TAX-FREE TRUST OF ARIZONA
Supplement to the Prospectus
for Class A Shares and Class C Shares
Dated October 31, 1996
On March 13, 1997, the Trust's investment advisory agreement with Bank
One Arizona, N.A. was transferred to Banc One Investment Advisors
Corporation, another subsidiary of BANC ONE CORPORATION. No changes in fees
or personnel will occur as a result of the transfer.
The material under the caption "Local Portfolio Management" in
Highlights is replaced by the following:
Local Portfolio Management - The Trust provides you with experienced,
locally-based professional investment management by the Phoenix, Arizona
office of Banc One Investment Advisors Corporation, 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. Banc One is a multi-bank holding company, incorporated
under the laws of the State of Ohio. As of June 30, 1996, Banc One operates
with more than 1,500 offices in the states of Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, 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 $97.1 billion.
The first three paragraphs under the caption "Information About the
Adviser" are replaced by the following:
Information about the Adviser
Through the Adviser and other subsidiaries, the Adviser's parent
corporation, Banc One Arizona 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 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, 1996, Banc One operated
with more than 1,500 offices in the states of Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, 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 $97.1 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 Fixed Income Fund Manager of Banc One
Investment Advisors Corporation and held similar positions with Bank One
Arizona, N.A. and The Valley National Bank of Arizona, NA, the Adviser's
predecessors. He is a member of the Adviser's Fixed Income Funds
Sub-Committee. He is a graduate of Cornell College, has received an MBA
degree from Arizona State University and is a Chartered Financial Analyst.
The date of this supplement is March 13, 1997
<PAGE>
Tax-Free Trust of Arizona
380 Madison Avenue, Suite 2300
New York, New York 10017
800-437-1020
212-697-6666
Prospectus October 31, 1996
Class A Shares
Class C 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.
The Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information about the Trust dated October 31, 1996 (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Trust's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Trust and its management not included in the
Prospectus. The Additional Statement is incorporated by reference
in its entirety in the Prospectus. Only when you have read both the
Prospectus and the Additional Statement are all 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 Shareholder Servicing 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>
PICTURE
PICTURE
PICTURE
The Trust invests in tax-free municipal securities, primarily
the kinds of obligations issued by various communities and
political subdivisions within Arizona. Most of these securities are
used to finance long-term municipal projects; examples are pictured
above. (See "Investment of the Trust's Assets.") The municipal
obligations which financed these particular projects were included
in the Trust's portfolio as of September 30, 1996, and together
represented 19.38% of the Trust's portfolio. Since the portfolio is
subject to change, the Trust may not necessarily own these specific
securities at the time of the delivery of this Prospectus.
<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. 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 $50 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.)
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.")
Alternative Purchase Plans - The Trust provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time of
purchase, much as goods can be purchased on an installment plan.
For this purpose the 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 represented by the Class C
Shares. (See "Distribution Plan" and "Shareholder
Services Plan for Class C Shares.") Six years after the
date of purchase, Class C Shares are automatically
converted to Class A Shares. If you redeem Class C Shares
before you have held them for 12 months from the date of
purchase you will pay a contingent deferred sales charge
("CDSC") ; this charge is 1%, calculated on the net asset
value of the Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after
Class C Shares have been held beyond the applicable
period. (See "Alternative Purchase Plans," "Computation
of the Holding Periods for Class C Shares" and "How to
Purchase Class C Shares.")
The 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.
Class A Shares and Class C Shares are only offered for sale in
certain states. (See "How to Invest in the Trust.") If shares of
the Trust are sold outside those states the Trust may be required
to redeem them. If your state of residence is not Arizona, the
dividends from the Trust may be subject to income taxes of the
state in which you reside. Accordingly, you should consult your tax
adviser before acquiring shares of the Trust.
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.")
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, 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
210 offices located in communities throughout the state's 15
counties. The Trust Division of the Adviser had, as of June 30,
1996, approximately $9.7 billion of assets under administration,
not including any other registered investment companies but
including approximately $907 million in municipal bonds. Banc One
is a multi-bank holding company, incorporated under the laws of the
State of Ohio. As of June 30, 1996, Banc One operates with more
than 1,500 offices in the states of Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, 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 $97.1 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 "Purchase
of $1 Million or More"). If you redeem Class C Shares before you
have held them for 12 months from the date of purchase you will pay
a contingent deferred sales charge ("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 two
Aquila-sponsored equity funds. You may also exchange them into
shares of the Aquila-sponsored money market funds. The exchange
prices will be the respective net asset values of the shares. (See
"Exchange Privilege.")
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, the proceeds of
redemptions may be more or less than your 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 "Risk Factors 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 at Time of Purchase 4.00% None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Maximum Deferred Sales Charge None(1) 1.00%(2)
Redemption Fees None None
Exchange Fee None None
Annual Trust Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fee 0.20% 0.20%
12b-1 Fee 0.15% 0.75%
All Other Expenses 0.38% 0.63%(3)
Administration Fee 0.20% 0.20%
Service Fee None 0.25%
Other Expenses 0.18% 0.18%(3)
Total Trust Operating Expenses 0.73% 1.58%(3)
Example (4)
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:
One Three Five Ten
Year Years Years Years
<S> <C> <C> <C> <C>
Class A Shares $47 $62 $79 $127
Class C Shares
With complete
redemption at
end of period $26 $50 $86 $144(5)
With no
redemption $16 $50 $86 $144(5)
<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 "Purchase of $1
Million or More".
</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 12 months after purchase.
</FN>
<FN>
(3) Estimated based upon actual expenses incurred by the Trust's Class A Shares
during its most recent fiscal year, restated to reflect correct arrangements,
because there were only a nominal number of Class C shares outstanding during
the relatively brief period from their introduction on April 1, 1996 to the end
of the Trust's fiscal year.
</FN>
<FN>
(4) 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>
(5) Six years after the date of purchase, Class C Shares are automatically
converted to Class A Shares.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL FUNDS USE THE 5%
ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE. THE 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>
<TABLE>
<CAPTION>
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, 1996 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.
Class A (1) Class C (2)
Year Ended June 30, Period
1996 1995 1994 1993 Ended 6/30/96
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.37 $10.16 $10.84 $10.36 $10.45
Income from Investment
Operations:
Net investment income 0.55 0.56 0.57 0.62 0.13
Net gain (loss) on
securities (both
realized and
unrealized) 0.01 0.21 (0.60) 0.54 (0.07)
Total from Investment
Operations 0.56 0.77 (0.03) 1.16 0.06
Less Distributions:
Dividends from net
investment income (0.55) (0.56) (0.57) (0.62) (0.13)
Distributions from
capital gains - - (0.08) (0.06) -
Total Distributions (0.55) (0.56) (0.65) (0.68) (0.13)
Net Asset Value, End
of Period $10.38 $10.37 $10.16 $10.84 $10.38
Total Return (not
reflecting sales load) 5.49% 7.89% (0.38)% 11.45% 0.57%
Ratios/Supplemental Data
Net Assets, End of
Period (in thousands) $389,083 $380,745 $372,093 $349,920 $6
Ratio of Expenses to
Average Net Assets 0.72% 0.74% 0.70% 0.65% 0.40%
Ratio of Net Investment
Income to Average
Net Assets 5.30% 5.55% 5.36% 5.76% 1.17%
Portfolio Turnover
Rate 27.37% 34.44% 31.20% 18.78% 27.37%
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 $0.55 $0.56 $0.57 $0.61 $0.04
Ratio of Expenses to
Average Net Assets 0.73% 0.74% 0.71% 0.73% 0.40%
Ratio of Net Investment
Income to Average
Net Assets 5.30% 5.55% 5.35% 5.67% 1.17%
<CAPTION>
Year Ended June 30,
1992 1991 1990 1989 1988 1987
<C> <C> <C> <C> <C> <C>
$9.92 $9.77 $9.88 $9.47 $9.45 $9.46
0.66 0.66 0.66 0.67 0.67 0.66
0.43 0.15 (0.11) 0.41 0.02 (0.01)
1.09 0.81 0.55 1.08 0.69 0.65
(0.65) (0.66) (0.66) (0.67) (0.67) (0.66)
- - - - - -
(0.65) (0.66) (0.66) (0.67) (0.67) (0.66)
$10.36 $9.92 $9.77 $9.88 $9.47 $9.45
11.36% 8.57% 5.84% 11.86% 7.68% 7.07%
$237,433 $175,342 $121,026 $101,584 $83,437 $74,910
0.57% 0.58% 0.58% 0.53% 0.51% 0.34%
6.37% 6.68% 6.66% 6.76% 6.95% 7.00%
23.53% 26.83% 31.11% 24.87% 22.41% 17.19%
$0.65 $0.65 $0.64 $0.64 $0.64 $0.61
0.70% 0.74% 0.77% 0.78% 0.88% 0.88%
6.24 6.52% 6.47% 6.50% 6.58% 6.47%
<FN>
(1)Designated as Class A Shares on April 1, 1996.
</FN>
<FN>
(2)New Class of Shares established on April 1, 1996.
</FN>
<FN>
+ Not annualized.
</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 "Dividend
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 those 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 three 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 will normally go down; if these rates go down, the
value of these obligations will normally 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. As of the date of this prospectus, the legislature has
not reached agreement on a permanent 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 early 1996, a lower court held illegal 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 ruling affects only one school
district but similar obligations have been issued by other
localities. The Trust does not own any CABs but does own
conventional issues of localities that have issued CABs. The suit
challenged 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. In 1996,
the legislature enacted legislation validating all bonds of this
type outstanding on March 31, 1996. However, the restrictions in
the legislation may have an adverse impact on the overall financial
condition of municipalities that have issued CABs and may restrict
their ability to issue additional debt. There may be additional
court challenges to the legislation.
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"). The
net asset value per share is determined by dividing the value of
the net assets (i.e., the value of the assets less liabilities) by
the total number of shares outstanding. Determination of the value
of the 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
In this Prospectus, 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.
You should choose the class that best suits your own circumstances
and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By purchasing
Class C Shares, you will pay a sales charge over a period of six
years after purchase but without paying anything at time of
purchase, much as goods can be purchased on an installment plan.
You are subject to a conditional deferred sales charge, described
below, but only if you redeem your Class C Shares before they have
been held 12 months from your purchase. (See "Computation of
Holding Periods for Class C Shares.")
Class A Shares, "Front-Payment Class Shares," are
offered to anyone at net asset value plus a sales
charge, paid at the time of purchase, at the maximum
rate of 4.0% of the public offering price, with lower
rates for larger purchases.When you purchase Class A
Shares, the amount of your investment is reduced by the
applicable sales charge. Class A Shares are subject to
an asset retention service fee under the Trust's
Distribution Plan at the rate of 0.15 of 1% of the
average annual net assets represented by the Class A
Shares. Certain Class A Shares purchased in
transactions of $1 million or more are subject to a
contingent deferred sales charge. (See "Purchase of $1
Million or More".)
Class C Shares, "Level-Payment Class Shares," are
offered to anyone at net asset value with no sales
charge payable at purchase but with a level charge for
distribution fees and service fees for six years after
the date of purchase at the aggregate annual rate of 1%
of the average annual net assets represented by the
Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six
years after the date of purchase, Class C Shares,
including Class C Shares acquired in exchange for other
Class C Shares under the Exchange Privilege (see
"Exchange Privilege"), are automatically converted to
Class A Shares. If you redeem Class C Shares before you
have held them for 12 months from the date of purchase
you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%, calculated on the net asset
value of the redeemed Class C Shares at the time of
purchase or of redemption, whichever is less. The
amount of any CDSC will be paid to the Distributor. The
CDSC does not apply to shares acquired through the
reinvestment of dividends on Class C Shares or to any
Class C Shares held for more than 12 months after
purchase. In the Prospectus, 12-month and six-year
holding periods are considered modified by up to one
month depending upon when during a month your purchase
of such shares is made. (See "Computation of Holding
Periods for Class C Shares" and "How to Purchase Class
C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions, second
of any Class C Shares you have held for more than 12 months from
the date of purchase and finally of those Class C Shares as to
which the CDSC is payable which you have held the longest. This
will result in your paying the lowest possible CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that month.
The 12-month CDSC holding period will end on the first business
day of the 12th calendar month after the date your purchase is
deemed to have been made. Accordingly, the CDSC holding period
applicable to your Class C Shares may be up to one month less than
the full 12 months depending upon when your actual purchase was
made during a month. Running of the 12-month CDSC holding period
will be suspended for one month for each period of thirty days
during which you have held shares of a money market fund you have
received in exchange for Class C Shares under the Exchange
Privilege. (See "Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class
C Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day
of the month following that in which the sixth anniversary of your
purchase of the Class C Shares occurred, except as noted below.
Accordingly, the holding period applicable to your Class C Shares
may be up to one month more than the six years depending upon when
your actual purchase was made during a month. Because the per
share value of Class A Shares may be higher than that of Class C
Shares at the time of conversion, you may receive fewer Class A
Shares than the number of Class C Shares converted. If you have
made one or more exchanges of Class C Shares among the
Aquila-sponsored tax-free municipal bond funds or equity funds
under the Exchange Privilege, the six-year holding period is
deemed to have begun on the date you purchased your original Class
C Shares of the 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 following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4% of the None
Charge Public Offering Price
Contingent None (except for Maximum CDSC of 1%
Deferred certain purchases if shares redeemed
Sales Charge over $1 Million) before 12 months;
0% after 12 months
Distribution 0.15 of 1% Distribution fee of
and Service Fees 0.75 of 1% and a service
fee of 0.25 of 1% for
a total of 1%, payable
for six years
Other Information Initial Sales Charge Shares convert to
waived or reduced Class A Shares
in some cases after six years
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between Class
A Shares and Class C Shares. It is recommended that any investment
in the 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 charge 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
within a reasonably short time after purchase, you should consider
the total cost of such an investment in Class A Shares compared
with a similar investment in Class C Shares. The example under
"Table of Expenses" shows the effect of 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.)
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 Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends of
each class can vary because each class will bear certain
class-specific charges. For example, each class will bear the costs
of printing and mailing annual reports to its own shareholders.
HOW TO INVEST IN THE 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. If you purchase Class A Shares the applicable
sales charge will apply in either instance. Subsequent investments
are also subject to the applicable sales charges. You are urged to
complete an Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be made
in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class C
Shares is $1,000, except as otherwise stated in the Prospectus or
Additional Statement. You may also make an initial investment of at
least $50 by establishing an Automatic Investment Program . To do
this you must open an account for automatic investments of at least
$50 each month and make an initial investment of at least $50. (See
below and "Automatic Investment Program" in the Application.) Such
investment must be drawn in United States dollars on a United
States commercial or savings bank, 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.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Trust are available only in the following states:
Arizona, California, Colorado, District of Columbia, Florida,
Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Massachusetts
(Class A Shares only), Michigan, Minnesota, Missouri, Nevada, New
Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Texas,
Utah, Washington and Wyoming.
If you do not reside in one of these states, you should not
purchase shares of the Trust. If shares are sold outside of these
states, the Trust may be required to redeem them. Such a redemption
may result in a loss to you and may have tax consequences.
In addition, if your state of residence is not Arizona, the
dividends from the Trust may be subject to income taxes of the
state in which you reside. Accordingly, you should consult your tax
adviser before acquiring shares of the Trust.
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>
<CAPTION>
<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 purchases 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.
Purchase of $1 Million or More
Shares issued under the following circumstances are called
"CDSC Class A Shares": (i) shares issued in a single purchase of $1
million or more by a single purchaser; (ii) all shares subsequently
purchased by a single purchaser if the value of the CDSC Class A
Shares and Class A Shares on which a sales charge has been paid,
owned at the time of the subsequent purchase, is equal to or
greater than $1 million; (iii) all shares issued in a single
purchase to a single purchaser the value of which, when added to
the value of the CDSC Class A Shares and Class A Shares on which a
sales charge has been paid, already owned at the time of such
purchase, equals or exceeds $1 million. CDSC Class A Shares also
include certain Class A Shares issued under the program captioned
"Special Dealer Arrangements," below. CDSC Class A Shares do not
include (i) Class A Shares purchased without sales charge pursuant
to the terms described under "General," below and (ii) Class A
Shares purchased in transactions of less than $1 million and when
certain special dealer arrangements are not in effect under
"Certain Investment Companies" set forth under "Reduced Sales
Charges," below.
When you purchase CDSC Class A Shares you will not pay a sales
charge at the time of purchase, and the Distributor will pay to any
dealer effecting such a purchase an amount equal to 1% of the sales
price of the shares purchased for purchases of $1 million but less
than $2.5 million, 0.50 of 1% for purchases of $2.5 million but
less than $5 million, and 0.25 of 1% for purchases of $5 million or
more.
If you redeem all or part of your CDSC Class A Shares during
the four years after your purchase of such shares, at the time of
redemption you will be required to pay to the Distributor a special
contingent deferred sales charge based on the lesser of (i) the net
asset value of your redeemed CDSC Class A Shares at the time of
purchase or (ii) the net asset value of your redeemed CDSC Class A
Shares at the time of redemption (the "Redemption Value"). The
special charge will be an amount equal to 1% of the Redemption
Value if the redemption occurs within the first two years after
purchase, and 0.50 of 1% of the Redemption Value if the redemption
occurs within the third or fourth year after purchase. The special
charge will apply to redemptions of CDSC Class A Shares purchased
without a sales charge pursuant to a Letter of Intent, as described
below under "Reduced Sales Charges." The special charge does not
apply to shares acquired through the reinvestment of dividends on
CDSC Class A Shares or to any CDSC Class A Shares held for more
than four years after purchase. In determining whether the special
charge is applicable, it will be assumed that the CDSC Class A
Shares you have held the longest are the first CDSC Class A Shares
to be redeemed, unless you instruct the Agent otherwise. It will
also be assumed that if you have both CDSC Class A Shares and
non-CDSC Class A Shares the non-CDSC Class A Shares will be
redeemed first.
For purposes of determining the holding period for CDSC Class
A Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that month
at the average cost of all purchases made during that month. The
four-year holding period will end on the first business day of the
48th calendar month after the date your purchase is deemed to have
been made. Accordingly, the CDSC holding period applicable to your
CDSC Class A Shares may be up to one month less than the full 48
months depending upon when your actual purchase was made during a
month. Running of the 48-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for CDSC Class A Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of
Class A Shares
Right of Accumulation: If you are a "Single purchaser" you may
benefit from a reduction of the sales charge in accordance with the
above schedule for subsequent purchases of Class A Shares if the
cumulative value (at cost or current net asset value, whichever is
higher) of Class A Shares you have previously purchased with a
sales charge, together with 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 using
the proceeds of a Qualified Redemption the lesser of (i) 1% of such
proceeds or (ii) the same amounts described under "Purchase of $1
Million or More," above on the same terms and conditions. Class A
Shares of the 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 "Purchase of $1 Million or More," above, on the same terms
and conditions. Whenever the Special Dealer Arrangements are in
effect the Prospectus will be supplemented.
How to Purchase Class C Shares
(Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered at net
asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Trust represented by
the Class C Shares. If you redeem Class C Shares before you have
held them for 12 months from the date of purchase you will pay a
contingent deferred sales charge ("CDSC"). The CDSC is charged }at
the rate of 1%, calculated on the net asset value of the redeemed
Class C Shares at the time of purchase or at redemption, whichever
is less. There is no CDSC after Class C Shares have been held
beyond the applicable period. The CDSC does not apply to 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 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.
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 one part of the Plan, the Trust is authorized to make
payments with respect to Class A Shares ("Class A Permitted
Payments") to Qualified Recipients, which payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent and may not exceed, for any fiscal year of the
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's assets
allocable to the Class A Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including but
not limited to any principal underwriter of the 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 April 1, 1996, all outstanding shares of the Trust were what
are currently designated Class A Shares. During the fiscal year
ended June 30, 1996, $584,611 was paid to Qualified Recipients with
respect to Class A Shares, of which $17,199 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's assets
allocable to the Class C Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including but
not limited to any principal underwriter of the 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. No payments were made under this part of the
Plan during the Fiscal year ended June 30, 1996.
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's assets represented by the Class C
Shares. "Qualified Recipients" means broker-dealers or others
selected by the Distributor, including but not limited to any
principal underwriter of the 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. No payments were made under this Plan during the
Fiscal year ended June 30, 1996.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net asset
value next determined after acceptance of your redemption request
at the Agent (subject to any applicable contingent deferred sales
charge for redemptions of Class C Shares and CDSC Class A Shares).
For redemptions of Class C Shares and CDSC Class A Shares, at the
time of redemption a sufficient number of additional shares will be
redeemed to pay for any applicable contingent deferred sales
charge. Redemptions can be made by the various methods described
below. There is no minimum period for any investment in the Trust,
except for shares recently purchased by check, Automatic Investment
or Telephone Investment as discussed below. Except for CDSC Class
A Shares (see "Purchase of $1 Million or More") there are no
redemption fees or withdrawal penalties for Class A Shares. Class
C Shares are subject to a contingent deferred sales charge if
redeemed before they have been held 12 months from the date of
purchase. (See "Alternative Purchase Plans.") A redemption may
result in a transaction taxable to you. If you own both Class A
Shares and Class C Shares and do not specify which you wish to
redeem, it will be assumed that you wish to redeem Class A Shares.
For your convenience the 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 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 redemption by check in any
7-day period.
See "Redemption Payments," below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
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 have redemption proceeds sent directly to a
Financial Institution Account you should so elect on the Expedited
Redemption section of the Application or the Ready Access Features
form and provide the required information concerning your Financial
Institution account number. The Financial Institution account must
be in the exclusive name(s) of the shareholder(s) as registered
with the 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. Signature guarantees may be required if sufficient
documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the 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 any such changes are made, the
Prospectus will be supplemented to reflect them. If you use a
broker or dealer to arrange for a redemption, it may charge you a
fee for this service.
The 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 in 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
charge was deducted at the time of redemption, the Distributor will
refund to you the amount of such sales charge, which will be added
to the amount of the reinvestment. The Class C Shares or CDSC Class
A Shares issued on reinvestment will be deemed to have been
outstanding from the date of your original purchase of the redeemed
shares, less the period from redemption to reinvestment. The
reinvestment privilege for any class may be exercised only once a
year, unless otherwise approved by the Distributor. If you have
realized a gain on the redemption of your shares, the redemption
transaction is taxable, and reinvestment will not alter any capital
gains tax payable. If there has been a loss on the redemption, some
or all of the loss may be tax deductible, depending on the amount
reinvested and the length of time between the redemption and the
reinvestment. You should consult your own tax advisor on this
matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the 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.
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when purchases
are made. Accordingly, you may not maintain an Automatic Withdrawal
Plan while simultaneously making regular purchases. While an
occasional lump sum investment may be made, such investment should
normally be an amount at least equal to three times the annual
withdrawal or $5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the 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 210 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,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, 1996, approximately $9.7 billion of assets under
administration, not including any other registered investment
companies but including approximately $900 million 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, 1996, Banc One operated with more than 1,500 offices in
the states of Arizona, Colorado, Illinois, Indiana, Kentucky,
Louisiana, 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 $97.1
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 Fixed Income
Fund 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. He is a member of
the Adviser's Fixed Income Funds Sub-Committee. He is a graduate of
Cornell College, has received an MBA degree from Arizona State
University and is a Chartered Financial Analyst.
For the Trust's fiscal year ended June 30, 1996, fees of
$777,611 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 June 30, 1996,
these funds had aggregate assets of approximately $2.6 billion, of
which approximately $1.9 billion consisted of assets of the
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, five
money market funds and two equity funds) 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 each
class of its shares are calculated at the same time and in the same
manner. The per-share dividends of Class C Shares will be lower
than the per share dividends on the Class A Shares as a result of
the higher service and distribution fees applicable to those
shares. In addition, the dividends of each class can vary because
each class will bear certain class-specific charges.
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 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 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." "Exempt-interest dividends"are exempt
from regular Federal income tax. The allocation of "exempt-interest
dividends" 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, 1996, 97.41% of the Trust's dividends were
"exempt-interest dividends." For the calendar year 1995, 2.73% 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) and any other distributions that do not qualify as
"exempt-interest dividends," 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 "exempt-interest 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 dividends 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 or carry 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.
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.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Trust or its shareholders upon such conversions;
each shareholder's adjusted tax basis in the Class A Shares
received upon conversion will equal the shareholder's adjusted tax
basis in the Class C Shares held immediately before the conversion;
and each shareholder's holding period for the Class A Shares
received upon conversion will include the period for which the
shareholder held as capital assets the converted Class C Shares
immediately before conversion.
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, Aquila Cascadia 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. At the
date of this Prospectus, 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) 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 or into shares of the
Money-Market Funds.
Class A Shares Exchange Privilege
Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A Shares of any Bond
or Equity Fund, those shares (and any shares acquired as a result
of reinvestment of dividends and/or distributions) may be exchanged
any number of times between Money-Market Funds and Bond or Equity
Funds without the payment of any additional sales charge.
CDSC Class A Shares of the Trust (see "Purchase of $1 Million
or More" and "Special Dealer Arrangements") can be exchanged for
CDSC Class A Shares of a Bond or Equity Fund or into a Money-Market
Fund. The CDSC Class A Shares will not be subject to a contingent
deferred sales charge at the time of exchange, but the contingent
deferred sales charge will be payable upon a redemption which
occurs before the expiration of the applicable holding period of
any CDSC Class A Shares or any shares of a Money-Market Fund
received on exchange for CDSC Class A Shares. (The contingent
deferred sales charge does not apply to any shares acquired as a
result of reinvestment of dividends and/or distributions.) For
purposes of computing the time period for the applicable contingent
deferred sales charge, the length of time of ownership of CDSC
Class A Shares will be determined by the time of original purchase
and not by the time of the exchange. Any period of 30 days or more
during which any Money-Market shares received on an exchange of
CDSC Class A Shares are held is not counted in computing the period
of ownership of CDSC Class A Shares. (See "Alternative Purchase
Plans.")
Class C Shares Exchange Privilege
Under the Class C exchange privilege, Class C Shares (and any
shares acquired as a result of reinvestment of dividends and/or
distributions) may be exchanged any number of times between
Money-Market Funds and for Class C Shares of Bond or Equity Funds.
Class C Shares will not be subject to a contingent deferred sales
charge at the time of exchange, but the contingent deferred sales
charge will be payable upon redemption which occurs before the
expiration of the applicable holding period of any Class C Shares
or any shares of a Money-Market Fund received on exchange for Class
C Shares. (The contingent deferred sales charge does not apply to
any shares acquired as a result of reinvestment of dividends and/or
distributions.) For purposes of computing the time period for the
applicable contingent deferred sales charge or for the conversion
of Class C Shares into Class A Shares, the length of time of
ownership of Class C Shares will be determined by time of original
purchase and not by the time of the exchange. Any period of 30 days
or more during which any Money-Market shares received on an
exchange of Class C Shares are held is not counted in computing the
period of ownership of Class C Shares. (See "Alternative Purchase
Plans.")
Eligible Shares
The "Class A Eligible Shares" of any Bond or Equity Fund are
those Class A Shares which were (a) acquired by direct purchase
with payment of any applicable sales charge, or which were received
in exchange for shares of another Bond or Equity Fund on which any
applicable sales charge was paid; (b) acquired by exchange for
shares of a Money-Market Fund with payment of the applicable sales
charge; (c) acquired in one or more exchanges between shares of a
Money-Market Fund and a Bond or Equity Fund so long as the shares
of the Bond or Equity Fund were originally purchased as set forth
in (a) or (b); (d) acquired on conversion of Class C Shares or (e)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise Class A Eligible Shares.
The "CDSC Class A Eligible Shares" of any Bond or Equity Fund
are those CDSC Class A Shares which were (a) acquired by direct
purchase in the amount of $1 million or more without a sales charge
or in certain purchases when Special Dealer Arrangements are in
effect or which were received in exchange for CDSC Class A Shares
of another Bond or Equity Fund acquired under the same conditions;
(b) acquired by exchange for shares of a Money-Market Fund under
the same conditions; (c) acquired in one or more exchanges between
shares of a Money-Market Fund and a Bond or Equity Fund so long as
the shares of the Bond or Equity Fund were originally purchased as
set forth in (a) or (b); or (d) acquired as a result of
reinvestment of dividends and/or distributions on otherwise CDSC
Class A Eligible Shares.
The "Class C Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange from a Money-Market Fund, or which were received in
exchange for shares of Class C Shares of another Bond or Equity
Fund; or (b) acquired as a result of reinvestment of dividends
and/or distributions on otherwise Class C Eligible Shares.
If you own Class A or Class C Eligible Shares of any Bond or
Equity Fund, you may exchange them for shares of any Money- Market
Fund or the Class A or Class C Shares, respectively, of any other
Bond or Equity Fund without payment of any sales charge or CDSC.
The shares received will continue to be Class A or Class C Eligible
Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares acquired
as a result of reinvestment of dividends and/or distributions on
these shares, for Class A Shares of any Bond or Equity Fund without
payment of any sales charge.
If you own shares of a Money-Market Fund which you have
acquired by exchange for CDSC Class A Eligible Shares of any Bond
or Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for CDSC Class A Shares of any Bond
or Equity Fund but you will be required to pay the applicable
contingent deferred sales charge if you redeem such shares before
you have held CDSC Class A Shares for four years. You will also be
required to pay the applicable contingent deferred sales charge if
you redeem such shares of a Money-Market Fund before you have held
CDSC Class A Shares for four years. The running of the four-year
period is suspended during the period you hold shares of a
Money-Market Fund received in exchange for CDSC Class A Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares acquired
as a result of reinvestment of dividends and/or distributions on
these shares, for Class C Shares of any Bond or Equity Fund, but
you will be required to pay the applicable contingent deferred
sales charge if you redeem such Class C Shares before you have held
Class C Shares for 12 months. You will also be required to pay the
applicable contingent deferred sales charge if you redeem such
shares of a Money-Market Fund before you have held Class C Shares
for 12 months. The running of the 12-month CDSC period and the
six-year conversion period for Class C Shares is suspended during
the period you hold shares of a Money-Market Fund received in
exchange for Class C Shares. (See "Alternative Purchase Plans.")
Shares of a Money-Market Fund may be exchanged for shares of
another Money-Market Fund or for Class A Shares or Class C Shares
of a Bond or Equity Fund; however, if the shares of a Money-Market
Fund were not acquired by exchange of Eligible Shares of a Bond or
Equity Fund or of shares of a Money-Market Fund acquired in such an
exchange, they may be exchanged for Class A Shares of a Bond or
Equity Fund only upon payment of the applicable sales charge.
This 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.
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.
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 "Tax Effects of
Redemptions" and the Additional Statement); no representation is
made as to the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-Market
Fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Treasuries Cash Assets Trust (which invests in U.S. Treasury
obligations) are exempt from state income taxes. Dividends paid by
Aquila Rocky Mountain Equity Fund and Aquila Cascadia Equity Fund
are taxable. If your state of residence is not the same as that of
the issuers of obligations in which a 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, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1-, 5- and 10-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 applicable 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 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, if any, 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.
In addition to Class A and Class C Shares, which are offered
by this Prospectus, the Trust also has Institutional Class Shares
("Class Y Shares"), which are offered only to institutions acting
for investors in a fiduciary, advisory, agency, custodial or
similar capacity and are not offered directly to retail customers.
Class Y Shares are offered by means of a separate prospectus, which
can be obtained by calling the Trust at 800-437-1020.
The primary distinction among the Trust's three classes of
shares lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields and
other measures of investment performance. All three classes
represent interests in the same portfolio of Arizona Obligations
and have the same rights, except that each class bears the separate
expenses, if any, of its Distribution Plan and has exclusive voting
rights with respect to its Plan.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one (1) 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>
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: AQUILASM 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.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate method of payment (For either method, make check payment to:
TAX-FREE TRUST OF ARIZONA)
Indicate class of shares:
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE IN
CLASS A SHARES.
__ Initial Investment $_________ (Minimum $1,000)
__ Automatic Investment $________ (Minimum $50)
For Automatic Investments of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend.
(A Financial Institution is a commercial bank, savings bank or credit
union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your 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. 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
D. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
APPLICABLE TO CLASS A SHARES ONLY.
Application must be received in good order at least 2 weeks prior to 1st
actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account, subject
to the terms of the Automatic Withdrawal Plan Provisions set forth below. To
realize the amount stated below, Administrative Data Management Corp. (the
Agent) is authorized to redeem sufficient shares from this account at the then
current Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable to
a Financial Institution for your account, indicate Financial Institution name,
address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the Prospectus.
Except for gross negligence in acting upon such telephone instructions to
execute an exchange, and subject to the conditions set forth herein, I/we
understand and agree to hold harmless the Agent, each of the Aquila Funds,
and their respective officers, directors, trustees, employees, agents and
affiliates against any liability, damage, expense, claim or loss, including
reasonable costs and attorneys fees, resulting from acceptance of, or acting
or failure to act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
Cash proceeds in any amount from the redemption of shares will be mailed
or wired, whenever possible, upon request, if in an amount of $1,000 or more
to my/our account at a Financial Institution. The Financial Institution account
must be in the same name(s) as this 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
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.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are
effective 15 days after this form is received in good order
by the Trust's Agent.
- - You may cancel any feature at any time, effective 3 days after the Agent
receives written notice from you.
- - Either the Trust or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Trust reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by the
terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a Ready
Access features form which may be obtained from Aquila Distributors at
1-800-437-1020 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>
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
TABLE OF EXPENSES
FINANCIAL HIGHLIGHTS
INTRODUCTION
INVESTMENT OF THE TRUST'S ASSETS
INVESTMENT RESTRICTIONS
NET ASSET VALUE PER SHARE
HOW TO INVEST IN THE TRUST
HOW TO REDEEM YOUR INVESTMENT
AUTOMATIC WITHDRAWAL PLAN
MANAGEMENT ARRANGEMENTS
DIVIDEND AND TAX INFORMATION
EXCHANGE PRIVILEGE
GENERAL INFORMATION
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
Supplement to the Prospectus
for Class Y Shares
Dated October 31, 1996
On March 13, 1997, the Trust's investment advisory agreement with Bank
One Arizona, N.A. was transferred to Banc One Investment Advisors
Corporation, another subsidiary of BANC ONE CORPORATION. No changes in fees
or personnel will occur as a result of the transfer.
The material under the caption "Local Portfolio Management" in
Highlights is replaced by the following:
Local Portfolio Management - The Trust provides you with experienced,
locally-based professional investment management by the Phoenix, Arizona
office of Banc One Investment Advisors Corporation, 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. Banc One is a multi-bank holding company, incorporated
under the laws of the State of Ohio. As of June 30, 1996, Banc One operates
with more than 1,500 offices in the states of Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, 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 $97.1 billion.
The first three paragraphs under the caption "Information About the
Adviser" are replaced by the following:
Information about the Adviser
Through the Adviser and other subsidiaries, the Adviser's parent
corporation, Banc One Arizona 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 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, 1996, Banc One operated
with more than 1,500 offices in the states of Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, 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 $97.1 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 Fixed Income Fund Manager of Banc
One Investment Advisors Corporation and held similar positions with Bank One
Arizona, N.A. and The Valley National Bank of Arizona, NA, the Adviser's
predecessors. He is a member of the Adviser's Fixed Income Funds
Sub-Committee. He is a graduate of Cornell College, has received an MBA
degree from Arizona State University and is a Chartered Financial Analyst.
The date of this supplement is March 13, 1997
<PAGE>
TAX-FREE TRUST OF ARIZONA
380 MADISON AVENUE, SUITE 2300
NEW YORK, NEW YORK 10017
800-437-1020
212-697-6666
Prospectus
Institutional Class Shares
Class Y Shares October 31, 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.
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 the
Trust and its Shares."
The Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information about the Trust dated October 31, 1996 (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Trust's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Trust and its management not included in the
Prospectus. The Additional Statement is incorporated by reference
in its entirety in the Prospectus. Only when you have read both the
Prospectus and the Additional Statement are all 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 Shareholder Servicing 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. 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 & 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 $50 or more each month. See the
Application which is in the back of the Prospectus. (See "How to
Invest in the Trust."
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.")
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 the Trust and its Shares."
At the date of the Prospectus, Class Y Shares are registered
for sale only in Arizona. (See "How to Invest in the Trust.") If
Class Y Shares of the Trust are sold outside Arizona, except to
certain institutional investors, the Trust may be required to
redeem them. If your state of residence is not Arizona, dividends
from the Trust may be subject to income taxes of the state in which
you reside. Accordingly, you should consult your tax adviser before
acquiring shares of the Trust.
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.")
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, 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
210 offices located in communities throughout the state's 15
counties. The Trust Division of the Adviser had, as of June 30,
1996, approximately $9.7 billion of assets under administration,
not including any other registered investment companies but
including approximately $907 million in municipal bonds. Banc One
is a multi-bank holding company, incorporated under the laws of the
State of Ohio. As of June 30, 1996, Banc One operates with more
than 1,500 offices in the states of Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, 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 $97.1 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
declines 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 two Aquila-sponsored equity funds. You may also
exchange them into shares of the Aquila-sponsored money market
funds. The exchange prices will be the respective net asset values
of the shares. (See "Exchange Privilege.")
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, the proceeds of
redemptions may be more or less than your 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 "Risk Factors 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 at Time of Purchase None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None
Maximum 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 0.38%
Administration Fee 0.20%
Other Expenses 0.18%
Total Trust Operating Expenses 0.58%
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 32
10 Years 73
<FN>
(1) Estimated based upon actual expenses incurred by the Trust's Class A
Shares during its most recent fiscal year, restated to reflect current
arrangements, because there were only a nominal number of Class Y shares
outstanding during the relatively brief period from their introduction on April
1, 1996 to the end of the Trust's fiscal year.
</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>
<TABLE>
<CAPTION>
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, 1996 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.
Class A (1) Class Y (2)
Year Ended June 30, Period
1996 1995 1994 1993 Ended 6/30/96
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.37 $10.16 $10.84 $10.36 $10.45
Income from Investment
Operations:
Net investment income 0.55 0.56 0.57 0.62 0.15
Net gain (loss) on
securities (both
realized and
unrealized) 0.01 0.21 (0.60) 0.54 (0.07)
Total from Investment
Operations 0.56 0.77 (0.03) 1.16 0.08
Less Distributions:
Dividends from net
investment income (0.55) (0.56) (0.57) (0.62) (0.15)
Distributions from
capital gains - - (0.08) (0.06) -
Total Distributions (0.55) (0.56) (0.65) (0.68) (0.15)
Net Asset Value, End
of Period $10.38 $10.37 $10.16 $10.84 $10.38
Total Return (not
reflecting sales load) 5.49% 7.89% (0.38)% 11.45% 0.76%
Ratios/Supplemental Data
Net Assets, End of
Period (in thousands) $389,083 $380,745 $372,093 $349,920 $0.1
Ratio of Expenses to
Average Net Assets 0.72% 0.74% 0.70% 0.65% 0.15%
Ratio of Net Investment
Income to Average
Net Assets 5.30% 5.55% 5.36% 5.76% 1.42%
Portfolio Turnover
Rate 27.37% 34.44% 31.20% 18.78% 27.37%
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 $0.55 $0.56 $0.57 $0.61 $0.15
Ratio of Expenses to
Average Net Assets 0.73% 0.74% 0.71% 0.73% 0.15%
Ratio of Net Investment
Income to Average
Net Assets 5.30% 5.55% 5.35% 5.67% 1.42%
<CAPTION>
Year Ended June 30,
1992 1991 1990 1989 1988 1987
<C> <C> <C> <C> <C> <C>
$9.92 $9.77 $9.88 $9.47 $9.45 $9.46
0.66 0.66 0.66 0.67 0.67 0.66
0.43 0.15 (0.11) 0.41 0.02 (0.01)
1.09 0.81 0.55 1.08 0.69 0.65
(0.65) (0.66) (0.66) (0.67) (0.67) (0.66)
- - - - - -
(0.65) (0.66) (0.66) (0.67) (0.67) (0.66)
$10.36 $9.92 $9.77 $9.88 $9.47 $9.45
11.36% 8.57% 5.84% 11.86% 7.68% 7.07%
$237,433 $175,342 $121,026 $101,584 $83,437 $74,910
0.57% 0.58% 0.58% 0.53% 0.51% 0.34%
6.37% 6.68% 6.66% 6.76% 6.95% 7.00%
23.53% 26.83% 31.11% 24.87% 22.41% 17.19%
$0.65 $0.65 $0.64 $0.64 $0.64 $0.61
0.70% 0.74% 0.77% 0.78% 0.88% 0.88%
6.24 6.52% 6.47% 6.50% 6.58% 6.47%
<FN>
(1)Designated as Class A Shares on April 1, 1996.
</FN>
<FN>
(2)New Class of Shares established on April 1, 1996.
</FN>
<FN>
+ Not annualized.
</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 "Dividend
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 those 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 three 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 will normally go down; if these rates go down, the
value of these obligations will normally 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. As of the date of this prospectus, the legislature has
not reached agreement on a permanent 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 early 1996, a lower court held illegal 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 ruling affects only one school
district but similar obligations have been issued by other
localities. The Trust does not own any CABs but does own
conventional issues of localities that have issued CABs. The suit
challenged 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. In 1996,
the legislature enacted legislation validating all bonds of this
type outstanding on March 31, 1996. However, the restrictions in
the legislation may have an adverse impact on the overall financial
condition of municipalities that have issued CABs and may restrict
their ability to issue additional debt. There may be additional
court challenges to the legislation.
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"). The
net asset value per share is determined by dividing the value of
the net assets (i.e., the value of the assets less liabilities) by
the total number of shares outstanding. Determination of the value
of the 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 directly to retail customers.
Class Y Shares are offered at net asset value with no sales charge,
no redemption fee, no contingent deferred sales charge and no
distribution fee.
How to Purchase Class Y Shares
Class Y Shares of the 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 $50
by establishing an Automatic Investment Program. To do this you
must open an account for automatic investments of at least $50 each
month and make an initial investment of at least $50. (See below
and "Automatic Investment Program" in the Application.) Such
investment must be drawn in United States dollars on a United
States commercial or savings bank, credit union or a United States
branch of a foreign commercial bank (each of which is a "Financial
Institution"). You may make subsequent investments in Class Y
Shares in any amount (unless you have an Automatic Withdrawal
Plan). Your subsequent investment may be made through a selected
dealer or by forwarding payment to the Agent, with the name(s) of
account owner(s), the account number and the name of the 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.
At the date of the Prospectus, Class Y Shares of the Trust are
registered for sale only in Arizona.
If you do not reside in Arizona you should not purchase shares
of the Trust. If shares are sold outside of Arizona, except to
certain institutional investors, the Trust may be required to
redeem them. Such a redemption may result in a loss to you and may
have tax consequences.
In addition, if your state of residence is not Arizona, the
dividends from the Trust may be subject to income taxes of the
state in which you reside. Accordingly, you should consult your tax
adviser before acquiring shares of the Trust.
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.
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 redemption by check in any
7-day period.
See "Redemption Payments," below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
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 have redemption proceeds sent directly to a
Financial Institution Account you should so elect on the Expedited
Redemption section of the Application or the Ready Access Features
form and provide the required information concerning your Financial
Institution account number. The Financial Institution account must
be in the exclusive name(s) of the shareholder(s) as registered
with the 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. Signature guarantees may be required if
sufficient documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature guarantor.
Redemption Payments
Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will, wherever
possible, be wired or transferred through the facilities of the
Automated Clearing House to the Financial Institution account
specified in the Expedited Redemption section of your Application
or Ready Access Features form. The 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 any such changes are made, the
Prospectus will be supplemented to reflect them. If you use a
broker or dealer to arrange for a redemption, it may charge you a
fee for this service.
The 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 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 210 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,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, 1996, approximately $9.7 billion of assets under
administration, not including any other registered investment
companies but including approximately $900 million 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, 1996, Banc One operated with more than 1,500 offices in
the states of Arizona, Colorado, Illinois, Indiana, Kentucky,
Louisiana, 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 $97.1
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 Fixed Income
Fund 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. He is a member of
the Adviser's Fixed Income Funds Sub-Committee. He is a graduate of
Cornell College, has received an MBA degree from Arizona State
University and is a Chartered Financial Analyst.
For the Trust's fiscal year ended June 30, 1996, fees of
$777,611 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 June 30, 1996,
these funds had aggregate assets of approximately $2.6 billion, of
which approximately $1.9 billion consisted of assets of the
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, five
money market funds and two equity funds) 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 each
class of its shares are calculated at the same time and in the same
manner. In addition, the dividends of each class can vary because
each class will bear certain class-specific charges.
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 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 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." "Exempt-interest dividends"are exempt
from regular Federal income tax. The allocation of "exempt-interest
dividends" 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, 1996, 97.41% of the Trust's dividends were
"exempt-interest dividends." For the calendar year 1995, 2.73% of
the total dividends paid were taxable. (These amounts relate to
dividends on Class A shares; no or only a nominal amount of Class
Y Shares were outstanding during those periods.) 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) and any other distributions that do not qualify as
"exempt-interest dividends," 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 "exempt-interest 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 dividends 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 or carry 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.
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, Aquila Cascadia 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. At the
date of this Prospectus, 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) 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 Class Y Shares of another
Bond or Equity Fund; or (b) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class Y Eligible
Shares. Shares of a Money-Market Fund not acquired in exchange for
Class Y Eligible Shares of a Bond or Equity Fund can be exchanged
for Class Y Shares of a Bond or Equity Fund only by persons
eligible to make an initial purchase of Class Y Shares.
This 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.
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.
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
"Tax-Effects of Redemptions" and 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 and Aquila Cascadia Equity Fund
are taxable. If your state of residence is not the same as that of
the issuers of obligations in which a 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, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1- 5- and 10-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 applicable 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 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, if any, 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.
The other two classes of shares of the Trust are Front-Payment
Class Shares ("Class A Shares") and Level-Payment Class Shares
("Class C Shares"), which are fully described in a separate
prospectus that can be obtained by calling the Trust at
800-437-1020.
The primary distinction among the Trust's three classes of
shares lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields and
other measures of investment performance. All three classes
represent interests in the same portfolio of Arizona Obligations
and have the same rights, except that each class bears the separate
expenses, if any, of its Distribution Plan and has exclusive voting
rights with respect to its Plan. There are no Distribution fees
with respect to Class Y Shares.
Dividends and other distributions paid by the Trust with
respect to shares of each Class are calculated in the same manner
and at the same time, but may differ depending upon the
distribution and service fees, if any, and other class-specific
expenses borne by each Class.
The Trust's Distribution Plan has three parts. In addition to
the defensive provisions described above, Parts I and II of the
Plan authorize payments, to certain "Qualified Recipients," out of
the Trust assets allocable to the Class A Shares and Class C
Shares, respectively. See the Additional Statement. The Trust has
also adopted a Shareholder Services Plan under which the Trust is
authorized to make certain payments out of the Trust's assets
allocable to the Class C Shares. See the Additional Statement.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one (1) 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>
APPLICATION FOR TAX-FREE TRUST OF ARIZONA
FOR CLASS Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILASM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
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.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate Method of Payment (For either method, make check payable to:
TAX-FREE TRUST OF ARIZONA)
___Initial Investment $ ______________ (Minimum investment $1,000)
___Automatic Investment $______________ (Minimum $50)
For Automatic Investment of at least $50 per month, you must complete Step 3,
Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED DEPOSIT SLIP
OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend.
(A Financial Institution is a commercial bank, savings bank or credit
union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your 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 AquilaSM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
Cash proceeds in any amount from the redemption of shares will be mailed
or wired, whenever possible, upon request, if in an amount of $1,000 or more
to my/our account at a Financial Institution. The Financial Institution
account must be in the same name(s) as this 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
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.
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
TABLE OF EXPENSES
FINANCIAL HIGHLIGHTS
INTRODUCTION
INVESTMENT OF THE TRUST'S ASSETS
INVESTMENT RESTRICTIONS
NET ASSET VALUE PER SHARE
HOW TO INVEST IN THE TRUST
HOW TO REDEEM YOUR INVESTMENT
AUTOMATIC WITHDRAWAL PLAN
MANAGEMENT ARRANGEMENTS
DIVIDEND AND TAX INFORMATION
EXCHANGE PRIVILEGE
GENERAL INFORMATION
APPLICATION
LOGO
A TAX-FREE
INCOME INVESTMENT
PROSPECTUS
ONE OF THE
AQUILASM GROUP OF FUNDS
