfer agent or other agent of the Trust.
Section 2. Reports
While this Agreeement is in effect, the Distributor shall
provide the reports called for in Section 4 of the Plan.
Section 3. Approval of Trustees
This agreement has been approved by a majority vote of both
(a) the full Board of Trustees of the Trust and (b) those
Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the
Plan or this Agreement (the "Independent Trustees"), cast in
person at a meeting called for the purpose of voting on this
Agreement.
Section 4. Continuance of Agreement
This Agreement will continue in effect for a period of more
than one year from the date of its effectiveness only so long as
its continuance is specifically approved annually by vote of the
Trust's Board of Trustees in the manner described in Section 3
above.
Section 5. Termination
(a) This agreement may be terminated at any time, without
the payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of a majority of the
outstanding Level-Payment Shares on not more than 60 days'
written notice to the Distributor.
(b) This Agreement will terminate automatically in the
event of its assignment.
Section 6. Selection of Certain Trustees
While this Agreement is in effect, the selection and
nomination of the Trust's Trustees who are not interested persons
of the Trust will be committed to the discretion of the Trustees
then in office who are not interested persons of the Trust.
Section 7. Amendments
No material amendment to this Agreement may be made unless
approved by the Trust's Board of Trustees in the manner described
in Section 3 above.
Section 8. Meaning of Certain Terms
As used in this Agreement, the terms "assignment,"
"interested person" and "majority of this outstanding voting
securities" will be deemed to have the same meaning that those
terms have under the Investment Company Act of 1940, as amended
(the "Act") and the rules and regulations under the Act, subject
to any exemption that may be granted to the Trust under the Act
by the Securities and Exchange Commission.
Section 9. Dates
This Agreement has been executed by the parties as of
________, 1995 and will become effective on _______, 1996.
If the terms and conditions described above are in
accordance with your understanding, kindly indicate your
acceptance of this Agreement by signing and returning to us the
enclosed copy of this Agreement.
Very truly yours,
TAX-FREE TRUST OF ARIZONA
By:________________________
Richard F. West,
Treasurer
Accepted:
AQUILA DISTRIBUTORS, INC.
By:_____________________________
Lacy B. Herrmann
Secretary
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
e-mail: [email protected]
January 11, 1996
Tax-Free Trust of Arizona
380 Madison Avenue, Suite 2300
New York, New York 10017
Ladies and Gentlemen:
You have requested that we render an opinion to Tax-Free Trust of
Arizona (the "Trust") with respect post-effective amendment No. 11 (the
"Amendment") to the Registration Statement of the Trust under the
Securities Act of 1933 (the "1933 Act") and No. 13 under the Investment
Company Act of 1940 (the "1940 Act") which you propose to file with the
Securities and Exchange Commission (the "Commission"). The purpose of
the Amendment is to redesignate existing shares of the Trust as Front-
Payment Class Shares ("Class A Shares") and to designate two new classes
of shares to be offered by the Trust as Level-Payment Class Shares ("Class C
Shares") and Institutional Class Shares ("Class Y Shares").
We have examined originals or copies, identified to our satisfaction
as being true copies, of those corporate records of the Trust, certificates of
public officials, and other documents and matters as we have deemed
necessary for the purpose of this opinion. We have assumed without
independent verification the authenticity of the documents submitted to us
as originals and the conformity to the original documents of all documents
submitted to us as copies.
Upon the basis of the foregoing and in reliance upon such other
matters as we deem relevant under the circumstances, it is our opinion that
the Class A Shares, Class C Shares and Class Y Shares of the Trust as
described in the Amendment, when issued and paid for in accordance with
the terms set forth in the prospectus and statement of additional
information of the Trust forming a part of its then effective Registration
Statement as heretofore, herewith and hereafter amended, will be duly
issued, fully-paid and non-assessable to the extent set forth therein.
This letter is furnished to you pursuant to your request and to the
requirements imposed upon you under the 1933 Act and 1940 Act and is
intended solely for your use for the purpose of completing the filing of the
Amendment with the Commission. This letter may not be used for any
other purpose or furnished to or relied upon by any other persons, or
included in any filing made with any other regulatory authority, without
our prior written consent.
We hereby consent to the filing of this opinion with the
Amendment.
Very truly yours,
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
By:/s/ W.L.D. Barrett
Draft 12/19/95
Dated: _____________, ________
TAX-FREE TRUST OF ARIZONA
DISTRIBUTION PLAN
1. The Plan. This amended and restated Plan (the "Plan") is
the written plan, contemplated by Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act"), of Tax-Free
Trust of Arizona (the "Trust"). Part I of the Plan applies
solely to the Front-Payment Class ("Class A") of shares of the
Trust, Part II solely to the Level-Payment Class ("Class C") and
Part III to all classes.
2. Disinterested Trustees. While any Part of this Plan 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.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
Part I
Payments Involving Trust Assets Allocated to Front-Payment Shares
3. Applicability. This Part I of the Plan applies only to the
Front-Payment Class ("Class A") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
4. Definitions for Part I. As used in this Part I of the Plan,
"Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part I ("Class A Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Front-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Front-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
5. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Class A Permitted Payments") to Qualified Recipients,
which Class A Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing
agent, which may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year) 0.15 of 1% of the average annual
net assets of the Trust represented by the Front-Payment Class of
shares. Such payments shall be made only out of the Trust assets
allocable to the Front-Payment Shares. The Distributor shall
have sole authority (i) as to the selection of any Qualified
Recipient or Recipients; (ii) not to select any Qualified
Recipient; and (iii) the amount of Class A Permitted Payments, if
any, to each Qualified Recipient provided that the total Class A
Permitted Payments to all Qualified Recipients do not exceed the
amount set forth above. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in
the shareholder servicing area with respect to holders of Front-
Payment Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
6. Reports. While this Part I is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Class A Permitted Payments made under Section 5 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Trust to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
7. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part I of the Plan has
been approved (i) by a vote of the Trustees, including those
Trustees (the "Independent Trustees") who, at the time of such
vote, were not "interested persons" (as defined in the 1940 Act)
of the Trust and had no direct or indirect financial interest in
the operation of this Plan or in any agreements related to this
Plan, with votes cast in person at a meeting called for the
purpose of voting on Part I of the Plan; and (ii) by a vote of
holders of at least a "majority" (as defined in the 1940 Act) of
the outstanding voting securities of the Front-Payment Class (or
of any predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class and/or of any other class whose shares
are convertible into Front-Payment Shares. This Part I is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect until
April 30 of each 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.
This Part I may be terminated at any time by the vote of a
majority of the Independent Trustees or by shareholder approval
of the class or classes of shares affected by this Part I as set
forth in (ii) above. This Part I may not be amended to increase
materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by this Part
I as set forth in (ii) above, and all amendments must be approved
in the manner set forth in (i) above.
8. Class A Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class A Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class A Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part I.
Part II
Payments Involving Trust Assets Allocated to Level-Payment Shares
9. Applicability. This Part II of the Plan applies only to the
Level Payment Class ("Class C") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
10. Definitions for Part II. As used in this Part II of the
Plan, "Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part II ("Class C Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Level-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
11. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Class C Permitted Payments") to Qualified Recipients,
which Class C Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing
agent, which may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year) 0.75 of 1% of the average annual
net assets of the Trust represented by the Level-Payment Class of
shares. Such payments shall be made only out of the Trust assets
allocable to the Level-Payment Shares. The Distributor shall
have sole authority (i) as to the selection of any Qualified
Recipient or Recipients; (ii) not to select any Qualified
Recipient; and (iii) the amount of Class C Permitted Payments, if
any, to each Qualified Recipient provided that the total Class C
Permitted Payments to all Qualified Recipients do not exceed the
amount set forth above. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in
the shareholder servicing area with respect to holders of Level-
Payment Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
12. Reports. While this Part II is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Class C Permitted Payments made under Section 11 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Trust to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
13. Effectiveness, Continuation, Termination and Amendment.
This Part II has been approved (i) by a vote of the Trustees,
including the Independent Trustees, with votes cast in person at
a meeting called for the purpose of voting on Part II of the
Plan; and (ii) by a vote of holders of at least a "majority" (as
defined in the 1940 Act) of the outstanding voting securities of
the Level-Payment Class. This Part II is effective as of the
date first above written and will, unless terminated as
hereinafter provided, continue in effect until April 30 of each
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. This Part II may be
terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Level-Payment Class. This Part II may not be
amended to increase materially the amount of payments to be made
without shareholder approval of the class or classes of shares
affected by this Part II as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
14. Class C Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class C Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class C Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part II.
Part III
Defensive Provisions
15. Certain Payments Permitted. Whenever the Administrator of
the Trust (i) makes any payment directly or through the Trust's
Distributor for additional compensation to dealers in connection
with sales of shares of the Trust, which additional compensation
may include payment or partial payment for advertising of the
Trust's shares, payment of travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered
representatives and members of their families to locations within
or outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences, or other items described in the Trust's
prospectus, in amounts that will not exceed the amount of the
sales charges in respect of sales of shares of the Trust effected
through such participating dealers whether retained by the
Distributor or reallowed to participating dealers, or (ii) bears
the costs, not borne by the 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.
It is recognized that, in view of the bearing by the
Administrator of certain distribution expenses, the profits, if
any, of the Administrator are dependent primarily on the
administration fees paid by the Trust to the Administrator and
that its profits, if any, would be less, or losses, if any, would
be increased due to 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.
16. Certain Trust Payments Authorized. 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 the Rule, such payments are
authorized under this 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 of all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of the
preparation, printing and mailing of all 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.
17. Reports. While Part III of this Plan is in effect, the
Trust's sub-adviser, Administrator or Distributor shall report at
least quarterly to the Trust's Trustees in writing for their
review on the following matters: (i) all payments made under
Section 15 of this Plan; (ii) all costs of each item specified in
Section 16 of this Plan (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 Distributor,
sub-adviser or Administrator paid or accrued during such quarter.
18. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part III of the Plan
has, with respect to each class of shares outstanding, been
approved (i) by a vote of the Trustees of the Trust and of the
Independent Trustees, with votes cast in person at a meeting
called for the purpose of voting on this Plan; and (ii) by a vote
of holders of at least a "majority" (as defined in the 1940 Act)
of the outstanding voting securities of such class and a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of any class whose shares are
convertible into shares of such class. This Part III is
effective with respect to each class of shares outstanding as of
the date first above written and will, unless terminated as
hereinafter provided, continue in effect with respect to each
class of shares to which it applies until April 30 of each year
only so long as such continuance is specifically approved with
respect to that class 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.
This Part III of the Plan may be terminated at any time with
respect to a given class by the vote of a majority of the
Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of that class. This Part III may not be amended to
increase materially the amount of payments to be made without
shareholder approval as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
--------------------------
19. Additional Terms and Conditions. This Plan and each Part of
it shall also be subject to all applicable terms and conditions
of Rule 18f-3 under the Act as now in force or hereafter amended.
Specifically, but without limitation, the provisions of Part III
shall be deemed to be severable, within the meaning of and to the
extent required by Rule 18f-3, with respect to each outstanding
class of shares of the Trust.
Dated: ____________, 1996
TAX-FREE TRUST OF ARIZONA
SHAREHOLDER SERVICES PLAN
1. The Plan. This Shareholder Services Plan (the "Plan") is the
written plan of TAX-FREE TRUST OF ARIZONA (the "Trust") adopted
to provide for the payment by the Level-Payment Class of shares
of the Trust of ""service fees" within the meaning of Article
III, Section 26(b)(9) of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. This Plan
applies only to the Level-Payment Class ("Class C") of shares of
the Trust (regardless of whether such class is so designated or
is redesignated by some other name).
2. Definitions. As used in this Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the
Trust, who have, pursuant to written agreements with the Trust or
the Distributor, agreed to provide personal services to Level-
Payment shareholders and/or maintenance of Level-Payment
shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment Shares beneficially owned
by such Qualified Recipient's customers, clients or other
contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Trust.
3. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Service Fees") to Qualified Recipients, which Service
Fees (i) may be paid directly or through the Distributor or
shareholder servicing agent as disbursing agent and (ii) may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year) 0.25 of 1% of the average annual net assets of the
Trust represented by the Level-Payment Class of shares. Such
payments shall be made only out of the Trust assets allocable to
the Level-Payment Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Level-Payment Shares,
including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
4. Reports. While this Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor paid or accrued during such quarter. In addition, if
any Qualified Recipient is an "affiliated person," as that term
is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Trust, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
5. Effectiveness, Continuation, Termination and Amendment. This
Plan has been approved by a vote of the Trustees, including those
Trustees who, at the time of such vote, were not "interested
persons" (as defined in the 1940 Act) of the Trust and had no
direct or indirect financial interest in the operation of this
Plan or in any agreements related to this Plan (the "Independent
Trustees"), with votes cast in person at a meeting called for the
purpose of voting on this Plan. It is effective as of the date
first above written and will continue in effect for a period of
more than one year from such date only so long as such
continuance is specifically approved at least annually as set
forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
6. Additional Terms and Conditions. (a) This Plan shall also be
subject to all applicable terms and conditions of Rule 18f-3
under the Act as now in force or hereafter amended.
(b) While this Plan is in effect, the selection and nomination
of those Trustees of the Trust who are not "interested persons"
of the Trust, as that term is defined in the 1940 Act, shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
TAX-FREE TRUST OF ARIZONA
Rule 18f-3
Multiple Class Plan
TAX-FREE TRUST OF ARIZONA (the "Trust") has elected to
rely on Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), in offering multiple classes of shares
with differing distribution arrangements, voting rights and
expense allocations.
Pursuant to Rule 18f-3, the Board of Trustees of the
Trust has approved and adopted this written plan (the "Plan")
specifying all of the differences among the classes of shares to
be offered by the Trust. Prior to such offering, the Plan will
be filed as an exhibit to the Trust's registration statement.
The Plan sets forth the differences among the classes, including
shareholder services, distribution arrangements, expense
allocations, and conversion or exchange options.
I. Attributes of Share Classes
This section discusses the attributes of the various classes
of shares. Each share of the Trust represents an equal pro rata
interest in the Trust and has identical voting rights, powers,
qualifications, terms and conditions, and in proportion to each
share's net asset value, liquidation rights and preferences.
Each class differs in that: (a) each class has a different class
designation; (b) only the Front-Payment Shares are subject to a
front-end sales charge ("FESC"); (c) only the Level-Payment
Shares are subject to a contingent deferred sales charge
("CDSC"); (d) only the Front-Payment Shares and Level-Payment
Shares (as described below) are subject to distribution fees
under a plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), the distribution fee for the Level-Payment
Class being higher than that for the Front-Payment Class; (e)
only the Level-Payment Shares are subject to a shareholder
servicing fee under a non-Rule 12b-1 shareholder services plan (a
"Shareholder Services Plan"); (f) to the extent that one class
alone is affected by a matter submitted to a vote of the
shareholders, then only that class has voting power on the
matter, provided, however, that any class whose shares convert
automatically to shares of another class also votes separately
with respect to class-specific Rule 12b-1 matters applying to the
latter class; (g) the expenses attributable to a specific class
("Class Expenses")(1) are borne only by shares of that class on a
pro-rata basis; and (h) exchange privileges may vary among the
classes.
(1) Class Expenses are limited to (i) transfer agency fees; (ii)
preparation and mailing expenses for shareholder communications
required by law, sent to current shareholders of a class; (iii)
state Blue Sky registration fees; (iv) Securities and Exchange
Commission ("SEC") registration fees; (v) trustees' fees; (vi)
expenses incurred for periodic meetings of trustees or
shareholders; and (vii) legal and accounting fees, other than
fees for income tax return preparation or income tax advice.
A. Front-Payment Shares
Front-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Front-Payment
Shares under the exchange privileges of the Trust. Shares
of the Trust outstanding on the date that the three classes
of shares are first made available will be redesignated
Front-Payment Shares. Front-Payment Shares will also be
issued upon automatic conversion of Level-Payment Shares, as
described below.
1. Sales Loads. Front-Payment Shares are sold
subject to the current maximum FESC (with scheduled
variations or eliminations of the sales charge, as
permitted by the 1940 Act).
2. Distribution and Service Fees. Front-Payment
Shares are subject to a distribution fee pursuant to
Part I of the Trust's Rule 12b-1 Plan. They are not
subject to charges applicable to a Shareholder Services
Plan.
3. Class Expenses. Class Expenses that are
attributable to the Front-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Front-Payment Shares are exchangeable for Front-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
Front-Payment Shares have no conversion features.
B. Level-Payment Shares
Level-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Level-Payment
Shares under the exchange privileges of the Trust.
1. Sales Loads. Level-Payment Shares are sold
without the imposition of any FESC, but are subject to
a CDSC (with scheduled variations or eliminations of
the sales charge, as permitted by the 1940 Act).
2. Distribution and Service Fees. Level-Payment
Shares are subject to a distribution fee pursuant to
Part II of the Trust's Rule 12b-1 Plan and to a
shareholder servicing fee under a Shareholder Services
Plan not to exceed .25% of the average daily net assets
of the Level-Payment Class.
3. Class Expenses. Class Expenses that are
attributable to the Level-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Level-Payment Shares are exchangeable for Level-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
After a period of no greater than six years, Level-
Payment Shares automatically convert to Front-Payment
Shares on the basis of the relative net asset values of
the two classes without the imposition of any sales
charge, fee, or other charge, provided, however, that
the expenses, including distribution fees, for Front-
Payment Shares are not higher than the expenses,
including distribution fees, for Level-Payment Shares.
If the amount of expenses, including distribution fees,
for the Front-Payment Class is increased materially
without approval of the shareholders of the Level-
Payment Class, a new class will be established -- on
the same terms as apply to the Front-Payment Class
prior to such increase -- as the class into which
Level-Payment Shares automatically convert.
C. Institutional Shares
Institutional Shares are not offered to retail
customers but are sold only to (1) institutional investors
investing funds held in a fiduciary, advisory, agency,
custodial or other similar capacity and (2) persons entitled
to exchange into Institutional Shares under the exchange
privileges of the Trust.
1. Sales Loads. Institutional Shares are sold
without the imposition of any FESC, CDSC or any other
sales charge.
2. Distribution and Service Fees. Institutional
Shares are not subject to any distribution fee or
shareholder servicing fee.
3. Class Expenses. Class Expenses that are
attributable to the Institutional Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Institutional Shares are exchangeable for Institutional
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
Institutional Shares have no conversion features.
D. Additional Classes
In the future, the Trust may offer additional classes
of shares which differ from the classes discussed above.
However, any additional classes of shares must be approved
by the Board, and the Plan must be amended to describe those
classes.
II. Approval of Multiple Class Plan
The Board of the Trust, including a majority of the
independent Trustees, must approve the Plan initially. In
addition, the Board must approve any material changes to the
classes and the Plan prior to their implementation. The Board
must find that the Plan is in the best interests of each class
individually and the Trust as a whole. In making its findings,
the Board should focus on, among other things, the relationships
among the classes and examine potential conflicts of interest
among classes regarding the allocation of fees, services, waivers
and reimbursements of expenses, and voting rights. Most
significantly, the Board should evaluate the level of services
provided to each class and the cost of those services to ensure
that the services are appropriate and that the allocation of
expenses is reasonable. In accordance with the foregoing
provisions of this Section II, the Board of the Trust has
approved and adopted this Plan as of the date written below.
III. Dividends and Distributions
Because of the differences in fees paid under a Rule
12b-1 Plan and Shareholder Services Plan and the special
allocation of Class Expenses among the classes of shares of the
Trust, the dividends payable to shareholders of a class will
differ from the dividends payable to shareholders of the other
classes. Dividends paid to each class of shares in the Trust
will, however, be declared and paid at the same time and, except
for the differences in expenses listed above, will be determined
in the same manner and paid in the same amounts per outstanding
shares.
IV. Expense Allocations
The methodology and procedures for calculating the net
asset value and dividends and distributions of the various
classes of shares and the proper allocation of income and
expenses among the various classes of shares are set forth in the
Memorandum (together with exhibits) of Richard F. West,
Treasurer, dated November 24, 1995 and entitled "Methodologies
Used In Accounting For Multiple Class Shares."
Dated: December 2, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT DATED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000784056
<NAME> TAX-FREE TRUST OF ARIZONA
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 365,791,430
<INVESTMENTS-AT-VALUE> 377,910,744
<RECEIVABLES> 9,560,805
<ASSETS-OTHER> 357,041
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 387,828,590
<PAYABLE-FOR-SECURITIES> 6,171,289
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 911,883
<TOTAL-LIABILITIES> 7,083,172
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 373,761,834
<SHARES-COMMON-STOCK> 36,707,862
<SHARES-COMMON-PRIOR> 36,621,793
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,135,730)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,119,314
<NET-ASSETS> 380,745,418
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,257,102
<OTHER-INCOME> 0
<EXPENSES-NET> 2,720,451
<NET-INVESTMENT-INCOME> 20,536,651
<REALIZED-GAINS-CURRENT> (4,413,317)
<APPREC-INCREASE-CURRENT> 12,083,287
<NET-CHANGE-FROM-OPS> 28,206,621
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20,536,651
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,948,576
<NUMBER-OF-SHARES-REDEEMED> 4,922,268
<SHARES-REINVESTED> 1,059,761
<NET-CHANGE-IN-ASSETS> 86,069
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 739,438
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,720,451
<AVERAGE-NET-ASSETS> 369,738,485
<PER-SHARE-NAV-BEGIN> 10.16
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
