LOGO
AQUILAsm Group of Funds
Tax-Free Trust of Arizona
380 Madison Avenue, Suite 2300
New York, New York 10017
800-437-1020
212-697-6666
Prospectus
Class A Shares October 31, 2000
Class C Shares
Tax-Free Trust of Arizona is a mutual fund that seeks to
provide you as high a level of current income exempt from Arizona
state and regular Federal income taxes as is consistent with
preservation of capital. The Trust invests in municipal
obligations that pay interest exempt from Arizona state and
regular Federal income taxes that are of investment grade
quality.
For purchase, redemption or account inquiries contact the Trust's
Shareholder Servicing Agent:
PFPC Inc.* 400 Bellevue Parkway * Wilmington, DE 19809
Call 800-437-1000 toll free
For general inquiries & yield information
Call 800-437-1020 toll free or 212-697-6666
The Securities and Exchange Commission has not approved or
disapproved the Trust's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
The Trust's Objective, Investment Strategies and Main Risks
"What is the Trust's objective?"
The Trust's objective is to provide you as high a level of
current income exempt from Arizona state and Federal income taxes
as is consistent with preservation of capital.
"What is the Trust's investment strategy?"
The Trust invests in tax-free municipal obligations which
pay interest exempt from Arizona state and regular Federal income
taxes. We call these "Arizona Obligations." In general, all or
almost all of these obligations are issued by the State of
Arizona, its counties and various other local authorities; at
least 65% of the portfolio will always consist of obligations of
these issuers. These obligations can be of any maturity but the
Trust's average portfolio maturity has traditionally been between
10 and 20 years. At the time of purchase, an obligation must be
considered "investment grade."
The Sub-Adviser selects obligations for the Trust's
portfolio to best achieve the Trust's objectives. The Sub-Adviser
evaluates specific obligations for purchase by considering
various characteristics including quality, maturity and coupon
rate.
The interest paid on certain types of Arizona Obligations
may be subject to the Federal alternative minimum tax ("AMT"). At
least 80% of the Trust's net assets must be invested in
tax-exempt Arizona Obligations whose interest is not subject to
AMT.
"What are the main risks of investing in the Trust?"
Among the risks of investing in shares of the Trust and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Trust.
The Trust's assets, being primarily or entirely Arizona
issues, are subject to economic and other conditions affecting
Arizona. Adverse local events, such as a downturn in the Arizona
economy, could affect the value of the Trust's portfolio.
There are two types of risk associated with any fixed-income
debt securities such as Arizona Obligations: interest rate risk
and credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Arizona
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Arizona Obligations,
are subject to interest rate risk. Arizona Obligations with
longer maturities generally have a more pronounced reaction
to interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Arizona Obligations the Trust owns to make periodic
interest payments as scheduled and ultimately repay
principal at maturity.
An investment in the Trust is not a deposit in Banc One
Investment Advisors Corporation, Bank One Arizona, NA, Banc One
Corporation or their bank or non-bank affiliates or any other
bank, and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). Thus, compared with "diversified" funds, it may invest a
greater percentage of its assets in obligations of a particular
issuer and may therefore not have as much diversification among
securities, and thus diversification of risk. 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.
<PAGE>
TAX-FREE TRUST OF ARIZONA
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Tax-Free Trust of Arizona by showing
changes in performance of the Trust's Class A Shares from year to
year over a ten-year period and by showing how the Trust's
average annual returns for one, five and ten years compare to a
broad measure of market performance. How the Trust has performed
in the past is not necessarily an indication of how the Trust
will perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1990-1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20%
18%
16% 15.32
14% XXXX
12% 11.67 11.04 XXXX
10% XXXX 9.48 XXXX XXXX 8.37
8% 6.08 XXXX XXXX XXXX XXXX XXXX
6% XXXX XXXX XXXX XXXX XXXX XXXX 5.60
4% XXXX XXXX XXXX XXXX XXXX 3.60 XXXX XXXX
2% XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
0% XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
-2 XXXX -1.96
-4% XXXX
-6% -5.34
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Calendar Years
During the 10-year period shown in the bar chart, the highest
return for a quarter was 6.46% (quarter ended March 31, 1995) and
the lowest return for a quarter was -5.43% (quarter ended March
31, 1994).
The year-to-date (from January 1, 2000 to September 30, 2000)
total return was 5.62% for Class A Shares and 4.85% for Class C
Shares.
Note: The Trust's Class A Shares are sold subject to a maximum 4%
sales load which is not reflected in the bar chart. If the sales
load were reflected, returns would be less than those shown
above.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the period 1-Year 5-Year 10-Years inception
ended December 31, 1999
<S> <C> <C> <C> <C>
Tax-Free Trust of Arizona
Class A Shares(1) -5.86% 5.16% 5.78% 6.44%*
Tax-Free Trust of Arizona
Class C Shares -3.85%*** N/A N/A 3.70%**
Lehman Brothers Quality
Intermediate Municipal
Bond Index**** 0.29% 6.45% 6.48% 6.47%*
5.07%**
<FN>
(1) The average annual total returns shown for Class A shares
reflect the maximum 4% sales load.
</FN>
<FN>
*From commencement of operations on March 13, 1986. The Lehman
Index commenced on January 1, 1987.
</FN>
<FN>
**From commencement of new class of shares on April 1, 1996.
</FN>
<FN>
*** The average annual total return for Class C shares for one
year assumes redemption at the end of the year and payment of 1%
CDSC.
</FN>
<FN>
****The Lehman Brothers Quality Intermediate Municipal Bond Index
is nationally oriented and consists of an unmanaged mix of
investment-grade intermediate-term municipal securities of
issuers throughout the United States.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
FEES AND EXPENSES OF THE TRUST
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Trust.
Class A Class C
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.....
(as a percentage of offering price) 4.00% None
Maximum Deferred Sales Charge (Load)...None(1) 1.00%(2)
(as a percentage of the lesser of
redemption value or purchase price)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends or
Distributions
(as a percentage of offering price).....None None
Redemption Fees..........................None None
Exchange Fee.............................None None
Annual Trust Operating Expenses (expenses that are
deducted from the Trust's assets)
Management Fee ................... 0.40% 0.40%
Distribution
and /or Service (12b-1) Fee 0.15% 0.75%
All Other Expenses:
Service Fee........................None 0.25%
Other Expenses (3).................0.15% 0.15%
Total All Other Expenses (3)............0.15% 0.40%
Total Annual Trust
Operating Expenses (3)................ .0.70% 1.55%
<FN>
(1) If you buy Class A Shares in transactions of $1 million or
more there is no sales charge but you will be subject to a
contingent deferred sales charge of up to 1% if you redeem your
shares during the first two years after purchase and 0.50 of 1%
during the third and fourth years after purchase.
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the
redemption proceeds of the shares if redeemed during the first 12
months after purchase.
</FN>
<FN>
(3) Does not reflect a 0.01% offset in Trust expenses received in
the year ended June 30, 2000 for uninvested cash balances.
Reflecting this offset for that year, other expenses, all other
expenses and total annual Trust operating expenses were 0.14%,
0.14% and 0.69%, respectively, for Class A Shares; for Class C
Shares, these expenses were 0.14%, 0.39% and 1.54%, respectively.
</FN>
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Trust for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Trust's operating expenses remain
the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares........$469 $615 $774 $1,236
Class C Shares........$258 $490 $845 $1,405(4)
You would pay the following expenses if you did not redeem your Class C
Shares:
Class C Shares........$158 $490 $845 $1,405(4)
<FN>
(4) Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares. Over time, long-term Class
C Shareholders could pay the economic equivalent of an amount that is
more than the maximum front-end sales charge allowed under applicable
regulations because of the 12b-1 fee and service fee. Because these
fees are paid out of the Trust's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
</FN>
</TABLE>
<PAGE>
Investment of the Trust's Assets
"Is the Trust right for me?"
The shares of the Trust 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.
Arizona Obligations
The Trust invests in Arizona Obligations, which are a type
of municipal obligation. They pay interest which bond counsel or
other appropriate counsel deems to be exempt from regular Federal
and State of Arizona income taxes. They include obligations of
Arizona issuers and certain non-Arizona issuers, of any maturity.
At the time of purchase, the Trust's Arizona Obligations
must be of investment grade quality. This means that they must
either
* be rated within the four highest credit ratings
assigned by nationally recognized statistical rating
organizations or,
* if unrated, be determined to be of comparable quality
by the Trust's Sub-Adviser, Banc One Investment
Advisors Corporation.
The obligations of non-Arizona issuers that the Trust can
purchase are those issued by or under the authority of Guam, the
Northern Mariana Islands, Puerto Rico and the Virgin Islands.
Interest paid on these obligations is currently exempt from
regular Federal and Arizona income taxes. The Trust purchases the
obligations of these issuers only when obligations of Arizona
issuers with the appropriate characteristics of quality, maturity
and coupon rate are unavailable.
Municipal Obligations
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 public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations
are issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public
institutions and facilities, and
* funding the construction of highways, bridges,
schools, hospitals, housing, mass transportation,
streets and water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S.
government guarantee,
* municipal lease/purchase agreements, which are
similar to installment purchase contracts for property
or equipment, and
* floating and variable rate demand notes.
<PAGE>
<PAGE>
[Picture Page]
[picture]
Salt River Project - Roosevelt Dam
[picture]
Tucson Water System
[picture]
Sky Harbor International Airport - Terminals 3 & 4
[picture]
Sewer Facility - Sedona
[LOGO]
Tax-Free Trust of Arizona
[Logo]
Scottsdale General Obligation Bond for Goldwater Blvd,
Thoroughfare
[picture]
Tucson Medical Center - Arizona Science Center
[picture]
Scottsdale Civic Center - houses a public library, police station
and courts
[picture]
Sandra Day O'Connor Elementary School, Mesa
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 in general to finance construction of long-term
municipal projects; examples are pictured above. The municipal
obligations which financed these particular projects were
included in the Trust's portfolio as of September 8, 2000 and
together represented 14.83% 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>
"What factors may affect the value of the Trust's investments and
their yields?"
Change in prevailing interest rates is the most common
factor that affects the value of the obligations in the Trust's
portfolio. Any such change may have different effects on
short-term and long-term Arizona Obligations. Long-term
obligations (which usually have higher yields) may fluctuate in
value more than short-term ones. Thus, the Trust may shorten the
average maturity of its portfolio when it believes that
prevailing interest rates may rise. While this strategy may
promote one part of the Trust's objective, preservation of
capital, it may also result in a lower level of income.
"What are the main 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 that the Trust
owns. The Trust has derived this information from sources that
are generally available to investors and believes it to be
accurate, but it has not been independently verified and it may
not be complete.
The composition of the Arizona economy has changed
significantly in recent years. Arizona's economy, once based on
the 4 C's of cattle, copper, citrus and cotton, now enjoys a
diversified economy with services, retail trade, government and
manufacturing each contributing. As mining and agriculture have
diminished in importance, the finance, insurance and real estate
sectors have increased in contributing to the state's gross
product. Likewise, tourism accounts for a significant share of
the Arizona economy. The manufacturing mix is concentrated in
high technology, with the largest concentration in electronic
components. Also, exports to Mexico play an important role in the
Arizona economy.
Economic growth in the state has been driven in part by
population growth. Arizona has been one of the fastest-growing
states during the past decade, primarily in the Phoenix and
Tucson metropolitan areas. Arizona is a favorite destination for
retirees. The growth of the elderly population is expected to
increase rapidly, as the Baby Boom generation reaches retirement.
In addition, the proportion of retirees to individuals under age
20 is expected to remain high.
Along with substantial population gains has come significant
job growth. Both the national and Arizona unemployment rates have
trended downward each year since 1992. Fast growth and the low
unemployment rate have resulted in a tight labor market. Because
California has been the chief source of population inflow to
Arizona, an improving California economy could limit the supply
of labor in the future. Labor shortages are expected to put
pressure on business expansion and employment growth in the
state.
The Arizona Legislature and other public bodies are
continually addressing the problems associated with phenomenal
growth; that is, air quality, transportation and public
infrastructure. 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 State is now
taking almost all of its allotment of water under the project
agreements. A significant portion of this water is being used to
recharge the aquifer, particularly in the Tucson area. Recharged
water is in effect banked for future use. The price of water
could increase substantially for cities to cover the cost of the
project. Current efforts to maintain the project's finances are
boosting the demand for water, thus spreading the project's cost
to all of its intended users.
In 1998, the Arizona legislature took action to remedy the
scheme for financing public education, which had been held in
earlier litigation not to be in compliance with the State's
constitution. The legislation provides extensive changes in the
previous budget and expenditure system and, among other changes,
establishes minimum standards for capital facilities and provides
State funds for construction and maintenance of such facilities.
The legislation also limits the amount of bonds that school
districts may issue after December 31, 1998.
A number of charter schools have opened in Arizona. It is
anticipated that charter schools will use tax-exempt financing to
meet their needs for new and renovated facilities.
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.
The sensitivity of each of these types of investments to the
general and economic factors discussed above may vary
significantly. Accordingly, it is not possible to predict 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.
Trust Management
"How is the Trust managed?"
Aquila Management Corporation, 380 Madison Avenue, Suite
2300, New York, NY 10017, the Manager, is the Trust's investment
adviser under an Advisory and Administration Agreement. It has
delegated its investment advisory duties, including portfolio
management, to Banc One Investment Advisors Corporation, 241
North Central Avenue, Phoenix, AZ 85084, the Sub-Adviser, under a
sub-advisory agreement described below. The Manager is also
responsible for administrative services, including providing for
the maintenance of the headquarters of the Trust, overseeing
relationships between the Trust and the service providers to the
Trust, either keeping the accounting records of the Trust, or, at
its expense and responsibility, delegating such duties in whole
or in part to a company satisfactory to the Trust, maintaining
the Trust's books and records and providing other administrative
services.
The Sub-Adviser provides the Trust with local advisory
services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision, including supervising continuously
the investment program of the Trust and the composition of its
portfolio, determining what securities will be purchased or sold
by the Trust, and arranging for the purchase and the sale of
securities held in the portfolio of the Trust; and, at the
Sub-Adviser's expense, for pricing of the Trust's portfolio
daily.
During the fiscal year ended June 30, 2000, the Trust
accrued management fees to the Manager at the annual rate of 0.40
of 1% of its average annual net assets.
Information about the Manager and the Sub-Adviser
The Trust's Manager is founder and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money-market funds and equity
funds. As of August 31, 2000, these funds had aggregate assets of
approximately $3.1 billion, of which approximately $1.7 billion
consisted of assets of the tax-free municipal bond funds. The
Manager, which was founded in 1984, is controlled by Mr. Lacy B.
Herrmann, directly, through a trust and through share ownership
by his wife.
The Sub-Adviser is a subsidiary of Banc One Corporation
("Banc One"). As of July 31, 2000, the Sub-Adviser had $131
billion of total assets under management, including approximately
$68 billion in managed mutual funds. Banc One is a multi-bank
holding company, headquartered in Chicago, with more than 1,800
offices in 27 states. Banc One, its affiliated banks and non-bank
subsidiaries had total assets of more than $265 billion.
Todd Curtis is the officer of the Sub-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
Fund Manager of the Sub-Adviser and held similar positions with
The Valley National Bank of Arizona, NA. He is a member of the
Sub-Adviser's Tax-Exempt 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.
Net Asset Value Per Share
The net asset value of the shares of each of the Trust's
classes of shares is determined as of 4:00 p.m., New York time,
on each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Trust's net assets (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Trust's shares is
based on portfolio market value, except that Arizona Obligations
maturing in 60 days or less are generally valued at amortized
cost. The price at which a purchase or redemption of shares is
effected is based on the net asset value next calculated after
your purchase or redemption order is received in proper form. The
New York Stock Exchange annually announces the days on which it
will not be open. The most recent announcement indicates that it
will not be open on the following days: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the Exchange may close on days not included in that
announcement.
Purchases
"Are there alternate purchase plans?"
The Trust provides individuals with alternate ways to
purchase shares through two separate classes of shares (Class A
and Class C). Although the classes have different sales charge
structures and ongoing expenses, they both represent interests in
the same portfolio of Arizona Obligations. You should choose the
class that best suits your own circumstances and needs.
"Can I purchase shares of the Trust?"
You can purchase shares of the Trust if you live in Arizona
or in one of the other states listed below. You should not
purchase shares of the Trust if you do not reside in one of the
following states. Otherwise, the Trust can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Arizona, dividends from the
Trust may be subject to state income taxes of the state in which
you do reside. Therefore, you should consult your tax adviser
before buying shares of the Trust.
On the date of this Prospectus, Class A and C Shares are
available in:
* Arizona * California * Colorado * District of Columbia
*Florida * Hawaii * Idaho * Illinois * Indiana * Iowa * Kansas *
Kentucky Massachusetts * Michigan * Minnesota * Missouri * Nevada
* New Jersey * New York * Ohio * Oregon * Pennsylvania * Texas *
Utah * Virginia * Washington * Wisconsin
In addition, Class A Shares are available in:
New Mexico* Tennessee
The Trust and the Distributor may reject any order for
the purchase of shares.
"How much money do I need to invest?"
Option I
* Initially, $1,000.
* Subsequently any amount (for investments in shares of the
same class).
Option II
* $50 or more if an Automatic Investment Program is
established.
* Subsequently, in any amount you specify ($50 or more).
* You are not permitted to maintain both an Automatic
Investment Program and an Automatic Withdrawal Plan
simultaneously.
Under either option, your investment must be drawn in United
States dollars on a United States commercial bank, savings bank
or credit union or a United States branch of a foreign commercial
bank (each of which is a "Financial Institution").
"How do I purchase shares?"
You may purchase the Trust's shares:
* through an investment broker or dealer, or a bank or
financial intermediary, which has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will
not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Trust's Agent, PFPC Inc.
The price you will pay is net asset value plus a sales charge for
Class A Shares and net asset value for Class C Shares. (See "What
price will I pay for the Trust's shares?")
In either instance, all purchases of Class A Shares are subject
to the applicable sales charge.
Opening an Account Adding to An Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to "Tax-Free payable to "Tax-Free Trust of
Trust of Arizona" Arizona"
* Complete the application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Trust's
you wish to authorize confirmations
or supply the name(s)
of account owner(s),
the account number, and
the name of the Trust
* Send your check and * Send your check and
completed Application account information
to your dealer or to your dealer or
to the Trust's to the Trust's
Agent, PFPC Inc. Agent, PFPC Inc.
Unless you indicate otherwise, your investment will be made
in Class A Shares.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined
amount to be regularly transferred from your account.
* Telephone Investment: You can make single investments of up
to $50,000 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Trust's
Agent must have your completed application authorizing these
features. Or, if you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Trust may modify or terminate
these investment methods or charge a service fee, upon 30 days'
written notice to shareholders.
Redeeming Your Investment
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been received in proper form.
There is no minimum period for investment in the Trust,
except for shares recently purchased by check or by Automatic or
Telephone Investment as discussed below.
If you own both Class A and C Shares and do not specify
which class you wish to redeem, we will redeem your Class A
Shares.
Certain shares are subject to a contingent deferred sales charge,
or CDSC. These are:
- Class C Shares held for less than 12 months (from
the date of purchase); and
- CDSC Class A Shares.
Upon redemption, enough additional shares will be redeemed
to pay for any applicable CDSC.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-437-1000
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Trust offers expedited
redemption.
Expedited Redemption Methods
(Non-Certificate Shares Only)
You may request expedited redemption for any shares not
issued in certificate form in two ways:
1 By Telephone. The Agent will take instructions from anyone
by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified; or
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Trust, the Agent, and the Distributor are
not responsible for losses resulting from unauthorized
telephone transactions if the Agent follows reasonable
procedures designed to verify a caller's identity. The Agent
may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at 302-791-3055
or by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter, signed by the registered shareholder(s) (no signature
guarantee is required), must indicate:
account name(s)
account number
amount to be redeemed
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution account, you must complete the Expedited
Redemption section of the Application or a Ready Access
Features Form. You will be required to provide (1) details
about your Financial Institution account, (2) signature
guarantees and (3) possible additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the
Trust's records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready
Access Features Form.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
Certificate Shares. Mail to the Trust's Agent: (1) blank
(unsigned) certificates for Class A Shares to be redeemed, (2)
redemption instructions, and (3) a stock assignment form.
To be in "proper form," items (2) and (3) above must be
signed by the registered shareholder(s) exactly as the
account is registered. For a joint account, both shareholder
signatures are necessary.
For your protection, mail certificates separately from
signed redemption instructions. We recommend that
certificates be sent by registered mail, return receipt
requested.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other
than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on
file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the
address of record, except as noted above. In all other
cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion
Program ("STAMP"), 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.
Non-Certificate Shares. You must use the Regular Redemption
Method if you have not chosen Expedited Redemption to a
predesignated Financial Institution account. To redeem by this
method, send a letter of instruction to the Trust's Agent, which
includes:
account name(s)
account number
dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed
payment instructions (we normally mail redemption proceeds
to your address as registered with the Trust)
signature(s) of the registered shareholder(s) and
signature guarantee(s), if required, as indicated above.
"When will I receive the proceeds of my redemption?"
Redemption proceeds are normally sent on the next business
day following receipt of your redemption request in proper form .
Except as described below, payments will normally be sent to your
address of record within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested on your
application or Ready
Access Features Form,
wired or transferred
through the Automated
Clearing House to your
Financial Institution
account
Through a broker
/dealer Check or wire, to your None;
broker/dealer however, your
broker/dealer may
charge a fee
Although the Trust does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. Upon 30
days' written notice to shareholders the Trust may modify or
terminate the use of the Automated Clearing House to make
redemption payments at any time or charge a service fee, although
no such fee is presently contemplated. If any such changes are
made, the Prospectus will be supplemented to reflect them.
The Trust may delay payment for redemption of shares
recently purchased by check (including certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment up to 15 days after purchase; however, payment for
redemption will not be delayed after (i) the check or transfer of
funds has been honored, or (ii) the Agent receives satisfactory
assurance that your Financial Institution will honor the check or
transfer of funds. You can eliminate possible delays by paying
for purchased shares with wired funds or Federal Reserve drafts.
The Trust has the right to postpone payment or suspend
redemption rights during certain periods. These periods may occur
(i) when the New York Stock Exchange is closed for other than
weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Trust can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Trust's portfolio securities ("redemption in
kind") in conformity with SEC rules. This method will only be
used if the Board of Trustees determines that payments partially
or wholly in cash would be detrimental to the best interests of
the remaining shareholders.
"Are there any reinvestment privileges?"
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment.
Reinvestment will not alter the tax consequences of your
original redemption.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class A Shares. Under an
Automatic Withdrawal Plan you can arrange to receive a monthly or
quarterly check in a stated amount, not less than $50.
Alternate Purchase Plans
"How do the different arrangements for Class A Shares and Class C
Shares affect the cost of buying, holding and redeeming shares,
and what else should I know about the two classes?"
In this Prospectus the Trust provides you with two
alternative ways to invest in the Trust through two separate
classes of shares. All classes represent interests in the same
portfolio of Arizona Obligations. The classes of shares offered
to individuals differ in their sales charge structures and
ongoing expenses, as described below. You should choose the class
that best suits your own circumstances and needs.
Class A Shares Class C Shares
"Front-Payment Shares" "Level-Payment Shares"
Initial Sales Class A Shares are None. Class C
Charge offered at net asset Shares are offered
value plus a maximum at net asset value
sales charge of 4%, with no sales charge
paid at the time of payable at the time
purchase. Thus, of purchase.
your investment is
reduced by the
applicable sales
charge.
Contingent None (except for A maximum CDSC of
Deferred Sales certain purchases 1% is imposed upon
Charge ("CDSC") of $1 million or the redemption of
more). Class C Shares held
for less than 12
months. No CDSC
applies to Class C
Shares acquired
through the
reinvestment of
dividends or
distributions.
Distribution and An asset retention Level charge for
Service Fees service fee of 0.15 distribution and
of 1% is imposed on service fees for 6
the average annual years after the date
net assets of purchase at the
represented by the aggregate annual
Class A Shares. rate of 1% of the
average net assets
represented by the
Class C Shares.
Other Information The initial sales Class C Shares,
charge is waived or together with a pro-
reduced in some rata portion of all
cases. Larger Class C Shares
purchases qualify acquired through
for lower sales reinvestment of
charges. dividends and other
distributions paid
in additional Class
C Shares,
automatically
convert to Class A
Shares after 6
years.
Systematic Payroll Investments
You can make systematic investments in either Class A
Shares or Class C Shares each pay period if your employer has
established a Systematic Payroll Investment Plan with the Trust.
To participate in the payroll plan, you must make your own
arrangements with your employer's payroll department, which may
include completing special forms. Additionally, the Trust
requires that you complete the application included with this
Prospectus. Once your application is received by the Trust and a
new account is opened, under the payroll plan your employer will
deduct a preauthorized amount from each payroll check. This
amount will then be sent directly to the Trust for purchase of
shares at the then current offering price, which includes any
applicable sales charge. You will receive a confirmation from the
Trust for each transaction. Should you wish to change the dollar
amount or end future systematic payroll investments, you must
notify your employer directly. Changes may take up to ten days.
"What price will I pay for the Trust's shares?"
Class A Shares Offering Price Class C Shares Offering Price
Net asset value per share Net asset value per share
plus the applicable sales charge
You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
received in proper form prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor or Agent before the
Distributor's close of business that day (normally 5:00 p.m. New
York time) and still receiving that day's offering price.
Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase
orders received on a non-business day, including those for
Automatic Investment, will be executed on the next succeeding
business day. The sale of shares will be suspended (1) during any
period when net asset value determination is suspended, or (2)
when the Distributor judges it is in the Trust's best interest to
do so.
"What are the sales charges for purchases of Class A Shares?"
The following table shows the amount of sales charge incurred by
a "single purchaser" of Class A Shares. A "single purchaser" is:
* an individual;
* an individual, together with his or her spouse,
and/or any children under 21 years of age purchasing
shares for their account;
* a trustee or other fiduciary purchasing shares for
a single trust estate or fiduciary account; or
* a tax-exempt organization as detailed in Section
501(c)(3) or (13) of the Internal Revenue Code.
II III
Sales Charge as Sales Charge as
Percentage of Approximate
I Public Percentage of
Amount of Purchase Offering Price Amount Invested
Less than $25,000 4.00% 4.17%
$25,000 but less
than $50,000 3.75% 3.90%
$50,000 but less
than $100,000 3.50% 3.63%
$100,000 but less
than $250,000 3.25% 3.36%
$250,000 but less
than $500,000 3.00% 3.09%
$500,000 but less
than $1,000,000 2.50% 2.56%
For purchases of $1 million or more see "Sales Charges for
Purchases of $1 Million or More."
For example:
If you pay $10,000 (Column I), your sales charge would be 4.00%
or $400 (Column II). ($10,000 x .04 = $400)
The value of your account, after deducting the sales charge from
your payment, would increase by $9,600. (This would be the
initial value of your account if you opened it with the $10,000
purchase.) ($10,000 - $400 = $9,600)
The sales charge as a percentage of the increase in the value of
your account would be 4.17% (Column III). ($400 / $9,600 =
.0416666 or 4.17%)
Sales Charges for Purchases of $1 Million or More
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(i) Class A Shares issued in a single purchase of
$1 million or more by a single purchaser; and
(ii) all Class A Shares issued to a single
purchaser in a single purchase when the value of the
purchase, together with the value of the purchaser's
other CDSC Class A Shares and Class A Shares on which a
sales charge has been paid, equals or exceeds $1
million.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares
during the four years after you purchase them, you must pay a
special contingent deferred sales charge upon redemption.
You will pay 1% of the shares' redemption or purchase value,
whichever is less, if you redeem within the first two years after
purchase, and 0.50 of 1% of that value if you redeem within the
third or fourth year.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent.
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge
in accordance with the above schedule when making subsequent
purchases of Class A Shares.
Letters of Intent
"Single purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included in the Application) is received by the
Distributor.
General
Class A Shares may be purchased without a sales charge by
certain classes of purchasers.
Certain Investment Companies
If you redeem shares of an investment company (not a member
of the Aquilasm Group of Funds) on which you have paid a sales
charge, you can invest the proceeds within 120 days in Class A
Shares of the Trust without paying a sales charge. You can get
additional information from the Distributor.
"What are the sales, service and distribution charges for Class C
Shares?"
* No sales charge at time of purchase.
* Annual fees for service and distribution at a combined
annual rate of 1% of average annual net assets of the Trust
represented by Class C Shares.
* After six years, Class C Shares automatically convert to
Class A Shares, which bear lower service and distribution
fees.
Redemption of Class C Shares
* 1% charge if redeemed within the first 12 months after
purchase. This contingent deferred sales charge, or CDSC, is
calculated based on the lesser of the net asset value at the
time of purchase or at the time of redemption.
* No CDSC applies if Class C Shares are held for 12 months
after purchase.
* Shares acquired by reinvestment of dividends or
distributions are not subject to any CDSC.
Broker/Dealer Compensation - Class C Shares
The Distributor will pay 1% of the sales price to any
broker/dealer executing a Class C Share purchase.
"What about confirmations?"
A statement will be mailed to you confirming each purchase
of shares in the Trust. Additionally, your account at the Agent
will be credited in full and fractional shares (rounded to the
nearest 1/1000th of a share).
"Is there a Distribution Plan or a Services Plan?"
The Trust has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Trust to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Trust against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
Pursuant to the Plan, the Trust makes payments with
respect to both Class A Shares and Class C Shares under
agreements to certain broker/dealers, or others who have (i)
rendered assistance (whether direct, administrative, or both) in
the distribution and/or retention of the Trust's shares or (ii)
assisted in the servicing of shareholder accounts.
For any fiscal year, these payments may not exceed 0.15
of 1% for Class A Shares, and 0.75 of 1% for Class C Shares, of
the average annual net assets represented by each class. Because
these distributions and fees are paid out of assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales
charges.
For any class, these payments are made only from the assets
allocable to that class. Whenever the Trust makes Class A
payments, the aggregate annual rate of the advisory fee and
sub-advisory 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.
Shareholder Services Plan for Class C Shares
The Trust's Shareholder Services Plan authorizes it to pay a
service fee under agreements to certain qualified recipients who
have agreed to provide personal services to Class C shareholders
and/or maintain their accounts. For any fiscal year, such fees
may not exceed 0.25 of 1% of the average annual net assets
represented by Class C Shares. Payment is made only out of the
Trust's assets represented by Class C Shares.
Service fees with respect to Class C Shares will be paid to
the Distributor during the first year after purchase and
thereafter to other qualified recipients.
"Transfer on Death" ("TOD") Registration (Both Classes)
The Trust generally permits "transfer on death" ("TOD")
registration of shares, so that on the death of the shareholder
the shares are transferred to a designated beneficiary or
beneficiaries. Ask the Agent or your broker-dealer for the
Transfer on Death Registration Request Form. With it you will
receive a copy of the TOD Rules of the Aquilasm Group of Funds,
which specify how the registration becomes effective and
operates. By opening a TOD Account, you agree to be bound by the
TOD Rules.
Dividends and Distributions
"How are dividends and distributions determined?"
The Trust pays dividends and other distributions with
respect to each class of shares. The Trust calculates its
dividends and other distributions with respect to each class at
the same time and in the same manner. Net income for dividend
purposes includes all interest income accrued by the Trust since
the previous dividend declaration less expenses paid or accrued.
Net income also includes any original issue discount, which
occurs if the Trust purchases an obligation for less than its
face amount. The discount from the face amount is treated as
additional income earned over the life of the obligation. Because
the Trust's income varies, so will the Trust's dividends. There
is no fixed dividend rate. It is expected that most of the
Trust's dividends will be comprised of interest income. The
dividends and distributions of each class can vary due to certain
class-specific charges. The Trust will declare all of its net
income 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.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when
redemption proceeds are mailed, wired or
transferred by the Automated Clearing House
or the Agent or paid by the Agent to a
selected dealer; or
2. the third day the New York Stock
Exchange is open after the day the net asset
value of the redeemed shares was determined.
The Trust's present policy is to pay dividends so they will
be received or credited by approximately the first day of each
month.
"How are dividends and distributions paid?"
Dividends and distributions will automatically be 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, unless you elect otherwise.
You may choose to have all or any part of the payments for
dividends or distributions paid in cash. You can elect to have
the cash portion of your dividends or distributions deposited,
without charge, by electronic funds transfers into your account
at a financial institution, if it is a member of the Automated
Clearing House.
You can make any of these elections on the Application, by a
Ready Access Features Form or by a letter to the Agent. Your
election to receive some or all of your dividends and
distributions in cash will be effective as of the next payment of
dividends after it has been received in proper form by the Agent.
It will continue in effect until the Agent receives written
notification of a change.
All shareholders, whether their dividends and distributions
are received in cash or reinvested, will receive a monthly
statement indicating the current status of their investment
account with the Trust.
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Trust
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders and on capital gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends."
Tax Information
Net investment income includes income from Arizona
Obligations in the portfolio that the Trust allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Trust will allocate exempt-
interest dividends by applying one designated percentage to all
income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Trust will be subject to income
taxes. During the Trust's fiscal year ended June 30, 2000, 98.49%
of the Trust's dividends were exempt-interest dividends. For the
calendar year 1999, of total dividends paid on Class A Shares, 0%
was taxable as ordinary income and 1.58% was taxable as long-term
capital gains and the balance were exempt-interest dividends; for
Class C Shares the corresponding percentages were 0.24% and
1.66%. The percentage of tax-exempt income from any particular
dividend may differ from the percentage of the Trust's tax-exempt
income during the dividend period.
Net capital gains of the Trust, if any, 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 intends to qualify during each fiscal year under
the Internal Revenue Code to pay exempt-interest dividends to its
shareholders. Exempt-interest dividends 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 Trust will treat as ordinary income in the year received
certain gains on Arizona Obligations it acquired after April 30,
1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net short-
term losses) which the Trust distributes and so designates are
reportable by shareholders as gains from the sale or exchange of
a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Trust or receives it in cash, regardless of the length of
time the investment is held.
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 reduce future capital gains dividends and
amounts taxed to shareholders.
The Trust's gains or losses on sales of Arizona Obligations
will be deemed long- or short-term, depending upon the length of
time the Trust holds these obligations.
You will receive information on the tax status of the
Trust's dividends and distributions annually.
Special Tax Matters
Under the Internal Revenue 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.
If you or your spouse are receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Trust.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Trust.
Interest from all Arizona Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
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 ("AMT"). Whether or not that computation
will result in a tax will depend on the entire content of your
return. The Trust will not invest more than 20% of its assets in
the types of Arizona Obligations that pay interest subject to
AMT. An adjustment required by the Internal Revenue Code will
tend to make it more likely that corporate shareholders will be
subject to AMT. They should consult their tax advisers.
"What should I know about Arizona taxes?"
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 or under the authority of 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
believes that 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 believes that applicable federal laws will preempt any
contrary result under Arizona law, such that exempt-interest
dividends attributable to interest paid on these 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.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand the
Trust's financial performance for the designated periods of the
Trust's operations. Certain information reflects financial results for
a single Trust share. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in
the Trust (assuming reinvestment of all dividends and distributions).
This information has been audited by KPMG LLP, whose report, along
with the Trust's financial statements, is included in the annual
report, is incorporated by reference into the SAI and is available
upon request.
Class A(1)
Year Ended June 30,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period. $10.51 $10.86 $10.58 $10.38 $10.37
Income from Investment Operations:
Net investment
income.......... 0.51 0.51 0.52 0.53 0.55
Net gain (loss) on
securities (both
realized and
unrealized)..... (0.30) (0.26) 0.29 0.22 0.01
Total from Investment
Operations...... 0.21 0.25 0.81 0.75 0.56
Less Distributions:
Dividends from net
investment income (0.51) (0.52) (0.53) (0.55) (0.55)
Distributions from
capital gains... (0.04) (0.08) - - -
Total Distributions (0.55) (0.60) (0.53) (0.55) (0.55)
Net Asset Value, End
of Period........ $10.17 $10.51 $10.86 $10.58 $10.38
Total Return (not
reflecting sales
charge)(%)........ 2.19 2.23 7.83 7.36 5.49
Ratios/Supplemental Data
Net Assets, End of Year
($ thousands)..... 358,154 391,586 393,887 391,737 389,083
Ratio of Expenses
To Average Net
Assets (%)...... 0.70 0.71 0.73 0.73 0.73
Ratio of Net Investment
Income to Average Net
Assets (%)...... 4.96 4.66 4.81 5.02 5.30
Portfolio Turnover
Rate (%).......... 21.35 16.66 19.68 19.98 27.37
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses
to Average Net
Assets(%)........ 0.69 0.70 0.72 0.72 0.72
</TABLE>
<TABLE>
<CAPTION>
Class C(2)
Period Ended(3)
Year Ended June 30, June 30,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.52. $10.88 $10.60 $10.38 $10.45
Income from Investment Operations:
Net investment
income.......... 0.41 0.42 0.43 0.44 0.13
Net gain (loss) on
securities (both
realized and
unrealized)..... (0.28) (0.28) 0.29 0.23 (0.07)
Total from Investment
Operations...... 0.13 0.14 0.72 0.67 (0.06)
Less Distributions:
Dividends from net
investment income (0.43) (0.42) (0.44) (0.45) (0.13)
Distributions from
capital gains... (0.04) (0.08) - - -
Total Distributions (0.47) (0.50) (0.44) (0.45) (0.13)
Net Asset Value, End
of Period........ $10.18 $10.52 $10.88 $10.60 $10.38+
Total Return (not
reflecting sales
charge)(%)........ 1.33 1.26 6.90 6.64 0.57+
Ratios/Supplemental Data
Net Assets, End of Year
($ thousands)... 2,920 1,343 797 200 6
Ratio of Expenses to
Average Net
Assets (%)...... 1.54 1.56 1.57 1.58 0.40+
Ratio of Net Investment
Income to Average Net
Assets (%)...... 4.09 3.79 3.89 4.17 1.17+
Portfolio Turnover
Rate (%).......... 21.35 16.66 19.68 19.98 27.37
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses
to Average Net
Assets(%)........ 1.53 1.55 1.56 1.57 0.40+
<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>
(3) From April 1, 1996 through June 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
</TABLE>
<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:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** ___________________________________________
Name of State Minor's Social Security Number
4. _____________________________________________________________________
_____________________________________________________________________
(Name of corporation or organization. If a trust, include the name(s) of
trustees in which account will be registered and the name and date of the
trust instrument. An 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 class of shares)
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
Indicate method of payment (For either method, make check payment to
TAX-FREE TRUST OF ARIZONA
__ 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 attached a PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE IN
CLASS A SHARES.
B. DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless otherwise
indicated below.
You can have any portion of either type reinvested, with the balance paid
in cash, by indicating a percent below:
Income 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 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and
invested in your 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
APPLICABLE TO CLASS A SHARES ONLY.
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior to
first 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, PFPC Inc.
(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
person's 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, and subject to the conditions set forth herein, I/we
understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorney's fees, resulting
from acceptance of, or acting or failure to act upon, this authorization.
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
DEPOSITOR'S AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the
Agent, PFPC Inc., 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 trusts, corporations or associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the Trust's Agent.
- You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- Either the Trust or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- The Trust reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- If your Financial Institution account changes, you must complete a
Ready Access Features Form which may be obtained from Aquila
Distributors at 1-800-437-1020 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 3c 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 3c 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>
Inside Back Cover
Manager and Founder
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
Investment Sub-Adviser
Banc One Investment Advisors Corporation
Banc One Center
241 North Central Avenue
Phoenix, Arizona 85004
Board of Trustees
Lacy B. Herrmann, Chairman
Arthur K. Carlson
Thomas W. Courtney
William L. Ensign
Diana P. Herrmann
John C. Lucking
Anne J. Mills
Officers
Diana P. Herrmann, President
Susan A. Cook, Senior Vice President
Kimball L. Young, Senior Vice President
Alan R. Stockman, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
John M. Herndon, Assistant Secretary
Distributor
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
Transfer and Shareholder Servicing Agent
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Custodian
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
Independent Auditors
KPMG LLP
757 Third Avenue
New York, New York 10017
Counsel
Hollyer Brady Smith & Hines LLP
551 Fifth Avenue
New York, New York 10176
<PAGE>
Back Cover
This Prospectus concisely states information about the Trust that
you should know before investing. A Statement of Additional
Information about the Trust (the "SAI") has been filed with the
Securities and Exchange Commission. The SAI contains information
about the Trust and its management not included in this
Prospectus. The SAI is incorporated by reference in its entirety
in this Prospectus. Only when you have read both this Prospectus
and the SAI are all material facts about the Trust available to
you.
You can get additional information about the Trust's investments
in the Trust's annual and semi-annual reports to shareholders. In
the Trust's annual report, you will find a discussion of the
market conditions and investment strategies that significantly
affected the Trust's performance during its last fiscal year. You
can get the SAI and the Trust's annual and semi-annual reports
without charge, upon request by calling 1-800-437-1000 (toll
free).
In addition, you can review and copy information about the Trust
(including the SAI) at the Public Reference Room of the SEC in
Washington, D.C. Information on the operation of the Public
Reference Room is available by calling 1-202-942-8090. Reports
and other information about the Trust are also available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov.
Copies of this information can be obtained, for a duplicating
fee, by E-mail request to [email protected] or by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
TABLE OF CONTENTS
The Trust's Objective, Investment Strategies
and Main Risks...............................
Risk/Return Bar Chart and Performance Table .
Fees and Expenses of the Trust...............
Investment of the Trust's Assets.............
Trust Management.............................
Net Asset Value per Share....................
Purchases ...................................
Redeeming Your Investment....................
Alternate Purchase Plans.....................
Dividends and Distributions..................
Tax Information..............................
Financial Highlights.........................
Application and Letter of Intent.............
The file number under which the Trust is registered
with the SEC under the
Investment Company Act of 1940 is 811-4503
TAX-FREE TRUST
OF ARIZONA
[LOGO]
A tax-free
income investment
One of The
Aquilasm Group of Funds
PROSPECTUS
To receive a free copy of the Trust's SAI, annual or semi-annual
report, or other information about the Trust, or to make
shareholder inquiries call:
the Trust's Shareholder Servicing Agent at
800-437-1000 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For general inquiries and yield information, call 800-437-1020 or
212-697-6666
This Prospectus should be read and retained for future reference
<PAGE>
LOGO
AQUILAsm Group of Funds
Tax-Free Trust of Arizona
380 Madison Avenue, Suite 2300
New York, New York 10017
800-437-1020
212-697-6666
Prospectus
October 31, 2000
Class Y Shares
Class I Shares
Tax-Free Trust of Arizona is a mutual fund that seeks to
provide you as high a level of current income exempt from Arizona
state and regular Federal income taxes as is consistent with
preservation of capital. The Trust invests in municipal
obligations that pay interest exempt from Arizona state and
regular Federal income taxes that are of investment grade
quality.
For purchase, redemption or account inquiries contact the Trust's
Shareholder Servicing Agent:
PFPC Inc. * 400 Bellevue Parkway * Wilmington, DE 19809
Call 800-437-1000 toll free
For general inquiries & yield information
Call 800-437-1020 toll free or 212-697-6666
The Securities and Exchange Commission has not approved or
disapproved the Trust's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
The Trust's Objective, Investment Strategies and Main
Risks
"What is the Trust's objective?"
The Trust's objective is to provide you as high a level of
current income exempt from Arizona state and Federal income taxes
as is consistent with preservation of capital.
"What is the Trust's investment strategy?"
The Trust invests in tax-free municipal obligations which
pay interest exempt from Arizona state and regular Federal income
taxes. We call these "Arizona Obligations." In general, all or
almost all of these obligations are issued by the State of
Arizona, its counties and various other local authorities; at
least 65% of the portfolio will always consist of obligations of
these issuers. These obligations can be of any maturity but the
Trust's average portfolio maturity has traditionally been between
10 and 20 years. At the time of purchase, an obligation must be
considered "investment grade."
The Sub-Adviser selects obligations for the Trust's
portfolio to best achieve the Trust's objectives. The Sub-Adviser
evaluates specific obligations for purchase by considering
various characteristics including quality, maturity and coupon
rate.
The interest paid on certain types of Arizona Obligations
may be subject to the Federal alternative minimum tax ("AMT"). At
least 80% of the Trust's net assets must be invested in
tax-exempt Arizona Obligations whose interest is not subject to
AMT.
"What are the main risks of investing in the Trust?"
Among the risks of investing in shares of the Trust and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Trust.
The Trust's assets, being primarily or entirely Arizona
issues, are subject to economic and other conditions affecting
Arizona. Adverse local events, such as a downturn in the Arizona
economy, could affect the value of the Trust's portfolio.
There are two types of risk associated with any fixed-income debt
securities such as Arizona Obligations: interest rate risk and
credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Arizona
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Arizona Obligations,
are subject to interest rate risk. Arizona Obligations with
longer maturities generally have a more pronounced reaction
to interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Arizona Obligations the Trust owns to make periodic
interest payments as scheduled and ultimately repay
principal at maturity.
An investment in the Trust is not a deposit in Banc One
Investment Advisors Corporation, Bank One Arizona, NA, Banc One
Corporation or their bank or non-bank affiliates or any other
bank, and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). Thus, compared with "diversified" funds, it may invest a
greater percentage of its assets in obligations of a particular
issuer and may therefore not have as much diversification among
securities, and thus diversification of risk. 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.
<PAGE>
TAX-FREE TRUST OF ARIZONA
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Tax-Free Trust of Arizona by showing
changes in the performance of the Trust's Class Y Shares from
year to year over a three-year period and by showing how the
Trust's average annual returns for one year and since inception
compare to a broad measure of market performance. How the Trust
has performed in the past is not necessarily an indication of how
the Trust will perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1997-1999
<S> <C> <C> <C>
20%
18%
16%
14%
12%
10% 9.84
8% XXXX
6% XXXX 5.75
4% XXXX XXXX
2% XXXX XXXX
0% XXXX XXXX
-2% -1.90
-4%
-6%
1997 1998 1999
Calendar Years
During the period shown in the bar chart, the highest return for
a quarter was 3.52% (quarter ended June 30, 1997) and the lowest
return for a quarter was -1.65% (quarter ended June 30, 1999).
The year-to-date (from January 1, 2000 to September 30, 2000)
total return was 5.74% for Class Y Shares.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the period 1-Year Inception*
ended December 31, 1999
<S> <C> <C>
Tax-Free Trust of Arizona
Class Y Shares -1.90% 5.24%
Tax-Free Trust of Arizona
Class I Shares** N/A N/A
Lehman Brothers Quality
Intermediate
Municipal Bond Index *** 0.29% 5.07%
<FN>
*From commencement of Class Y Shares on April 1, 1996.
</FN>
<FN>
**Commencement of Class I Shares was on January 31, 1998. To date
no Class I Shares have been sold.
</FN>
<FN>
***The Lehman Brothers Quality Intermediate Municipal Bond Index
is nationally oriented and consists of an unmanaged mix of
investment-grade intermediate-term municipal securities of
issuers throughout the United States.
</FN>
</TABLE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
FEES AND EXPENSES OF THE TRUST
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Trust. No Class I Shares are
currently outstanding.
<TABLE>
<CAPTION>
Class I Class Y
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.........................None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load).........None None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends or Distributions
(as a percentage of offering price)........None None
Redemption Fees..............................None None
Exchange Fee.................................None None
Annual Trust Operating Expenses (expenses that are
deducted from the Trust's assets)
Management Fee ..................... 0.40% 0.40%
Distribution
and/or Service (12b-1)Fee....................0.10%(1) None
All Other Expenses (2).......................0.34% 0.15%
Total Annual Trust Operating Expenses (2)...0.84% 0.55%
<FN>
(1) Current rate; up to 0.25% can be authorized.
</FN>
<FN>
(2) Does not reflect a 0.01% offset in Trust expenses received in
the year ended June 30, 2000 for uninvested cash balances.
Reflecting this offset for that year, all other expenses and
total annual Trust operating expenses were 0.33% and 0.83%,
respectively, for Class I Shares; for Class Y Shares, these
expenses were 0.14% and 0.54%, respectively. Other expenses for
the two classes differ because Class I Shares bear program costs
for financial intermediaries of 0.25%, which includes transfer
agent services, and charges common to both classes of 0.09%;
Class Y Shares bear only the common charges of 0.09% and an
allocation for transfer agent services of 0.06%
</FN>
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Trust for
the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your
investment has a 5% return each year, that you reinvest all
dividends and distributions, and that the Trust's operating
expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class I Shares..........$86 $268 $466 $1,037
Class Y Shares..........$56 $176 $307 $689
</TABLE>
<PAGE>
Investment of the Trust's Assets
"Is the Trust right for me?"
The shares of the Trust 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.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity. Financial
Intermediary Class Shares ("Class I Shares") are offered and sold
only through financial intermediaries with which Aquila
Distributors, Inc. (the "Distributor") has entered into sales
agreements. The Trust does not sell the shares of either class
directly to retail customers.
Arizona Obligations
The Trust invests in Arizona Obligations, which are a type
of municipal obligation. They pay interest which bond counsel or
other appropriate counsel deems to be exempt from regular Federal
and State of Arizona income taxes. They include obligations of
Arizona issuers and certain non-Arizona issuers, of any maturity.
At the time of purchase, the Trust's Arizona Obligations
must be of investment grade quality. This means that they must
either
* be rated within the four highest credit ratings assigned
by nationally recognized statistical rating organizations or,
* if unrated, be determined to be of comparable quality by
the Trust's Sub-Adviser, Banc One Investment Advisors
Corporation.
The obligations of non-Arizona issuers that the Trust can
purchase are those issued by or under the authority of Guam, the
Northern Mariana Islands, Puerto Rico and the Virgin Islands.
Interest paid on these obligations is currently exempt from
regular Federal and Arizona income taxes. The Trust purchases the
obligations of these issuers only when obligations of Arizona
issuers with the appropriate characteristics of quality, maturity
and coupon rate are unavailable.
Municipal Obligations
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 public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations
are issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public
institutions and facilities, and
* funding the construction of highways, bridges,
schools, hospitals, housing, mass transportation,
streets and water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S.
government guarantee,
* municipal lease/purchase agreements, which are
similar to installment purchase contracts for property
or equipment, and
* floating and variable rate demand notes.
"What factors may affect the value of the Trust's investments and
their yields?"
Change in prevailing interest rates is the most common
factor that affects the value of the obligations in the Trust's
portfolio. Any such change may have different effects on
short-term and long-term Arizona Obligations. Long-term
obligations (which usually have higher yields) may fluctuate in
value more than short-term ones. Thus, the Trust may shorten the
average maturity of its portfolio when it believes that
prevailing interest rates may rise. While this strategy may
promote one part of the Trust's objective, preservation of
capital, it may also result in a lower level of income.
"What are the main 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 Arizona Obligations that the Trust owns.
The Trust has derived this information from sources that are
generally available to investors and believes it to be accurate,
but it has not been independently verified and it may not be
complete.
The composition of the Arizona economy has changed
significantly in recent years. Arizona's economy, once based on
the 4 C's of cattle, copper, citrus and cotton, now enjoys a
diversified economy with services, retail trade, government and
manufacturing each contributing. As mining and agriculture have
diminished in importance, the finance, insurance and real estate
sectors have increased in contributing to the state's gross
product. Likewise, tourism accounts for a significant share of
the Arizona economy. The manufacturing mix is concentrated in
high technology, with the largest concentration in electronic
components. Also, exports to Mexico play an important role in the
Arizona economy.
Economic growth in the state has been driven in part by
population growth. Arizona has been one of the fastest-growing
states during the past decade, primarily in the Phoenix and
Tucson metropolitan areas. Arizona is a favorite destination for
retirees. The growth of the elderly population is expected to
increase rapidly, as the Baby Boom generation reaches retirement.
In addition, the proportion of retirees to individuals under age
20 is expected to remain high.
Along with substantial population gains has come significant
job growth. Both the national and Arizona unemployment rates have
trended downward each year since 1992. Fast growth and the low
unemployment rate have resulted in a tight labor market. Because
California has been the chief source of population inflow to
Arizona, an improving California economy could limit the supply
of labor in the future. Labor shortages are expected to put
pressure on business expansion and employment growth in the
state.
The Arizona Legislature and other public bodies are
continually addressing the problems associated with phenomenal
growth; that is, air quality, transportation and public
infrastructure. 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 State is now
taking almost all of its allotment of water under the project
agreements. A significant portion of this water is being used to
recharge the aquifer, particularly in the Tucson area. Recharged
water is in effect banked for future use. The price of water
could increase substantially for cities to cover the cost of the
project. Current efforts to maintain the project's finances are
boosting the demand for water, thus spreading the project's cost
to all of its intended users.
In 1998, the Arizona legislature took action to remedy the
scheme for financing public education, which had been held in
earlier litigation not to be in compliance with the State's
constitution. The legislation provides extensive changes in the
previous budget and expenditure system and, among other changes,
establishes minimum standards for capital facilities and provides
State funds for construction and maintenance of such facilities.
The legislation also limits the amount of bonds that school
districts may issue after December 31, 1998.
A number of charter schools have opened in Arizona. It is
anticipated that charter schools will use tax-exempt financing to
meet their needs for new and renovated facilities.
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.
The sensitivity of each of these types of investments to the
general and economic factors discussed above may vary
significantly. Accordingly, it is not possible to predict 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.
Trust Management
"How is the Trust managed?"
Aquila Management Corporation, 380 Madison Avenue, Suite
2300, New York, NY 10017, the Manager, is the Trust's investment
adviser under an Advisory and Administration Agreement. It has
delegated its investment advisory duties, including portfolio
management, to Banc One Investment Advisors Corporation, 241
North Central Avenue, Phoenix, AZ 85084, the Sub-Adviser, under a
sub-advisory agreement described below. The Manager is also
responsible for administrative services, including providing for
the maintenance of the headquarters of the Trust, overseeing
relationships between the Trust and the service providers to the
Trust, either keeping the accounting records of the Trust, or, at
its expense and responsibility, delegating such duties in whole
or in part to a company satisfactory to the Trust, maintaining
the Trust's books and records and providing other administrative
services.
The Sub-Adviser provides the Trust with local advisory
services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision, including supervising continuously
the investment program of the Trust and the composition of its
portfolio, determining what securities will be purchased or sold
by the Trust, and arranging for the purchase and the sale of
securities held in the portfolio of the Trust; and, at the
Sub-Adviser's expense, for pricing of the Trust's portfolio
daily.
During the fiscal year ended June 30, 2000, the Trust
accrued management fees to the Manager at the annual rate of 0.40
of 1% of its average annual net assets.
Information about the Manager and the Sub-Adviser
The Trust's Manager is founder and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money-market funds and equity
funds. As of August 31, 2000, these funds had aggregate assets of
approximately $3.1 billion, of which approximately $1.7 billion
consisted of assets of the tax-free municipal bond funds. The
Manager, which was founded in 1984, is controlled by Mr. Lacy B.
Herrmann, directly, through a trust and through share ownership
by his wife.
The Sub-Adviser is a subsidiary of Banc One Corporation
("Banc One"). As of July 31, 2000, the Sub-Adviser had $131
billion of total assets under management, including approximately
$68 billion in managed mutual funds. Banc One is a multi-bank
holding company, headquartered in Chicago, with more than 1,800
offices in 27 states. Banc One, its affiliated banks and non-bank
subsidiaries had total assets of more than $265 billion.
Todd Curtis is the officer of the Sub-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
Fund Manager of the Sub-Adviser and held similar positions with
The Valley National Bank of Arizona, NA. He is a member of the
Sub-Adviser's Tax-Exempt 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.
Net Asset Value Per Share
The net asset value of the shares of each of the Trust's
classes of shares is determined as of 4:00 p.m., New York time,
on each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Trust's net assets (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Trust's shares is
based on portfolio market value, except that Arizona Obligations
maturing in 60 days or less are generally valued at amortized
cost. The price at which a purchase or redemption of shares is
effected is based on the net asset value next calculated after
your purchase or redemption order is received in proper form.
The New York Stock Exchange annually announces the days on which
it will not be open. The most recent announcement indicates that
it will not be open on the following days: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the Exchange may close on days not included in that
announcement.
Purchases
"Are there alternate purchase plans?"
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of Arizona
Obligations.
"Can I purchase shares of the Trust?"
You can purchase shares of the Trust if you live in Arizona
or in one of the other states listed below. You should not
purchase shares of the Trust if you do not reside in one of the
following states. Otherwise, the Trust can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Arizona, dividends from the
Trust may be subject to state income taxes of the state in which
you do reside. Therefore, you should consult your tax adviser
before buying shares of the Trust.
On the date of this Prospectus, Class Y Shares and Class
I Shares are available only in:
*Arizona * California * Colorado * District of Columbia *Florida
* Hawaii * Idaho * Illinois * Indiana * Kansas * Massachusetts *
Minnesota * Missouri * Nevada * New Jersey * New York *
Pennsylvania * Virginia
"How much money do I need to invest?"
For Class Y Shares:
$1,000. Subsequent investments can be in any amount.
For Class I Shares:
Financial intermediaries can set their own requirements for
initial and subsequent investments.
Your investment must be drawn in United States dollars on a
United States commercial bank, savings bank or credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase Class I Shares only through a financial
intermediary.
You may purchase Class Y Shares:
* through an investment broker or dealer, or a bank or
financial intermediary, that has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will
not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Trust's Agent, PFPC Inc.
The price you will pay is net asset value for both Class Y Shares
and Class I Shares. (See "What price will I pay for the Trust's
shares?")
You may purchase Class I Shares only through financial
intermediaries.
Opening a Class Y Shares Account Adding to a Class Y Shares
Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
"Tax-Free Trust of "Tax-Free Trust
Arizona" of Arizona"
* Complete the application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Trust's
you wish to authorize confirmations
or supply the name(s)
of account owner(s),
the account number, and
the name of the Trust
* Send your check and * Send your check and
completed application account information
to your dealer or to your dealer or
to the Trust's to the Trust's
Agent, PFPC Inc. Agent, PFPC Inc.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined
amount to be regularly transferred from your account.
* Telephone Investment: You can make single investments of
up to $50,000 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Trust's
Agent must have your completed application authorizing these
features. Or, if you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Trust may modify or terminate
these investment methods or charge a service fee, upon 30 days'
written notice to shareholders.
Redeeming Your Investment
Redeeming Class Y Shares
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been received in proper form.
There is no minimum period for investment in the Trust,
except for shares recently purchased by check or by Automatic
Telephone Investment as discussed below.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-437-1000
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Trust offers expedited
redemption for Class Y Shares.
Expedited Redemption Methods
You may request expedited redemption in two ways:
1. By Telephone. The Agent will take instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified;
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Trust, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2. By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at
302-791-3055 or by mail to 400 Bellevue Parkway, Wilmington,
DE 19809. The letter, signed by the registered
shareholder(s) (no signature guarantee is required), must
indicate:
account name(s)
account number
amount to be redeemed
any payment directions
To have redemption proceeds sent directly to a Financial
Institution account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial Institution
account must be identical to those on the Trust's records of your
account.
You may change your designated Financial Institution account at
any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
To redeem by the regular redemption method, send a letter of
instruction to the Trust's Agent, which includes:
account name(s)
account number
dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed
payment instructions (we normally mail redemption proceeds
to your address as registered with the Trust)
signature(s) of the registered shareholder(s) and
signature guarantee(s), if required, as indicated below.
To be in "proper form," your letter must be signed by the
registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures
are necessary.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other
than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on
file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the
address of record, except as noted above. In all other
cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion
Program ("STAMP"), 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 of Class I Shares
You may redeem all or any part of your Class I Shares at the
net asset value next determined after receipt in proper form of
your redemption request by your financial intermediary.
Redemption requests for Class I Shares must be made through a
financial intermediary and cannot be made directly. Financial
intermediaries may charge a fee for effecting redemptions. There
is no minimum period for any investment in the Trust. The Trust
does not impose redemption fees or penalties on redemption of
Class I Shares. A redemption may result in a transaction taxable
to you.
"When will I receive the proceeds of my redemption?"
Redemption proceeds for Class Y Shares are normally sent on
the next business day following receipt of your redemption
request in proper form. Except as described below, payments will
normally be sent to your address of record within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested
on your application
or Ready Access Features
Form, wired or
transferred through
the Automated Clearing
House to your Financial
Institution account
Through a broker/ Check or wire, to None; however
dealer your broker/dealer your broker/dealer
may charge a fee
Although the Trust does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. Upon 30
days' written notice to shareholders the Trust may modify or
terminate the use of the Automated Clearing House to make
redemption payments at any time or charge a service fee, although
no such fee is presently contemplated. If any such changes are
made, the Prospectus will be supplemented to reflect them.
Redemption payments for Class I Shares are made to financial
intermediaries.
The Trust may delay payment for redemption of shares
recently purchased by check (including certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment up to 15 days after purchase; however, payment for
redemption will not be delayed after (i) the check or transfer of
funds has been honored, or (ii) the Agent receives satisfactory
assurance that your Financial Institution will honor the check or
transfer of funds. You can eliminate possible delays by paying
for purchased shares with wired funds or Federal Reserve drafts.
The Trust has the right to postpone payment or suspend
redemption rights during certain periods. These periods may occur
(i) when the New York Stock Exchange is closed for other than
weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Trust can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Trust's portfolio securities ("redemption in
kind") in conformity with SEC rules. This method will only be
used if the Board of Trustees determines that payments partially
or wholly in cash would be detrimental to the best interests of
the remaining shareholders.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class Y Shares. Under an
Automatic Withdrawal Plan you can arrange to receive a monthly or
quarterly check in a stated amount, not less than $50.
Alternate Purchase Plans
Distribution Arrangements
In this Prospectus the Trust provides you with two
alternative ways to invest in the Trust through two separate
classes of shares. All classes represent interests in the same
portfolio of Arizona Obligations.
Class Y Shares Class I Shares
"Institutional Class" "Financial Intermediary
Class"
Initial Sales None None. Financial
Charge Intermediaries may
charge a fee for
purchase of shares.
Contingent None None
Deferred Sales
Charge
Distribution and None Distribution fee of
Service Fees up to 0.25 of 1% of
average annual net
assets allocable to
Class I Shares,
currently 0.10 of 1%
of such net assets,
and a service fee
of 0.25 of 1% of
such assets.
"What price will I pay for the Trust's shares?"
The offering price for Class Y Shares is the net asset
value per share. You will receive that day's offering price on
purchase orders, including Telephone Investments and investments
by mail, considered received in proper form prior to 4:00 p.m.
New York time. Dealers have the added flexibility of transmitting
orders received prior to 4:00 p.m. New York time to the
Distributor or Agent before the Distributor's close of business
that day (normally 5:00 p.m. New York time) and still receiving
that day's offering price. Otherwise, orders will be filled at
the next determined offering price. Dealers are required to
submit orders promptly. Purchase orders received on a non-
business day, including those for Automatic Investment, will be
executed on the next succeeding business day. The sale of shares
will be suspended (1) during any period when net asset value
determination is suspended, or (2) when the Distributor judges it
is in the Trust's best interest to do so.
The offering price for Class I Shares is the net asset value
per share. The offering price determined on any day applies to
all purchases received by each financial intermediary prior to
4:00 p.m. New York time on any business day. Purchase orders
received by financial intermediaries after that time will be
filled at the next determined offering price.
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each
purchase of Class Y Shares in the Trust. Additionally, your
account at the Agent will be credited in full and fractional
shares (rounded to the nearest 1/1000th of a share). Financial
intermediaries will confirm purchases of Class I Shares. The
Trust will not issue certificates for Class Y Shares or Class I
Shares.
"Is there a Distribution Plan or a Services Plan?"
The Trust has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Trust to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Trust against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
No payments are made by the Trust with respect to assets
represented by Class Y Shares.
Under the Plan, the Trust makes payments with respect to
Class I Shares under agreements to certain broker/dealers, or
others who have (i) rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's shares or (ii) assisted in the servicing of
shareholder accounts.
For any fiscal year, payments with respect to Class I
Shares are made at a rate set from time to time by the Board of
Trustees (currently 0.10 of 1%) but not more than 0.25 of 1% of
the average annual net assets represented by the Class I Shares
of the Trust. Such payments can be made only out of the Trust's
assets allocable to the Class I Shares. Because these
distributions and fees are paid out of assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales
charges.
Shareholder Services Plan for Class I Shares
The Trust's Shareholder Services Plan authorizes it to pay a
service fee under agreements to certain qualified recipients who
have agreed to provide personal services to Class I shareholders
and/or maintain their accounts. For any fiscal year, such fees
may not exceed 0.25 of 1% of the average annual net assets
represented by Class I Shares. Payment is made only out of the
Trust's assets represented by Class I Shares. No payments are
made with respect to assets represented by Class Y Shares.
"Transfer on Death" ("TOD") Registration (Not available for Class
I Shares)
If you own Class Y Shares, the Trust generally permits
"transfer on death" ("TOD") registration of shares, so that on
the death of the shareholder the shares are transferred to a
designated beneficiary or beneficiaries. Ask the Agent or your
broker-dealer for the Transfer on Death Registration Request
Form. With it you will receive a copy of the TOD Rules of the
Aquilasm Group of Funds, which specify how the registration
becomes effective and operates. By opening a TOD Account, you
agree to be bound by the TOD Rules. This service is not available
for Class I Shares.
Dividends and Distributions
"How are dividends and distributions determined?"
The Trust pays dividends and other distributions with
respect to each class of shares. The Trust calculates its
dividends and other distributions with respect to each class at
the same time and in the same manner. Net income for dividend
purposes includes all interest income accrued by the Trust since
the previous dividend declaration, less expenses paid or accrued.
Net income also includes any original issue discount, which
occurs if the Trust purchases an obligation for less than its
face amount. The discount from the face amount is treated as
additional income earned over the life of the obligation. As this
income varies, so will the Trust's dividends. There is no fixed
dividend rate. It is expected that most of the Trust's dividends
will be comprised of interest income. The dividends and
distributions of each class can vary due to certain
class-specific charges. The Trust will declare all of its net
income 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.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when
redemption proceeds are mailed, wired or
transferred by the Automated Clearing House
or the Agent or paid by the Agent to a
selected dealer; or
2. the third day the New York Stock
Exchange is open after the day the net asset
value of the redeemed shares was determined.
The Trust's present policy is to pay dividends so they will
be received or credited by approximately the first day of each
month.
"How are dividends and distributions paid?"
Dividends and distributions will automatically be 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, unless you elect otherwise.
If you own or purchase Class Y Shares, you may choose to
have all or any part of the payments for dividends or
distributions paid in cash. You can elect to have the cash
portion of dividends or distributions deposited, without charge,
by electronic funds transfers into your account at a financial
institution, if it is a member of the Automated Clearing House.
You can make any of these elections on the Application, by a
Ready Access Features Form or by a letter to the Agent. Your
election to receive some or all of your dividends and
distributions in cash will be effective as of the next payment of
dividends after it has been received in proper form by the Agent.
It will continue in effect until the Agent receives written
notification of a change.
All arrangements for the payment of dividends and
distributions with respect to Class I Shares, including
reinvestment of dividends, must be made through financial
intermediaries.
All Class Y shareholders, whether their dividends or
distributions are received in cash or reinvested, will receive a
monthly statement indicating the current status of their
investment account with the Trust. Financial intermediaries
provide their own statements of Class I Shares accounts.
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Trust
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and on capital gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends."
Tax Information
Net investment income includes income from Arizona
Obligations in the portfolio that the Trust allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Trust will allocate exempt-
interest dividends by applying one designated percentage to all
income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Trust will be subject to income
taxes. During the Trust's fiscal year ended June 30, 2000, 98.49%
of the Trust's dividends were exempt-interest dividends. For the
calendar year 1999, of total dividends paid on Class Y Shares,
0.95% was taxable as ordinary income and 0% was taxable as long-
term capital gains and the balance were exempt-interest
dividends. No Class I Shares were outstanding during that period.
The percentage of tax-exempt income from any particular dividend
may differ from the percentage of the Trust's tax-exempt income
during the dividend period.
Net capital gains of the Trust, if any, 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 intends to qualify during each fiscal year under
the Internal Revenue Code to pay exempt-interest dividends to its
shareholders. Exempt-interest dividends 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 Trust will treat as ordinary income in the year received
certain gains on Arizona Obligations it acquired after April 30,
1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net short-
term losses) which the Trust distributes and so designates are
reportable by shareholders as gains from the sale or exchange of
a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Trust or receives it in cash, regardless of the length of
time the investment is held.
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 reduce future capital gains dividends and
amounts taxed to shareholders.
The Trust's gains or losses on sales of Arizona Obligations
will be deemed long- or short-term, depending upon the length of
time the Trust holds these obligations.
You will receive information on the tax status of the
Trust's dividends and distributions annually.
Special Tax Matters
Under the Internal Revenue 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.
If you or your spouse are receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Trust.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Trust.
Interest from all Arizona Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
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 ("AMT"). Whether or not that computation
will result in a tax will depend on the entire content of your
return. The Trust will not invest more than 20% of its assets in
the types of Arizona Obligations that pay interest subject to
AMT. An adjustment required by the Internal Revenue Code will
tend to make it more likely that corporate shareholders will be
subject to AMT. They should consult their tax advisers.
"What should I know about Arizona taxes?"
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 or under the authority of 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
believes that 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 believes that applicable federal laws will preempt any
contrary result under Arizona law, such that exempt-interest
dividends attributable to interest paid on these 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.
<PAGE>
<TABLE>
<CAPTION>
The table shown below for Class A Shares is for information purposes
only. Class A Shares are not offered by this Prospectus. No historical
information exists for Class I Shares which were established on
October 31, 1997.
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand the
Trust's financial performance for the designated periods of the
Trust's operations. Certain information reflects financial results for
a single Trust share. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in
the Trust (assuming reinvestment of all dividends and distributions).
This information has been audited by KPMG LLP, whose report, along
with the Trust's financial statements, is included in the annual
report, is incorporated by reference into the SAI and is available
upon request.
Class A(1)
Year Ended June 30,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year. $10.51 $10.86 $10.58 $10.38 $10.37
Income from Investment Operations:
Net investment
income.......... 0.51 0.51 0.52 0.53 0.55
Net gain (loss) on
securities (both
realized and
unrealized)..... (0.30) (0.26) 0.29 0.22 0.01
Total from Investment
Operations...... 0.21 0.25 0.81 0.75 0.56
Less Distributions:
Dividends from net
investment income (0.51) (0.52) (0.53) (0.55) (0.55)
Distributions from
capital gains... (0.04) (0.08) - - -
Total Distributions (0.55) (0.60) (0.53) (0.55) (0.55)
Net Asset Value, End
of Year........... $10.17 $10.51 $10.86 $10.58 $10.38
Total Return (not
reflecting sales
charge)(%)........ 2.19 2.23 7.83 7.36 5.49
Ratios/Supplemental Data
Net Assets, End of Year
($ thousands)..... 358,154 391,586 393,887 391,737 389,083
Ratio of Expenses
To Average Net
Assets (%)...... 0.70 0.71 0.73 0.73 0.73
Ratio of Net Investment
Income to Average Net
Assets (%)...... 4.96 4.66 4.81 5.02 5.30
Portfolio Turnover
Rate (%).......... 21.35 16.66 19.68 19.98 27.37
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses
to Average Net
Assets(%)........ 0.69 0.70 0.72 0.72 0.72
</TABLE>
<TABLE>
<CAPTION>
Class Y(2)
Period(3)
Year Ended June 30, Ended
2000 1999 1998 1997 6/30/96
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year... $10.53 $10.89 $10.59 $10.38 $10.45
Income from Investment
Operations:
Net investment
income.......... 0.52 0.51 0.58 0.70 0.15
Net gain (loss) on
securities (both
realized and
unrealized)....... (0.28) (0.26) 0.31 0.21 (0.07)
Total from Investment
Operations........ 0.24 0.25 0.89 0.91 0.08
Less Distributions:
Dividends from net
investment income. (0.53) (0.53) (0.59) (0.70) (0.15)
Distributions from
capital gains..... (0.04) (0.08) - - -
Total Distributions. (0.57) (0.61) (0.59) (0.70) (0.15)
Net Asset Value, End
of Year............. $10.20 $10.53 $10.89 $10.59 $10.38
Total Return (not
reflecting sales
charge)(%).......... 2.45 2.28 8.63 9.10 0.76+
Ratios/Supplemental Data
Net Assets, End of Year
($ thousands)...... 1,738 2,450 57 0.10 0.10
Ratio of Expenses to
Average Net
Assets (%)........ 0.55 0.56 0.58 0.58 0.15+
Ratio of Net Investment
Income to Average Net
Assets (%)........ 5.10 4.87 4.96 5.17 1.42+
Portfolio Turnover
Rate (%)............ 21.35 16.66 19.68 19.98 27.37
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses
to Average Net
Assets(%)............ 0.54 0.55 0.57 0.57 0.15+
<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>
(3) From April 1, 1996 through June 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
</TABLE>
<PAGE>
APPLICATION FOR TAX-FREE TRUST OF ARIZONA
FOR CLASS I and Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** ___________________________________________
Name of State Minor's Social Security Number
4. _____________________________________________________________________
_____________________________________________________________________
(Name of corporation or organization. If a trust, include the name(s) of
trustees in which account will be registered and the name and date of the
trust instrument. An 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
Make check payable to TAX-FREE TRUST OF ARIZONA
___Initial Investment $ ______________ (Minimum $1,000)
A. INITIAL INVESTMENT
(Indicate class of shares)
__ Class I Shares
__ Class Y Shares
B. DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless otherwise
indicated below.
You can have any portion of either type reinvested, with the balance paid
in cash, by indicating a percent below:
Income 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 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your 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
first 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, PFPC Inc.
(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
person's 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, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorney's fees, resulting
from acceptance of, or acting or failure to act upon, this authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
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
DEPOSITOR'S AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the
Agent, PFPC Inc., 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 trusts, corporations or associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are
effective 15 days after this form is received in good order by the
Trust's Agent.
- You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- Either the Trust or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- The Trust reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- If your Financial Institution account changes, you must complete a
Ready Access Features Form which may be obtained from Aquila
Distributors at 1-800-437-1020 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>
Inside Back Cover
Manager and Founder
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
Investment Sub-Adviser
Banc One Investment Advisors Corporation
Banc One Center
241 North Central Avenue
Phoenix, Arizona 85004
Board of Trustees
Lacy B. Herrmann, Chairman
Arthur K. Carlson
Thomas W. Courtney
William L. Ensign
Diana P. Herrmann
John C. Lucking
Anne J. Mills
Officers
Diana P. Herrmann, President
Susan A. Cook, Senior Vice President
Kimball L. Young, Senior Vice President
Alan R. Stockman, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M. W. Hines, Secretary
John M. Herndon, Assistant Secretary
Distributor
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
Transfer and Shareholder Servicing Agent
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Custodian
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
Independent Auditors
KPMG LLP
757 Third Avenue
New York, New York 10017
Counsel
Hollyer Brady Smith & Hines LLP
551 Fifth Avenue
New York, New York 10176
<PAGE>
Back Cover
This Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information about the Trust (the "SAI") has been filed with the
Securities and Exchange Commission. The SAI contains information
about the Trust and its management not included in this
Prospectus. The SAI is incorporated by reference in its entirety
in this Prospectus. Only when you have read both this Prospectus
and the SAI are all material facts about the Trust available to
you.
You can get additional information about the Trust's
investments in the Trust's annual and semi-annual reports to
shareholders. In the Trust's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during its
last fiscal year. You can get the SAI and the Trust's annual and
semi-annual reports without charge, upon request by calling
1-800-437-1000 (toll free).
In addition, you can review and copy information about the
Trust (including the SAI) at the Public Reference Room of the SEC
in Washington, D.C. Information on the operation of the Public
Reference Room is available by calling 1-202-942-8090. Reports
and other information about the Trust are also available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov.
Copies of this information can be obtained, for a duplicating
fee, by E-mail request to [email protected] or by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
TABLE OF CONTENTS
The Trust's Objective, Investment Strategies
and Main Risks..............................
Risk/Return Bar Chart and Performance Table
Fees and Expenses of the Trust...............
Investment of the Trust's Assets.............
Trust Management.............................
Net Asset Value per Share....................
Purchases ...................................
Redeeming Your Investment....................
Alternate Purchase Plans.....................
Dividends and Distributions..................
Tax Information..............................
Financial Highlights.........................
Application .................................
The file number under which the Trust is registered
with the SEC under the
Investment Company Act of 1940 is 811-4503
TAX-FREE TRUST
OF ARIZONA
[LOGO]
A tax-free
income investment
One of The
Aquilasm Group of Funds
PROSPECTUS
To receive a free copy of the Trust's SAI, annual or semi-annual
report, or other information about the Trust, or to make
shareholder inquiries call:
the Trust's Shareholder Servicing Agent at
800-437-1000 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For general inquiries and yield information, call 800-437-1020 or
212-697-6666
This Prospectus should be read and retained for future reference
<PAGE>
Aquila
Tax-Free Trust of Arizona
380 Madison Avenue Suite 2300
New York, NY 10017
800-437-1020
212-697-6666
Statement
of Additional
Information October 31, 2000
This Statement of Additional Information (the "SAI") is
not a Prospectus. There are two Prospectuses for the Trust dated
October 31, 2000: one Prospectus describes Front-Payment Class
Shares ("Class A Shares") and Level-Payment Class Shares ("Class
C Shares") of the Trust and the other describes Institutional
Class Shares ("Class Y Shares") and Financial Intermediary Class
Shares ("Class I Shares") of the Trust. References in the SAI to
"the Prospectus" refer to either of these Prospectuses. The SAI
should be read in conjunction with the Prospectus for the class
of shares in which you are considering investing. Either or both
Prospectuses may be obtained from the Trust's Shareholder
Servicing Agent, PFPC Inc., by writing to it at: 400 Bellevue
Parkway, Wilmington, DE 19809 or by calling at the following
number:
800-437-1000 toll free
or from Aquila Distributors, Inc., the Trust's Distributor, by
writing to it at
380 Madison Avenue, Suite 2300, New York, NY 10017
or by calling 800-437-1020 toll free
or 212-697-6666
Financial Statements
The financial statements for the Trust for the year ended
June 30, 2000, which are contained in the Annual Report for that
fiscal year, are hereby incorporated by reference into the SAI.
Those financial statements have been audited by KPMG LLP,
independent auditors, whose report thereon is incorporated herein
by reference. The Annual Report of the Trust can be obtained
without charge by calling any of the toll-free numbers listed
above. The Annual Report will be delivered with the SAI.
TABLE OF CONTENTS
Trust History
Investment Strategies and Risks
Trust Policies
Management of the Trust
Ownership of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock
Purchase, Redemption, and Pricing of Shares
Additional Tax Information
Underwriters
Performance
Appendix A
<PAGE>
Tax-Free Trust of Arizona
Statement of Additional Information
Trust History
The Trust is a Massachusetts business trust formed in 1986.
The Trust is an open-end, non-diversified management
investment company.
Investment Strategies and Risks
Ratings
The ratings assigned by the nationally recognized
statistical rating organizations, currently (Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P")
and Fitch Investors Service ("Fitch"), represent their respective
opinions of the quality of the municipal bonds and notes which
they undertake to rate. It should be emphasized, however, that
ratings are general and not absolute standards of quality.
Consequently, obligations with the same maturity, stated interest
rate and rating may have different yields, while obligations of
the same maturity and stated interest rate with different ratings
may have the same yield.
Rating agencies consider municipal obligations rated in the
fourth highest credit rating to be of medium quality. Thus, they
may present investment risks which do not exist with more highly
rated obligations. Such obligations possess less attractive
investment characteristics. Changes in economic conditions or
other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case
for higher grade bonds.
See Appendix A to this SAI for further information about
the ratings of these organizations as to the various rated
Arizona Obligations which the Trust may purchase.
The table below gives information as to the percentage of
Trust net assets invested, as of June 30, 2000, in Arizona
Obligations in the various rating categories:
Highest rating (1) 56.4%
Second highest rating (2) 26.6%
Third highest rating (3) 11.7%
Fourth highest rating (4) 3.7%
Not rated: 1.6%
100.0%
(1) Aaa of Moody's or AAA of S&P or Fitch.
(2) Aa of Moody's or AA of S&P or Fitch.
(3) A of Moody's or A of S&P or Fitch.
(4) Baa of Moody's or BBB of S&P or Fitch.
Municipal Bonds
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General
obligation bonds are secured by the issuer's pledge of its full
faith, credit and unlimited taxing power for the payment of
principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or
class of facilities or projects or, in a few cases, from the
proceeds of a special excise or other tax, but are not supported
by the issuer's power to levy unlimited general taxes. There are,
of course, variations in the security of municipal bonds, both
within a particular classification and between classifications,
depending on numerous factors. The yields of municipal bonds
depend on, among other things, general financial conditions,
general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the
rating of the issue.
Since the Trust may invest in industrial development bonds
or private activity bonds, the Trust may not be an appropriate
investment for entities that are "substantial users" of
facilities financed by those bonds or for investors who are
"related persons" of such users. Generally, an individual will
not be a "related person" under the Internal Revenue Code unless
such investor or his or her immediate family (spouse, brothers,
sisters and lineal descendants) owns directly or indirectly in
the aggregate more than 50 percent of the equity of a corporation
or is a partner of a partnership which is a "substantial user" of
a facility financed from the proceeds of those bonds. A
"substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses a part of a facility"
financed from the proceeds of industrial development or private
activity bonds.
As indicated in the Prospectus, there are certain Arizona
Obligations the interest on which is subject to the Federal
alternative minimum tax on individuals. While the Trust may
purchase these obligations, it may, on the other hand, refrain
from purchasing particular Arizona Obligations due to this tax
consequence. Also, as indicated in the Prospectus, the Trust will
not purchase obligations of Arizona issuers the interest on which
is subject to regular Federal income tax. The foregoing may
reduce the number of issuers of obligations which are available
to the Trust.
When-Issued and Delayed Delivery Obligations
The Trust may buy Arizona Obligations on a when-issued or
delayed delivery basis. The purchase price and the interest rate
payable on the Arizona Obligations are fixed on the transaction
date. At the time the Trust makes the commitment to purchase
Arizona Obligations on a when-issued or delayed delivery basis,
it will record the transaction and thereafter reflect the value
each day of such Arizona Obligations in determining its net asset
value. The Trust will make commitments for such when-issued
transactions only when it has the intention of actually acquiring
the Arizona Obligations. 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, which is marked to market every business day.
On delivery dates for such transactions, the Trust will meet its
commitments by selling the assets held in the separate account
and/or from cash flow.
Determination of the Marketability of Certain Securities
In determining marketability of floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) the Board of Trustees will consider
the following factors, not all of which may be applicable to any
particular issue: the quality, maturity and coupon rate of the
issue, ratings received from the nationally recognized
statistical rating organizations and any changes or prospective
changes in such ratings, the likelihood that the issuer will
continue to appropriate the required payments for the issue,
recent purchases and sales of the same or similar issues, the
general market for municipal securities of the same or similar
quality, the Sub-Adviser's opinion as to marketability of the
issue and other factors that may be applicable to any particular
issue.
Futures Contracts and Options
Although the Trust does not presently do so and may in fact
never do so, it is permitted to buy and sell futures contracts
relating to municipal bond indices ("Municipal Bond Index
Futures") and to U.S. Government securities ("U.S. Government
Securities Futures," together referred to as "Futures"), and
exchange-traded options based on Futures as a possible means to
protect the asset value of the Trust during periods of changing
interest rates. The following discussion is intended to explain
briefly the workings of Futures and options on them which would
be applicable if the Trust were to use them.
Unlike when the Trust purchases or sells an Arizona
Obligation, no price is paid or received by the Trust upon the
purchase or sale of a Future. Initially, however, when such
transactions are entered into, the Trust will be required to
deposit with the futures commission merchant ("broker") an amount
of cash or Arizona Obligations equal to a varying specified
percentage of the contract amount. This amount is known as
initial margin. Subsequent payments, called variation margin, to
and from the broker, will be made on a daily basis as the price
of the underlying index or security fluctuates making the Future
more or less valuable, a process known as marking to market.
Insolvency of the broker may make it more difficult to recover
initial or variation margin. Changes in variation margin are
recorded by the Trust as unrealized gains or losses. Margin
deposits do not involve borrowing by the Trust and may not be
used to support any other transactions. At any time prior to
expiration of the Future, the Trust may elect to close the
position by taking an opposite position which will operate to
terminate the Trust's position in the Future. A final
determination of variation margin is then made. Additional cash
is required to be paid by or released to the Trust and it
realizes a gain or a loss. Although Futures by their terms call
for the actual delivery or acceptance of cash, in most cases the
contractual obligation is fulfilled without having to make or
take delivery. All transactions in the futures markets are
subject to commissions payable by the Trust and are made, offset
or fulfilled through a clearing house associated with the
exchange on which the contracts are traded. Although the Trust
intends to buy and sell Futures only on an exchange where there
appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular
Future at any particular time. In such event, or in the event of
an equipment failure at a clearing house, it may not be possible
to close a futures position.
Municipal Bond Index Futures currently are based on a
long-term municipal bond index developed by the Chicago Board of
Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index").
Financial Futures contracts based on the Municipal Bond Index
began trading on June 11, 1985. The Municipal Bond Index is
comprised of 40 tax-exempt municipal revenue and general
obligation bonds. Each bond included in the Municipal Bond Index
must be rated A or higher by Moody's or S&P and must have a
remaining maturity of 19 years or more. Twice a month new issues
satisfying the eligibility requirements are added to, and an
equal number of old issues are deleted from, the Municipal Bond
Index. The value of the Municipal Bond Index is computed daily
according to a formula based on the price of each bond in the
Municipal Bond Index, as evaluated by six dealer-to-dealer
brokers.
The Municipal Bond Index Futures contract is traded only on
the CBT. Like other contract markets, the CBT assures performance
under futures contracts through a clearing corporation, a
nonprofit organization managed by the exchange membership which
is also responsible for handling daily accounting of deposits or
withdrawals of margin.
There are at present U.S. Government Securities Futures
contracts based on long-term Treasury bonds, Treasury notes, GNMA
Certificates and three-month Treasury bills. U.S. Government
Securities Futures have traded longer than Municipal Bond Index
Futures, and the depth and liquidity available in the trading
markets for them are in general greater.
Call Options on Futures Contracts. The Trust may also
purchase and sell exchange-traded call and put options on
Futures. The purchase of a call option on a Future is analogous
to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the
Future upon which it is based, or upon the price of the
underlying debt securities, it may or may not be less risky than
ownership of the futures contract or underlying debt securities.
Like the purchase of a futures contract, the Trust may purchase a
call option on a Future to hedge against a market advance when
the Trust is not fully invested.
The writing of a call option on a Future constitutes a
partial hedge against declining prices of the securities which
are deliverable upon exercise of the Future. If the price at
expiration of the Future is below the exercise price, the Trust
will retain the full amount of the option premium which provides
a partial hedge against any decline that may have occurred in the
Trust's portfolio holdings.
Put Options on Futures Contracts. The purchase of put
options on a Future is analogous to the purchase of protective
put options on portfolio securities. The Trust may purchase a put
option on a Future to hedge the Trust's portfolio against the
risk of rising interest rates.
The writing of a put option on a Future constitutes a
partial hedge against increasing prices of the securities which
are deliverable upon exercise of the Future. If the Future price
at expiration is higher than the exercise price, the Trust will
retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities
which the Trust intends to purchase.
The writer of an option on a Future is required to deposit
initial and variation margin pursuant to requirements similar to
those applicable to Futures. Premiums received from the writing
of an option will be included in initial margin. The writing of
an option on a Future involves risks similar to those relating to
Futures.
Risk Factors in Futures Transactions and Options
One risk in employing Futures or options on Futures to
attempt to protect against the price volatility of the Trust's
Arizona Obligations is that the Sub-Adviser could be incorrect in
its expectations as to the extent of various interest rate
movements or the time span within which the movements take place.
For example, if the Trust sold a Future in anticipation of an
increase in interest rates, and then interest rates went down
instead, the Trust would lose money on the sale.
Another risk as to Futures or options on them arises
because of the imperfect correlation between movement in the
price of the Future and movements in the prices of the Arizona
Obligations which are the subject of the hedge. The risk of
imperfect correlation increases as the composition of the Trust's
portfolio diverges from the municipal bonds included in the
applicable index or from the securities underlying the U.S.
Government Securities Futures. The price of the Future or option
may move more than or less than the price of the Arizona
Obligations being hedged. If the price of the Future or option
moves less than the price of the Arizona Obligations which are
the subject of the hedge, the hedge will not be fully effective
but, if the price of the Arizona Obligations being hedged has
moved in an unfavorable direction, the Trust would be in a better
position than if it had not hedged at all. If the price of the
Arizona Obligations being hedged has moved in a favorable
direction, this advantage will be partially offset by the Future
or option. If the price of the Future or option has moved more
than the price of the Arizona Obligations, the Trust will
experience either a loss or gain on the Future or option which
will not be completely offset by movements in the price of the
Arizona Obligations which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the
price of the Arizona Obligations being hedged and movements in
the price of the Futures or options, the Trust may buy or sell
Futures or options in a greater dollar amount than the dollar
amount of the Arizona Obligations being hedged if the historical
volatility of the prices of the Arizona Obligations being hedged
is less than the historical volatility of the debt securities
underlying the hedge. It is also possible that, where the Trust
has sold Futures or options to hedge its portfolio against
decline in the market, the market may advance and the value of
the Arizona Obligations held in the Trust's portfolio may
decline. If this occurred the Trust would lose money on the
Future or option and also experience a decline in value of its
portfolio securities.
Where Futures or options are purchased to hedge against a
possible increase in the price of Arizona Obligations before the
Trust is able to invest in them in an orderly fashion, it is
possible that the market may decline instead; if the Trust then
decides not to invest in them at that time because of concern as
to possible further market decline or for other reasons, the
Trust will realize a loss on the Futures or options that is not
offset by a reduction in the price of the Arizona Obligations
which it had anticipated purchasing.
The particular municipal bonds comprising the index
underlying Municipal Bond Index Futures will vary from the bonds
held by the Trust. The correlation of the hedge with such bonds
may be affected by disparities in the average maturity, ratings,
geographical mix or structure of the Trust's investments as
compared to those comprising the Index, and general economic or
political factors. In addition, the correlation between movements
in the value of the Municipal Bond Index may be subject to change
over time, as additions to and deletions from the Municipal Bond
Index alter its structure. The correlation between U.S.
Government Securities Futures and the municipal bonds held by the
Trust may be adversely affected by similar factors and the risk
of imperfect correlation between movements in the prices of such
Futures and the prices of Municipal Bonds held by the Trust may
be greater.
Trading in Municipal Bond Index Futures may be less liquid
than that in other Futures. The trading of Futures and options is
also subject to certain market risks, such as inadequate trading
activity or limits on upward or downward price movements which
could at times make it difficult or impossible to liquidate
existing positions.
Regulatory Aspects of Futures and Options
The Trust will, due to requirements under the Investment
Company Act of 1940 (the "1940 Act"), deposit in a segregated
account Arizona Obligations maturing in one year or less or cash,
in an amount equal to the fluctuating market value of long
Futures or options it has purchased, less any margin deposited on
long positions.
The Trust must operate as to its long and short positions in
Futures in conformity with restrictions it has committed to
pursuant to a rule (the "CFTC Rule") adopted by the Commodity
Futures Trading Commission ("CFTC") under the Commodity Exchange
Act (the "CEA") to be eligible for the exclusion provided by the
CFTC Rule from qualifications as a "commodity pool operator" (as
defined under the CEA). Under these restrictions the Trust will
not, as to any positions, whether long, short or a combination
thereof, enter into Futures or options for which the aggregate
initial margins and premiums paid for options exceed 5% of the
fair market value of its assets. Under the restrictions, the
Trust also must, as to its short positions, use Futures and
options solely for bona-fide hedging purposes within the meaning
and intent of the applicable provisions under the CEA. As to the
Trust's long positions which are used as part of its portfolio
strategy and are incidental to its activities in the underlying
cash market, the "underlying commodity value" (see below) of its
Futures must not exceed the sum of (i) cash set aside in an
identifiable manner, or short-term U.S. debt obligations or other
U.S. dollar-denominated high quality short-term money market
instruments so set aside, plus any funds deposited as margin;
(ii) cash proceeds from existing investments due in 30 days and
(iii) accrued profits held at the futures commission merchant.
(There is described above the segregated account which the Trust
must maintain as to its Futures and options activities due to
requirements other than those described in this paragraph; the
Trust will, as to long positions, be required to abide by the
more restrictive of the two requirements.) The "underlying
commodity value" of a Future or option is computed by multiplying
the size of the Future by the daily settlement price of the
Future or option.
The "sale" of a Future means the acquisition by the Trust of
an obligation to deliver an amount of cash equal to a specified
dollar amount times the difference between the value of the index
or government security at the close of the last trading day of
the Future and the price at which the Future is originally struck
(which the Trust anticipates will be lower because of a
subsequent rise in interest rates and a corresponding decline in
the index value). This is referred to as having a "short" Futures
position. The "purchase" of a Future means the acquisition by the
Trust of a right to take delivery of such an amount of cash. In
this case, the Trust anticipates that the closing value will be
higher than the price at which the Future is originally struck.
This is referred to as having a "long" futures position. No
physical delivery of the bonds making up the index or the U.S.
government securities, as the case may be, is made as to either a
long or a short futures position.
Trust Policies
Investment Restrictions
The Trust has a number of policies concerning what it can
and cannot do. Those that are called fundamental policies cannot
be changed unless the holders of a "majority" (as defined in the
1940 Act) of the Trust's outstanding shares vote to change them.
Under the 1940 Act, the vote of the holders of a "majority" of
the Trust's outstanding shares means the vote of the holders of
the lesser of (a) 67% or more of the Trust's shares present at a
meeting or represented by proxy if the holders of more than 50%
of its shares are so present or represented; or (b) more than 50%
of the Trust's outstanding shares. Those fundamental policies not
set forth in the Prospectus are set forth below:
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than Arizona
Obligations (discussed under "Investment of the Trust's Assets"
in the Prospectus and in "Investment Strategies and Risks" in the
SAI), Municipal Bond Index Futures, U.S. Government Securities
Futures and options on such Futures; therefore the Trust cannot
buy any voting securities, any commodities or commodity contracts
other than Municipal Bond Index Futures and U.S. Government
Securities Futures, any mineral related programs or leases, any
shares of other investment companies or any warrants, puts, calls
or combinations thereof other than on Futures.
The Trust cannot purchase or hold the securities of any
issuer if, to its knowledge, Trustees, Directors or officers of
the Fund, its Adviser or Sub-Adviser who individually own
beneficially more than 0.5% of the securities of that issuer,
together own in the aggregate more than 5% of such securities.
The Trust cannot buy real estate or any non-liquid interests
in real estate investment trusts; however, it can buy any
securities which it can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising
control or management of other companies.
3. The Trust does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin; however, the
Trust can make margin deposits in connection with the purchase or
sale of Municipal Bond Index Futures, U.S. Government Securities
Futures and options on them, and can pay premiums on these
options.
4. The Trust is not an underwriter.
The Trust cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
5. 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.
6. The Trust cannot make loans.
The Trust can buy those Arizona Obligations which it is
permitted to buy; this is investing, not making a loan. The Trust
cannot lend its portfolio securities.
7. 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.
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 that are subject to the Federal alternative minimum
tax.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average
value of such securities during the year, excluding certain
short-term securities. Since the turnover rate of the Trust will
be affected by a number of factors, the Trust is unable to
predict what rate the Trust will have in any particular period or
periods, although such rate is not expected to exceed 100%.
However, the rate could be substantially higher or lower in any
particular period.
Management of the Trust
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees. The Board of
Trustees has authority over every aspect of the Trust's
operations, including approval of the advisory and sub-advisory
agreements and their annual renewal, the contracts with all other
service providers and payments under the Trust's Distribution
Plan and Shareholder Services Plan.
Trustees and Officers
The Trustees and officers of the Trust, their ages, their
affiliations, if any, with the Manager or the Distributor and their
principal occupations during at least the past five years are set
forth below. None of the Trustees or officers of the Trust is
affiliated with the Sub-Adviser. Mr. Herrmann is an interested
person of the Trust as that term is defined in the 1940 Act as an
officer of the Trust and a director, officer and shareholder of the
Manager and the Distributor. Ms. Herrmann is an interested person
of the Trust as an officer of the Trust and of the Manager and as a
shareholder of the Distributor. Each is also an interested person
as a member of the immediate family of the other. Mr. Carlson is an
interested person of the Trust as a security holder of the
Sub-Adviser's parent, BANC ONE CORPORATION. They are so designated
by an asterisk.
In the following material Pacific Capital Cash Assets
Trust, Churchill Cash Reserves Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust, Pacific Capital Tax-Free
Cash Assets Trust, Capital Cash Management Trust and Capital Cash
U.S. Government Securities Trust, each of which is a money-market
fund, are called the "Aquila Money-Market Funds"; this Trust,
Hawaiian Tax-Free Trust, Tax-Free Trust of Oregon, Tax-Free Fund
of Colorado, Churchill Tax-Free Fund of Kentucky, Narragansett
Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of
which is a tax-free municipal bond fund, are called the "Aquila
Bond Funds"; and Aquila Cascadia Equity Fund and Aquila Rocky
Mountain Equity Fund are called the "Aquila Equity Funds."
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Position Business Experience
with the Trust,
Address, Age
Lacy B. Herrmann* Founder and Chairman of the Board of Aquila
Chairman of the Management Corporation, the sponsoring
Board of Trustees organization and Manager or Administrator
380 Madison Avenue and/or Adviser or Sub-Adviser to the
New York, NY Aquila Money-Market Funds, the Aquila Bond
10017 Funds and the Aquila Equity Funds,
Age: 71 and Founder, Chairman of the Board of Trustees
and (currently or until 1998) President of each
since its establishment, beginning in
1984; Director of Aquila Distributors,
Inc., distributor of the above funds,
since 1981 and formerly Vice President
or Secretary, 1981-1998; President and a
Director of STCM Management Company,
Inc., sponsor and sub-adviser to Capital
Cash Management Trust and Capital Cash
U.S. Government Securities Trust;
Founder and Chairman of several other
money-market funds; Director or Trustee
of OCC Cash Reserves, Inc. and Quest For
Value Accumulation Trust, and Director
or Trustee of Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Global
Value Fund, Inc. and Oppenheimer
Rochester Group of Funds, each of which
is an open-end investment company;
Trustee of Brown University, 1990-1996
and currently Trustee Emeritus; actively
involved for many years in leadership
roles with university, school and
charitable organizations.
Arthur K. Carlson* Retired; Advisory Director
Trustee of the Renaissance Companies
8702 North Via La Serena (design and construction
Paradise Valley, companies of commercial,
AZ 85253 industrial and upscale residential
Age: 78 properties) since 1996; Senior Vice President
and Manager of the Trust Division of The Valley
National Bank of Arizona, 1977-1987;
Trustee of Hawaiian Tax-Free Trust, Tax-
Free Trust of Arizona(this Trust) and
Pacific Capital Cash Assets Trust since
1987, of Pacific Capital Tax-Free Cash
Assets Trust and Pacific Capital U.S.
Government Securities Cash Assets Trust
since 1988, of Aquila Rocky Mountain
Equity Fund since 1993 and of Tax-Free
Fund of Colorado, 1987-2000; previously
Vice President of Investment Research at
Citibank, New York City, and prior to
that Vice President and Director of
Investment Research of Irving Trust
Company, New York City; past President
of The New York Society of Security
Analysts and currently a member of the
Phoenix Society of Financial Analysts;
formerly Director of the Financial
Analysts Federation; past Chairman of
the Board and past Director of Mercy
Healthcare of Arizona, Phoenix, Arizona;
Director of Northern Arizona University
Foundation since 1990, present or
formerly an officer and/or director of
various other community and professional
organizations.
Thomas W. Courtney President of Courtney Associates, Inc.,
Trustee a venture capital firm, since 1988; General
P.O. Box 8186 Partner of Trivest Venture Fund, 1983-1988;
Naples, FL 33941 President of Federated Investment Counseling
Age: 67 Inc., 1975-1982; President of Boston Company
Institutional Investors, Inc., 1970-1975;
formerly a Director of the Financial
Analysts Federation; Trustee of
Hawaiian Tax-Free Trust and Pacific
Capital Cash Assets Trust since 1984,
of Tax-Free Trust of Arizona(this
Trust) since 1986 and of Pacific
Capital Tax-Free Cash Assets Trust and
Pacific Capital U.S. Government
Securities Cash Assets Trust since
1988; Trustee of numerous Oppenheimer
Capital and Oppenheimer Management
Funds.
William L. Ensign Planning and Architectural Consultant;
Trustee Acting Architect of the United States Capitol
766 Holly 1995-1997; Assistant Architect of the United
Drive North, States Capitol 1980-1995; previously President
Annapolis, and CEO, McLeod Ferrara Ensign, an international
MD 20401 planning and design firm based in Washington DC;
Age: 71 Fellow and former Director of the American Institute
of Architects; District of Columbia Zoning
Commissioner 1989-1997; member, U.S. Capitol
Police Board 1995-1997, National Advisory
Council on Historic Preservation 1989-1997,
National Capital Memorial Commission 1989-
1997; Acting Director of the U.S. Botanic
Garden 1995-1997; Trustee, National Building
Museum 1995-1997; Trustee of Tax-Free Trust
of Arizona(this Trust)since 1986 and of Tax-
Free Fund For Utah since 1991; Trustee of
Oxford Cash Management Fund, 1983-1989.
Diana P. Herrmann* President and Chief Operating Officer of
Trustee and President the Manager since 1997, a
380 Madison Director since 1984, Secretary since 1986
Avenue and previously its Executive Vice
New York, President, Senior Vice President
NY 10017 or Vice President, 1986-1997;
Age: 42 President of various Aquila Bond and
Money-Market Funds since 1998; Assistant
Vice President, Vice President, Senior
Vice President or Executive Vice
President of Aquila Money-Market, Bond
and Equity Funds since 1986; Trustee of
a number of Aquila Money-Market, Bond
and Equity Funds since 1995; Trustee of
Reserve Money-Market Funds, 1999-2000
and of Reserve Private Equity Series,
1998-2000; Assistant Vice President and
formerly Loan Officer of European
American Bank, 1981-1986; daughter of
the Trust's Chairman; Trustee of the
Leopold Schepp Foundation (academic
scholarships) since 1995; actively
involved in mutual fund and trade
associations and in college and other
volunteer organizations.
John C. Lucking President, Econ-Linc, an economic consulting
Trustee firm, since 1995; Consulting Economist,
7537 North Bank One Arizona (formerly Valley National
Central Avenue Bank of Arizona) 1994-1996; Chief Economist,
Phoenix, AZ 85020 Valley National Bank of Arizona, 1987-1994;
Age: 57 Municipal bond analyst and government
securities institutional sales
representative, Valley National Bank of
Arizona, 1984-1987; Financial Analyst, Phelps Dodge
Corporation (a mining company) 1980-
1984; Director of New Mexico and
Arizona Land Company since 1993;
Director of Northern Arizona University
Investment Committee since 1997;
Director SANU Resources and SHRI
(privately held mining and exploration
companies) since 1996; Director:
Arizona Historical Foundation and The
Arizona Mining and Mineral Museum
Foundation. Member: Joint Legislative
Budget Committee Economic Advisory
Panel; Western Blue Chip Economic
Forecast Panel; The Economic Club of
Phoenix; The Arizona Economic
Roundtable; The National Association of
Business Economists and the National
Association of Corporate Directors;
Trustee of Tax-Free Trust of Arizona
(this Trust)since 1994 and of Tax-Free
Fund of Colorado since 2000.
Anne J. Mills Vice President for Business Affairs
Trustee of Ottawa University since 1992;
7030 East Shooting IBM Corporation, 1965-1991; Budget
Star Way, Review Officer of the American
Scottsdale, AZ Baptist Churches/USA, 1994-1997;
85262 Director of the American Baptist Foundation,
Age: 61 1985-1996 and since 1998; Trustee of Brown
University, 1992-1999; Trustee of Churchill
Cash Reserves Trust since 1985, of Tax-
Free Trust of Arizona(this Trust) since
1986, of Churchill Tax-Free Fund of
Kentucky, Tax-Free Fund of Colorado and
Capital Cash Management Trust since
1987 and of Tax-Free Fund For Utah
since 1994.
Susan A. Cook, Registered Representative of Aquila
Senior Vice Distributors, Inc. since 1993; Senior
President Vice President of Tax-Free Trust of
6220 E. Thomas Arizona (this Trust)and Vice President
Road of Aquila Rocky Mountain Equity Fund; Account
Scottsdale, AZ Executive, SG Cowen & Company,
85251 Members of the New York Stock
Age: 45 Exchange, 1988-1991; Institutional
Sales at Robertson, Stephens, and Montgomery
Securities, 1981-1986.
Kimball L. Young Co-Founder of Lewis Young Robertson &
Senior Vice Burningham, Inc., an NASD licensed
President broker/dealer providing public
2049 Herbert finance services to Utah local
Avenue governments, 1995-present; Senior Vice
Salt Lake City, President of Tax-Free Trust of Arizona
UT 84108 (this Trust), Tax-Free Fund For Utah, Aquila
Age: 54 Cascadia Equity Fund and Aquila Rocky Mountain
Equity Fund. Formerly Senior Vice
President-Public Finance, Kemper Securities Inc.,
Salt Lake City, Utah.
Alan R. Stockman Vice President of Tax-Free Trust of
Vice President Arizona(this Trust)and of Aquila Rocky
6220 E. Thomas Mountain Equity Fund since 1999; Bank
Road, Scottsdale One, Commercial Client Services
Arizona 85251 representative, 1997-1999; Trader and
Age: 46 Financial Consultant, National Bank of
Arizona (Zions Investment Securities
Inc.), Phoenix, Arizona 1996-1997; Vice
President and Investment Department
Manager, National Bank of Alaska,
Anchorage, Alaska 1984-1995.
Rose F. Marotta Chief Financial Officer of the Aquila
Chief Financial Officer Money-Market, Bond and Equity Funds
380 Madison Avenue since 1991 and Treasurer, 1981-1991;
New York, NY formerly Treasurer of the predecessor of
10017 Capital Cash Management Trust; Treasurer
Age: 76 and Director of STCM Management Company,
Inc., since 1974; Treasurer of InCap
Management Corporation since 1982, of
the Manager since 1984 and of the
Distributor, 1985-2000.
Richard F. West Treasurer of the Aquila Money-Market,
Treasurer Bond and Equity Funds and of Aquila
380 Madison Avenue Distributors, Inc. since 1992;
New York, NY Associate Director of Furman Selz
10017 Incorporated, 1991-1992; Vice
Age: 64 President of Scudder, Stevens &
Clark, Inc. and Treasurer of Scudder
Institutional Funds, 1989-1991; Vice
President of Lazard Freres Institutional
Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT
Insight Funds, Inc., 1986-1988; Vice
President of Lehman Management Co., Inc.
and Assistant Treasurer of Lehman Money
Market Funds, 1981-1985; Controller of
Seligman Group of Investment Companies,
1960-1980.
Lori A Vindigni Assistant Vice President of Aquila Management
Assistant Treasurer Corporation since 1998, formerly Fund Accountant
380 Madison Avenue for the Aquila Group of Investment Companies
New York, NY since 1995; Staff Officer and Fund Accountant of
10017 Citibank Global Asset Management Group of
Age: 33 Investment Companies, 1994-1995; Fund Accounting
Supervisor of Dean Witter Group of
Investment Companies, 1990-1994; BS Kean
College of New Jersey, 1990.
Edward M. W. Hines Partner of Hollyer Brady Smith & Hines
Secretary LLP, attorneys, since 1989
551 Fifth Avenue and counsel, 1987-1989; Secretary of the
New York, NY Aquila Money-Market, Bond and Equity Funds
10176 since 1982; Secretary of Trinity Liquid Assets
Age: 60 Trust, 1982-1985 and Trustee of that Trust,
1985-1986; Secretary of Oxford Cash
Management Fund, 1982-1988.
Robert W. Anderson Compliance Officer since 1998 and Assistant
Assistant Secretary and Secretary of the Aquila Money-Market Funds
Compliance Officer and the Aquila Bond and Equity Funds;
380 Madison Avenue, Consultant, The Wadsworth Group, 1995-1998;
New York, Executive Vice President of Sheffield
NY 10017 Management Company (investment adviser and
Age: 60 distributor of a mutual fund group), 1986-1995.
John M. Herndon Assistant Secretary of the Aquila Money-
Assistant Secretary Market, Bond and Equity Funds since 1995
380 Madison Avenue and Vice President of the Aquila Money-
New York, NY Market Funds since 1990; Vice President of
10017 the Manager since 1990; Investment
Age: 60 Services Consultant and Bank Services Executive
of Wright Investors' Service, a
registered investment adviser, 1983-
1989; Member of the American Finance
Association, the Western Finance
Association and the Society of
Quantitative Analysts.
</TABLE>
The Trust does not currently pay fees to any of the
Trust's officers or to Trustees affiliated with the Manager or
the Sub-Adviser. For its fiscal year ended June 30, 2000, the
Trust paid a total of $47,850 in compensation and reimbursement
of expenses to the Trustees. No other compensation or
remuneration of any type, direct or contingent, was paid by the
Trust to its Trustees.
The Trust is one of the 15 funds in the Aquilasm Group of
Funds, which consist of tax-free municipal bond funds, money-
market funds and equity funds. The following table lists the
compensation of all Trustees who received compensation from the
Trust and the compensation they received during the Trust's
fiscal year from other funds in the Aquilasm Group of Funds. None
of such Trustees has any pension or retirement benefits from the
Trust or any of the other funds in the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group serves
<S> <C> <C> <S>
Arthur K. Carlson $8,750 $64,750 6
Thomas W. Courtney $9,850 $52,000 5
William L. Ensign $9,650 $13,500 2
John C. Lucking $10,050 $11,100 2
Anne J. Mills $9,550 $39,550 6
</TABLE>
OWNERSHIP OF SECURITIES
On October 4, 2000, the following institutional holders held
5% or more of the Trust's outstanding shares. On the basis of
information received from the holders the Trust's management
believes that all of the shares indicated are held for the
benefit of clients
Name and address Number of shares Percent of class
of the holder of
record
Zions First National Bank
P.O. Box 30880,
Salt Lake City, UT 135,830 Class Y Shares (81.7%)
(held in 2 accounts)
Donaldson Lufkin Jenrette
Securities Corporation,
P.O. Box 2052,
Jersey City, NJ 211,461 Class C Shares (69.3%)
(held in 9 accounts)
Additional 5% shareholders
Margaret Zube 28,097 Class Y Shares (1) (5.9%)
Trustee
7045 Comino De Fosforo
Tucson, AZ
(1) Held as Trustee in two Trusts.
Management Ownership
As of the date of this SAI, all of the Trustees and officers
as a group owned less than 1% of its outstanding shares.
Investment Advisory and Other Services
Information about the Sub-Adviser, the Manager and the
Distributor
Management Fees
During the fiscal years ended June 30, 2000, 1999 and
1998 the Trust incurred management fees as follows:
Manager Sub-Adviser
2000 $1,495,669 -
1999 $1,605,996 _
1998 $279,112(1) $279,112(1)
(1) Paid under the advisory and administration agreements
then in effect.
Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300,
New York, NY 10017 is the Trust's Distributor. The Distributor
currently handles the distribution of the shares of fifteen funds
(six money-market funds, seven tax-free municipal bond 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.
The shares of the Distributor are owned 72% by Mr.
Herrmann and other members of his immediate family, 24% by Diana
P. Herrmann and the balance by a former officer of the
Distributor.
The Advisory and Administration Agreement
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Trust, the Manager shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust; and
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust.
The Advisory and Administration Agreement provides that,
subject to the termination provisions described below, the
Manager may at its own expense delegate to a qualified
organization ("Sub-Adviser"), affiliated or not affiliated with
the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a
written agreement (the "Sub-Advisory Agreement") approved as
provided in Section 15 of the Investment Company Act of 1940. The
Manager has delegated all of such functions to the Sub-Adviser in
the Sub-Advisory Agreement.
The Advisory and Administration Agreement also provides that
subject to the direction and control of the Board of Trustees of
the Trust, the Manager shall provide all administrative services
to the Trust other than those relating to its investment
portfolio which have been delegated to a Sub-Adviser of the Trust
under the Sub-Advisory Agreement; as part of such administrative
duties, the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Trust;
(ii) oversee all relationships between the Trust and any
sub-adviser, transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the
negotiation of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters
which are necessary or desirable for the effective operation
of the Trust and for the sale, servicing or redemption of
the Trust's shares;
(iii) either keep the accounting records of the Trust,
including the computation of net asset value per share and
the dividends (provided that if there is a Sub-Adviser,
daily pricing of the Trust's portfolio shall be the
responsibility of the Sub-Adviser under the Sub-Advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory to
the Trust;
(iv) maintain the Trust's books and records, and prepare (or
assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Trust's
shareholders and Trustees, reports to and other filings with
the Securities and Exchange Commission and any other
governmental agencies, and tax returns, and oversee the
insurance relationships of the Trust;
(v) prepare, on behalf of the Trust and at the Trust's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Trust and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Trust and broker-dealers, or if any such
inquiry or communication is more properly to be responded to
by the Trust's shareholder servicing and transfer agent or
distributor, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
The Advisory and Administration Agreement contains
provisions relating to compliance of the investment program,
responsibility of the Manager for any investment program managed
by it, allocation of brokerage, and responsibility for errors
that are substantially the same as the corresponding provisions
in the Sub-Advisory Agreement.
The Advisory and Administration Agreement provides that the
Manager shall, at its own expense, pay all compensation of
Trustees, officers, and employees of the Trust who are affiliated
persons of the Manager.
The Trust bears the costs of preparing and setting in type
its prospectuses, statements of additional information and
reports to its shareholders, and the costs of printing or
otherwise producing and distributing those copies of such
prospectuses, statements of additional information and reports as
are sent to its shareholders. All costs and expenses not
expressly assumed by the Manager under the agreement or otherwise
by the Manager, administrator or principal underwriter or by any
Sub-Adviser shall be paid by the Trust, including, but not
limited to (i) interest and taxes; (ii) brokerage commissions;
(iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Manager or such
sub-adviser, administrator or principal underwriter; (v) legal
and audit expenses; (vi) custodian and transfer agent, or
shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Trust or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Trust; (x) all other expenses
incidental to holding meetings of the Trust's shareholders; and
(xi) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations for
which the Trust may have to indemnify its officers and Trustees.
The Advisory and Administration Agreement provides that it
may be terminated by the Manager at any time without penalty upon
giving the Trust sixty days' written notice (which notice may be
waived by the Trust) and may be terminated by the Trust at any
time without penalty upon giving the Manager sixty days' written
notice (which notice may be waived by the Manager), provided that
such termination by the Trust shall be directed or approved by a
vote of a majority of its Trustees in office at the time or by a
vote of the holders of a majority (as defined in the 1940 Act) of
the voting securities of the Trust outstanding and entitled to
vote. The specific portions of the Advisory and Administration
Agreement which relate to providing investment advisory services
will automatically terminate in the event of the assignment (as
defined in the 1940 Act) of the Advisory and Administration
Agreement, but all other provisions relating to providing
services other than investment advisory services will not
terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Trust as of the close of business each business day shall be
reduced to the annual rate of 0.26 of 1% of such net asset value.
The Sub-Advisory Agreement
The services of the Sub-Adviser are rendered under the
Sub-Advisory Agreement between the Manager and the Sub-Adviser,
which provides, subject to the control of the Board of Trustees,
for investment supervision and at the Sub-Adviser's expense for
pricing of the Trust's portfolio daily using a pricing service or
other source of pricing information satisfactory to the Trust
and, unless otherwise directed by the Board of Trustees, for
pricing of the Trust's portfolio at least quarterly using another
such source satisfactory to the Trust. The Sub-Advisory Agreement
states that the Sub-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 Sub-Adviser's
duties under the Sub-Advisory Agreement.
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser shall at all times conform
to, and be in accordance with, any requirements imposed by: (1)
the 1940 Act and any rules or regulations in force thereunder;
(2) any other applicable laws, rules and regulations; (3) the
Declaration of Trust and By-Laws of the Trust as amended from
time to time; (4) any policies and determinations of the Board of
Trustees of the Trust; and (5) the fundamental policies of the
Trust, as reflected in its registration statement under the 1940
Act or as amended by the shareholders of the Trust.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall give to the Manager, as defined therein, and to the Trust
the benefit of its best judgment and effort in rendering services
hereunder, but the Sub-Adviser shall not be liable for any loss
sustained by reason of the adoption of any investment policy or
the purchase, sale or retention of any security, whether or not
such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and
research made by any other individual, firm or corporation, if
such purchase, sale or retention shall have been made and such
other individual, firm or corporation shall have been selected in
good faith by the Sub-Adviser. Nothing therein contained shall,
however, be construed to protect the Sub-Adviser against any
liability to the Trust or its security holders by reason of
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard
of its obligations and duties under the Agreement.
The Sub-Advisory Agreement provides that nothing in it
shall prevent the Sub-Adviser or any affiliated person (as
defined in the 1940 Act) of the Sub-Adviser from acting as
investment adviser or manager for any other person, firm or
corporation and shall not in any way limit or restrict the
Sub-Adviser or any such affiliated person from buying, selling or
trading any securities for its own or their own accounts or for
the accounts of others for whom it or they may be acting,
provided, however, that the Sub-Adviser expressly represents
that, while acting as Sub-Adviser, it will undertake no
activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under the Agreement.
It is agreed that the Sub-Adviser shall have no responsibility or
liability for the accuracy or completeness of the Trust's
Registration Statement under the 1940 Act and the Securities Act
of 1933, except for information supplied by the Sub-Adviser for
inclusion therein. The Sub-Adviser shall promptly inform the
Trust as to any information concerning the Sub-Adviser
appropriate for inclusion in such Registration Statement, or as
to any transaction or proposed transaction which might result in
an assignment (as defined in the 1940 Act) of the Agreement. To
the extent that the Manager is indemnified under the Trust's
Declaration of Trust with respect to the services provided by the
Sub-Adviser, the Manager agrees to provide the Sub-Adviser the
benefits of such indemnification.
The Sub-Advisory Agreement contains provisions regarding
brokerage described below under "Brokerage Allocation and Other
Practices."
The Sub-Advisory Agreement provides that the Sub-Adviser
agrees to maintain, and to preserve for the periods prescribed,
such books and records with respect to the portfolio transactions
of the Trust as are required by applicable law and regulation,
and agrees that all records which it maintains for the Trust on
behalf of the Manager shall be the property of the Trust and
shall be surrendered promptly to the Trust or the Manager upon
request. The Sub-Adviser agrees to furnish to the Manager and to
the Board of Trustees of the Trust such periodic and special
reports as each may reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall bear all of the expenses it incurs in fulfilling its
obligations under the Agreement. In particular, but without
limiting the generality of the foregoing: the Sub-Adviser shall
furnish the Trust, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for
carrying out its duties under the Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Trust all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Trust. The Sub-Adviser will also pay all
compensation of the Trust's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement became effective on May 1,
1998 and provides that it shall, unless terminated as therein
provided, continue in effect until the June 30 next preceding the
first anniversary of the effective date of the Agreement, and
from year to year thereafter, but only so long as such
continuance is specifically approved at least annually (1) by a
vote of the Trust's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to the Agreement or
"interested persons" (as defined in the 1940 Act) of any such
party, with votes cast in person at a meeting called for the
purpose of voting on such approval, or (2) by a vote of the
holders of a "majority" (as so defined) of the outstanding voting
securities of the Trust and by such a vote of the Trustees.
The Sub-Advisory Agreement provides that it may be
terminated by the Sub-Adviser at any time without penalty upon
giving the Manager and the Trust sixty days' written notice
(which notice may be waived). It may be terminated by the Manager
or the Trust at any time without penalty upon giving the
Sub-Adviser sixty days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination by the
Trust shall be directed or approved by a vote of a majority of
its Trustees in office at the time or by a vote of the holders of
a majority (as defined in the 1940 Act) of the voting securities
of the Trust outstanding and entitled to vote. The Sub-Advisory
Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act) or the termination of the
Investment Advisory Agreement. The Sub-Adviser agrees that it
will not exercise its termination rights for at least three years
from the effective date of the Agreement, except for regulatory
reasons.
Underwriting Commissions
During the fiscal years ended June 30, 2000, 1999 and
1998, the aggregate dollar amount of sales charges on sales of
shares in the Trust was $721,539, $1,133,195 and $978,632,
respectively, and the amount retained by the Distributor was
$137,591, $212,007 and $150,455 respectively.
In connection with sales of Class A Shares, the Distributor
pays a portion of the sales charge on such shares to dealers in
the form of discounts and to brokers in the form of agency
commissions (together, "Commissions"), in amounts that vary with
the size of the sales charge as follows:
Sales Charge as
Percentage Commissions
of Public as Percentage
Offering of Offering
Price Price
4.00% 3.00%
3.75% 3.00%
3.50% 2.75%
3.25% 2.75%
3.00% 2.50%
2.50% 2.25%
Distribution Plan
The Trust's Distribution Plan has four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II), to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part IV).
The Distributor will consider shares which are not Qualified
Holdings of such unrelated broker-dealers to be Qualified
Holdings of the Distributor and will authorize Permitted Payments
to the Distributor with respect to such shares whenever Permitted
Payments are being made under the Plan.
Provisions Relating to Class A Shares (Part I)
Part I of the Plan applies only to the Front-Payment Class
Shares ("Class A Shares") of the Trust (regardless of whether
such class is so designated or is redesignated by some other
name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Front-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Front-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class A Permitted
Payments") to Qualified Recipients, which Class A Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.15 of 1% of the average annual net assets of the
Trust represented by the Front-Payment Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Front-Payment Class Shares.
The Distributor shall have sole authority (i) as to the
selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) as to the amount of
Class A Permitted Payments, if any, to each Qualified Recipient
provided that the total Class A Permitted Payments to all
Qualified Recipients do not exceed the amount set forth above.
The Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year-end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part I is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under the Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Trust to the Manager,
Sub-Adviser or Distributor paid or accrued during such quarter.
In addition, if any such Qualified Recipient is an affiliated
person, as that term is defined in the 1940 Act, of the Trust,
Manager, Sub-Adviser or Distributor, such person shall agree to
furnish to the Distributor for transmission to the Board of
Trustees of the Trust an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part I of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Front-Payment Class Shares class (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class Shares and/or of any other class whose
shares are convertible into Front-Payment Class Shares. Part I
has continued, and will, unless terminated as hereinafter
provided, continue in effect until the April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part I may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part I
applies. Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part I as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class A Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment Shares
Class ("Class C Shares") of the Trust (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Level-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class C Permitted
Payments") to Qualified Recipients, which Class C Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.75 of 1% of the average annual net assets of the
Trust represented by the Level- Payment Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Level-Payment Class Shares. The Distributor shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) the amount of Class C Permitted Payments, if any, to each
Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above. The Distributor is authorized, but not directed, to
take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient; (b) the extent to which the
Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts;
furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on
behalf of the Trust, proxy statements, annual reports, updating
prospectuses and other communications from the Trust to its
shareholders; receiving, tabulating and transmitting to the Trust
proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and providing such other related
services as the Distributor or a shareholder may request from
time to time; and (c) the possibility that the Qualified Holdings
of the Qualified Recipient would be redeemed in the absence of
its selection or continuance as a Qualified Recipient.
Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined below) may remove any person as
a Qualified Recipient. Amounts within the above limits accrued
to a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under the Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Trust to the Manager,
Sub-Adviser or Distributor paid or accrued during such quarter.
In addition, if any such Qualified Recipient is an affiliated
person, as that term is defined in the 1940 Act, of the Trust,
Manager, Sub-Adviser or Distributor such person shall agree to
furnish to the Distributor for transmission to the Board of
Trustees of the Trust an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level-Payment Class Shares. Part II has
continued, and will, unless terminated as therein provided,
continue in effect until the April 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class C Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
As used in Part III of the Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to any principal underwriter of the Trust, with which the Trust
or the Distributor has entered into written agreements in
connection with Part III ("Class I Plan Agreements") and which
have rendered assistance (whether direct, administrative, or
both) in the distribution and/or retention of the Trust's Class I
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Class I Shares beneficially owned by such
Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class I Permitted
Payments") to Qualified Recipients, which Class I Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), at a rate fixed for time to time by the Board of
Trustees, initially 0.10 of 1% of the average annual net assets
of the Trust represented by the Class I Shares, but not more than
0.25 of 1% of such assets. Such payments shall be made only out
of the Trust's assets allocable to Class I Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class I Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class I Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Class I Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part III is in effect, the Trust's Distributor
shall report at least quarterly to the Trust's Trustees in
writing for their review on the following matters: (i) all Class
I Permitted Payments made under the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Manager, Sub-Adviser or Distributor paid or accrued during such
quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the 1940 Act, of
the Trust, Manager, Sub-Adviser or Distributor such person shall
agree to furnish to the Distributor for transmission to the Board
of Trustees of the Trust an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part III originally went into effect when it was approved
(i) by a vote of the Trustees, including the Independent
Trustees, with votes cast in person at a meeting called for the
purpose of voting on Part III of the Plan; and (ii) by a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Class I Shares Class. Part
III has continued, and will, unless terminated as thereinafter
provided, continue in effect until the April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part III may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part III
applies. Part III may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part III as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class I Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class I Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class I Plan Agreements entered into thereafter.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to the
extent that any of the payments listed below are considered to be
"primarily intended to result in the sale of" shares issued by
the Trust within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Trust or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Trust's shares; (iv) all legal and accounting fees relating
to the preparation of any such reports, prospectuses, statements
of additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Trust and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Trust's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan defines as the Trust's Independent Trustees those
Trustees who are not "interested persons" of the Trust as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan. The Plan, unless terminated as therein
provided, continues in effect from year to year only so long as
such continuance is specifically approved at least annually by
the Trust's Board of Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that the Plan will benefit the Trust and
its shareholders. The Plan may be terminated at any time by vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust. The Plan may not be
amended to increase materially the amount of payments to be made
without shareholder approval and all amendments must be approved
in the manner set forth above as to continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part IV shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Trust.
Payments Under the Plan
During the fiscal years ended June 30, 2000, 1999 and
1998 payments were made only under Part I and Part II of the
Plan. All payments were to Qualified Recipients and were for
compensation. During those periods, no payments were made under
Part III or Part IV of the Plan.
Payments to Qualified Recipients
During the fiscal years ended June 30, 2000, 1999 and
1998, $554,839, $598,973 and $592,052, respectively, were paid
under Part I of the Plan to Qualified Recipients. Of those
amounts, $23,661, $23,262 and $21,386, respectively, were paid to
the Distributor.
During the Trust's fiscal years ended June 30, 2000, 1999
and 1998, $14,821 $8,802 and $3,466, respectively, were paid to
Qualified Recipients under Part II of the Plan with respect to
the Trust's Class C Shares and $4,940, $2,933 and $1,156
respectively, were paid under the Shareholder Services Plan. Of
these total payments of $19,761, $11,735 and $4,622, the
Distributor received $13,630, $8,919 and $4,330 respectively.
Payments with respect to Class C Shares during the first year
after purchase are paid to the Distributor and thereafter to
other Qualified Recipients.
Shareholder Services Plan
The Trust has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares and Class I Shares of the Trust of "Service Fees" within
the meaning of the Conduct Rules of the National Association of
Securities Dealers, Inc. The Services Plan applies only to the
Class C Shares and Class I Shares of the Trust (regardless of
whether such class is so designated or is redesignated by some
other name).
Provisions for Level-Payment Class Shares (Part I)
As used in Part I of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Trust, who have, pursuant to written agreements with the
Trust or the Distributor, agreed to provide personal services to
shareholders of Level-Payment Class Shares and/or maintenance of
Level-Payment Class Shares shareholder accounts. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Level-Payment Class Shares beneficially owned by such Qualified
Recipient's customers, clients or other contacts. "Manager" shall
mean Aquila Management Corporation or any successor serving as
sub-adviser or administrator of the Trust.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Trust represented by
the Level-Payment Class Shares. Such payments shall be made only
out of the Trust's assets allocable to the Level-Payment Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and
provided, further, that no Qualified Recipient may receive more
than 0.25 of 1% of the average annual net asset value of shares
sold by such Recipient. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient and (b) the extent
to which the Qualified Recipient has, at its expense, taken steps
in the shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years. Service Fees with respect to Class C Shares
will be paid to the Distributor.
During the fiscal years ended June 30, 2000, 1999 and
1998, $4,940, $2,933 and $1,156, respectively, were paid under
Part I of the Plan with respect to Class C Shares, all of which
was paid to the Distributor. All of such payments were for
compensation.
Provisions for Financial Intermediary Class Shares (Part II)
As used in Part II of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Trust, who have, pursuant to written agreements with the
Trust or the Distributor, agreed to provide personal services to
shareholders of Financial Intermediary Class Shares, maintenance
of Financial Intermediary Class Shares shareholder accounts
and/or pursuant to specific agreements entering confirmed
purchase orders on behalf of customers or clients. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Financial Intermediary Class Shares beneficially owned by such
Qualified Recipient's customers, clients or other contacts.
"Manager" shall mean Aquila Management Corporation or any
successor serving as sub-adviser or administrator of the Trust.
Subject to the direction and control of the Trust's Board
of Trustees, the Trust may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Trust represented by
the Financial Intermediary Class Shares. Such payments shall be
made only out of the Trust's assets allocable to the Financial
Intermediary Class Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years. No Class I Shares
were outstanding during the year ended June 30, 2000.
General Provisions
While the Services Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Services Plan, the identity
of the Qualified Recipient of each payment, and the purposes for
which the amounts were expended; and (ii) all fees of the Trust
to the Distributor paid or accrued during such quarter. In
addition, if any Qualified Recipient is an "affiliated person,"
as that term is defined in the 1940 Act, of the Trust, Manager,
Sub-Adviser or Distributor, such person shall agree to furnish to
the Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Trust and had no direct or indirect financial interest in the
operation of the Services Plan or in any agreements related to
the Services Plan (the "Independent Trustees"), with votes cast
in person at a meeting called for the purpose of voting on the
Services Plan. It will continue in effect for a period of more
than one year from its original effective date only so long as
such continuance is specifically approved at least annually as
set forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the 1940 Act as now in
force or hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Trust who are not "interested
persons" of the Trust, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing therein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
Codes of Ethics
The Trust, the Manager the Sub-Adviser and the
Distributor have adopted codes of ethics pursuant to Rule
17j-1 under the 1940 Act. The codes permit personnel of
these organizations who are subject to the codes to purchase
securities, including the types of securities in which the
Trust invests, but only in compliance with the provisions of
the codes.
Transfer Agent, Custodian and Auditors
The Trust's Shareholder Servicing Agent (transfer agent) is
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
The Trust's Custodian, Bank One Trust Company, N.A., 100
East Broad Street, Columbus, Ohio 43271, is responsible for
holding the Trust's assets.
The Trust's auditors, KPMG LLP, 757 Third Avenue, New
York, New York, 10017, perform an annual audit of the Trust's
financial statements.
Brokerage Allocation and Other Practices
During the fiscal years ended June 30, 2000, 1999
and 1998, all of the Fund's transactions were principal
transactions and no brokerage commissions were paid.
The following provisions regarding brokerage allocation
and other practices relating to purchases and sales of the
Trust's securities are contained in the Sub-Advisory Agreement.
It provides that the Sub-Adviser shall select such broker-dealers
("dealers") as shall, in the Sub-Adviser's judgment, implement
the policy of the Trust to achieve "best execution," i.e.,
prompt, efficient, and reliable execution of orders at the most
favorable net price. The Sub-Adviser shall cause the Trust to
deal directly with the selling or purchasing principal or market
maker without incurring brokerage commissions unless the
Sub-Adviser determines that better price or execution may be
obtained by paying such commissions; the Trust expects that most
transactions will be principal transactions at net prices and
that the Trust will incur little or no brokerage costs. The Trust
understands that purchases from underwriters include a commission
or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread
between the bid and asked prices. In allocating transactions to
dealers, the Sub-Adviser is authorized to consider, in
determining whether a particular dealer will provide best
execution, the dealer's reliability, integrity, financial
condition and risk in positioning the securities involved, as
well as the difficulty of the transaction in question, and thus
need not pay the lowest spread or commission available if the
Sub-Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the
brokerage and research services provided by the dealer, viewed
either in terms of the particular transaction or the
Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Sub-Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the Trust. Such research may be in
written form or through direct contact with individuals and may
include quotations on portfolio securities and information on
particular issuers and industries, as well as on market,
economic, or institutional activities. The Trust recognizes that
no dollar value can be placed on such research services or on
execution services and that such research services may or may not
be useful to the Trust and may be used for the benefit of the
Sub-Adviser or its other clients.
Capital Stock
The Trust has four classes of shares.
* Front-Payment Class Shares ("Class A Shares") are offered
to anyone at net asset value plus a sales charge, paid at
the time of purchase, at the maximum rate of 4.0% of the
public offering price, with lower rates for larger
purchases. Class A Shares are subject to an asset retention
service fee under the Trust's Distribution Plan at the rate
of 0.15 of 1% of the average annual net assets represented
by the Class A Shares.
* Level-Payment Class Shares ("Class C Shares") are offered
to anyone at net asset value with no sales charge payable at
the time of purchase but with a level charge for service and
distribution fees for six years after the date of purchase
at the aggregate annual rate of 1% of the average annual net
assets of the Class C Shares. 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. For purposes of applying
the CDSC and determining the time of conversion, the
12-month and six-year holding periods are considered
modified by up to one month depending upon when during a
month your purchase of such shares is made.
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.
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. has entered into sales
agreements, and are not offered directly to retail
customers. Class I Shares are offered at net asset value
with no sales charge and no redemption fee or contingent
deferred sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other transaction
on behalf of its customers. Class I Shares may carry a
distribution fee of up to 0.25 of 1% of average annual net
assets allocable to Class I Shares, currently 0.10 of 1% of
such net assets, and a services fee of 0.25 of 1% of such
assets.
The Trust's four classes of shares differ 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 four 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
participation in the Distribution Plan and Shareholder Services
Plan and has exclusive voting rights with respect to such
participation.
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan. No
amendment, whether or not affecting the rights of the
shareholders, 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 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 four 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, which may differ from each other as
provided in rules and regulations of the Securities and Exchange
Commission or by exemptive order. The Board of Trustees may, 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").
Shares are fully paid and non-assessable, except as set forth in
the next paragraph; the holders of shares have no pre-emptive or
conversion rights, except that Class C Shares automatically
convert to Class A Shares after being held for six years.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of a trust such as the Trust, may, under certain
circumstances, be held personally liable as partners for the
obligations of the trust. For shareholder protection, however, an
express disclaimer of shareholder liability for acts or
obligations of the Trust is contained in the Declaration of
Trust, which requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees. The Declaration of Trust
does, however, contain an express disclaimer of shareholder
liability for acts or obligations of the Trust. The Declaration
of Trust provides for indemnification out of the Trust's property
of any shareholder held personally liable for the obligations of
the Trust. The Declaration of Trust also provides that the Trust
shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to the relatively remote circumstances in which the Trust
itself would be unable to meet its obligations. In the event the
Trust had two or more Series, and if any such Series were to be
unable to meet the obligations attributable to it (which, as is
the case with the Trust, is relatively remote), the other Series
would be subject to such obligations, with a corresponding
increase in the risk of the shareholder liability mentioned in
the prior sentence.
Purchase, Redemption, and Pricing of Shares
In addition to information about purchase, redemption and
pricing of shares set forth in the Prospectus, the Trust provides
additional services and information.
Sales Charges for Purchases of $1 Million or More of Class A
Shares
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(i) Class A Shares issued in a single purchase of
$1 million or more by a single purchaser; and
(ii) all Class A Shares issued to a single
purchaser in a single purchase when the value of the
purchase, together with the value of the purchaser's
other CDSC Class A Shares and Class A Shares on which a
sales charge has been paid, equals or exceeds $1
million:
See "Special Dealer Arrangements" for other circumstances
under which Class A Shares are considered CDSC Class A Shares.
CDSC Class A Shares do not include: (i)Class A Shares purchased
without a sales charge as described under "General" below and
(ii)Class A Shares purchased in transactions of less than $1
million when certain special dealer arrangements are not in
effect under "Certain Investment Companies" set forth under
"Reduced Sales Charges," below.
Broker/Dealer Compensation - Class A Shares
Upon notice to all selected dealers, the Distributor may
distribute up to the full amount of the applicable sales charge
to broker/dealers. Under the Securities Act of 1933,
broker/dealers may be deemed to be underwriters during periods
when they receive all, or substantially all, of the sales charge.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the shares' redemption or
purchase value, whichever is less, if you redeem within the first
two years after purchase, and 0.50 of 1% of that value if you
redeem within the third or fourth year.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent
(see "Reduced Sales Charges for Certain Purchases of Class A
Shares"). This special charge will not apply to shares acquired
through the reinvestment of dividends or distributions on CDSC
Class A Shares or to CDSC Class A Shares held for longer than
four years. When redeeming shares, the Agent will redeem the CDSC
Class A Shares held the longest, unless otherwise instructed. If
you own both CDSC and non-CDSC Class A Shares, the latter will be
redeemed first.
The Trust will treat all CDSC Class A Shares purchases
made during a calendar month as if they were made on the first
business day of that month at the average cost of all purchases
made during that month. Therefore, the four-year holding period
will end on the first business day of the 48th calendar month
after the date of those purchases. Accordingly, the holding
period may, in fact, be one month less than the full 48 depending
on when your actual purchase was made. If you exchange your CDSC
Class A Shares for shares of an Aquila money-market fund (see
"Exchange Privilege" below), running of the 48-month holding
period for those exchanged shares will be suspended.
Broker/Dealer Compensation - CDSC Class A Shares
The Distributor currently intends to pay any dealer executing a
purchase of CDSC Class A Shares as follows:
Amount of Purchase Amount Distributed
to Broker/Dealer as
a % of Purchase
Price
$1 million but less than $2.5 million 1%
$2.5 million but less than $5 million 0.50 of 1%
$5 million or more 0.25 of 1%
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales
charge in accordance with the above schedule when making
subsequent purchases of Class A Shares. A reduced sales charge
applies if the cumulative value (based on purchase cost or
current net asset value, whichever is higher) of Class A Shares
previously purchased with a sales charge, together with Class A
Shares of your subsequent purchase, also with a sales charge,
amounts to $25,000 or more.
Letters of Intent
"Single purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included in the Application) is received by the
Distributor. The Letter of Intent confirms that you intend to
purchase, within a thirteen month period, Class A Shares of the
Trust through a single selected dealer or the Distributor. Class
A Shares of the Trust which you previously purchased within 90
days prior to the Distributor's receipt of your Letter of Intent
and which you still own may also be included in determining the
applicable reduction. For more information, including escrow
provisions, see the Letter of Intent provisions of the
Application.
General
Class A Shares may be purchased without a sales charge
by:
* the Trust's Trustees and officers,
* the directors, officers and certain employees,
retired employees and representatives of the Manager,
Sub-Adviser and Distributor and their parents and/or
affiliates,
* selected dealers and brokers and their officers
and employees,
* certain persons connected with firms providing
legal, advertising or public relations assistance,
* certain family members of, and plans for the
benefit of, the foregoing, and
* plans for the benefit of trust or similar clients
of banking institutions over which these institutions
have full investment authority, if the Distributor has
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. Since
there may be tax consequences of these purchases, your tax
advisor should be consulted.
Class A Shares may also be issued without a sales charge 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.
A qualified group is a group or association, or a
category of purchasers who are represented by a fiduciary,
professional or other representative, including a registered
broker-dealer that is acting as a registered investment adviser
or certified financial planner for investors participating in
comprehensive fee programs (but not any other broker-dealer),
which
(i) satisfies uniform criteria which enable the
Distributor to realize economies of scale in its costs
of distributing shares;
(ii) 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
(iii) complies with the conditions of purchase that
make up an agreement between the Trust and the group,
representative or broker or dealer.
At the time of purchase, the Distributor must receive
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 without sales
charge from proceeds of a redemption, made within 120 days prior
to such purchase, of shares of an investment company (not a
member of the Aquilasm Group of Funds) on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.
To qualify, follow these special procedures:
1. Send a completed Application (included with the
Prospectus) and payment for the shares to be purchased
directly to the Distributor, Aquila Distributors, Inc.,
380 Madison Avenue, Suite 2300, New York, NY
10017-2513. Do not send this material to the address
indicated on the Application.
2. Your completed Application must be accompanied
by evidence satisfactory to the Distributor that you,
as the prospective shareholder, have made a qualifying
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. 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
The Distributor (not the Trust) will pay to any dealer
with which it has made prior arrangements and which effects a
purchase of Class A Shares of the Trust from the proceeds of a
qualifying redemption of the shares of an investment company (not
a member of the Aquilasm Group of Funds) up to 1% of the
purchase. The shareholder, however, will not be subject to any
sales charge.
Dealer payments will be made in up to 4 payments of 0.25 of
1% of the proceeds over a four-year period. The first payment
will be made subsequent to receipt of the proper documentation
detailed above. Future payments, over the remaining years, will
be made at the end of the quarter of the anniversary month that
the purchase of Class A Shares took place, with respect to any
part of the investment that remains in the Trust during the
entire time period. No payments will be made with respect to any
shares redeemed during the four-year period.
Additional Compensation for Broker/Dealers
The Distributor may compensate broker/dealers, above the
normal sales commissions, in connection with sales of any class
of shares. However, broker/dealers may receive levels of
compensation which differ as between classes of share sold.
The Distributor, not the Trust, will pay these additional
expenses. Therefore, the price you pay for shares and the amount
that the Trust receives from your payment will not be affected.
Additional compensation may include full or partial payment
for:
* advertising of the Trust's shares;
* payment of travel expenses, including lodging, for
attendance at sales seminars by qualifying registered
representatives; and/or
* other prizes or financial assistance to
broker/dealers conducting their own seminars or
conferences.
Such compensation may be limited to broker/dealers whose
representatives have sold or are expected to sell significant
amounts of the Trust's shares. However, broker/dealers may not
use sales of the Trust's shares to qualify for additional
compensation to the extent such may be prohibited by the laws of
any state or 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. Any of the foregoing payments
to be made by the Distributor may be made instead by the Manager
out of its own funds, directly or through the Distributor.
Automatic Withdrawal Plan
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares or Class Y 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 or Class I 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
with the Prospectus.
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.
Share Certificates
You may obtain Share certificates for full Class A Shares
only if you make a written request to the Agent. All share
certificates previously issued by the Trust represent Class A
Shares. If you lose the certificates, you may incur delay and
expense when redeeming shares or having the certificates
reissued.
Share certificates will not be issued:
* for fractional Class A Shares;
* if you have selected Automatic Investment or
Telephone Investment for Class A Shares; or
* if you have selected Expedited Redemption.
However, if you specifically request, Class A Share
certificates will be issued with a concurrent
automatic suspension of Expedited Redemption on your
account.
Share certificates will not be issued for Class C Shares,
Class Y Shares or Class I Shares.
Reinvestment privilege
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment. The Class C or CDSC Class A Shares purchased upon
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.
Reinvestment will not alter the tax consequences of your
original redemption.
Exchange Privilege
There is an exchange privilege as set forth below among
this Trust, certain tax-free municipal bond funds and equity
funds (together with the Trust, 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 Manager or Administrator
and Distributor as the Trust. All exchanges are subject to
certain conditions described below. As of the date of the SAI,
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, Churchill Tax-Free Fund
of Kentucky, Tax-Free Fund of Colorado, Tax-Free Fund For Utah
and Narragansett Insured Tax-Free Income Fund; the Aquila
Money-Market Funds are Capital Cash Management Trust, Capital
Cash U.S. Government Securities Trust, Pacific Capital Cash
Assets Trust (Original Shares), Pacific Capital Tax-Free Cash
Assets Trust (Original Shares), Pacific Capital U.S. Government
Securities Cash Assets Trust (Original Shares) and Churchill Cash
Reserves Trust.
Generally, you can exchange shares of a given class of a
Bond or Equity Fund including the Trust for shares of the same
class of any other Bond or Equity Fund, or for shares of any
Money-Market Fund, without the payment of a sales charge or any
other fee, and there is no limit on the number of exchanges you
can make from fund to fund. Such exchangability is available to
Class I Shares to the extent that other Aquila-sponsored funds
are made available to its customers by a financial intermediary.
All exchanges of Class I Shares must be made through your
financial intermediary. The following important information
should be noted:
(1) CDSCs Upon Redemptions of Shares Acquired Through
Exchanges. If you exchange shares subject to a CDSC, no CDSC will
be imposed at the time of exchange, but the shares you receive in
exchange for them will be subject to the applicable CDSC if you
redeem them before the requisite holding period (extended, if
required) has expired.
If the shares you redeem would have incurred a CDSC if you
had not made any exchanges, then the same CDSC will be imposed
upon the redemption regardless of the exchanges that have taken
place since the original purchase.
(2) Extension of Holding Periods by Owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
Fund shares received on an exchange of CDSC Class A Shares or
Class C Shares are held is not counted in computing the
applicable holding period for CDSC Class A Shares or Class C
Shares.
(3) Originally Purchased Money-Market Fund Shares. Shares
of a Money-Market Fund (and any shares acquired as a result of
reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money-Market
Fund shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they
been purchased rather than acquired in exchange for Money-Market
Fund shares. If the shares received in exchange are shares that
would be subject to a CDSC if purchased directly, the holding
period governing the CDSC will run from the date of the exchange,
not from the date of the purchase of Money-Market Fund shares.
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 is 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 free
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.
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period;
no representation is made as to the deductibility of any such
loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that 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. Government Securities Cash Assets Trust and
Capital Cash U.S. Government Securities Trust (which invest in
U.S. Government obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund and Aquila
Cascadia Equity Fund are taxable. If your state of residence is
not the same as that of the issuers of obligations in which a
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.
Conversion of Class C Shares
Conversion of Class C Shares into Class A Shares 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 Bond 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.
"Transfer on Death" ("TOD") Registration (Not Available for Class
I Shares)
Each of the funds in the Aquilasm Group of Funds now permits
registration of its shares in beneficiary form, subject to the
funds' rules governing Transfer on Death ("TOD") registration, if
the investor resides in a state that has adopted the Uniform
Transfer on Death Security Registration Act (a "TOD State"; for
these purposes, Missouri is deemed to be a TOD State). This form
of registration allows you to provide that, on your death, your
shares are to be transferred to the one or more persons that you
specify as beneficiaries. To register shares of the Trust in TOD
form, complete the special TOD Registration Request Form and
review the Rules Governing TOD Registration; both are available
from the Agent. The Rules, which are subject to amendment upon 60
days' notice to TOD account owners, contain important information
regarding TOD accounts with the Trust; by opening such an account
you agree to be bound by them, and failure to comply with them
may result in your shares' not being transferred to your
designated beneficiaries. If you open a TOD account with the
Trust that is otherwise acceptable but, for whatever reason,
neither the Trust nor the Agent receives a properly completed TOD
Registration Request Form from you prior to your death, the Trust
reserves the right not to honor your TOD designation, in which
case your account will become part of your estate.
You are eligible for TOD registration only if, and as long
as, you reside in a TOD State. If you open a TOD account and your
account address indicates that you do not reside in a TOD State,
your TOD registration will be ineffective and the Trust may, in
its discretion, either open the account as a regular (non-TOD)
account or redeem your shares. Such a redemption may result in a
loss to you and may have tax consequences. Similarly, if you open
a TOD account while residing in a TOD State and later move to a
non-TOD State, your TOD registration will no longer be effective.
In both cases, should you die while residing in a non-TOD State
the Trust reserves the right not to honor your TOD designation.
At the date of this SAI, most states are TOD States.
Computation of Net Asset Value
The net asset value of the shares of each of the Trust's
classes is determined as of 4:00 p.m., New York time, on each day
that the New York Stock Exchange is open, by dividing the value
of the Trust's net assets allocable to each class by the total
number of its shares of such class then outstanding. Securities
having a remaining maturity of less than sixty days when
purchased and securities originally purchased with maturities in
excess of sixty days but which currently have maturities of sixty
days or less are valued at cost adjusted for amortization of
premiums and accretion of discounts. All other portfolio
securities are valued at the mean between bid and asked
quotations which, for Arizona Obligations, may be obtained from a
reputable pricing service or from one or more broker-dealers
dealing in Arizona Obligations, either of which may, in turn,
obtain quotations from broker-dealers or banks which deal in
specific issues. However, since Arizona Obligations are
ordinarily purchased and sold on a "yield" basis by banks or
dealers which act for their own account and do not ordinarily
make continuous offerings, quotations obtained from such sources
may be subject to greater fluctuations than is warranted by
prevailing market conditions. Accordingly, some or all of the
Arizona Obligations in the Trust's portfolio may be priced, with
the approval of the Trust's Board of Trustees, by differential
comparisons to the market in other municipal bonds under methods
which include consideration of the current market value of
tax-free debt instruments having varying characteristics of
quality, yield and maturity. Any securities or assets for which
market quotations are not readily available are valued at their
fair value as determined in good faith under procedures
established by and under the general supervision and
responsibility of the Trust's Board of Trustees. In the case of
Arizona Obligations, such procedures may include "matrix"
comparisons to the prices for other tax-free debt instruments on
the basis of the comparability of their quality, yield, maturity
and other special factors, if any, involved. With the approval of
the Trust's Board of Trustees, the Adviser may at its own expense
and without reimbursement from the Trust employ a pricing
service, bank or broker-dealer experienced in such matters to
perform any of the above described functions.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Trust's Class A Shares are sold
or issued on a basis other than the maximum public offering
price, that is, the net asset value plus the highest sales
charge. Some of these relate to lower or eliminated sales charges
for larger purchases, whether made at one time or over a period
of time as under a Letter of Intent or right of accumulation.
(See the table of sales charges in the Prospectus.) The reasons
for these quantity discounts are, in general, that (i) they are
traditional and have long been permitted in the industry and are
therefore necessary to meet competition as to sales of shares of
other funds having such discounts; and (ii) they are designed to
avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses.
Quantity discounts are made available to certain related persons
("single purchasers") for reasons of family unity and to provide
a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges for Class A Shares are as
follows. Exchanges at net asset value are permitted because a
sales charge has already been paid on the shares exchanged. Sales
without sales charge are permitted to Trustees, officers and
certain others due to reduced or eliminated selling expenses
and/or since such sales may encourage incentive, responsibility
and interest and an identification with the aims and policies of
the Trust. Limited reinvestments of redemptions of Class A Shares
and Class C Shares at no sales charge are permitted to attempt to
protect against mistaken or incompletely informed redemption
decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and
since, in some cases, such issuance is exempted in the 1940 Act
from the otherwise applicable restrictions as to what sales
charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Trust
receives the net asset value per share of all shares sold or
issued.
Limitation of Redemptions in Kind
The Trust has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the Trust is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent
of the net asset value of the Trust during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Trust will have the option of redeeming the
excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting
the assets into cash. The method of valuing securities used to
make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of
the same time the redemption price is determined.
Additional Tax Information
Certain Exchanges
If you incur a sales commission on a purchase of shares of
one mutual fund (the original fund) and then sell such shares or
exchange them for shares of a different mutual fund without
having held them at least 91 days, you must reduce the tax basis
for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or
later acquiring shares of the original fund or another fund is
reduced because of the shareholder's having owned the original
fund shares. The effect of the rule is to increase your gain or
reduce your loss on the original fund shares. The amount of the
basis reduction on the original fund shares, however, is added on
the investor's basis for the fund shares acquired in the exchange
or later acquired.
Tax Status of the Trust
During its last fiscal year, the Trust qualified as a
"regulated investment company" under the Internal Revenue Code
and intends to continue such qualification. A regulated
investment company is not liable for federal income taxes on
amounts paid by it as dividends and distributions.
The Code, however, contains a number of complex qualifying
tests. Therefore, it is possible, although not likely, that the
Trust might not meet one or more of these tests in any particular
year. If the Trust fails to qualify, it would be treated for tax
purposes as an ordinary corporation. As a consequence, it would
receive no tax deduction for payments made to shareholders and
would be unable to pay dividends and distributions which would
qualify as "exempt-interest dividends" or "capital gains
dividends."
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 contingent 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 one year and short-term
if for a year or less. Long-term capital gains are currently
taxed at a maximum rate of 20% and short-term gains are currently
taxed at ordinary income tax rates. 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
When Class C Shares automatically convert to Class A Shares,
approximately six years after purchase, you will recognize no
gain or loss. Your adjusted tax basis in the Class A Shares you
receive upon conversion will equal your adjusted tax basis in the
Class C Shares you held immediately before conversion. Your
holding period for the Class A Shares you receive will include
the period you held the converted Class C Shares.
Underwriters
Aquila Distributors, Inc. acts as the Trust's principal
underwriter in the continuous public offering of all of the
Trust's classes of shares. The Distributor is not obligated to
sell a specific number of shares. Under the Distribution
Agreement, the Distributor is responsible for the payment of
certain printing and distribution costs relating to prospectuses
and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
(1) (2) (3) (4) (5)
Name of Net Under- Compensation Brokerage Other
Principal writing on Redemptions Commissions Compen-
Underwriter Discounts and sation
and Repurchases
Commissions
Aquila $131,591 None None None(1)
Distributors
Inc.
(1) Amounts paid to the Distributor under the Trust's
Distribution Plan are for compensation.
Performance
As noted in the Prospectus, the Trust may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are
subject to rules of the Securities and Exchange Commission
("SEC"). These rules require the use of standardized performance
quotations or, alternatively, that every non-standardized
performance quotation furnished by the Trust be accompanied by
certain standardized performance information computed as required
by the SEC. Current yield and average annual compounded total
return quotations used by the Trust are based on these
standardized methods and are computed separately for each of the
Trust's classes of shares. Each of these and other methods that
may be used by the Trust are described in the following material.
Prior to April 6, 1996, the Trust had outstanding only one class
of shares, which are currently designated "Class A Shares." On
that date the Trust began to offer shares of two other classes,
Class C Shares and Class Y Shares. During most of the historical
periods listed below, there were no Class C Shares or Class Y
Shares outstanding and the information below relates solely to
Class A Shares unless otherwise indicated. Class I Shares were
first offered on January 31, 1998 and none were outstanding
during the periods listed.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5- and 10-
year periods and a period since the inception of the operations
of the Trust (on June 16, 1986) that would equate an initial
hypothetical $1,000 investment in shares of each of the Trust's
classes to the value such an investment would have if it were
completely redeemed at the end of each such period.
In the case of Class A Shares, the calculation assumes
the maximum sales charge is deducted from the hypothetical
initial $1,000 purchase. In the case of Class C Shares, the
calculation assumes the applicable contingent deferred sales
charge ("CDSC") imposed on a redemption of Class C Shares held
for the period is deducted. In the case of Class Y Shares, the
calculation assumes that no sales charge is deducted and no CDSC
is imposed. For all classes, it is assumed that on each
reinvestment date during each such period any capital gains are
reinvested at net asset value, and all income dividends are
reinvested at net asset value, without sales charge (because the
Trust does not impose any sales charge on reinvestment of
dividends for any class). The computation further assumes that
the entire hypothetical account was completely redeemed at the
end of each such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations for Class A Shares is a one
time charge, paid at the time of initial investment. The greatest
impact of this charge is during the early stages of an investment
in the Trust. Actual performance will be affected less by this
one time charge the longer an investment remains in the Trust.
Sales charges at the time of purchase are payable only on
purchases of Class A Shares of the Trust.
Average Annual Compounded Rates of Return:
Class A Shares Class C Shares Class Y Shares
One Year -1.92% 0.31% 2.45%
Five Years 4.13% N/A N/A
Ten Years 5.89% N/A N/A
Since
inception on
March 13, 1986 6.46% 3.97%(1) 5.48%(1)
(1) Period from April 1, 1996 (inception of class) through June
30, 2000.
These figures were calculated according to the following SEC
formula:
P(1+T)n = ERV
where
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at the beginning
of the 1-, 5- and 10-year periods or the period
since inception, at the end of each such period.
The Trust may quote total rates of return in addition to its
average annual total return for each of its classes of shares.
Such quotations are computed in the same manner as the Trust's
average annual compounded rate, except that such quotations will
be based on the Trust's actual return for a specified period as
opposed to its average return over the periods described above.
Total Return
Class A Shares Class C Shares Class Y Shares
One Year -1.92% 0.31% 2.45%
Five Years 22.45% N/A N/A
Ten Years 77.23% N/A N/A
Since
inception on
March 13, 1986 144.93% 18.00%(1) 25.47%(1)
(1) Period from April 1, 1996 (inception of class) through June
30, 2000.
Yield
Current yield reflects the income per share earned by the
Trust's portfolio investments. Current yield is determined by
dividing the net investment income per share earned for each of
the Trust's classes of shares during a 30-day base period by the
maximum offering price per share on the last day of the period
and annualizing the result. Expenses accrued for the period
include any fees charged to all shareholders of each class during
the base period net of fee waivers and reimbursements of
expenses, if any.
The Trust may also quote a taxable equivalent yield for each
of its classes of shares which shows the taxable yield that would
be required to produce an after-tax yield equivalent to that of a
fund which invests in tax-exempt obligations. Such yield is
computed by dividing that portion of the yield of the Trust
(computed as indicated above) which is tax-exempt by one minus
the highest applicable combined Federal and Arizona income tax
rate (and adding the result to that portion of the yield of the
Trust that is not tax-exempt, if any).
The Arizona and the combined Arizona and Federal income
tax rates upon which the Trust's tax equivalent yield quotations
are based are 5.04% and 43.77%, respectively. The latter rate
reflects currently-enacted Federal income tax law. From time to
time, as any changes to such rates become effective, tax
equivalent yield quotations advertised by the Trust will be
updated to reflect such changes. Any tax rate increases will tend
to make a tax-free investment, such as the Trust, relatively more
attractive than taxable investments. Therefore, the details of
specific tax increases may be used in Trust sales material.
Yield for the 30-day period ended June 30, 2000 (the date of
the Trust's most recent audited financial statements):
Class A Shares Class C Shares Class Y Shares
Yield 4.62% 3.96% 4.96%
Taxable
Equivalent
Yield 8.16% 7.00% 8.76%
These figures were obtained using the Securities and
Exchange Commission formula:
Yield = 2 [(a-b + 1)6 -1]
----
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative
of the amounts which were or will be paid to the Trust's
shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by
(i) dividing the total amount of dividends per share paid by the
Trust during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Trust's current distribution rate (calculated
as indicated above). The current distribution rate can differ
from the current yield computation because it could include
distributions to shareholders from additional sources (i.e.,
sources other than dividends and interest), such as short-term
capital gains.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness
of the obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of,
the obligation in the event of bankruptcy,
reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned
by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay
interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt
being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and
risk.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's
Investment Grade as MIG 1 through MIG 4. In the case of variable
rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other
representing an evaluation of the degree of risk associated with
the demand feature. The short-term rating assigned to the demand
feature of VRDOs is designated as VMIG. When no rating is applied
to the long or short-term aspect of a VRDO, it will be designated
NR. Issues or the features associated with MIG or VMIG ratings
are identified by date of issue, date of maturity or maturities
or rating expiration date and description to distinguish each
rating from other ratings. Each rating designation is unique with
no implication as to any other similar issue of the same obligor.
MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issuer's
specific structural or credit features.
MIG1/VMIG1 This designation denotes best
quality. There is present strong protection
by established cash flows, superior liquidity
support or demonstrated broad-based access to
the market for refinancing.
MIG2/VMIG2 This designation denotes high
quality. Margins of protection are ample
although not so large as in the preceding
group.
MIG3/VMIG3 This designation denotes
favorable quality. All security elements are
accounted for but there is lacking the
undeniable strength of the preceding grades.
Liquidity and cash flow protection may be
narrow and market access for refinancing is
likely to be less well established.
MIG4/VMIG4 This designation denotes
adequate quality. Protection commonly
regarded as required of an investment
security is present and although not
distinctly or predominantly speculative,
there is specific risk.
Fitch Investors Service.
A brief description of the applicable Fitch Investors Service
rating symbols and their meanings follows:
AAA
Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA
Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A
High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.
BBB
Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the lowest
investment-grade category.
Notes to Long-term and Short-term ratings:
"+" or "-" may be appended to a rating to denote relative status
within major rating categories. Such suffixes are not added to
the `AAA' Long-term rating category, to categories below `CCC',
or to Short-term ratings other than `F1'.
`NR' indicates that Fitch does not rate the issuer or issue in
question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or
when an obligation matures, is called, or refinanced.
Rating Watch: Ratings are placed on Rating Watch to notify
investors that there is a reasonable probability of a rating
change and the likely direction of such change. These are
designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings
may be raised, lowered or maintained. Rating Watch is typically
resolved over a relatively short period.
A Rating Outlook indicates the direction a rating is likely to
move over a one to two-year period. Outlooks may be positive,
stable or negative. A positive or negative Rating Outlook does
not imply a rating change is inevitable. Similarly, companies
whose outlooks are `stable` could be upgraded or downgraded
before an outlook moves to positive or negative if circumstances
warrant such an action. Occasionally, Fitch may be unable to
identify the fundamental trend. In these cases, the Rating
Outlook may be described as evolving.
Short-Term Obligations
The following ratings scale applies to foreign currency and local
currency ratings. A Short-term rating has a time horizon of less
than 12 months for most obligations, or up to three years for US
public finance securities, and thus places greater emphasis on
the liquidity necessary to meet financial commitments in a timely
manner.
F1
Highest credit quality. Indicates the strongest capacity for
timely payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.
F2
Good credit quality. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
F3
Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
