File Nos. 33-12381 and 811-5047
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[ X ]
Pre-Effective Amendment No. _______ [___]
___
Post-Effective Amendment No. 10 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 11 [ X ]
TAX-FREE FUND OF COLORADO
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer, Brady, Smith, Troxell,
Barrett, Rockett, Hines & Mone
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[_X_] on (April 30, 1996) pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[___] on (date) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effec-
tive date for a previous post-effective amendment.
Registrant hereby declares, pursuant to Section (a)(1) of Rule
24f-2 under the Investment Company Act of 1940, that Registrant has
registered an indefinite number of its shares under the Securities
Act of 1933 pursuant to that Section, and that the Rule 24f-2
Notice for Registrant's fiscal year ended December 31, 1995 was
filed in February 1996.
<PAGE>
TAX-FREE FUND OF COLORADO
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights
4..............Introduction; Investment of the Trust's
Assets; Investment Restrictions; General
Information
5..............Management Arrangements
5A.............**
6..............General Information; Dividend and Tax
Information
7..............Net Asset Value per Share; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information (Prospectus caption);
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind;
Computation of Net Asset Value; Automatic
Withdrawal Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus
caption); General Information
22.............Performance
* Not applicable or negative answer
** Contained in the annual report of the Registrant
<PAGE>
Tax-Free Fund of Colorado
380 Madison Avenue Suite 2300
New York, NY 10017
800-USA-COL2 (800-872-2652)
212-697-6666
Prospectus April 30, 1996
Class A Shares
Class C Shares
The Fund is a mutual fund whose objective is to seek to provide
as high a level of current income exempt from Colorado and regular
Federal income taxes as is consistent with preservation of capital
by investing in municipal obligations which pay interest exempt
from Colorado State and Federal income taxes. These municipal
obligations must, at the time of purchase, either be rated within
the four highest credit ratings (considered as investment grade)
assigned by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or, if unrated, be determined to be of comparable
quality by the Fund's Adviser, KPM Investment Management, Inc.
This Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund (the "Additional Statement") dated April
30, 1996, has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Fund's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Fund and its management not included in this
Prospectus. The Additional Statement is incorporated by reference
in its entirety in this Prospectus. Only when you have read both
the Prospectus and the Additional Statement are all material facts
about the Fund available to you.
Shares of the Fund are not deposits in, obligations of or
guaranteed or endorsed by any bank. Shares of the Fund are not
insured or guaranteed by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency or
government sponsored agency of the Federal Government or any
State.
An investment in the Fund involves investment risks, including
possible loss of the principal amount invested.
For Purchase, Redemption or Account inquiries contact
The Fund's Transfer Agent: Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-872-2651 toll free or 908-855-5731
For General Inquiries & Yield Information,
Call 800-872-2652 toll free or 212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
HIGHLIGHTS
Tax-Free Fund of Colorado, founded by Aquila Management
Corporation in 1987 and one of the Aquilasm Group of Funds, is an
open-end mutual fund which invests in tax-free municipal bonds, the
kind of obligations issued by the State of Colorado, its counties
and various other local authorities to finance such long-term
public purpose projects as schools, universities, housing,
transportation, utilities, hospitals and water and sewer facilities
throughout Colorado. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the Fund
invests pay interest which is exempt from both regular Federal and
State of Colorado income taxes. Dividends paid by the Fund from
this income are likewise free of both such taxes. It is, however,
possible that in certain circumstances a small portion of the
dividends paid by the Fund will be subject to income taxes. The
Federal alternative minimum tax may apply to some investors, but
its impact will be limited since not more than 20% of the Fund's
net assets can be invested in obligations paying interest which is
subject to this tax. The receipt of exempt-interest dividends from
the Fund may result in some portion of social security payments or
railroad retirement benefits being included in taxable income.
Capital gains distributions, if any, are taxable. (See "Dividend
and Tax Information.")
Investment Grade - The Fund will acquire only those municipal
obligations which, at the time of purchase, are within the four
highest credit ratings assigned by Moody's Investors Service, Inc.
or Standard & Poor's Corporation, or are determined by the Adviser
to be of comparable quality. In general there are nine separate
credit ratings, ranging from the highest to the lowest credit
ratings for municipal obligations. Obligations within the top four
ratings are considered "investment grade," but those in the fourth
rating may have speculative characteristics as well. (See
"Investment of the Fund's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of $50
or more, through the convenience of having your investment
electronically transferred from your financial institution account
into the Fund by Automatic Investment or Telephone Investment. (See
"How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides two alternative
ways for individuals to invest. (See "Alternative Purchase Plans.")
One way permits individual investors to pay distribution and
certain service charges principally at the time they purchase
shares; the other way permits investors to pay such costs over a
period of time, but without paying anything at time of purchase,
much as goods can be purchased on an installment plan. For this
purpose the Fund offers the following classes of shares, which
differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A Shares")
are offered to anyone at net asset value plus
a sales charge, paid at the time of purchase,
at the maximum rate of 4.0% of the public
offering price, with lower rates for larger
purchases. (See "How to Purchase Class A
Shares.") Class A Shares are subject to an
asset retention service fee under the Fund's
Distribution Plan at the rate of 0.05 of 1% of
the average annual net assets represented by
the Class A Shares. (See "Distribution
Plan.")
* Level-Payment Class Shares ("Class C Shares")
are offered to anyone at net asset value with
no sales charge payable at the time of
purchase but with a level charge for service
and distribution fees for six years after the
date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the
Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C
Shares.") Six years after the date of
purchase, Class C Shares are automatically
converted to Class A Shares. In addition,
Class C Shares are subject to a contingent
deferred sales charge ("CDSC") if redeemed
before they have been held for 12 months from
the date of purchase; this charge is 1%,
calculated on the net asset value of the Class
C Shares at the time of purchase or at
redemption, whichever is less. There is no
CDSC after Class C Shares have been held
beyond the applicable period. (See
"Alternative Purchase Plans," "Computation of
the Holding Periods for Class C Shares" and
"How to Purchase Class C Shares.")
The Fund also issues Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors.
Class Y Shares are not offered by this Prospectus.
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to you,
directly deposited into your financial institution account or
automatically reinvested without sales charge in additional shares
of the Fund at the then-current net asset value. (See "Dividend and
Tax Information.")
Many Different Issues - You have the advantages of a portfolio
which consists of over 147 issues with different maturities. (See
"Investment of the Fund's Assets.")
Local Portfolio Management - KPM Investment Management, Inc.
serves as the Fund's investment adviser (the "Adviser"), providing
experienced local professional management. The Adviser provides
professional investment advisory services to a broad base of
clients. Advisory facilities for the Fund are carried out at its
Denver, Colorado office, whose staff possesses extensive skills and
broad knowledge of Colorado municipal issuers. KPM Investment
Management, Inc. is a wholly-owned subsidiary of Kirkpatrick,
Pettis, Smith, Polian Inc. ("Kirkpatrick Pettis"), which is a full
service investment firm serving institutional and retail markets
through its investment banking, sales and trading facilities. The
firm currently provides professional investment advisory services
to a broad base of clients and investment banking services to
corporate and public finance clients. Tracing its history to 1925,
Kirkpatrick Pettis currently staffs 9 offices in Colorado, Iowa,
Kansas, Missouri, Nebraska and New York. Since 1983, Kirkpatrick
Pettis has been a wholly-owned subsidiary of Mutual of Omaha
Insurance Company.
The Fund is obligated to pay investment advisory fees at the
rate of 0.20 of 1% of average annual net assets to the Adviser and
administration fees at the rate of 0.30 of 1% of such net assets to
its Administrator (for total fees at the rate of 0.50 of 1% of
average annual net assets). These fees are subject to reduction
when the Fund makes certain payments under the Distribution Plan.
(See "Table of Expenses," "Distribution Plan" and "Management
Arrangements.") Some or all of these fees may be waived by the
Adviser and Administrator.
Redemptions - Liquidity - You may redeem any amount of your
account on any business day at the next determined net asset value
by telephone, FAX or mail request, with proceeds being sent to a
predesignated financial institution, if you have elected Expedited
Redemption. Proceeds will be wired or transferred through the
facilities of the Automated Clearing House, wherever possible, upon
request, if in an amount of $1,000 or more, or will be mailed. For
these and other redemption procedures see "How to Redeem Your
Investment." There are no penalties or redemption fees for
redemption of Class A Shares. However, there is a contingent
deferred sales charge with respect to certain Class A Shares which
have been purchased in amounts of $1 million or more (see
"Purchases of $1 Million or More"). If you redeem Class C Shares
before you have held them for 12 months from the date of purchase
you will pay a Contingent Deferred Sales Charge ("CDSC") at the
rate of 1%. (See "Alternative Purchase Plans" -- "Class C
Shares.")
Certain Stabilizing Measures - The Fund will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class A or Class C Shares of the
Fund into corresponding classes of shares of other Aquila-sponsored
tax-free municipal bond mutual funds or an equity fund. You may
also exchange them into shares of the Aquila-sponsored money market
funds. The exchange prices will be the respective net asset values
of the shares. (See "Exchange Privilege.")
Risks and Special Considerations - The share price, determined
on each business day, varies with the market prices of the Fund's
portfolio securities, which fluctuate with market conditions,
including prevailing interest rates. Accordingly, the proceeds of
redemptions may be more or less than your original cost. (See
"Factors Which May Affect the Value of the Fund's Investments and
Their Yields.") The Fund's assets, being primarily or entirely
Colorado issues, are subject to economic and other conditions
affecting Colorado. (See "Risks and Special Considerations
Regarding Investment in Colorado Obligations.") Moreover, the Fund
is classified as a "non-diversified" investment company, because it
may choose to invest in the obligations of a relatively limited
number of issuers. (See "Investment of the Fund's Assets.") The
Fund may also, to a limited degree, buy and sell futures contracts
and options on futures contracts, although since inception the Fund
has not done so and has no present intention to do so. There may be
risks associated with these practices. (See "Certain Stabilizing
Measures.")
Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual Report
and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND OF COLORADO
TABLE OF EXPENSES
Class A Class C
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.00% None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Deferred Sales Charge None(1) 1.00%(2)
Redemption Fees None None
Exchange Fee None None
Annual Fund Operating Expenses (3)
(as a percentage of average net assets)
Investment Advisory Fee 0.20%(5) 0.20%(6)
12b-1 Fee 0.05%(5) 0.75%
All other expenses (4) 0.45% 0.70%
Administration Fee (after waiver) (4) 0.23%(5) 0.23%(6)
Service Fee None 0.25%
Other Expenses (4) 0.22% 0.22%
Total Fund Operating Expenses (4) 0.70% 1.65%
Example (7)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
<CAPTION>
One Three Five Ten
Year Years Years Years
<S> <C> <C> <C> <C>
Class A Shares $47 $61 $77 $124
Class C Shares
With complete redemption
at end of period $27 $52 $90 $147 (8)
With no redemption $17 $52 $90 $147 (8)
<FN>
(1) Certain shares purchased in transactions of $1 million or more
without a sales charge may be subject to a contingent deferred sales
charge of up to 1% upon redemption during the first four years after
purchase. See "Purchase of $1 Million or More" on page 17.
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds of the shares (or on the original price, whichever is lower) if
redeemed during the first 12 months after purchase.
</FN>
<FN>
(3) Estimated based upon amounts incurred by the Fund during its most
recent fiscal year, restated to reflect current arrangements. During
that period, only Class A Shares were outstanding.
</FN>
<FN>
(4) Administration fees reflect a waiver of 0.07% and other expenses
do not reflect a 0.01% expense offset in custodian fees received for
uninvested cash balances. Reflecting these amounts, administration
fees, other expenses, all other expenses, and total Fund operating
expenses for Class A Shares would have been 0.30%, 0.21%, 0.51% and
0.76%; for Class C Shares, these expenses would have been 0.30%, 0.21%,
0.76% and 1.71%.
</FN>
<FN>
(5) The shareholders of the Fund have approved a change in the Fund's
Distribution Plan which would increase 12b-1 fee payments from 0.05 of
1% of the assets of the Fund allocable to Class A Shares to 0.15 of 1%
of such assets. However, on implementation of such change the advisory
and administration fees payable by the Fund will be reduced so that the
overall expenses of the Fund will remain the same. Implementation of
the change was to have occurred on October 1, 1996 but has been
indefinitely postponed. When and if the change is implemented the
Prospectus will be supplemented. See "Distribution Plan."
</FN>
<FN>
(6) As discussed in note 5, upon implementation of new fee arrangements
for Class A Shares, the advisory fee and the administration fee for
Class C Shares will also be reduced from an annual rate of 0.20% to
0.16%, and from 0.30% to 0.24%, respectively.
</FN>
<FN>
(7) The expense example is based upon the above shareholder transaction
expenses (in the case of Class A Shares, this includes a sales charge
of $40 for a $1,000 investment) and annual Fund operating expenses. It
is also based upon amounts at the beginning of each year which includes
the prior year's assumed results. A year's results consist of an
assumed 5% annual return less total operating expenses; the expense
ratio was applied to an assumed average balance (the year's starting
investment plus one-half the year's results). Each figure represents
the cumulative expenses so determined for the period specified.
</FN>
<FN>
(8) Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT
ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF
PREPARING THE ABOVE EXAMPLE. THE EXAMPLE ALSO REFLECTS THE
MAXIMUM SALES CHARGE. (SEE "HOW TO INVEST IN THE FUND".)
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will
bear directly or indirectly. The assumed 5% annual return should
not be interpreted as a prediction of an actual return, which may
be higher or lower.
<PAGE>
The following historical financial information applies only to
shares of the Trust which have been designated Class A Shares, upon
adoption of the class structure described in the Prospectus. Class
A Shares are not offered by this Prospectus. Similar information
does not exist for Class Y Shares which are offered by this
Prospectus.
<TABLE>
<CAPTION>
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to
the five years ended December 31, 1995 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included
in the Fund's financial statements contained in its Annual Report,
which are incorporated by reference into the Additional Statement.
The information provided in the table should be read in conjunction
with the financial statements and related notes.(+) The Fund's Annual
Report contains additional information about the Fund's performance
and is available upon request without charge.
Year ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year $9.82 $10.77 $10.38 $10.18 $9.77
Income from Investment
Operations:
Net investment income 0.54 0.55 0.57 0.61 0.62
Net gain (loss) on
securities (both
realized and unrealized) 0.74 (0.95) 0.55 0.28 0.41
Total from Investment
Operations 1.28 (0.40) 1.12 0.89 1.03
Less Distributions:
Dividends from net
investment income (0.54) (0.55) (0.57) (0.61) (0.62)
Distributions from
capital gains - - (0.16) (0.08) -
Total Distributions (0.54) (0.55) (0.73) (0.69) (0.62)
Net Asset Value, End of
Year $10.56 $9.82 $10.77 $10.38 $10.18
Total Return (not
reflecting sales load) 13.28% (3.80)% 11.10% 9.00% 10.96%
Ratios/Supplemental Data
Net Assets, End of Year
(in thousands) $219,306 $199,075 $222,277 $174,031 $129,760
Ratio of Expenses to
Average Net Assets 0.63% 0.57% 0.53% 0.45% 0.43%
Ratio of Net Investment
Income to Average Net
Assets 5.21% 5.36% 5.32% 5.90% 6.25%
Portfolio Turnover Rate 14.20% 15.53% 20.89% 25.88% 25.47%
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C>
Net Investment Income $0.52 $0.53 $0.55 $0.59 $0.58
Ratio of Expenses to
Average Net Assets 0.77% 0.76% 0.73% 0.70% 0.80%
Ratio of Net Investment
Income to Average Net
Assets 5.07% 5.17% 5.12% 5.65% 5.88%
<CAPTION>
1990 1989 1988 1987(*)
<C> <C> <C> <C>
$9.80 $9.66 $9.51 $9.60
0.64 0.67 0.63 0.27
(0.03) 0.14 0.14 (0.07)
0.61 0.81 0.77 0.20
(0.64) (0.67) (0.62) (0.29)
- - - -
(0.64) (0.67) (0.62) (0.29)
$9.77 $9.80 $9.66 $9.51
6.59% 8.59% 8.84% 2.12%(1)
$88,086 $55,901 $22,884 $7,678
0.27% 0.14% 0.06% 0.66%(2)
6.56% 6.62% 6.72% 5.72%(2)
23.73% 34.29% 8.13% 5.02%
$0.59 $0.57 $0.55 $0.20
0.75% 1.00% 1.41% 2.98%(2)
6.08% 5.73% 5.37% 3.40%(2)
<FN>
* For the period from May 21, 1987 (commencement of operations)
to December 31, 1987.
</FN>
<FN>
(1) Not annualized.
</FN>
<FN>
(2) Annualized.
</FN>
<FN>
+ On April 19, 1991, Norwest Bank Denver, National Association,
originally the Fund's Investment Adviser, became Sub-Adviser
and Norwest Bank Minnesota, National Association became
Investment Adviser upon completion of a merger with Norwest
Corporation. On October 1, 1992, Kirkpatrick, Pettis, Smith,
Polian Inc. became the Fund's Investment Adviser. On July 1,
1994, its wholly owned subsidiary KPM Investment Management,
Inc. became the Fund's Adviser. On June 13, 1989, Aquila
Management Corporation, originally the Fund's Sub-Adviser and
Administrator became Administrator only. (See "Management
Arrangements").
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment for
investors who seek income exempt from Colorado State and regular
Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Colorado Obligations, as defined below, which
may include obligations of certain non-Colorado issuers. The Fund
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of
Colorado Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Colorado Obligations. Through the convenience of a
single security consisting of shares of the Fund, you are also
relieved of the inconvenience associated with direct investments of
fixed denominations, including the selecting, purchasing, handling,
monitoring call provisions and safekeeping of Colorado Obligations.
Colorado Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations such as bonds are issued include the
construction of a wide range of public facilities such as airports,
highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public
purposes for which municipal obligations may be issued include the
refunding of outstanding obligations, the obtaining of funds for
general operating expenses and the obtaining of funds to lend to
other public institutions and facilities.
INVESTMENT OF THE FUND'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Colorado State and regular
Federal income taxes as is consistent with the preservation of
capital, the Fund will invest in Colorado Obligations (as defined
below). There is no assurance that the Fund will achieve its
objective, which is a fundamental policy of the Fund. (See
"Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Colorado Obligations" means obligations, including those of
certain non-Colorado issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate counsel,
is exempt from regular Federal income taxes and not subject to
Colorado income taxes. Although exempt from regular Federal income
tax, interest paid on certain types of Colorado Obligations, and
dividends which the Fund might pay from this interest, are
preference items as to the Federal alternative minimum tax; for
further information, see "Dividend and Tax Information." As a
fundamental policy, at least 80% of the Fund's net assets will be
invested in Colorado Obligations the income paid upon which will
not be subject to the alternative minimum tax; accordingly, the
Fund can invest up to 20% of its net assets in obligations which
are subject to the Federal alternative minimum tax. The Fund may
refrain entirely from purchasing these types of Colorado
Obligations. (See "Dividend and Tax Information.")
The non-Colorado bonds or other obligations the interest on
which is exempt under present law from regular Federal and Colorado
income taxes are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands.
The Fund will not purchase Colorado Obligations of non-Colorado
issuers unless Colorado Obligations of Colorado issuers of the
desired quality, maturity and interest rate are not available. As
a Colorado-oriented fund, at least 65% of the Fund's total assets
will be invested in Colorado Obligations of Colorado issuers. The
Fund invests only in Colorado Obligations and, possibly, in Futures
and options on Futures (see below) for protective (hedging)
purposes.
In general, there are nine separate credit ratings ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Fund will have a portfolio of quality
oriented (investment grade) securities, the Colorado Obligations
which the Fund will purchase must, at the time of purchase, either
(i) be rated within the four highest credit ratings assigned by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"); or (ii) if unrated, be determined to be of
comparable quality to municipal obligations so rated by KPM
Investment Management, Inc. (the "Adviser"), subject to the
direction and control of the Fund's Board of Trustees. Municipal
obligations rated in the fourth highest credit rating are
considered by such rating agencies to be of medium quality and thus
may present investment risks not present in more highly rated
obligations. Such bonds lack outstanding investment characteristics
and may in fact have speculative characteristics as well; changes
in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments
than is the case for higher grade bonds. If after purchase the
rating of any rated Colorado Obligation is downgraded such that it
could not then be purchased by the Fund, or, in the case of an
unrated Colorado Obligation, if the Adviser determines that the
unrated obligation is no longer of comparable quality to those
rated obligations which the Fund may purchase, it is the current
policy of the Fund to cause any such obligation to be sold as
promptly thereafter as the Adviser in its discretion determines to
be consistent with the Fund's objectives; such obligation remains
in the Fund's portfolio until it is sold. In addition, because a
downgrade often results in a reduction in the market price of a
downgraded obligation, sale of such an obligation may result in a
loss. See Appendix A to the Additional Statement for further
information as to these ratings. The Fund can purchase industrial
development bonds only if they meet the definition of Colorado
Obligations, i.e., the interest on them is exempt from Colorado
State and regular Federal income taxes.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Fund also intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code").
One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of the Fund, at
least 50% of its assets must consist of (i) cash; and (ii)
securities which, as to any one issuer, do not exceed 5% of the
value of the Fund's assets. If the Fund had elected to register
under the 1940 Act as a "diversified" investment company, it would
have to meet the same test as to 75% of its assets. The Fund may
therefore not have as much diversification among securities, and
thus diversification of risk, as if it had made this election under
the 1940 Act. In general, the more the Fund invests in the
securities of specific issuers, the more the Fund is exposed to
risks associated with investments in those issuers. The Fund's
assets, being primarily or entirely Colorado issues, are
accordingly subject to economic and other conditions affecting
Colorado. (See "Risk Factors and Special Considerations Regarding
Investment in Colorado Obligations.")
Certain Stabilizing Measures
The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash and
cash equivalents in attempting to protect against declines in the
value of its investments and other market risks. There can,
however, be no assurance that these will be successful. Although
the Fund has no current intention of using futures and options, to
the limited degree described below, these may be used to attempt to
hedge against changes in the market price of the Fund's Colorado
Obligations caused by interest rate fluctuations. Futures and
options could also provide a hedge against increases in the cost of
securities the Fund intends to purchase.
Although it does not currently do so, and since inception
has not done so, the Fund may buy and sell futures contracts
relating to indices on municipal bonds ("Municipal Bond Index
Futures") and to U.S. government securities ("U.S. Government
Securities Futures"); both kinds of futures contracts are
"Futures." The Fund may also write and purchase put and call
options on Futures.
As a matter of fundamental policy the Fund will not buy or
sell a Future or an option on a Future if thereafter more than 10%
of its net assets would be in initial or variation margin on such
Futures and options on them, and in premiums on such options. Under
an applicable regulatory rule, the Fund will not enter into Futures
or options for which the aggregate initial margins and premiums
paid for options exceed 5% of the fair market value of the Fund's
assets. (See the Additional Statement.)
The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Fund's portfolio and the
prices of Futures or options purchased or sold by the Fund; (ii)
incorrect forecasts by the Adviser concerning interest rates which
may result in the hedge being ineffective; and (iii) possible lack
of a liquid secondary market for a Future or option; the resulting
inability to close a Futures or options position could adversely
affect the Fund's hedging ability.
For a hedge to be completely effective, the price change of
the hedging instrument should equal the price change of the
security being hedged. The risk of imperfect correlation of these
price changes is increased as the composition of the Fund's
portfolio is divergent from the debt securities underlying the
hedging instrument. To date, the Adviser has had no experience in
the use of Futures or options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits" established
by commodity exchanges which restrict the amount of change in the
contract price allowed during a single trading day. Thus, once a
daily limit is reached, no further trades may be entered into
beyond the limit, thereby preventing the liquidation of open
positions. Prices have in the past reached the daily limit on a
number of consecutive trading days. For further information about
Futures and options, see the Additional Statement.
When and if the Fund determines to use Futures and options,
the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one year,
but permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding one year, in each case upon
not more than 30 days' notice. The issuer of such notes normally
has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the
noteholders. The interest rate on a floating rate demand note is
based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
Participation Interests
The Fund may purchase from financial institutions
participation interests in Colorado Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the
underlying Colorado Obligations in the proportion that the Fund's
participation interest bears to the total amount of the underlying
Colorado Obligations. All such participation interests must meet
the Fund's credit requirements. (See "Limitation to 10% as to
Certain Investments.")
When-Issued and Delayed Delivery Purchases
The Fund may buy Colorado Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Colorado Obligations so purchased are subject to market
fluctuation and no interest accrues to the Fund until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. The Fund cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Fund chooses
to dispose of the right to acquire a when-issued obligation prior
to its acquisition, it could, as with the disposition of any other
portfolio holding, incur a gain or loss due to market fluctuation;
any such gain would be a taxable short-term gain. The Fund places
an amount of assets equal in value to the amount due on the
settlement date for the when-issued or delayed delivery securities
being purchased in a segregated account with the Custodian, which
is marked to market every business day. See the Additional
Statement for further information.
Limitation to 10% as to Certain Investments
The Fund cannot purchase Colorado Obligations that are not
readily marketable if thereafter more than 10% of its net assets
would consist of such investments. However, this 10% limit does not
include any Colorado Obligations as to which the Fund can exercise
the right to demand payment in full within three days and as to
which there is a secondary market. Floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. (See
the Additional Statement.)
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets in
(i) Colorado Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless this Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value of
the Fund's Investments and Their Yields
The value of the Colorado Obligations in which the Fund
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Fund buys Colorado Obligations, the value of these
obligations will normally go down; if these rates go down, the
value of these obligations will normally go up. Changes in value
and yield based on changes in prevailing interest rates may have
different effects on short-term Colorado Obligations than on
long-term obligations. Long-term obligations (which often have
higher yields) may fluctuate in value more than short-term ones.
For this reason, the Fund may, to achieve a defensive position,
shorten the average maturity of its portfolio.
Risk Factors and Special Considerations Regarding
Investment in Colorado Obligations
The following is a discussion of the general factors that
might influence the ability of Colorado issuers to repay principal
and interest when due on the Colorado Obligations contained in the
portfolio of the Fund. Such information is derived from sources
that are generally available to investors and is believed by the
Fund to be accurate, but has not been independently verified and
may not be complete.
Because of limitations contained in the state constitution,
the State of Colorado issues no general obligation bonds secured by
the full faith and credit of the state. Several agencies and
instrumentalities of state government are authorized by statute to
issue bonds secured by revenues from specific projects and
activities. Additionally, the state currently is authorized to
issue short-term revenue anticipation notes.
There are approximately 2,000 units of local government in
Colorado, including counties, statutory cities and towns, home-rule
cities and counties, school districts and a variety of water,
irrigation, and other special districts and special improvement
districts, all with various constitutional and statutory authority
to levy taxes and incur indebtedness. The major source of revenue
for funding such indebtedness is the ad valorem property tax, which
presently is levied and collected solely at the local level,
although the state is also authorized to levy such taxes. There is
a statutory restriction on the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions in Colorado
without electoral approval.
On November 3, 1992, an amendment to the Constitution of the
State of Colorado was approved and went into effect. In general,
the effect of the amendment is to limit the ability of the State
and local governments to increase revenues and expenditures, issue
debt and enter into other financial obligations and raise taxes. At
the date of this Prospectus, it is not possible to predict how the
amendment will affect the various issuers of existing and future
Colorado Obligations, but in general it could reduce the tax
coverage for Colorado Obligations, limit the ability of
municipalities to issue new obligations and could impair the
liquidity of Colorado Obligations. In addition, the various
provisions of the amendment may result in legislation and have
resulted in litigation that may have effects on Colorado
Obligations that cannot now be predicted. The principal provisions
of the amendment and other matters relating to it are summarized in
the Additional Statement.
Colorado's economy is diversified and the state has become the
services center for the Rocky Mountain region. The state's economy
includes agriculture, manufacturing (especially high technology
activities), construction, tourism (ski resorts and national parks)
and mining (primarily oil production). Colorado has recovered from
economic difficulties experienced during the past several years,
which caused state government revenue shortfalls at that time.
Employment in Colorado is diversified among services,
trade, government and manufacturing. Employment growth in Colorado
has exceeded that of the United States as a whole since 1989.
It can be expected that federal deficit reduction measures
will have significant direct and indirect impact on the economy of
the state as a whole and on specific localities with a large
presence of federal activity. As a result of all these factors,
there can be no assurance that further economic difficulties and
their impact on state and local government finances will not
adversely affect the market value of the Colorado Obligations held
by the Fund or the ability of the respective obligors to pay debt
service on certain of such obligations. Obligations of non-Colorado
issuers are subject to the risks of general economic and other
factors affecting those issuers.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and cannot
do. Certain of these policies, identified in the Prospectus and
Additional Statement as "fundamental policies," cannot be changed
unless the holders of a "majority," as defined in the 1940 Act, of
the Fund's outstanding shares vote to change them. (See the
Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Fund's fundamental policies, not otherwise identified in the
Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than the Colorado
Obligations meeting the standards stated under "Investment of the
Fund's Assets"; the Fund can also purchase and sell Futures and
options on them within the limits there discussed.
2. The Fund has industry investment requirements.
The Fund 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 Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Fund cannot make loans.
The Fund can buy those Colorado Obligations which it is
permitted to buy (see "Investment of the Fund's Assets"); this is
investing, not making a loan. The Fund cannot lend its portfolio
securities.
4. The Fund can borrow only in limited amounts for special
purposes.
The Fund 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 Fund's income. Except in connection with
borrowings, the Fund will not issue senior securities. The Fund
will not purchase any Colorado Obligations, Futures or options on
Futures while it has any outstanding borrowings which exceed 5% of
the value of its total assets.
NET ASSET VALUE PER SHARE
The Fund's net asset value and offering price per share of
each class are determined as of 4:00 p.m. New York time on each day
that the New York Stock Exchange is open (a "business day"). The
net asset value per share is determined by dividing the value of
the net assets of the Fund (i.e., the value of the assets less
liabilities) by the total number of shares outstanding.
Determination of the value of the Fund's assets is subject to the
direction and control of the Fund's Board of Trustees. In general
, it is based on market value, except that Colorado Obligations
maturing in 60 days or less are generally valued at amortized cost;
see the Additional Statement for further information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus, the Fund provides individual investors
with the option of two alternative ways to purchase shares, through
two separate classes of shares. All classes represent interests in
the same portfolio of Colorado Obligations. The primary distinction
among the classes of shares offered to individuals lies in their
sales charge structures and ongoing expenses, as described below.
You should choose the class that best suits your own circumstances
and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By purchasing
Class C Shares, you will pay a sales charge over a period of six
years after purchase but without paying anything at time of
purchase, much as goods can be purchased on an installment plan.
You are subject to a conditional deferred sales charge, described
below, but only if you redeem your Class C Shares before they have
been held 12 months from your purchase. (See "Computation of
Holding Periods for Class C Shares.")
* Class A Shares, "Front-Payment Class Shares," are offered
to anyone at net asset value plus a sales charge, paid at
the time of purchase, at the maximum rate of 4.0% of the
public offering price, with lower rates for larger
purchases. When you purchase Class A Shares, the amount
of your investment is reduced by the applicable sales
charge. Under the Fund's Distribution Plan, Class A
Shares are subject to a fee of 0.05 of 1% of the average
annual net assets of the Class A Shares up to $250
million and 0.15 of 1% of such assets over $250 million.
Certain Class A Shares purchased in transactions of $1
million or more are subject to a contingent deferred
sales charge. (See "Purchases of $1 Million or
More.")
* Class C Shares, "Level Payment Class Shares," are offered
to anyone at net asset value with no sales charge payable
at purchase but with a level charge for distribution fees
and service fees for six years after the date of purchase
at the aggregate annual rate of 1% of the average annual
net assets of the Class C Shares. (See "Distribution
Plan" and "Shareholder Services Plan for Class C
Shares.") Six years after the date of purchase, Class C
Shares, including Class C Shares acquired in exchange for
other Class C Shares under the Exchange Privilege (see
"Exchange Privilege"), are automatically converted to
Class A Shares. In addition, if you redeem Class C Shares
before you have held them for 12 months from the date of
purchase you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%, calculated on the net asset
value of the redeemed Class C Shares at the time of
purchase or of redemption, whichever is less. The amount
of any CDSC will be paid to the Distributor. The CDSC
does not apply to shares acquired through the
reinvestment of dividends on Class C Shares or to any
Class C Shares held for more than 12 months after
purchase. In the Prospectus, 12-month and six-year
holding periods are considered modified by up to one
month depending upon when during a month your purchase of
such shares is made. (See "Computation of Holding Periods
for Class C Shares" and "How to Purchase Class C
Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions, second
of any Class C Shares you have held for more than 12 months from
the date of purchase and finally of those Class C Shares as to
which the CDSC is payable which you have held the longest. This
will result in your paying the lowest possible CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will be
deemed to have been made on the first business day of that month at
the average cost of all purchases made during that month. The
12-month CDSC holding period will end on the first business day of
the 12th calendar month after the date your purchase is deemed to
have been made. Accordingly, the CDSC holding period applicable to
your Class C Shares may be up to one month less than the full 12
months depending upon when your actual purchase was made during a
month. Running of the 12-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for Class C Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class C
Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day of
the month following that in which the sixth anniversary of your
purchase of the Class C Shares occurred, except as noted below.
Accordingly, the holding period applicable to your Class C Shares
may be up to one month more than the six years depending upon when
your actual purchase was made during a month. Because the per share
value of Class A Shares may be higher than that of Class C Shares
at the time of conversion, you may receive fewer Class A Shares
than the number of Class C Shares converted. If you have made one
or more exchanges of Class C Shares among the Aquila-sponsored
tax-free municipal bond funds or equity funds under the Exchange
Privilege, the six-year holding period is deemed to have begun on
the date you purchased your original Class C Shares of the Fund or
of another of the Aquila bond or equity funds. The six-year holding
period will be suspended by one month for each period of thirty
days during which you hold shares of a money market fund you have
received in exchange for Class C Shares under the Exchange
Privilege. (See "Exchange Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<S> <C> <C>
Class A Class C
Initial Sales Maximum of 4% None
Charge of the public
offering price
Contingent None (except Maximum CDSC
Deferred for certain of 1% if shares
Sales Charge purchases over redeemed before
$1 Million) 12 months; 0%
after 12 months
Distribution and 0.05 of 1% Distribution fee
Service Fees of 0.75 of 1% and
a service fee of
0.25 of 1% for a
total of 1%,
payable for six
years
Other Information Initial sales Shares convert
charge waived to Class A Shares
or reduced in after six years
some cases
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between Class
A Shares and Class C Shares. It is recommended that any investment
in the Fund be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual service
and distribution fees on the Class C Shares will equal or exceed
the total cost of the initial 4% maximum initial sales charge and
0.05 of 1% annual fee payable for Class A Shares. For example, if
equal amounts were paid at the same time for Class A Shares (where
the amount invested is reduced by the amount of the sales charge)
and for Class C Shares (which carry no sales charge at the time of
purchase) and the net asset value per share remained constant over
time, the total of such costs for Class C Shares would equal the
total of such costs for Class A Shares after approximately four and
two-thirds years. This example assumes no redemptions and
disregards the time value of money. Purchasers of Class C Shares
have all of their investment dollars invested from the time of
purchase, without having their investment reduced at the outset by
the initial sales charge payable for Class A Shares. If you invest
in Class A Shares you will pay the entire sales charge at the time
of purchase. Accordingly, if you expect to redeem your shares
shortly after purchase, you should consider the total cost of such
an investment in Class A Shares compared with a similar investment
in Class C Shares. The example under "Table of Expenses" shows the
effect of Fund expenses for both classes if a hypothetical
investment in each of the classes is held for 1, 3, 5 and 10 years.
(See the Table of Expenses.)
Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends of
each class can vary because each class will bear certain
class-specific charges. For example, each class will bear the costs
of printing and mailing annual reports to its own shareholders.
HOW TO INVEST IN THE FUND
The Fund's shares may be purchased through any investment
broker or dealer (a "selected dealer") which has a sales agreement
with Aquila Distributors, Inc. (the "Distributor") or through the
Distributor. There are two ways to make an initial investment: (i)
order the shares through your investment broker or dealer, if it is
a selected dealer; or (ii) mail the Application with payment to
Administrative Data Management Corp. (the "Agent") at the address
on the Application. If you invest in Class A Shares, the applicable
sales charge will apply in either instance. Subsequent investments
are also subject to the applicable sales charges. You are urged to
complete an Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be made
in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus or
Additional Statement. You may also make an initial investment of at
least $50 by establishing an Automatic Investment Program for
automatic investments of at least $50 per month and paying at least
$50. (See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank or credit
union or a United States branch of a foreign commercial bank (each
of which is a "Financial Institution"). You may make subsequent
investments in the same class of shares in any amount (unless you
have an Automatic Withdrawal Plan). Your subsequent investment may
be made through a selected dealer or by forwarding payment to the
Agent, with the name(s) of account owner(s), the account number ,
the name of the Fund and the class of shares to be purchased. With
subsequent investments, please send the pre-printed stub attached
to the Fund's confirmations.
Subsequent investments of $50 or more in shares of the
same class as your initial investment can be made by electronic
funds transfer from your demand account at a Financial
Institution. To use electronic funds transfer for your purchases,
your Financial Institution must be a member of the Automated
Clearing House and the Agent must have received your completed
Application designating this feature, or, after your account has
been opened, a Ready Access Features form available from the
Distributor or the Agent. A pre-determined amount can be regularly
transferred for investment ("Automatic Investment"), or single
investments can be made upon receipt by the Agent of telephone
instructions from anyone ("Telephone Investment"). The maximum
amount of each Telephone Investment is $50,000. Upon 30 days'
written notice to shareholders, the Fund may modify or terminate
these investment methods at any time or charge a service fee,
although no such fee is currently contemplated.
The offering price is the net asset value per share for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent from selected dealers that day, except that orders
received by it after 4:00 p.m. New York time will receive that
day's offering price only if such orders were received by selected
dealers from customers prior to such time and transmitted to the
Distributor prior to its close of business that day (normally 5:00
p.m. New York time); if not so transmitted, such orders will be
filled at the next determined offering price. Selected dealers are
required to transmit orders promptly. Investments by mail are made
at the offering price next determined after receipt of the purchase
order by the Agent. Purchase orders received on other than a
business day will be executed on the next succeeding business day.
Purchases by Automatic Investment and Telephone Investment will be
executed on the first business day occurring on or after the date
an order is considered received by the Agent at the price
determined on that day. In the case of Automatic Investment your
order will be executed on the date you specified for investment at
the price determined on that day. If that day is not a business day
your order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day it will be executed at the price determined
on the following business day. The sale of shares will be suspended
during any period when the determination of net asset value is
suspended and may be suspended by the Distributor when the
Distributor judges it in the Fund's best interest to do so.
How to Purchase Class A Shares (Front-Payment Class Shares)
The following table shows the amount of the sales charges to
a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions"):
<TABLE>
Sales Sales Commis-
Charge Charge sions
as as as
Percentage Approximate Percentage
of Public Percentage of
Amount of Offering of Amount Offering
Purchase Price Invested Price
<S> <C> <C> <C>
Less than $25,000...... 4.00% 4.17% 3.00%
$25,000 but less
than $50,000........ 3.75% 3.90% 3.00%
$50,000 but less
than $100,000....... 3.50% 3.63% 2.75%
$100,000 but less
than $250,000....... 3.25% 3.36% 2.75%
$250,000 but less
than $500,000....... 3.00% 3.09% 2.50%
$500,000 but less
than $1,000,000..... 2.50% 2.56% 2.25%
For purchase of $1 million or more see "Purchase of $1 Million or
More," below.
</TABLE>
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing shares for his or their own
accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; and (d) a
tax-exempt organization enumerated in Section 501(c)(3) or (13) of
the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the entire
sales charge is reallowed, such selected dealers may be deemed to
be underwriters as that term is defined in the Securities Act of
1933.
Purchase of $1 Million or More
Class A Shares issued in purchases of $1 million or more by a
single purchaser are called "CDSC Class A Shares." CDSC Class A
Shares also include certain Class A Shares issued in purchases of
$1 million or more under the program captioned "Special Dealer
Arrangements," below. (CDSC Class A Shares do not include (i) Class
A Shares purchased without sales charge pursuant to the terms
described under "General," below and (ii) Class A Shares purchased
in transactions of less than $1 million and when certain special
dealer arrangements are not in effect under "Certain Investment
Companies" set forth under "Reduced Sales Charges," below.)
When you purchase CDSC Class A Shares you will not pay a sales
charge at the time of purchase, and the Distributor will pay to any
dealer effecting such a purchase an amount equal to 1% of the sales
price of the shares purchased for purchases of $1 million but less
than $2.5 million, 0.50 of 1% for purchases of $2.5 million but
less than $5 million, and 0.25 of 1% for purchases of $5 million or
more, if the CDSC Class A Shares remain outstanding for a period of
at least one year. A pro-rata portion of this fee will be payable
for each day the CDSC Class A Shares are outstanding in the first
one-year period following issuance of such shares. The fee payable
for each calendar quarter will be made within fifteen days of the
end of that quarter.
If you redeem all or part of your CDSC Class A Shares during
the four years after your purchase of such shares, at the time of
redemption you will be required to pay to the Distributor a special
contingent deferred sales charge based on the lesser of (i) the net
asset value of your redeemed CDSC Class A Shares at the time of
purchase or (ii) the net asset value of your redeemed CDSC Class A
Shares at the time of redemption (the "Redemption Value"). The
special charge will be an amount equal to 1% of the Redemption
Value if the redemption occurs within the first two years after
purchase, and 0.50 of 1% of the Redemption Value if the redemption
occurs within the third or fourth year after purchase. The special
charge will apply to redemptions of CDSC Class A Shares purchased
without a sales charge pursuant to a Letter of Intent, as described
below under "Reduced Sales Charges." The special charge does not
apply to shares acquired through the reinvestment of dividends on
CDSC Class A Shares or to any CDSC Class A Shares held for more
than four years after purchase. In determining whether the special
charge is applicable, it will be assumed that the CDSC Class A
Shares you have held the longest are the first CDSC Class A Shares
to be redeemed, unless you instruct the Agent otherwise. It will
also be assumed that if you have both CDSC Class A Shares and
non-CDSC Class A Shares the non-CDSC Class A Shares will be
redeemed first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar month
will be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that month.
The four-year holding period will end on the first business day of
the 48th calendar month after the date your purchase is deemed to
have been made. Accordingly, the CDSC holding period applicable to
your CDSC Class A Shares may be up to one month less than the full
48 months depending upon when your actual purchase was made during
a month. Running of the 48-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for CDSC Class A Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of Class A
Shares
Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance with
the above schedule for subsequent purchases of Class A Shares if
the cumulative value (at cost or current net asset value, whichever
is higher) of Class A Shares you have previously purchased with a
sales charge, together with Class A Shares of your subsequent
purchase with such a charge, amounts to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
Class A Shares of the Fund through a single selected dealer or
through the Distributor. Class A Shares of the Fund which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Fund's Trustees and officers, by
the directors, officers and certain employees, retired employees
and representatives of the Adviser and its parent and affiliates,
the Administrator and the Distributor, by selected dealers and
brokers and their officers and employees, by certain persons
connected with firms providing legal, advertising or public
relations assistance, by certain family members of, and plans for
the benefit of, the foregoing, and for the benefit of trust or
similar clients of banking institutions over which these
institutions have full investment authority if the Distributor has
entered into an agreement relating to such purchases. Except for
the last category, purchasers must give written assurance that the
purchase is for investment and that the Class A Shares will not be
resold except through redemption. There may be tax consequences of
these purchases. Such purchasers should consult their own tax
counsel. Class A Shares may also be issued at net asset value in a
merger, acquisition or exchange offer made pursuant to a plan of
reorganization to which the Fund is a party.
The Fund permits the sale of its Class A Shares at prices
that reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group (i) is a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer), which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing shares; (iii) gives its endorsement or
authorization (if it is a group or association) to an investment
program to facilitate solicitation of its membership by a broker or
dealer; and (iv) complies with the conditions of purchase that are
set forth in any agreement entered into between the Fund and the
group, representative or broker or dealer. At the time of purchase
you must furnish the Distributor with information sufficient to
permit verification that the purchase qualifies for a reduced sales
charge, either directly or through a broker or dealer.
Certain Investment Companies: Class A Shares of the Fund
may be purchased at net asset value without sales charge (except as
set forth below under "Special Dealer Arrangements") to the extent
that the aggregate net asset value of such Class A Shares does not
exceed the proceeds from a redemption (a "Qualified Redemption"),
made within 120 days prior to such purchase, of shares of another
investment company on which a sales charge , including a contingent
deferred sales charge , has been paid. Additional information is
available from the Distributor.
To qualify, the following special procedures must be followed:
1. A completed Application (included in the Prospectus) and
payment for the shares to be purchased must be sent to the
Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
Suite 2300, New York, NY 10017 and should not be sent to the
Shareholder Servicing Agent of the Fund, Administrative Data
Management Corp. (This instruction replaces the mailing
address contained on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective
shareholder has made a Qualified Redemption in an amount at
least equal to the net asset value of the Class A Shares to be
purchased. Satisfactory evidence includes a confirmation of
the date and the amount of the redemption from the investment
company, its transfer agent or the investor's broker or
dealer, or a copy of the investor's account statement with the
investment company reflecting the redemption transaction.
3. You must complete and return to the Distributor a
Transfer Request Form, which is available from the
Distributor.
The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Fund) will
pay to any dealer effecting a purchase of Class A Shares of the
Fund using the proceeds of a Qualified Redemption the lesser of 1%
of such proceeds or the same amounts described under "Purchase of
$1 Million or More," above, on the same terms and conditions. Class
A Shares of the Fund issued in such a transaction will be CDSC
Class A Shares and if you thereafter redeem all or part of such
shares during the four-year period from the date of purchase you
will be subject to the special contingent deferred sales charge
described under "Purchases of $1 Million or More," above, on the
same terms and conditions. Whenever the Special Dealer Arrangements
are in effect the Prospectus will be supplemented.
How to Purchase Class C Shares (Level Payment Class Shares)
Level Payment Class Shares (Class C Shares) are offered at net
asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Fund represented by
the Class C Shares. In addition, Class C Shares are subject to a
contingent deferred sales charge ("CDSC") if redeemed before you
have held them for 12 months from the date of purchase at the rate
of 1%, calculated on the net asset value of the Class C Shares at
the time of purchase or of redemption, whichever is less. There is
no CDSC after Class C Shares have been held beyond the applicable
period. The CDSC does not apply to shares acquired through the
reinvestment of dividends on Class C Shares.
The Distributor will pay to any dealer effecting a purchase of
Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Fund. Additional compensation may include
payment or partial payment for advertising of the Fund's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Fund effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and Dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through a Payroll Plan.
Investments can be made in either Class A Shares or Class C Shares.
In order to participate in a Payroll Plan, you should make
arrangements with your own employer's payroll department, and you
must complete and sign any special application forms which may be
required by your employer. You must also complete the Application
included in the Prospectus. Once your application is received and
put into effect, under a Payroll Plan the employer will make a
deduction from payroll checks in an amount you determine, and will
remit the proceeds to the Fund. An investment in the Fund will be
made for you at the offering price, which includes applicable sales
charges determined as described above, when the Fund receives the
funds from your employer. The Fund will send a confirmation of each
transaction to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to you
in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you so
request in writing to the Agent. All share certificates previously
issued by the Fund represent Class A Shares. No certificates will
be issued for fractional Class A shares or if you have elected
Automatic Investment or Telephone Investment for Class A Shares
(see "How to Invest in the Fund" above) or Expedited Redemption
(see "How to Redeem Your Investment" below). If certificates for
Class A Shares are issued at your request, Expedited Redemption
Methods described below will not be available. In addition, you may
incur delay and expense if you lose the certificates.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a written plan
adopted under the Rule. The Plan has three parts.
Under one part of the Plan , the Fund is authorized to make
payments with respect to Class A Shares ("Class A Permitted
Payments") to Qualified Recipients, which payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent and may not exceed, for any fiscal year of the
Fund (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), with respect to net assets
of the Fund up to $250 million represented by the Class A Shares of
the Fund, 0.05 of 1% of average annual net assets of the Fund and
0.15 of 1% with respect to such assets above that amount. Such
payments shall be made only out of the Fund's assets allocable to
the Class A Shares. "Qualified Recipients" means broker-dealers or
others selected by the Distributor, including but not limited to
any principal underwriter of the Fund, with which the Distributor
has entered into written agreements and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Class A Shares or
servicing of accounts of shareholders owning Class A Shares.
The Board of Trustees and shareholders have approved
certain changes to the Plan, the Investment Advisory Agreement (the
"Advisory Agreement") and the Administration Agreement (the
"Administration Agreement") of the Fund which will allow the Fund
to make payments to Qualified Recipients, as defined in the Plan,
at an annual rate of 0.15 of 1% of all of the Fund's average annual
net assets represented by Class A Shares. The proposed increased
payments will be accompanied by matching reductions in fees payable
currently to the Adviser and Administrator. The annual rates of the
advisory fee will be reduced from 0.20 of 1% to 0.16 of 1% and the
rate of the administration fee will be reduced from 0.30 of 1% to
0.24 of 1% of the Fund's average annual net assets. The combined
payments of these fees will accordingly remain at the current level
of 0.55 of 1% of the average annual net assets represented by the
Class A Shares. Implementation of this change was to have taken
place on the earlier of the first day of the calendar quarter after
the quarter in which the Fund's net assets exceed $250 million
(which has not yet occurred) or October 1, 1996. At the date of the
Prospectus, management of the Fund has determined that
implementation of the changes should be indefinitely postponed.
When and if it is determined to implement the changes the
Prospectus will be supplemented.
Payments under the Plan commenced as of July 1, 1994. Until
April 30, 1996, all outstanding shares of the Fund were what are
currently designated Class A Shares. During the fiscal year ended
December 31, 1995, $106,748 was paid under the Plan to Qualified
Recipients, of which, $2,533 was paid to the Distributor. (See the
Additional Statement for a description of the Distribution
Plan.)
Under another part of the Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal year
of the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Plan are not accruable or for any
fiscal year which is not a full fiscal year), 0.75 of 1% of the
average annual net assets represented by the Class C Shares of the
Fund. Such payments shall be made only out of the Fund's assets
allocable to the Class C Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including but
not limited to any principal underwriter of the Fund, with which
the Distributor has entered into written agreements and which have
rendered assistance (whether direct, administrative, or both) in
the distribution and/or retention of the Fund's Class C Shares or
servicing of accounts of shareholders owning Class C Shares.
Payments with respect to Class C Shares during the first year after
purchase are paid to the Distributor and thereafter to other
Qualified Recipients.
Another part of the Plan is designed to protect against any
claim against or involving the Fund that some of the expenses which
might be considered to be sales-related which the Fund pays or may
pay come within the purview of the Rule. The Fund believes that
except for Permitted Payments it is not financing any such activity
and does not consider any payment enumerated in this part of the
Plan as so financing any such activity. However, it might be
claimed that some of the expenses the Fund pays come within the
purview of the Rule. If and to the extent that any payment as
specifically listed in the Plan (see the Additional Statement) is
considered to be primarily intended to result in or as indirect
financing of any activity which is primarily intended to result in
the sale of Fund shares, these payments are authorized under the
Plan. In addition, if the Administrator, out of its own funds,
makes payment for distribution expenses such payments are
authorized. See the Additional Statement.
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Service Fees") to
Qualified Recipients. Service Fees shall be paid through the
Distributor or shareholder servicing agent as disbursing agent, and
may not exceed, for any fiscal year of the Fund (as adjusted for
any part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.25 of 1% of the average annual net assets
represented by the Class C Shares of the Fund. Such payments shall
be made only out of the Fund's assets represented by the Class C
Shares. "Qualified Recipients" means broker-dealers or others
selected by the Distributor, including but not limited to any
principal underwriter of the Fund, with which the Distributor has
entered into written agreements and which have agreed to provide
personal services to holders of Class C Shares and/or maintenance
of Class C shareholder accounts. See the Additional Statement.
Service Fees with respect to Class C Shares will be paid to the
Distributor.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net
asset value next determined after acceptance of your redemption
request at the Agent (subject to any applicable contingent deferred
sales charge for redemptions of Class C Shares and CDSC Class A
Shares). For redemptions of Class C Shares and CDSC Class A Shares,
at the time of redemption a sufficient number of additional shares
will be redeemed to pay for any applicable contingent deferred
sales charge. Redemptions can be made by the various methods
described below. There is no minimum period for any investment in
the Fund, except for shares recently purchased by check, Automatic
Investment or Telephone Investment as discussed below. Except for
CDSC Class A Shares (see "Purchases of $1 Million or More") there
are no redemption fees or withdrawal penalties for Class A Shares.
Class C Shares are subject to a contingent deferred sales charge if
redeemed before they have been held 12 months from the date of
purchase. (See "Alternative Purchase Plans.") A redemption may
result in a transaction taxable to you. If you own both Class A
Shares and Class C Shares and do not specify which you wish to
redeem, it will be assumed that you wish to redeem Class A
Shares.
For your convenience the Fund offers expedited redemption
for all classes of shares to provide you with a high level of
liquidity for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your address
of record during the 30 days preceding your redemption
request. You can make only one request for telephone
redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name , your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-872-2651 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
2. By FAX or Mail. You may also request redemption payments
to a predesignated Financial Institution account by a letter
of instruction sent to: Administrative Data Management Corp.,
Attn: Aquilasm Group of Funds, by FAX at 908-855-5730 or by
mail at 581 Main Street, Woodbridge, NJ 07095-1198, indicating
account name(s), account number, amount to be redeemed, and
any payment directions, signed by the registered holder(s).
Signature guarantees are not required. See "Redemption
Payments" below for payment methods.
If you wish to use the above procedures you should so elect on
the Expedited Redemption section of the Application or the Ready
Access Features form and provide the required information
concerning your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Fund. You may change the
designated Financial Institution account at any time by completing
and returning a Ready Access Features form. For protection of your
assets, this form requires signature guarantees and possible
additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed should be sent in blank (unsigned) to
the Fund's Shareholder Servicing Agent: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main
Street, Woodbridge, NJ 07095-1198, with payment instructions.
A stock assignment form signed by the registered
shareholder(s) exactly as the account is registered must also
be sent to the Shareholder Servicing Agent.
For your own protection, it is essential that certificates
be mailed separately from signed redemption documentation. Because
of possible mail problems, it is also recommended that certificates
be sent by registered mail, return receipt requested.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration of
the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required if
sufficient documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature
guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the Fund, and you have not elected
Expedited Redemption to a predesignated Financial Institution
account, you must use the Regular Redemption Method. Under
this redemption method you should send a letter of instruction
to: Administrative Data Management Corp., Attn: Aquilasm Group
of Funds, 581 Main Street, Woodbridge, NJ 07095-1198,
containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will, wherever
possible, be wired or transferred through the facilities of the
Automated Clearing House to the Financial Institution account
specified in the Expedited Redemption section of your Application
or Ready Access Features form. The Fund may impose a charge, not
exceeding $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. The Fund
has no present intention of making this charge. Upon 30 days'
written notice to shareholders, the Fund may modify or terminate
the use of the Automated Clearing House to make redemption payments
at any time or charge a service fee, although no such fee is
presently contemplated. If any such changes are made, the
Prospectus will be supplemented to reflect them. If you use a
broker or dealer to arrange for a redemption, it may charge you a
fee for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven days
after acceptance of such a redemption request. However, the right
of redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or valuation of the net asset value of,
the portfolio securities to be unreasonable or impracticable; or
(iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of shares recently
purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) or by
Automatic Investment or Telephone Investment may be delayed up to
15 days or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Fund, that the
purchase check or Automatic Investment or Telephone Investment will
be honored. Possible delays in payment of redemption proceeds can
be eliminated by using wire payments or Federal Reserve drafts to
pay for purchases.
If the Trustees determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make
payment wholly or partly in cash, the Fund may pay the redemption
price in whole or in part by the distribution in kind of securities
from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. See the
Additional Statement for details.
The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such shares
is less than $500 as a result of shareholder redemptions or failure
to meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of a
redemption of shares in shares of the Fund of the same class as the
shares redeemed at the net asset value next determined after the
Agent receives your reinvestment order. In the case of Class C
Shares or CDSC Class A Shares on which a contingent deferred sales
charge was deducted at the time of redemption, the Distributor will
refund to you the amount of such sales charge, which will be added
to the amount of the reinvestment. The Class C Shares or CDSC Class
A Shares issued on reinvestment will be deemed to have been
outstanding from the date of your original purchase of the redeemed
shares, less the period from redemption to reinvestment. The
reinvestment privilege for any class may be exercised only once a
year, unless otherwise approved by the Distributor. If you have
realized a gain on the redemption of your shares, the redemption
transaction is taxable, and reinvestment will not alter any capital
gains tax payable. If there has been a loss on the redemption, some
or all of the loss may be tax deductible, depending on the amount
reinvested and the length of time between the redemption and the
reinvestment. You should consult your own tax advisor on this
matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own
or purchase Class A Shares of the Fund having a net asset value of
at least $5,000. The Automatic Withdrawal Plan is not available for
Class C Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions must
be reinvested in your shareholder account. Redemption of shares to
make payments under the Automatic Withdrawal Plan will give rise to
a gain or loss for tax purposes. See the Automatic Withdrawal Plan
provisions of the Application included in the Prospectus, the
Additional Statement under "Automatic Withdrawal Plan," and
"Dividend and Tax Information" below.
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when purchases
are made. Accordingly, a Planholder may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases.
While an occasional lump sum investment may be made, such
investment should normally be an amount at least equal to three
times the annual withdrawal or $5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
The Advisory Agreement
KPM Investment Management, Inc., (the "Adviser") is a
wholly-owned subsidiary of Kirkpatrick, Pettis, Smith Polian, Inc.
("Kirkpatrick Pettis"). Kirkpatrick Pettis became the Fund's
investment adviser on October 1, 1992 under an advisory agreement
(the "Former Advisory Agreement"). On June 8, 1994, the
shareholders of the Fund approved a new advisory agreement (the
"Advisory Agreement") which has the same terms except for the fee
reductions in connection with certain payments under the Fund's
Distribution Plan described below. On July 1, 1994, with the
approval of the Board of Trustees, Kirkpatrick Pettis transferred
the Advisory Agreement to the Adviser, which has acted as the
Fund's adviser since that time using the same personnel.
The Adviser supervises the investment program of the Fund and
the composition of its portfolio. The services of the Adviser are
rendered under an Investment Advisory Agreement (the "Advisory
Agreement") which provides, subject to the control of the Board of
Trustees, for investment supervision of the Fund; at the Adviser's
expense providing for pricing of the Fund's portfolio daily using
a pricing service or other sources of pricing information
satisfactory to the Fund and, unless otherwise directed by the
Board of Trustees, providing for pricing of the Fund's portfolio at
least quarterly using another such source satisfactory to the Fund.
Fund accounting services are performed by the Administrator.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Adviser.
Additionally, the Adviser agrees that it shall, at the Adviser's
expense, provide to the Fund all office space, facilities,
equipment and clerical personnel necessary for the carrying out of
the Adviser's duties under the Advisory Agreement.
Under the Advisory Agreement, the Fund bears the cost of
preparing and setting in type its prospectuses, statements of
additional information, and reports to shareholders and the costs
of printing or otherwise producing and distributing those copies of
such prospectuses, statements of additional information and reports
as are sent to its shareholders. Under the Advisory Agreement, all
costs and expenses not expressly assumed by the Adviser or by the
Administrator under the Administration Agreement, or by the Fund's
Distributor (principal underwriter), are paid by the Fund. The
Advisory Agreement lists examples of such expenses borne by the
Fund, the major categories of such expenses being: legal and audit
expenses, custodian, transfer agent and shareholder servicing agent
fees and expenses, stock issuance and redemption costs, certain
printing costs, registration costs of the Fund and its shares under
Federal and State securities laws, interest, taxes and brokerage
commissions, and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Fund pays a fee payable
monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.20 of
1% of the Fund's net assets, provided, however, that for any day
that the Fund pays or accrues a fee under the Distribution Plan of
the Fund based upon the assets of the Fund, the annual fee shall be
payable at the annual rate of 0.20 of 1% of such assets up to $250
million and at the annual rate of 0.16 of 1% of such net asset
value with respect to assets of the Fund above that amount.
The total investment advisory and administration fees which
the Fund pays are at the annual rate of 0.50 of 1% of such net
assets, since the Administrator also receives a fee from the Fund
under the Administration Agreement; see below. The Adviser and the
Administrator may, in order to attempt to achieve a competitive
yield on the shares of the Fund, each waive all or part of any such
fees. In practice, the rate of these fee waivers tends to decline
as assets of the Fund increase.
The Board of Trustees and the shareholders of the Fund
have approved certain changes to the Advisory Agreement with
reductions in fees payable to the Adviser from an annual rate of
0.20 of 1% to 0.16 of 1% of all of the Fund's average annual net
assets. These reductions will be accompanied by reductions in the
fees payable to the Administrator (see "Administration Agreement")
and will match an increase in payments under the Fund's
Distribution Plan to keep the combined payments of the Fund at
current levels. (See "Distribution Plan.") The changes will not be
implemented until the earlier of October 1, 1996 or the first day
of the next succeeding calendar quarter after the quarter in which
the net assets of the Fund exceed $250 million. At the date of the
Prospectus, implementation of these changes has been postponed
indefinitely. When and if it is determined to implement these
changes the Prospectus will be supplemented. Until such time the
current arrangements will remain in effect. (See "Distribution
Plan.")
The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion (based
upon the aggregate fees of the Adviser and the Administrator) of
the amount, if any, by which the total expenses of the Fund in any
fiscal year, exclusive of taxes, interest and brokerage fees, shall
exceed the lesser of (i) 2.5% of the first $30 million of average
annual net assets of the Fund plus 2% of the next $70 million of
such assets plus 1.5% of its average annual net assets in excess of
$100 million, or (ii) 25% of the Fund's total annual investment
income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund. Under these
provisions, the Adviser is authorized to consider sales of shares
of the Fund or of any other investment company or companies having
the same investment adviser, sub-adviser, administrator or
principal underwriter as the Fund. See the Additional Statement for
a description of these provisions and prior advisory arrangements.
The Administration Agreement
Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at its
own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as is
necessary in connection with the maintenance of the headquarters of
the Fund and pays all compensation of the Fund's Trustees, officers
and employees who are affiliated persons of the Administrator. The
Administration Agreement went into effect in June, 1994, replacing
an administration agreement then in effect with the same terms
except for the fee reductions in connection with certain payments
under the Fund's Distribution Plan described below.
Under the Administration Agreement, subject to the control of
the Fund's Board of Trustees, the Administrator provides all
administrative services to the Fund other than those relating to
its investment portfolio. Such administrative services include but
are not limited to maintaining books and records of the Fund,
either keeping the accounting records of the Fund, including the
computation of net asset value per share and the dividends or, at
its expense and responsibility, delegating such duties in whole or
in part to a company satisfactory to the Fund (however, the daily
pricing of the Fund's portfolio is the responsibility of the
Adviser under the Advisory Agreement), overseeing all relationships
between the Fund and its transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the negotiation of
agreements in relation thereto, the supervision and coordination of
the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation of the Fund and for the sale, servicing, or
redemption of the Fund's shares. See the Additional Statement for
a further description of functions listed in the Administration
Agreement as part of such duties.
Under the Administration Agreement, the Fund pays a fee
payable monthly and computed on the net asset value of the Fund as
of the close of business each business day at the annual rate of
0.30 of 1% of the Fund's net assets, provided, however, that for
any day that the Fund pays or accrues a fee under the Distribution
Plan of the Fund based upon the assets of the Fund, the annual fee
shall be payable at the annual rate of 0.30 of 1% of such assets up
to $250 million (the "Base Amount"), and at the annual rate of 0.24
of 1% of such net asset value with respect to assets of the Fund
above the $250 million. The Administrator agrees that the above fee
shall be reduced, but not below zero, by an amount equal to its
pro-rata portion (based upon the aggregate fees of the Adviser and
the Administrator) of the amount, if any, by which the total
expenses of the Fund in any fiscal year, exclusive of taxes,
interest and brokerage fees, shall exceed the lesser of (i) 2.5% of
the first $30 million of average annual net assets of the Fund plus
2% of the next $70 million of such assets plus 1.5% of its average
annual net assets in excess of $100 million, or (ii) 25% of the
Fund's total annual investment income.
The Board of Trustees has approved certain changes to the
Administration Agreement with reductions in fees payable to the
Administrator from an annual rate of 0.30 of 1% to 0.24 of 1% of
all of the Fund's average annual net assets. These reductions will
be accompanied by reductions in the fees payable to the Adviser
(see "Advisory Agreement") and will match an increase in payments
under the Fund's Distribution Plan to keep the combined payments of
the Fund at current levels. (See "Distribution Plan.") The changes
will not be implemented until the earlier of October 1, 1996 or the
first day of the next succeeding calendar quarter after the quarter
in which the net assets of the Fund exceed $250 million. At the
date of the Prospectus, implementation of these changes has been
postponed indefinitely. When and if it is determined to implement
these changes the Prospectus will be supplemented. Until such time
the current arrangements will remain in effect.
Information as to the Adviser,
the Administrator and the Distributor
The Adviser provides professional investment advisory services
to a broad base of clients and currently manages over $750 million
in clients' assets. The Adviser is a wholly-owned subsidiary of
Kirkpatrick Pettis, which is a full service investment firm serving
institutional and retail markets through its investment banking,
sales and trading facilities.
Mr. Christopher Johns is the Fund's portfolio manager. Mr.
Johns has been a Vice President of the Adviser since 1992. From
1984 through 1992, he was a portfolio manager at United Bank of
Denver (now Norwest Bank, Denver) when it acted as investment
adviser to the Fund. He was formerly a portfolio manager of Toledo
Trust Company. He holds the degree of BBA in Finance from the
University of Cincinnati. Mr. Douglas E. Nelson is the back-up
portfolio manager. Mr. Nelson has been employed by the Adviser as
a portfolio manager for municipal bonds since 1991. From 1983 until
that time, he held various positions in the investment business
with Prudential-Bache, B.C. Christopher, Dain Bosworth and FSB
Investments. Mr. Nelson is a graduate of the University of Kansas.
He is President of the Rocky Mountain Municipal Analysts Society
and a member of the Denver Society of Security Analysts.
Tracing its history to 1925, Kirkpatrick Pettis currently
staffs 9 offices in Colorado, Iowa, Kansas, Missouri, Nebraska and
New York that serve primarily the midwest and Rocky Mountain
regions. Its principal office is located at 10250 Regency Circle,
Omaha, NE 68114 and its Denver office is located at One Norwest
Center, 1700 Lincoln Street, Denver, CO 80203. Since 1983, the
Adviser has been a wholly-owned subsidiary of Mutual of Omaha
Insurance Company, whose principal office is at Mutual of Omaha
Plaza, Omaha, NE 68175.
For the year ended December 31, 1995, advisory fees of
$427,046 were paid or accrued to the Adviser , of which $49,985
was voluntarily waived.
The Fund's Administrator is administrator to the Aquilasm
Group of Funds, which consist of tax-free municipal bond funds ,
money market funds and an equity fund. As of December 31, 1995,
these funds had aggregate assets of approximately $2.7 billion, of
which approximately $1.9 billion consisted of assets of the
tax-free bond funds. The Administrator, which was founded in 1984,
is controlled by Mr. Lacy B. Herrmann (directly, through a trust
and through share ownership by his wife).
During the year ended December 31, 1995, administration
fees of $640,488 were paid or accrued to the Administrator under
the Administration Agreement of which $228,480 was voluntarily
waived.
The Distributor currently handles the distribution of the
shares of thirteen funds (five money market funds, seven tax-free
municipal bond funds and an equity fund), including the Fund. Under
the Distribution Agreement, the Distributor is responsible for the
payment of certain printing and distribution costs relating to
prospectuses and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which are
currently owned by Mr. Herrmann, will be owned by certain directors
and/or officers of the Administrator and/or the Distributor,
including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined
below, as dividends on every day, including weekends and holidays
, on those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Fund
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued . As such
net income will vary, the Fund's dividends will also vary.
Dividends and other distributions paid by the Fund with respect to
Class A Shares and Class C Shares are calculated at the same time
and in the same manner. The per share dividends of Class C Shares
will be lower than the per share dividends on the Class A Shares as
a result of the higher service and distribution fees applicable to
those shares. In addition, the dividends of each class can vary
because each class will bear certain class-specific charges.
It is the Fund's present policy to pay dividends so that they
will be received or credited by approximately the first day of each
month. Shareholders may elect to have dividends deposited without
charge by electronic funds transfers into an account at a Financial
Institution which is a member of the Automated Clearing House by
completing a Ready Access Features form.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid by
the Agent to a selected dealer; or (ii) the third day on which the
New York Stock Exchange is open after the day on which the net
asset value of the redeemed shares has been determined (see "How To
Redeem Your Investment").
Net investment income includes amounts of income from the
Colorado Obligations in the Fund's portfolio which are allocated as
"exempt-interest dividends." "Exempt-interest dividends" are exempt
from regular Federal income tax. The allocation of "exempt-interest
dividends" will be made by the use of one designated percentage
applied uniformly to all income dividends declared during the
Fund's tax year. Such designation will normally be made in the
first month after the end of each of the Fund's fiscal years as to
income dividends paid in the prior year. It is possible that in
certain circumstances, a small portion of the dividends paid by the
Fund will be subject to income taxes. During the Fund's fiscal year
ended December 31, 1995, 98.0% of the Fund's dividends were
"exempt-interest dividends." For the calendar year 1995, 2.0% of
the total dividends paid were taxable as ordinary income and 1.76%
were taxable as long-term capital gains. (These amounts relate to
dividends on Class A Shares; no Class C Shares were outstanding
during that period.) The percentage of income designated as
tax-exempt for any particular dividend may be different from the
percentage of the Fund's income that was tax-exempt during the
period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be paid
out after that date; the Fund 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 Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions to
shareholders, and from short- and long-term gains distributions (if
any) and any other distributions that do not qualify as
"exempt-interest dividends," if shareholders do not comply with
provisions of the law relating to the furnishing of taxpayer
identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions will be automatically
reinvested in full and fractional shares of the Fund at net asset
value on the record date for the dividend or distribution or other
date fixed by the Board of Trustees. An election to receive cash
will continue in effect until written notification of a change is
received by the Agent. All shareholders, whether their dividends
are received in cash or are being reinvested, will receive a
monthly account summary indicating the current status of their
investment. There is no fixed dividend rate. Corporate shareholders
of the Fund are not entitled to any deduction for dividends
received from the Fund.
Tax Information
The Fund qualified during its last fiscal year as a "regulated
investment company" under the Code, and intends to continue to so
qualify. If it does so qualify, it will not be liable for Federal
income taxes on amounts paid by it as dividends and distributions.
However, the Code contains a number of complex tests relating to
such qualification and it is possible although not likely that the
Fund might not meet one or more of these tests in any particular
year. If it does not so qualify, it would be treated for tax
purposes as an ordinary corporation, would receive no tax deduction
for payments made to shareholders and would be unable to pay
dividends or distributions which would qualify as "exempt-interest
dividends" or "capital gains dividends," as discussed below.
The Fund intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income earned
by the Fund on Colorado 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 Fund) received or
acquired during the year.
The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Fund on the sale of municipal
obligations acquired after April 30, 1993 at a price which is less
than face or redemption value be included as ordinary income to the
extent such gains do not exceed such discount or that the discount
be amortized and included ratably in taxable income. There is an
exception to the foregoing treatment if the amount of the discount
is less than 0.25% of face or redemption value multiplied by the
number of years from acquisition to maturity. The Fund will report
such ordinary income in the years of sale or redemption rather than
amortize the discount and report it ratably. To the extent the
resultant ordinary taxable income is distributed to shareholders,
it will be taxable to them as ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates) are
reportable by shareholders as long-term capital gains. This is the
case whether the shareholder takes the distribution in cash or
elects to have the distribution reinvested in Fund shares and
regardless of the length of time the shareholder has held his or
her shares. Capital gains are taxed at the same rates as ordinary
income, except that for individuals, trusts and estates the maximum
tax rate on capital gains distributions is 28% even if the
applicable rate on ordinary income for such taxpayers is higher
than 28%.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are not
distributed but carried forward by the Fund to offset gains in
later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Fund's gains or losses on sales of Colorado Obligations
will be long-term or short-term depending upon the length of time
the Fund has held such obligations. Capital gains and losses of the
Fund will also include gains and losses on Futures and options, if
any, including gains and losses actually realized on sales and
exchanges and gains and losses deemed to be realized. Those deemed
to be realized are on Futures and options held by the Fund at
year-end, which are "marked to the market," that is, deemed sold
for fair market value. Net gains or losses realized and deemed
realized on Futures and options will be reportable by the Fund as
long-term to the extent of 60% of the gains or losses and
short-term to the extent of 40% regardless of the actual holding
period of such investments.
Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Fund 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 Fund may be
considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of
shares. The receipt of exempt-interest dividends from the Fund by
an individual shareholder may result in some portion of any social
security payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in taxable
income. Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds or
private activity bonds should consult their own tax advisers before
purchasing shares.
While interest from all Colorado Obligations is tax-exempt for
purposes of computing the shareholder's regular tax, interest from
so-called private activity bonds issued after August 7, 1986,
constitutes a tax preference for both individuals and corporations
and thus will enter into a computation of the alternative minimum
tax. Whether or not that computation will result in a tax will
depend on the entire content of the taxpayer's return. The Fund
will not invest in the types of Colorado Obligations which would
give rise to interest that would be subject to alternative minimum
taxation if more than 20% of its net assets would be so invested,
and may refrain from investing in that type of bond completely. The
20% limit is a fundamental policy of the Fund.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current earnings,
this adjustment will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax.
As of the date of the Prospectus, Congress is considering
a number of changes affecting taxation. It is not possible to
predict which, if any, of such changes will become law.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. If you are required to pay a conditional deferred sales
charge at the time of redemption, the amount of that charge will
reduce the amount of your gain or increase the amount of your loss
as the case may be. The gain or loss will be long-term if you held
the redeemed shares for over a year, and short-term, if for a year
or less. However, if shares held for six months or less are
redeemed and you have a loss, two special rules apply: the loss is
reduced by the amount of exempt-interest dividends, if any, which
you received on the redeemed shares, and any loss over and above
the amount of such exempt-interest dividends is treated as a
long-term loss to the extent you have received capital gains
dividends on the redeemed shares.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Fund or its shareholders upon such conversions;
each shareholder's adjusted tax basis in the Class A Shares
received upon conversion will equal the shareholder's adjusted tax
basis in the Class C Shares held immediately before the conversion;
and each shareholder's holding period for the Class A Shares
received upon conversion will include the period for which the
shareholder held as capital assets the converted Class C Shares
immediately before conversion.
Colorado Tax Information
Dividends and distributions made by the Fund to Colorado
individuals, trusts, estates and corporations subject to the
Colorado income tax will generally be treated for Colorado income
tax purposes in the same manner as they are treated under the Code
for Federal income tax purposes. Since the Fund may, except as
indicated below, purchase only Colorado Obligations (which, as
defined, means obligations, including those of non-Colorado
issuers, of any maturity which pay interest which, in the opinion
of counsel, is exempt from regular Federal income taxes and
Colorado income taxes), none of the exempt-interest dividends paid
by the Fund will be subject to Colorado income tax. The Fund may
also pay "short-term gains distributions" and "long-term gains
distributions," each as discussed under "Dividends and
Distributions" above. Under Colorado income tax law, each
short-term gains distribution will be treated as a short-term gain
and each long-term gains distribution will be treated as a
long-term capital gain. The only investment which the Fund may make
other than in Colorado Obligations is in Futures and options on
them. Any gains on Futures and options (including gains imputed
under the Code) paid as part or all of a short-term gains
distribution or a long-term gains distribution will be taxed as
indicated above.
Persons or entities who are not Colorado residents should not
be subject to Colorado income taxation on dividends and
distributions made by the Fund unless the nonresident employs his
or her interest in the Fund in a business, trade, profession or
occupation carried on in Colorado but may be subject to other state
and local taxes. As intangibles, shares of the Fund will be exempt
from Colorado property taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Fund and certain tax-free municipal bond funds and an equity
fund (the "Bond or Equity Funds") and certain money market funds
(the "Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have the
same Administrator and Distributor as the Fund. All exchanges are
subject to certain conditions described below. As of the date of
this Prospectus, the Aquila Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust,
Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, Churchill
Tax-Free Fund of Kentucky, Tax-Free Fund For Utah and Narragansett
Insured Tax-Free Income Fund; the Aquila Money-Market Funds are
Capital Cash Management Trust, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.
Class A Shares of the Fund can be exchanged only into Class
A Shares of any Bond or Equity Fund or into shares of the
Money-Market Funds. Class C Shares can be exchanged only into Class
C Shares of any Bond or Equity Fund that offers Class C Shares or
into shares of the Money-Market Funds. At the date of the
Prospectus, it is expected that all of the Bond and Equity Funds
will offer Class C Shares by April 30, 1996.
Class A Shares Exchange Privilege
Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A Shares of any Bond
or Equity Fund, those shares (and any shares acquired as a result
of reinvestment of dividends and/or distributions) may be exchanged
any number of times between Money-Market Funds and Bond or Equity
Funds without the payment of any additional sales charge.
CDSC Class A Shares of the Fund (see "Purchases of $1
Million or More" and "Special Dealer Arrangements") can be
exchanged for CDSC Class A Shares of a Bond or Equity Fund or into
a Money-Market Fund. The CDSC Class A Shares will not be subject to
a contingent deferred sales charge at the time of exchange, but the
contingent deferred sales charge will be payable upon a redemption
which occurs before the expiration of the applicable holding period
of any CDSC Class A Shares or any shares of a Money-Market Fund
received on exchange for CDSC Class A Shares. (The contingent
deferred sales charge does not apply to any shares acquired as a
result of reinvestment of dividends and/or distributions.) For
purposes of computing the time period for the applicable contingent
deferred sales charge, the length of time of ownership of CDSC
Class A Shares will be determined by the time of original purchase
and not by the time of the exchange. Any period of 30 days or more
during which any Money-Market shares received on an exchange of
CDSC Class A Shares are held is not counted in computing the period
of ownership of CDSC Class A Shares. (See "Alternative Purchase
Plans.")
Class C Shares Exchange Privilege
Under the Class C Shares exchange privilege, Class C Shares
(and any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times between
Money-Market Funds and for Class C Shares of Bond or Equity Funds.
Class C Shares will not be subject to a contingent deferred sales
charge at the time of exchange, but the contingent deferred sales
charge will be payable upon redemption which occurs before the
expiration of the applicable holding period of any Class C Shares
or any shares of a Money-Market Fund received on exchange for Class
C Shares. (The contingent deferred sales charge does not apply to
any shares acquired as a result of reinvestment of dividends and/or
distributions.) For purposes of computing the time period for the
applicable contingent deferred sales charge or for the conversion
of Class C Shares into Class A Shares, the length of time of
ownership of Class C shares will be determined by time of original
purchase and not by the time of the exchange. Any period of 30 days
or more during which any Money-Market shares received on an
exchange of Class C Shares are held is not counted in computing the
period of ownership of Class C Shares. (See "Alternative Purchase
Plans.")
Eligible Shares
The "Class A Eligible Shares" of any Bond or Equity Fund
are those Class A Shares which were (a) acquired by direct purchase
with payment of any applicable sales charge, or which were received
in exchange for shares of another Bond or Equity Fund on which any
applicable sales charge was paid; (b) acquired by exchange for
shares of a Money-Market Fund with payment of the applicable sales
charge; (c) acquired in one or more exchanges between shares of a
Money-Market Fund and a Bond or Equity Fund so long as the shares
of the Bond or Equity Fund were originally purchased as set forth
in (a) or (b); (d) acquired on conversion of Class C Shares or (e)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise Class A Eligible Shares.
The "CDSC Class A Eligible Shares" of any Bond or Equity
Fund are those CDSC Class A Shares which were (a) acquired by
direct purchase in the amount of $1 million or more without a sales
charge or in certain purchases when Special Dealer Arrangements are
in effect or which were received in exchange for CDSC Class A
Shares of another Bond or Equity Fund acquired under the same
conditions; (b) acquired by exchange for shares of a Money-Market
Fund under the same conditions; (c) acquired in one or more
exchanges between shares of a Money-Market Fund and a Bond or
Equity Fund so long as the shares of the Bond or Equity Fund were
originally purchased as set forth in (a) or (b); or (d) acquired as
a result of reinvestment of dividends and/or distributions on
otherwise CDSC Class A Eligible Shares.
The "Class C Eligible Shares" of any Bond or Equity Fund
are those shares which were (a) acquired by direct purchase
including by exchange from a Money-Market Fund, or which were
received in exchange for shares of Class C Shares of another Bond
or Equity Fund ; or (b) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class C Eligible
Shares.
If you own Class A or Class C Eligible Shares of any Bond
or Equity Fund, you may exchange them for shares of any Money
Market Fund or the Class A or Class C Shares, respectively, of any
other Bond or Equity Fund without payment of any sales charge or
CDSC. The shares received will continue to be Class A or Class C
Eligible shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares acquired
as a result of reinvestment of dividends and/or distributions on
these shares, for Class A Shares of any Bond or Equity Fund without
payment of any sales charge.
If you own shares of a Money-Market Fund which you have
acquired by exchange for CDSC Class A Eligible Shares of any Bond
or Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for CDSC Class A shares of any Bond
or Equity Fund but you will be required to pay the applicable
contingent deferred sales charge if you redeem such shares before
you have held CDSC Class A Shares for four years. You will also be
required to pay the applicable contingent deferred sales charge if
you redeem such shares of a Money-Market Fund before you have held
CDSC Class A Shares for four years. The running of the four-year
period is suspended during the period you hold shares of a
Money-Market Fund received in exchange for CDSC Class A Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares acquired
as a result of reinvestment of dividends and/or distributions on
these shares, for Class C Shares of any Bond or Equity Fund, but
you will be required to pay the applicable contingent deferred
sales charge if you redeem such Class C shares before you have held
Class C Shares for 12 months. You will also be required to pay the
applicable contingent deferred sales charge if you redeem such
shares of a Money-Market Fund before you have held Class C Shares
for 12 months. The running of the 12-month CDSC period and the
six-year conversion period for Class C Shares is suspended during
the period you hold shares of a Money-Market Fund received in
exchange for Class C Shares.(See "Alternative Purchase Plans.")
Shares of a Money-Market Fund may be exchanged for shares
of another Money-Market Fund or for Class A Shares or Class C
Shares of a Bond or Equity Fund; however, if the shares of a
Money-Market Fund were not acquired by exchange of Eligible Shares
of a Bond or Equity Fund or of shares of a Money-Market Fund
acquired in such an exchange, they may be exchanged for Class A
Shares of a Bond or Equity Fund only upon payment of the applicable
sales charge.
This Fund, 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
Fund may also modify or terminate this exchange privilege at any
time. In the case of termination, the Prospectus will be
appropriately supplemented. No such modification or termination
shall take effect on less than 60 days' written notice to
shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange are at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-872-2651 toll free or 908-855-5731
Note: The Fund, 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 Fund's shares. See "How to
Invest in the Fund."
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see the Additional
Statement); no representation is made as to the deductibility of
any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-Market
Fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Treasuries Cash Assets Trust (which invests in U.S. Treasury
obligations) are exempt from state income taxes. Dividends paid by
Aquila Rocky Mountain Equity Fund are taxable. If your state of
residence is not the same as that of the issuers of obligations in
which a tax-free municipal Bond Fund or a tax-free Money-Market
Fund invests, the dividends from that fund may be subject to income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of such a Bond
Fund or a tax-free Money-Market Fund under the exchange privilege
arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's performance
including current yield, taxable equivalent yield, various
expressions of total return, current distribution rate and taxable
equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes the applicable sales charge) for 1- and 5-year periods and
for a period since the inception of the Fund, to the extent
applicable, through the end of such periods, assuming reinvestment
(without sales charge) of all distributions. The Fund may also
furnish total return quotations for other periods or based on
investments at various applicable sales charge levels or at net
asset value. For such purposes total return equals the total of all
income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in
the value of the original investment, expressed as a percentage of
the purchase price. See the Additional Statement.
Current yield reflects the income per share earned by each of
the Fund's portfolio investments; it is calculated by (i) dividing
the Fund's net investment income per share during a recent 30-day
period by (ii) the maximum public offering price on the last day of
that period and by (iii) annualizing the result. Taxable equivalent
yield shows the yield from a taxable investment that would be
required to produce an after-tax yield equivalent to that of the
Fund, which invests in tax-exempt obligations. It is computed by
dividing the tax-exempt portion of the Fund's yield (calculated as
indicated) by one minus a stated income tax rate and by adding the
product to the taxable portion (if any) of the Fund's yield. See
the Additional Statement.
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to
shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
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 Fund's distribution rate (calculated as indicated above). The
current distribution rate, unlike yield figures, is not limited to
investment performance, but takes into account expenses as well; it
also differs from the current yield computation because it could
include distributions to shareholders from sources, if any, other
than dividends and interest, such as short-term capital gains or
return of capital. If distribution rates are quoted in advertising,
they will be accompanied by calculations of current yield in
accordance with the formula of the Securities and Exchange
Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of expenses,
if any, and will assume the payment of the maximum sales charge, if
any, on the purchase of shares, but not on reinvestment of income
dividends . The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's yield, tax equivalent
yield, distribution rate, taxable equivalent distribution rate or
total return may be in any future period. The annual report of the
Fund contains additional performance information that will be made
available upon request and without charge.
Description of the Fund and Its Shares
The Fund is an open-end, non-diversified management investment
company organized in 1987 as a Massachusetts business trust. (See
"Investment of the Fund's Assets" for further information about the
Fund's status as "non-diversified.")
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide or
combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in
the Fund. Each share represents an equal proportionate interest in
the Fund with each other share of its class; shares of the
respective classes represent proportionate interests in the Fund in
accordance with their respective net asset values. Income, direct
liabilities and direct operating expenses of each series will be
allocated directly to each series, and general liabilities and
expenses, if any, of the Fund will be allocated among the series in
a manner acceptable to the Board of Trustees. Upon liquidation of
a series, shareholders of the series are entitled to share pro-rata
in the net assets of that series available for distribution to
shareholders and upon liquidation of the Fund, the respective
series are entitled to share proportionately in the assets
available to the Fund after allocation to the various series.
Shareholders of each series or class are entitled to share pro-rata
in the net assets of the Fund available for distribution to
shareholders, in accordance with the respective net asset values of
the shares of that series or class at that time. All shares are
presently divided into three classes; however, if they deem it
advisable and in the best interests of shareholders, the Board of
Trustees of the Fund may create additional classes of shares
(subject to rules and regulations of the Securities and Exchange
Commission or by exemptive order) or the Board of Trustees may, at
its own discretion, create additional series of shares, each of
which may have separate assets and liabilities (in which case any
such series will have a designation including the word "Series").
See the Additional Statement for further information about possible
additional series. Shares are fully paid and non-assessable, except
as set forth under the caption "General Information" in the
Additional Statement; the holders of shares have no pre-emptive or
conversion rights.
In addition to Class A and Class C Shares, which are
offered by this Prospectus, the Fund also has Institutional Class
Shares ("Class Y Shares"), which are offered only to institutions
acting for investors in a fiduciary, advisory, agency, custodial or
similar capacity and are not offered directly to retail customers.
Class Y Shares are offered by means of a separate prospectus, which
can be obtained by calling the Fund at 800-872-2652.
The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields and
other measures of investment performance. All three classes
represent interests in the same portfolio of Colorado Obligations
and have the same rights, except that each class bears the separate
expenses, if any, of its Distribution Plan and has exclusive voting
rights with respect to its Plan.
Of the shares of the Fund outstanding on March 25, 1996,
Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561, New
Brunswick, NJ held of record 1,148,574 shares (5.5%), all of which
were Class A Shares. The Fund's management is not aware of any
person beneficially owning more than 5% of its outstanding shares
as of such date. On the basis of information received from the
holders the Fund's management believes that all of the shares
indicated are held for the benefit of clients of that
institution.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). No amendment may
be made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the Fund
except that the Fund's Board of Trustees may change the name of the
Fund. The Fund may be terminated (i) upon the sale of its assets to
another issuer, or (ii) upon liquidation and distribution of the
assets of the Fund, in either case if such action is approved by
the vote of the holders of a majority of the outstanding shares of
the Fund. If not so terminated, the Fund will continue
indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE FUND OF COLORADO
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
Tel.# 1-800-872-2651
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate method of payment (For either method, make check
payment to: TAX-FREE FUND OF COLORADO)
Indicate class of shares:
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE
IN CLASS A SHARES.
__ Initial Investment $_________ (Minimum $1,000)
__ Automatic Investment $________ (Minimum $50)
For Automatic Investment of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing the
Financial Institution account where I/we would like you to deposit
the dividend. (A Financial Institution is a commercial bank, savings
bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested
in your Tax-Free Fund of Colorado 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 Fund toll-free at 1-800-872-2651. 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 Fund 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 Fund 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
D. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
APPLICABLE TO CLASS A SHARES ONLY.
Application must be received in good order at least 2 weeks prior to 1st actual
liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, Administrative Data
Management Corp. (the Agent) is authorized to redeem sufficient shares
from this account at the then current Net Asset Value, in accordance
with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquila SM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of
$1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account initiated
by the Agent, Administrative Data Management Corp., and to pay such
sums in accordance therewith, provided my/our account has sufficient
funds to cover such drafts or debits. I/We further agree that your
treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number _______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account
is registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted
pursuant to the above authorization shall be subject to the
provisions of the Operating Rules of the National Automated
Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer
in connection with the execution and issuance of any electronic
debit in the normal course of business initiated by the Agent
(except any loss due to your payment of any amount drawn against
insufficient or uncollected funds), provided that you promptly
notify us in writing of any claim against you with respect to
the same, and further provided that you will not settle or
pay or agree to settle or pay any such claim without the written
permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause,
any such electronic debit.
STEP 4
Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund 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 Fund and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Fund 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 Fund and its agents to correct any transfer error by
a debit or credit to my/our Financial Institution account and/or
Fund 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 Fund, 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 Fund, or is
exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied by
proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are effective
15 days after this form is received in good order by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Fund 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 Fund 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 1-800-872-2652 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 Fund's Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor
is entitled to make each purchase at the public offering price
applicable to a single transaction of the dollar amount checked
above, and agrees to be bound by the terms and conditions applicable
to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if
the investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such
purchases added to the investor's present holdings do not aggregate
the minimum amount specified above, the investor will pay the increased
amount of sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein
shall be at the rate applicable to the minimum amount of the investor's
specified intended purchases checked above. If the investor's actual
purchases do not reach this minimum amount, the commissions previously
paid to the dealer will be adjusted to the rate applicable to the
investor's total purchases. If the investor's purchases exceed the
dollar amount of the investor's intended purchases and pass the next
commission break-point, the investor shall receive the lower sales
charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would
be applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of
Intent in placing any future purchase orders for the investor
while this Letter is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary),
3% of the dollar amount specified in the Letter of Intent (computed
to the nearest full share) shall be held in escrow in shares of the
Fund by the Agent. All dividends and any capital distributions on
the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within a thirteen-month period, the escrowed shares will
be promptly released to the investor. However, shares disposed of
prior to completion of the purchase requirement under the Letter
will be deducted from the amount required to complete the
investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchases, the
investor must remit to the Distributor an amount equal to the
difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. If such
difference in sales charges is not paid within twenty days after
receipt of a request from the Distributor or the dealer, the
Distributor will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to realize
such difference in sales charges. Full shares and any cash proceeds
for a fractional share remaining after such redemption will be
released to the investor. The escrow of shares will not be released
until any additional sales charge due has been paid as stated in
this section.
4. By checking Box 2c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor
as his attorney to surrender for redemption any or all escrowed
shares on the books of the Fund.
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 Fund purchased for
and held under the Plan, but the Agent will credit all such shares
to the Planholder on the records of the Fund. 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 Fund
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 Fund) 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 Fund'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 Fund. 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 Fund, 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 Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump
sum investment may be made, such investment should normally be an
amount equivalent to three times the annual withdrawal or $5,000,
whichever is less.
<PAGE>
INVESTMENT ADVISER
KPM Investment Management, Inc.
1700 Lincoln Street, Suite 1300
Denver, Colorado 80203
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
William M. Cole
Anne J. Mills
J. William Weeks
John G. Welles
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Jean M. Smith, Vice President
Marie Aro, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................5
Financial Highlights.............................6
Introduction.....................................7
Investment Of The Fund's Assets..................7
Investment Restrictions.........................12
Net Asset Value Per Share.......................12
Alternative Purchase Plans......................13
How To Invest In The Fund.......................15
How To Redeem Your Investment...................23
Automatic Withdrawal Plan.......................26
Management Arrangements.........................26
Dividend And Tax Information....................30
Exchange Privilege..............................34
General Information.............................37
Application and Letter of Intent
AQUILA
[LOGO]
Tax-Free Fund
of
Colorado
A tax-free
income investment
[LOGO]
PROSPECTUS
One Of The
Aquilasm Group Of Funds
<PAGE>
Tax-Free Fund of Colorado
380 Madison Avenue Suite 2300
New York, NY 10017
800-USA-COL2 (800-872-2652)
212-697-6666
Prospectus April 30, 1996
Class Y Shares
The Fund is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Colorado and
regular Federal income taxes as is consistent with preservation of
capital by investing in municipal obligations which pay interest
exempt from Colorado State and Federal income taxes. These
municipal obligations must, at the time of purchase, either be
rated within the four highest credit ratings (considered as
investment grade) assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, or, if unrated, be determined to be
of comparable quality by the Fund's Adviser, KPM Investment
Management, Inc.
There are three classes of shares of the Fund:
Institutional Class Shares ("Class Y Shares") are offered only to
institutions acting for investors in a fiduciary, advisory, agency,
custodial or similar capacity, and are not offered directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee. (See "How to Purchase Class
Y Shares.") The other classes, Front-Payment Class Shares ("Class
A Shares") and Level-Payment Class Shares ("Class C Shares"), are
not offered by this Prospectus. See "General Information -
Description of the Fund and its Shares."
This Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund (the "Additional Statement") dated April
30, 1996, has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Fund's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Fund and its management not included in this
Prospectus. The Additional Statement is incorporated by reference
in its entirety in this Prospectus. Only when you have read both
the Prospectus and the Additional Statement are all material facts
about the Fund available to you.
Shares of the Fund are not deposits in, obligations of or
guaranteed or endorsed by any bank. Shares of the Fund are not
insured or guaranteed by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency or
government sponsored agency of the Federal Government or any
State.
An investment in the Fund involves investment risks,
including possible loss of the principal amount invested.
For Purchase, Redemption or Account inquiries contact
The Fund's Transfer Agent: Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-872-2651 toll free or 908-855-5731
For General Inquiries & Yield Information,
Call 800-872-2652 toll free or 212-697-6666
This Prospectus Should Be Read and Retained For Future
Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
HIGHLIGHTS
Tax-Free Fund of Colorado, founded by Aquila Management
Corporation in 1987 and one of the Aquilasm Group of Funds, is an
open-end mutual fund which invests in tax-free municipal bonds, the
kind of obligations issued by the State of Colorado, its counties
and various other local authorities to finance such long-term
public purpose projects as schools, universities, housing,
transportation, utilities, hospitals and water and sewer facilities
throughout Colorado. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the
Fund invests pay interest which is exempt from both regular Federal
and State of Colorado income taxes. Dividends paid by the Fund from
this income are likewise free of both such taxes. It is, however,
possible that in certain circumstances a small portion of the
dividends paid by the Fund will be subject to income taxes. The
Federal alternative minimum tax may apply to some investors, but
its impact will be limited since not more than 20% of the Fund's
net assets can be invested in obligations paying interest which is
subject to this tax. The receipt of exempt-interest dividends from
the Fund may result in some portion of social security payments or
railroad retirement benefits being included in taxable income.
Capital gains distributions, if any, are taxable. (See "Dividend
and Tax Information.")
Investment Grade - The Fund will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or are determined by
the Adviser to be of comparable quality. In general there are nine
separate credit ratings, ranging from the highest to the lowest
credit ratings for municipal obligations. Obligations within the
top four ratings are considered "investment grade," but those in
the fourth rating may have speculative characteristics as well.
(See "Investment of the Fund's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund.")
Additional Investments - You may make additional
investments at any time and in any amount, directly or, if in an
amount of $50 or more, through the convenience of having your
investment electronically transferred from your financial
institution account into the Fund by Automatic Investment or
Telephone Investment. (See "How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides alternative
ways to invest. (See "Description of the Fund and its Shares.") For
this purpose the Fund offers classes of shares, which differ in
their expense levels and sales charges:
Institutional Class Shares ("Class Y
Shares") are offered by this Prospectus. Class
Y Shares are offered only to institutions
acting for investors in a fiduciary, advisory,
agency, custodial or similar capacity, and are
not offered directly to retail customers.
Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no
contingent deferred sales charge and no
distribution fee. (See "How to Purchase Class
Y Shares.")
The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares"), are not
offered by this Prospectus. See "General Information - Description
of the Fund and its Shares."
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to you,
directly deposited into your financial institution account or
automatically reinvested without sales charge in additional shares
of the Fund at the then-current net asset value. (See "Dividend and
Tax Information.")
Many Different Issues - You have the advantages of a
portfolio which consists of over 147 issues with different
maturities. (See "Investment of the Fund's Assets.")
Local Portfolio Management - KPM Investment Management,
Inc. serves as the Fund's investment adviser (the "Adviser"),
providing experienced local professional management. The Adviser
provides professional investment advisory services to a broad base
of clients. Advisory facilities for the Fund are carried out at its
Denver, Colorado office, whose staff possesses extensive skills and
broad knowledge of Colorado municipal issuers. KPM Investment
Management, Inc. is a wholly-owned subsidiary of Kirkpatrick,
Pettis, Smith Polian Inc. ("Kirkpatrick Pettis"), which is a full
service investment firm serving institutional and retail markets
through its investment banking, sales and trading facilities. The
firm currently provides professional investment advisory services
to a broad base of clients and investment banking services to
corporate and public finance clients. Tracing its history to 1925,
Kirkpatrick Pettis currently staffs 9 offices in Colorado, Iowa,
Kansas, Missouri, Nebraska and New York. Since 1983, Kirkpatrick
Pettis has been a wholly-owned subsidiary of Mutual of Omaha
Insurance Company.
The Fund is obligated to pay investment advisory fees at
the rate of 0.20 of 1% of average annual net assets to the Adviser
and administration fees at the rate of 0.30 of 1% of such net
assets to its Administrator (for total fees at the rate of 0.50 of
1% of average annual net assets). These fees are subject to
reduction when the Fund makes certain payments under the
Distribution Plan. (See "Table of Expenses," "Distribution Plan"
and "Management Arrangements.") Some or all of these fees may be
waived by the Adviser and Administrator.
Redemptions - Liquidity - You may redeem any amount of your
Class Y Shares account on any business day at the next determined
net asset value by telephone, FAX or mail request, with proceeds
being sent to a predesignated financial institution, if you have
elected Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or will
be mailed. For these and other redemption procedures see "How to
Redeem Your Investment." There are no redemption fees for
redemption of Class Y Shares.
Certain Stabilizing Measures - The Fund will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class Y Shares of the Fund
into Class Y Shares of other Aquila-sponsored tax-free municipal
bond mutual funds or an equity fund. You may also exchange them
into shares of the Aquila-sponsored money market funds. The
exchange prices will be the respective net asset values of the
shares. (See "Exchange Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Fund's portfolio securities, which fluctuate with market
conditions, including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Fund's
Investments and Their Yields.") The Fund's assets, being primarily
or entirely Colorado issues, are subject to economic and other
conditions affecting Colorado. (See "Risk Factors and Special
Considerations Regarding Investment in Colorado Obligations.")
Moreover, the Fund is classified as a "non-diversified" investment
company, because it may choose to invest in the obligations of a
relatively limited number of issuers. (See "Investment of the
Fund's Assets.") The Fund may also, to a limited degree, buy and
sell futures contracts and options on futures contracts, although
since inception the Fund has not done so and has no present
intention to do so. There may be risks associated with these
practices. (See "Certain Stabilizing Measures.")
Statements and Reports - You will receive statements of
your account monthly as well as each time you add to your account
or take money out. Additionally, you will receive a Semi-Annual
Report and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND OF COLORADO
TABLE OF EXPENSES
Class Y
Shareholder Transaction Expenses Shares
<S> <C>
Maximum Sales Charge Imposed on Purchases None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses (1)
(as a percentage of average net assets)
Investment Advisory Fee 0.20%
All other expenses (2) 0.45%
Administration Fee 0.23%
Other Expenses (2) 0.22%
Total Fund Operating Expenses (2) 0.65%
Example (3)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
$7 21 36 81
<FN>
(1) Estimated based upon amounts incurred by the Fund during its most
recent fiscal year, restated to reflect current arrangements. During
that period, only Class A Shares were outstanding.
</FN>
<FN>
(2) Administration fees reflect a waiver of 0.07% and other expenses
do not reflect a 0.01% expense offset in custodian fees received for
uninvested cash balances. Reflecting these amounts, administration
fees, other expenses, all other expenses, and total Fund operating
expenses would have been 0.30%, 0.21%, 0.51% and 0.71%.
</FN>
<FN>
(3) The expense example is based upon the above annual Fund operating
expenses. It is also based upon amounts at the beginning of each year
which includes the prior year's assumed results. A year's results
consist of an assumed 5% annual return less total annual operating
expenses; the expense ratio was applied to an assumed average balance
(the year's starting investment plus one-half the year's results).
Each figure represents the cumulative expenses so determined for the
period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT
ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF
PREPARING THE ABOVE EXAMPLE.
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will
bear directly or indirectly. The assumed 5% annual return should
not be interpreted as a prediction of an actual return, which may
be higher or lower.
<PAGE>
The following historical financial information applies only to
shares of the Fund which have been designated Class A Shares, upon
adoption of the class structure described in the Prospectus. Class
A Shares are not offered by this Prospectus. Similar information
does not exist for Class Y Shares which are offered by this
Prospectus.
<TABLE>
<CAPTION>
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to
the five years ended December 31, 1995 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included
in the Fund's financial statements contained in its Annual Report,
which are incorporated by reference into the Additional Statement.
The information provided in the table should be read in conjunction
with the financial statements and related notes.(+) The Fund's Annual
Report contains additional information about the Fund's performance
and is available upon request without charge.
Year ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year $9.82 $10.77 $10.38 $10.18 $9.77
Income from Investment
Operations:
Net investment income 0.54 0.55 0.57 0.61 0.62
Net gain (loss) on
securities (both
realized and unrealized) 0.74 (0.95) 0.55 0.28 0.41
Total from Investment
Operations 1.28 (0.40) 1.12 0.89 1.03
Less Distributions:
Dividends from net
investment income (0.54) (0.55) (0.57) (0.61) (0.62)
Distributions from
capital gains - - (0.16) (0.08) -
Total Distributions (0.54) (0.55) (0.73) (0.69) (0.62)
Net Asset Value, End of
Year $10.56 $9.82 $10.77 $10.38 $10.18
Total Return (not
reflecting sales load) 13.28% (3.80)% 11.10% 9.00% 10.96%
Ratios/Supplemental Data
Net Assets, End of Year
(in thousands) $219,306 $199,075 $222,277 $174,031 $129,760
Ratio of Expenses to
Average Net Assets 0.63% 0.57% 0.53% 0.45% 0.43%
Ratio of Net Investment
Income to Average Net
Assets 5.21% 5.36% 5.32% 5.90% 6.25%
Portfolio Turnover Rate 14.20% 15.53% 20.89% 25.88% 25.47%
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C>
Net Investment Income $0.52 $0.53 $0.55 $0.59 $0.58
Ratio of Expenses to
Average Net Assets 0.77% 0.76% 0.73% 0.70% 0.80%
Ratio of Net Investment
Income to Average Net
Assets 5.07% 5.17% 5.12% 5.65% 5.88%
<CAPTION>
1990 1989 1988 1987(*)
<C> <C> <C> <C>
$9.80 $9.66 $9.51 $9.60
0.64 0.67 0.63 0.27
(0.03) 0.14 0.14 (0.07)
0.61 0.81 0.77 0.20
(0.64) (0.67) (0.62) (0.29)
- - - -
(0.64) (0.67) (0.62) (0.29)
$9.77 $9.80 $9.66 $9.51
6.59% 8.59% 8.84% 2.12%(1)
$88,086 $55,901 $22,884 $7,678
0.27% 0.14% 0.06% 0.66%(2)
6.56% 6.62% 6.72% 5.72%(2)
23.73% 34.29% 8.13% 5.02%
$0.59 $0.57 $0.55 $0.20
0.75% 1.00% 1.41% 2.98%(2)
6.08% 5.73% 5.37% 3.40%(2)
<FN>
* For the period from May 21, 1987 (commencement of operations)
to December 31, 1987.
</FN>
<FN>
(1) Not annualized.
</FN>
<FN>
(2) Annualized.
</FN>
<FN>
+ On April 19, 1991, Norwest Bank Denver, National Association,
originally the Fund's Investment Adviser, became Sub-Adviser
and Norwest Bank Minnesota, National Association became
Investment Adviser upon completion of a merger with Norwest
Corporation. On October 1, 1992, Kirkpatrick, Pettis, Smith,
Polian Inc. became the Fund's Investment Adviser. On July 1,
1994, its wholly owned subsidiary KPM Investment Management,
Inc. became the Fund's Adviser. On June 13, 1989, Aquila
Management Corporation, originally the Fund's Sub-Adviser and
Administrator became Administrator only. (See "Management
Arrangements").
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment
for investors who seek income exempt from Colorado State and
regular Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Colorado Obligations, as defined below, which
may include obligations of certain non-Colorado issuers. The Fund
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of
Colorado Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Colorado Obligations. Through the convenience of a
single security consisting of shares of the Fund, you are also
relieved of the inconvenience associated with direct investments of
fixed denominations, including the selecting, purchasing, handling,
monitoring call provisions and safekeeping of Colorado
Obligations.
Colorado Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations such as bonds are issued include the
construction of a wide range of public facilities such as airports,
highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public
purposes for which municipal obligations may be issued include the
refunding of outstanding obligations, the obtaining of funds for
general operating expenses and the obtaining of funds to lend to
other public institutions and facilities.
INVESTMENT OF THE FUND'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Colorado State and regular
Federal income taxes as is consistent with the preservation of
capital, the Fund will invest in Colorado Obligations (as defined
below). There is no assurance that the Fund will achieve its
objective, which is a fundamental policy of the Fund. (See
"Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Colorado Obligations" means obligations, including those of
certain non-Colorado issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate counsel,
is exempt from regular Federal income taxes and not subject to
Colorado income taxes. Although exempt from regular Federal income
tax, interest paid on certain types of Colorado Obligations, and
dividends which the Fund might pay from this interest, are
preference items as to the Federal alternative minimum tax; for
further information, see "Dividend and Tax Information." As a
fundamental policy, at least 80% of the Fund's net assets will be
invested in Colorado Obligations the income paid upon which will
not be subject to the alternative minimum tax; accordingly, the
Fund can invest up to 20% of its net assets in obligations which
are subject to the Federal alternative minimum tax. The Fund may
refrain entirely from purchasing these types of Colorado
Obligations. (See "Dividend and Tax Information.")
The non-Colorado bonds or other obligations the interest on
which is exempt under present law from regular Federal and Colorado
income taxes are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands.
The Fund will not purchase Colorado Obligations of non-Colorado
issuers unless Colorado Obligations of Colorado issuers of the
desired quality, maturity and interest rate are not available. As
a Colorado-oriented fund, at least 65% of the Fund's total assets
will be invested in Colorado Obligations of Colorado issuers. The
Fund invests only in Colorado Obligations and, possibly, in Futures
and options on Futures (see below) for protective (hedging)
purposes.
In general, there are nine separate credit ratings ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Fund will have a portfolio of quality
oriented (investment grade) securities, the Colorado Obligations
which the Fund will purchase must, at the time of purchase, either
(i) be rated within the four highest credit ratings assigned by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"); or (ii) if unrated, be determined to be of
comparable quality to municipal obligations so rated by KPM
Investment Management, Inc. (the "Adviser"), subject to the
direction and control of the Fund's Board of Trustees. Municipal
obligations rated in the fourth highest credit rating are
considered by such rating agencies to be of medium quality and thus
may present investment risks not present in more highly rated
obligations. Such bonds lack outstanding investment characteristics
and may in fact have speculative characteristics as well; changes
in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments
than is the case for higher grade bonds. If after purchase the
rating of any rated Colorado Obligation is downgraded such that it
could not then be purchased by the Fund, or, in the case of an
unrated Colorado Obligation, if the Adviser determines that the
unrated obligation is no longer of comparable quality to those
rated obligations which the Fund may purchase, it is the current
policy of the Fund to cause any such obligation to be sold as
promptly thereafter as the Adviser in its discretion determines to
be consistent with the Fund's objectives; such obligation remains
in the Fund's portfolio until it is sold. In addition, because a
downgrade often results in a reduction in the market price of a
downgraded obligation, sale of such an obligation may result in a
loss. See Appendix A to the Additional Statement for further
information as to these ratings. The Fund can purchase industrial
development bonds only if they meet the definition of Colorado
Obligations, i.e., the interest on them is exempt from Colorado
State and regular Federal income taxes.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Fund also intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code").
One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of the Fund, at
least 50% of its assets must consist of (i) cash; and (ii)
securities which, as to any one issuer, do not exceed 5% of the
value of the Fund's assets. If the Fund had elected to register
under the 1940 Act as a "diversified" investment company, it would
have to meet the same test as to 75% of its assets. The Fund may
therefore not have as much diversification among securities, and
thus diversification of risk, as if it had made this election under
the 1940 Act. In general, the more the Fund invests in the
securities of specific issuers, the more the Fund is exposed to
risks associated with investments in those issuers. The Fund's
assets, being primarily or entirely Colorado issues, are
accordingly subject to economic and other conditions affecting
Colorado. (See "Risk Factors and Special Considerations Regarding
Investment in Colorado Obligations.")
Certain Stabilizing Measures
The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash and
cash equivalents in attempting to protect against declines in the
value of its investments and other market risks. There can,
however, be no assurance that these will be successful. Although
the Fund has no current intention of using futures and options, to
the limited degree described below, these may be used to attempt to
hedge against changes in the market price of the Fund's Colorado
Obligations caused by interest rate fluctuations. Futures and
options could also provide a hedge against increases in the cost of
securities the Fund intends to purchase.
Although it does not currently do so, and since inception
has not done so, the Fund may buy and sell futures contracts
relating to indices on municipal bonds ("Municipal Bond Index
Futures") and to U.S. government securities ("U.S. Government
Securities Futures"); both kinds of futures contracts are
"Futures." The Fund may also write and purchase put and call
options on Futures.
As a matter of fundamental policy the Fund will not buy or
sell a Future or an option on a Future if thereafter more than 10%
of its net assets would be in initial or variation margin on such
Futures and options on them, and in premiums on such options. Under
an applicable regulatory rule, the Fund will not enter into Futures
or options for which the aggregate initial margins and premiums
paid for options exceed 5% of the fair market value of the Fund's
assets. (See the Additional Statement.)
The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Fund's portfolio and the
prices of Futures or options purchased or sold by the Fund; (ii)
incorrect forecasts by the Adviser concerning interest rates which
may result in the hedge being ineffective; and (iii) possible lack
of a liquid secondary market for a Future or option; the resulting
inability to close a Futures or options position could adversely
affect the Fund's hedging ability.
For a hedge to be completely effective, the price change of
the hedging instrument should equal the price change of the
security being hedged. The risk of imperfect correlation of these
price changes is increased as the composition of the Fund's
portfolio is divergent from the debt securities underlying the
hedging instrument. To date, the Adviser has had no experience in
the use of Futures or options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits" established
by commodity exchanges which restrict the amount of change in the
contract price allowed during a single trading day. Thus, once a
daily limit is reached, no further trades may be entered into
beyond the limit, thereby preventing the liquidation of open
positions. Prices have in the past reached the daily limit on a
number of consecutive trading days. For further information about
Futures and options, see the Additional Statement.
When and if the Fund determines to use Futures and options,
the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one year,
but permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding one year, in each case upon
not more than 30 days' notice. The issuer of such notes normally
has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the
noteholders. The interest rate on a floating rate demand note is
based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
Participation Interests
The Fund may purchase from financial institutions
participation interests in Colorado Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the
underlying Colorado Obligations in the proportion that the Fund's
participation interest bears to the total amount of the underlying
Colorado Obligations. All such participation interests must meet
the Fund's credit requirements. (See "Limitation to 10% as to
Certain Investments.")
When-Issued and Delayed Delivery Purchases
The Fund may buy Colorado Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Colorado Obligations so purchased are subject to market
fluctuation and no interest accrues to the Fund until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. The Fund cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Fund chooses
to dispose of the right to acquire a when-issued obligation prior
to its acquisition, it could, as with the disposition of any other
portfolio holding, incur a gain or loss due to market fluctuation;
any such gain would be a taxable short-term gain. The Fund places
an amount of assets equal in value to the amount due on the
settlement date for the when-issued or delayed delivery securities
being purchased in a segregated account with the Custodian, which
is marked to market every business day. See the Additional
Statement for further information.
Limitation to 10% as to Certain Investments
The Fund cannot purchase Colorado Obligations that are not
readily marketable if thereafter more than 10% of its net assets
would consist of such investments. However, this 10% limit does not
include any Colorado Obligations as to which the Fund can exercise
the right to demand payment in full within three days and as to
which there is a secondary market. Floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. (See
the Additional Statement.)
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets
in (i) Colorado Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless this Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value of
the Fund's Investments and Their Yields
The value of the Colorado Obligations in which the Fund
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Fund buys Colorado Obligations, the value of these
obligations will normally go down; if these rates go down, the
value of these obligations will normally go up. Changes in value
and yield based on changes in prevailing interest rates may have
different effects on short-term Colorado Obligations than on
long-term obligations. Long-term obligations (which often have
higher yields) may fluctuate in value more than short-term ones.
For this reason, the Fund may, to achieve a defensive position,
shorten the average maturity of its portfolio.
Risk Factors and Special Considerations Regarding
Investment in Colorado Obligations
The following is a discussion of the general factors that
might influence the ability of Colorado issuers to repay principal
and interest when due on the Colorado Obligations contained in the
portfolio of the Fund. Such information is derived from sources
that are generally available to investors and is believed by the
Fund to be accurate, but has not been independently verified and
may not be complete.
Because of limitations contained in the state constitution,
the State of Colorado issues no general obligation bonds secured by
the full faith and credit of the state. Several agencies and
instrumentalities of state government are authorized by statute to
issue bonds secured by revenues from specific projects and
activities. Additionally, the state currently is authorized to
issue short-term revenue anticipation notes.
There are approximately 2,000 units of local government in
Colorado, including counties, statutory cities and towns, home-rule
cities and counties, school districts and a variety of water,
irrigation, and other special districts and special improvement
districts, all with various constitutional and statutory authority
to levy taxes and incur indebtedness. The major source of revenue
for funding such indebtedness is the ad valorem property tax, which
presently is levied and collected solely at the local level,
although the state is also authorized to levy such taxes. There is
a statutory restriction on the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions in Colorado
without electoral approval.
On November 3, 1992, an amendment to the Constitution of
the State of Colorado was approved and went into effect. In
general, the effect of the amendment is to limit the ability of the
State and local governments to increase revenues and expenditures,
issue debt and enter into other financial obligations and raise
taxes. At the date of this Prospectus, it is not possible to
predict how the amendment will affect the various issuers of
existing and future Colorado Obligations, but in general it could
reduce the tax coverage for Colorado Obligations, limit the ability
of municipalities to issue new obligations and could impair the
liquidity of Colorado Obligations. In addition, the various
provisions of the amendment may result in legislation and have
resulted in litigation that may have effects on Colorado
Obligations that cannot now be predicted. The principal provisions
of the amendment and other matters relating to it are summarized in
the Additional Statement.
Colorado's economy is diversified and the state has become
the services center for the Rocky Mountain region. The state's
economy includes agriculture, manufacturing (especially high
technology activities), construction, tourism (ski resorts and
national parks) and mining (primarily oil production). Colorado has
recovered from economic difficulties experienced during the past
several years, which caused state government revenue shortfalls at
that time.
Employment in Colorado is diversified among services,
trade, government and manufacturing. Employment growth in Colorado
has exceeded that of the United States as a whole since 1989.
It can be expected that federal deficit reduction measures
will have significant direct and indirect impact on the economy of
the state as a whole and on specific localities with a large
presence of federal activity. As a result of all these factors,
there can be no assurance that further economic difficulties and
their impact on state and local government finances will not
adversely affect the market value of the Colorado Obligations held
by the Fund or the ability of the respective obligors to pay debt
service on certain of such obligations. Obligations of non-Colorado
issuers are subject to the risks of general economic and other
factors affecting those issuers.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and
cannot do. Certain of these policies, identified in the Prospectus
and Additional Statement as "fundamental policies," cannot be
changed unless the holders of a "majority," as defined in the 1940
Act, of the Fund's outstanding shares vote to change them. (See the
Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Fund's fundamental policies, not otherwise identified in the
Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than the Colorado
Obligations meeting the standards stated under "Investment of the
Fund's Assets"; the Fund can also purchase and sell Futures and
options on them within the limits there discussed.
2. The Fund has industry investment requirements.
The Fund 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 Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Fund cannot make loans.
The Fund can buy those Colorado Obligations which it is
permitted to buy (see "Investment of the Fund's Assets"); this is
investing, not making a loan. The Fund cannot lend its portfolio
securities.
4. The Fund can borrow only in limited amounts for special
purposes.
The Fund 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 Fund's income. Except in connection with
borrowings, the Fund will not issue senior securities. The Fund
will not purchase any Colorado Obligations, Futures or options on
Futures while it has any outstanding borrowings which exceed 5% of
the value of its total assets.
NET ASSET VALUE PER SHARE
The Fund's net asset value and offering price per share of
each class are determined as of 4:00 p.m. New York time on each day
that the New York Stock Exchange is open (a "business day"). The
net asset value per share is determined by dividing the value of
the net assets (i.e., the value of the assets less liabilities) by
the total number of shares outstanding. Determination of the value
of the Fund's assets is subject to the direction and control of the
Fund's Board of Trustees. In general, it is based on market value,
except that Colorado Obligations maturing in 60 days or less are
generally valued at amortized cost; see the Additional Statement
for further information.
HOW TO INVEST IN THE FUND
Institutional Class Shares (Class Y Shares) are offered
only to institutional investors for investments held in a
fiduciary, advisory, agency, custodial or similar capacity, or
through them to their clients, and are not offered to directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee.
How to Purchase Class Y Shares
Class Y Shares of the Fund may be purchased through any
investment broker or dealer (a "selected dealer") which has a sales
agreement with Aquila Distributors, Inc. (the "Distributor") or
through the Distributor. There are two ways to make an initial
investment: (i) order the shares through your investment broker or
dealer, if it is a selected dealer; or (ii) mail the Application
with payment to Administrative Data Management Corp. (the "Agent")
at the address on the Application. There is no sales charge on
initial or subsequent investments. You are urged to complete an
Application and send it to the Agent so that expedited shareholder
services can be established at the time of your investment.
The minimum initial investment for Class Y Shares is
$1,000, except as otherwise stated in the Prospectus or Additional
Statement. You may also make an initial investment of at least $50
by establishing an Automatic Investment Program for automatic
investments of at least $50 per month and paying at least $50. (See
below and "Automatic Investment Program" in the Application.) Such
investment must be drawn in United States dollars on a United
States commercial or savings bank, credit union or a United States
branch of a foreign commercial bank (each of which is a "Financial
Institution"). You may make subsequent investments in Class Y
Shares in any amount (unless you have an Automatic Withdrawal
Plan). Your subsequent investment may be made through a selected
dealer or by forwarding payment to the Agent, with the name(s) of
account owner(s), the account number and the name of the Fund. With
subsequent investments, please send the pre-printed stub attached
to the Fund's confirmations.
Subsequent investments of $50 or more in Class Y Shares can
be made by electronic funds transfer from your demand account at a
Financial Institution. To use electronic funds transfer for your
purchases, your Financial Institution must be a member of the
Automated Clearing House and the Agent must have received your
completed Application designating this feature, or, after your
account has been opened, a Ready Access Features form available
from the Distributor or the Agent. A pre-determined amount can be
regularly transferred for investment ("Automatic Investment"), or
single investments can be made upon receipt by the Agent of
telephone instructions from anyone ("Telephone Investment"). The
maximum amount of each Telephone Investment is $50,000. Upon 30
days' written notice to shareholders, the Fund may modify or
terminate these investment methods at any time or charge a service
fee, although no such fee is currently contemplated.
The offering price for Class Y Shares is the net asset
value per share. The offering price determined on any day applies
to all purchase orders received by the Agent from selected dealers
that day, except that orders received by it after 4:00 p.m. New
York time will receive that day's offering price only if such
orders were received by selected dealers from customers prior to
such time and transmitted to the Distributor prior to its close of
business that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next business
day. In the case of Telephone Investment your order will be filled
at the next determined offering price. If your order is placed
after the time for determining the net asset value of the Fund
shares for any day, it will be executed at the price determined on
the following business day. The sale of shares will be suspended
during any period when the determination of net asset value is
suspended and may be suspended by the Distributor when the
Distributor judges it in the Fund's best interest to do so.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Fund. Additional compensation may include
payment or partial payment for advertising of the Fund's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Fund effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and Dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share). No share certificates will be issued for Class Y
Shares.
The Fund and the Distributor reserve the right to reject
any order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a written plan
adopted under the Rule. No payments under the Plan from assets
represented by Class Y Shares are authorized.
The Plan contains provisions designed to protect against
any claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for payments made with respect to Class A Shares and
Class C Shares it is not financing any such activity and does not
consider any payment enumerated in such provisions as so financing
any such activity. If and to the extent that any payment as
specifically listed in the Plan (see the Additional Statement) is
considered to be primarily intended to result in or as indirect
financing of any activity which is primarily intended to result in
the sale of Fund shares, these payments are authorized under the
Plan. In addition, if the Administrator, out of its own funds,
makes payment for distribution expenses such payments are
authorized. See the Additional Statement.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your Class Y Shares at
the net asset value next determined after acceptance of your
redemption request at the Agent. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Fund, except for shares recently purchased by
check, Automatic Investment or Telephone Investment as discussed
below. There are no redemption fees or penalties on redemption of
Class Y Shares. A redemption may result in a transaction taxable to
you.
For your convenience the Fund offers expedited redemption
for Class Y Shares to provide you with a high level of liquidity
for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your address
of record during the 30 days preceding your redemption
request. You can make only one request for telephone
redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-872-2651 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
2. By FAX or Mail. You may also request redemption payments
to a predesignated Financial Institution account by a letter
of instruction sent to: Administrative Data Management Corp.,
Attn: Aquilasm Group of Funds, by FAX at 908-855-5730 or by
mail at 581 Main Street, Woodbridge, NJ 07095-1198, indicating
account name(s), account number, amount to be redeemed, and
any payment directions, signed by the registered holder(s).
Signature guarantees are not required. See "Redemption
Payments" below for payment methods.
If you wish to use the above procedures you should so elect
on the Expedited Redemption section of the Application or the Ready
Access Features form and provide the required information
concerning your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Fund. You may change the
designated Financial Institution account at any time by completing
and returning a Ready Access Features form. For protection of your
assets, this form requires signature guarantees and possible
additional documentation.
Regular Redemption Method
If you own Class Y Shares registered on the books of the
Fund, and you have not elected Expedited Redemption to a
predesignated Financial Institution account, you must use the
Regular Redemption Method. Under this redemption method you should
send a letter of instruction to: Administrative Data Management
Corp., Attn: Aquilasm Group of Funds, 581 Main Street, Woodbridge,
NJ 07095-1198, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
below.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration of
the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required if
sufficient documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature
guarantor.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will, wherever
possible, be wired or transferred through the facilities of the
Automated Clearing House to the Financial Institution account
specified in the Expedited Redemption section of your Application
or Ready Access Features form. The Fund may impose a charge, not
exceeding $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. The Fund
has no present intention of making this charge. Upon 30 days'
written notice to shareholders, the Fund may modify or terminate
the use of the Automated Clearing House to make redemption payments
at any time or charge a service fee, although no such fee is
presently contemplated. If any such changes are made, the
Prospectus will be supplemented to reflect them. If you use a
broker or dealer to arrange for a redemption, it may charge you a
fee for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven days
after acceptance of such a redemption request. However, the right
of redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or valuation of the net asset value of,
the portfolio securities to be unreasonable or impracticable; or
(iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of shares recently
purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) or by
Automatic Investment or Telephone Investment may be delayed up to
15 days or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Fund, that the
purchase check or Automatic Investment or Telephone Investment will
be honored. Possible delays in payment of redemption proceeds can
be eliminated by using wire payments or Federal Reserve drafts to
pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind of
securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. See the Additional Statement for details.
The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such shares
is less than $500 as a result of shareholder redemptions or failure
to meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own
or purchase Class Y Shares of the Fund having a net asset value of
at least $5,000.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions must
be reinvested in your shareholder account. Redemption of shares to
make payments under the Automatic Withdrawal Plan will give rise to
a gain or loss for tax purposes. See the Automatic Withdrawal Plan
provisions of the Application included in the Prospectus, the
Additional Statement under "Automatic Withdrawal Plan," and
"Dividend and Tax Information" below.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
The Advisory Agreement
KPM Investment Management, Inc., (the "Adviser") is a
wholly-owned subsidiary of Kirkpatrick, Pettis, Smith Polian, Inc.
("Kirkpatrick Pettis"). Kirkpatrick Pettis became the Fund's
investment adviser on October 1, 1992 under an advisory agreement
(the "Former Advisory Agreement"). On June 8, 1994, the
shareholders of the Fund approved a new advisory agreement (the
"Advisory Agreement") which has the same terms except for the fee
reductions in connection with certain payments under the Fund's
Distribution Plan described below. On July 1, 1994, with the
approval of the Board of Trustees, Kirkpatrick Pettis transferred
the Advisory Agreement to the Adviser, which has acted as the
Fund's adviser since that time using the same personnel.
The Adviser supervises the investment program of the Fund
and the composition of its portfolio. The services of the Adviser
are rendered under the Advisory Agreement, which provides, subject
to the control of the Board of Trustees, for investment supervision
of the Fund; at the Adviser's expense providing for pricing of the
Fund's portfolio daily using a pricing service or other sources of
pricing information satisfactory to the Fund and, unless otherwise
directed by the Board of Trustees, providing for pricing of the
Fund's portfolio at least quarterly using another such source
satisfactory to the Fund. Fund accounting services are performed by
the Administrator.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Adviser.
Additionally, the Adviser agrees that it shall, at the Adviser's
expense, provide to the Fund all office space, facilities,
equipment and clerical personnel necessary for the carrying out of
the Adviser's duties under the Advisory Agreement.
Under the Advisory Agreement, the Fund bears the cost of
preparing and setting in type its prospectuses, statements of
additional information, and reports to shareholders and the costs
of printing or otherwise producing and distributing those copies of
such prospectuses, statements of additional information and reports
as are sent to its shareholders. Under the Advisory Agreement, all
costs and expenses not expressly assumed by the Adviser or by the
Administrator under the Administration Agreement, or by the Fund's
Distributor (principal underwriter), are paid by the Fund. The
Advisory Agreement lists examples of such expenses borne by the
Fund, the major categories of such expenses being: legal and audit
expenses, custodian, transfer agent and shareholder servicing agent
fees and expenses, stock issuance and redemption costs, certain
printing costs, registration costs of the Fund and its shares under
Federal and State securities laws, interest, taxes and brokerage
commissions, and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Fund pays a fee payable
monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.20 of
1% of the Fund's net assets, provided, however, that for any day
that the Fund pays or accrues a fee under the Distribution Plan of
the Fund based upon the assets of the Fund, the annual fee shall be
payable at the annual rate of 0.20 of 1% of such assets up to $250
million and at the annual rate of 0.16 of 1% of such net asset
value with respect to assets of the Fund above that amount.
The total investment advisory and administration fees which
the Fund pays are at the annual rate of 0.50 of 1% of such net
assets, since the Administrator also receives a fee from the Fund
under the Administration Agreement; see below. The Adviser and the
Administrator may, in order to attempt to achieve a competitive
yield on the shares of the Fund, each waive all or part of any such
fees. In practice, the rate of these fee waivers tends to decline
as assets of the Fund increase.
The Board of Trustees and shareholders of the Fund have
approved certain changes to the Advisory Agreement with reductions
in fees payable to the Adviser from an annual rate of 0.20 of 1% to
0.16 of 1% of all of the Fund's average annual net assets. These
reductions will be accompanied by reductions in the fees payable to
the Administrator (see "Administration Agreement") and will match
an increase in payments under the Fund's Distribution Plan to keep
the combined payments of the Fund at current levels. The changes
will not be implemented until the earlier of October 1, 1996 or the
first day of the next succeeding calendar quarter after the quarter
in which the net assets of the Fund exceed $250 million. As of the
date of the Prospectus, implementation of these changes has been
postponed indefinitely. When and if it is determined to implement
these changes the Prospectus will be supplemented. Until such time
the current arrangements will remain in effect.
The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion (based
upon the aggregate fees of the Adviser and the Administrator) of
the amount, if any, by which the total expenses of the Fund in any
fiscal year, exclusive of taxes, interest and brokerage fees, shall
exceed the lesser of (i) 2.5% of the first $30 million of average
annual net assets of the Fund plus 2% of the next $70 million of
such assets plus 1.5% of its average annual net assets in excess of
$100 million, or (ii) 25% of the Fund's total annual investment
income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund. Under these
provisions, the Adviser is authorized to consider sales of shares
of the Fund or of any other investment company or companies having
the same investment adviser, sub-adviser, administrator or
principal underwriter as the Fund. See the Additional Statement for
a description of these provisions and prior advisory
arrangements.
The Administration Agreement
Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at its
own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as is
necessary in connection with the maintenance of the headquarters of
the Fund and pays all compensation of the Fund's Trustees, officers
and employees who are affiliated persons of the Administrator. The
Administration Agreement went into effect in June, 1994, replacing
an administration agreement then in effect with the same terms
except for the fee reductions in connection with certain payments
under the Fund's Distribution Plan described below.
Under the Administration Agreement, subject to the control
of the Fund's Board of Trustees, the Administrator provides all
administrative services to the Fund other than those relating to
its investment portfolio. Such administrative services include but
are not limited to maintaining books and records of the Fund,
either keeping the accounting records of the Fund, including the
computation of net asset value per share and the dividends or, at
its expense and responsibility, delegating such duties in whole or
in part to a company satisfactory to the Fund (however, the daily
pricing of the Fund's portfolio is the responsibility of the
Adviser under the Advisory Agreement), overseeing all relationships
between the Fund and its transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the negotiation of
agreements in relation thereto, the supervision and coordination of
the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation of the Fund and for the sale, servicing, or
redemption of the Fund's shares. See the Additional Statement for
a further description of functions listed in the Administration
Agreement as part of such duties.
Under the Administration Agreement, the Fund pays a fee
payable monthly and computed on the net asset value of the Fund as
of the close of business each business day at the annual rate of
0.30 of 1% of the Fund's net assets, provided, however, that for
any day that the Fund pays or accrues a fee under the Distribution
Plan of the Fund based upon the assets of the Fund, the annual fee
shall be payable at the annual rate of 0.30 of 1% of such assets up
to $250 million (the "Base Amount"), and at the annual rate of 0.24
of 1% of such net asset value with respect to assets of the Fund
above the Base Amount. The Administrator agrees that the above fee
shall be reduced, but not below zero, by an amount equal to its
pro-rata portion (based upon the aggregate fees of the Adviser and
the Administrator) of the amount, if any, by which the total
expenses of the Fund in any fiscal year, exclusive of taxes,
interest and brokerage fees, shall exceed the lesser of (i) 2.5% of
the first $30 million of average annual net assets of the Fund plus
2% of the next $70 million of such assets plus 1.5% of its average
annual net assets in excess of $100 million, or (ii) 25% of the
Fund's total annual investment income.
The Board of Trustees has approved certain changes to the
Administration Agreement with reductions in fees payable to the
Administrator from an annual rate of 0.30 of 1% to 0.24 of 1% of
all of the Fund's average annual net assets. These reductions will
be accompanied by reductions in the fees payable to the Adviser
(see "Advisory Agreement") and will match an increase in payments
under the Fund's Distribution Plan to keep the combined payments of
the Fund at current levels. The changes will not be implemented
until the earlier of October 1, 1996 or the first day of the next
succeeding calendar quarter after the quarter in which the net
assets of the Fund exceed $250 million. As of the date of the
Prospectus, implementation of these changes has been postponed
indefinitely. When and if it is determined to implement these
changes the Prospectus will be supplemented. Until such time the
current arrangements will remain in effect.
Information as to the Adviser,
the Administrator and the Distributor
The Adviser provides professional investment advisory
services to a broad base of clients and currently manages over $750
million in clients' assets. The Adviser is a wholly-owned
subsidiary of Kirkpatrick Pettis, which is a full service
investment firm serving institutional and retail markets through
its investment banking, sales and trading facilities.
Mr. Christopher Johns is the Fund's portfolio manager. Mr.
Johns has been a Vice President of the Adviser since 1992. From
1984 through 1992, he was a portfolio manager at United Bank of
Denver (now Norwest Bank, Denver) when it acted as investment
adviser to the Fund. He was formerly a portfolio manager of Toledo
Trust Company. He holds the degree of BBA in Finance from the
University of Cincinnati. Mr. Douglas E. Nelson is the back-up
portfolio manager. Mr. Nelson has been employed by the Adviser as
a portfolio manager for municipal bonds since 1991. From 1983 until
that time, he held various positions in the investment business
with Prudential-Bache, B.C. Christopher, Dain Bosworth and FSB
Investments. Mr. Nelson is a graduate of the University of Kansas.
He is President of the Rocky Mountain Municipal Analysts Society
and a member of the Denver Society of Security Analysts.
Tracing its history to 1925, Kirkpatrick Pettis currently
staffs 9 offices in Colorado, Iowa, Kansas, Missouri, Nebraska and
New York that serve primarily the midwest and Rocky Mountain
regions. Its principal office is located at 10250 Regency Circle,
Omaha, NE 68114 and its Denver office is located at One Norwest
Center, 1700 Lincoln Street, Denver, CO 80203. Since 1983, the
Adviser has been a wholly-owned subsidiary of Mutual of Omaha
Insurance Company, whose principal office is at Mutual of Omaha
Plaza, Omaha, NE 68175.
For the year ended December 31, 1995, advisory fees of
$427,046 were paid or accrued to the Adviser, of which $49,985 was
voluntarily waived.
The Fund's Administrator is administrator to the Aquilasm
Group of Funds, which consist of tax-free municipal bond funds,
money market funds and an equity fund. As of December 31, 1995,
these funds had aggregate assets of approximately $2.7 billion, of
which approximately $1.9 billion consisted of assets of the
tax-free bond funds. The Administrator, which was founded in 1984,
is controlled by Mr. Lacy B. Herrmann (directly, through a trust
and through share ownership by his wife).
During the year ended December 31, 1995, administration
fees of $640,488 were paid or accrued to the Administrator under
the Administration Agreement, of which $228,480 was voluntarily
waived.
The Distributor currently handles the distribution of the
shares of thirteen funds (five money market funds, seven tax-free
municipal bond funds and an equity fund), including the Fund. Under
the Distribution Agreement, the Distributor is responsible for the
payment of certain printing and distribution costs relating to
prospectuses and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
At the date of the Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which are
currently owned by Mr. Herrmann, will be owned by certain directors
and/or officers of the Administrator and/or the Distributor,
including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined
below, as dividends on every day, including weekends and holidays,
on those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Fund
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued. As such net
income will vary, the Fund's dividends will also vary. Dividends
and other distributions paid by the Fund with respect to all
classes of the Fund's shares are calculated at the same time and in
the same manner. In addition, the dividends of each class can vary
because each class will bear certain class-specific charges.
It is the Fund's present policy to pay dividends so that
they will be received or credited by approximately the first day of
each month. Shareholders may elect to have dividends deposited
without charge by electronic funds transfers into an account at a
Financial Institution which is a member of the Automated Clearing
House by completing a Ready Access Features form.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid by
the Agent to a selected dealer; or (ii) the third day on which the
New York Stock Exchange is open after the day on which the net
asset value of the redeemed shares has been determined (see "How To
Redeem Your Investment").
Net investment income includes amounts of income from the
Colorado Obligations in the Fund's portfolio which are allocated as
"exempt-interest dividends." "Exempt-interest dividends" are exempt
from regular Federal income tax. The allocation of "exempt-interest
dividends" will be made by the use of one designated percentage
applied uniformly to all income dividends declared during the
Fund's tax year. Such designation will normally be made in the
first month after the end of each of the Fund's fiscal years as to
income dividends paid in the prior year. It is possible that in
certain circumstances, a small portion of the dividends paid by the
Fund will be subject to income taxes. During the Fund's fiscal year
ended December 31, 1995, 98.0% of the Fund's dividends were
"exempt-interest dividends." For the calendar year 1995, 2.0% of
the total dividends paid were taxable as ordinary income and 1.76%
were taxable as long-term capital gains. (These amounts relate to
dividends on Class A Shares; no Class Y Shares were outstanding
during that period.) The percentage of income designated as
tax-exempt for any particular dividend may be different from the
percentage of the Fund's income that was tax-exempt during the
period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be paid
out after that date; the Fund 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 Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions to
shareholders, and from short- and long-term gains distributions (if
any) and any other distributions that do not qualify as "exempt-
interest dividends," if shareholders do not comply with provisions
of the law relating to the furnishing of taxpayer identification
numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions will be automatically
reinvested in full and fractional shares of the Fund at net asset
value on the record date for the dividend or distribution or other
date fixed by the Board of Trustees. An election to receive cash
will continue in effect until written notification of a change is
received by the Agent. All shareholders, whether their dividends
are received in cash or are being reinvested, will receive a
monthly account summary indicating the current status of their
investment. There is no fixed dividend rate. Corporate shareholders
of the Fund are not entitled to any deduction for dividends
received from the Fund.
Tax Information
The Fund qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as dividends
and distributions. However, the Code contains a number of complex
tests relating to such qualification and it is possible although
not likely that the Fund might not meet one or more of these tests
in any particular year. If it does not so qualify, it would be
treated for tax purposes as an ordinary corporation, would receive
no tax deduction for payments made to shareholders and would be
unable to pay dividends or distributions which would qualify as
"exempt-interest dividends" or "capital gains dividends," as
discussed below.
The Fund intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income earned
by the Fund on Colorado 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 Fund) received or
acquired during the year.
The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Fund on the sale of municipal
obligations acquired after April 30, 1993 at a price which is less
than face or redemption value be included as ordinary income to the
extent such gains do not exceed such discount or that the discount
be amortized and included ratably in taxable income. There is an
exception to the foregoing treatment if the amount of the discount
is less than 0.25% of face or redemption value multiplied by the
number of years from acquisition to maturity. The Fund will report
such ordinary income in the years of sale or redemption rather than
amortize the discount and report it ratably. To the extent the
resultant ordinary taxable income is distributed to shareholders,
it will be taxable to them as ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates) are
reportable by shareholders as long-term capital gains. This is the
case whether the shareholder takes the distribution in cash or
elects to have the distribution reinvested in Fund shares and
regardless of the length of time the shareholder has held his or
her shares. Capital gains are taxed at the same rates as ordinary
income, except that for individuals, trusts and estates the maximum
tax rate on capital gains distributions is 28% even if the
applicable rate on ordinary income for such taxpayers is higher
than 28%.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are not
distributed but carried forward by the Fund to offset gains in
later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Fund's gains or losses on sales of Colorado Obligations
will be long-term or short-term depending upon the length of time
the Fund has held such obligations. Capital gains and losses of the
Fund will also include gains and losses on Futures and options, if
any, including gains and losses actually realized on sales and
exchanges and gains and losses deemed to be realized. Those deemed
to be realized are on Futures and options held by the Fund at
year-end, which are "marked to the market," that is, deemed sold
for fair market value. Net gains or losses realized and deemed
realized on Futures and options will be reportable by the Fund as
long-term to the extent of 60% of the gains or losses and
short-term to the extent of 40% regardless of the actual holding
period of such investments.
Information as to the tax status of the Fund's dividends
and distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Fund 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 Fund may be
considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of
shares. The receipt of exempt-interest dividends from the Fund by
an individual shareholder may result in some portion of any social
security payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in taxable
income. Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds or
private activity bonds should consult their own tax advisers before
purchasing shares.
While interest from all Colorado Obligations is tax-exempt
for purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7, 1986,
constitutes a tax preference for both individuals and corporations
and thus will enter into a computation of the alternative minimum
tax. Whether or not that computation will result in a tax will
depend on the entire content of the taxpayer's return. The Fund
will not invest in the types of Colorado Obligations which would
give rise to interest that would be subject to alternative minimum
taxation if more than 20% of its net assets would be so invested,
and may refrain from investing in that type of bond completely. The
20% limit is a fundamental policy of the Fund.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current earnings,
this adjustment will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax.
As of the date of the Prospectus, Congress is considering
a number of changes affecting taxation. It is not possible to
predict which, if any, of such changes will become law.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. The gain or loss will be long-term if you held the
redeemed shares for over a year, and short-term if for a year or
less. However, if shares held for six months or less are redeemed
and you have a loss, two special rules apply: the loss is reduced
by the amount of exempt-interest dividends, if any, which you
received on the redeemed shares, and any loss over and above the
amount of such exempt-interest dividends is treated as a long-term
loss to the extent you have received capital gains dividends on the
redeemed shares.
Colorado Tax Information
Dividends and distributions made by the Fund to Colorado
individuals, trusts, estates and corporations subject to the
Colorado income tax will generally be treated for Colorado income
tax purposes in the same manner as they are treated under the Code
for Federal income tax purposes. Since the Fund may, except as
indicated below, purchase only Colorado Obligations (which, as
defined, means obligations, including those of non-Colorado
issuers, of any maturity which pay interest which, in the opinion
of counsel, is exempt from regular Federal income taxes and
Colorado income taxes), none of the exempt-interest dividends paid
by the Fund will be subject to Colorado income tax. The Fund may
also pay "short-term gains distributions" and "long-term gains
distributions," each as discussed under "Dividends and
Distributions" above. Under Colorado income tax law, each
short-term gains distribution will be treated as a short-term gain
and each long-term gains distribution will be treated as a
long-term capital gain. The only investment which the Fund may make
other than in Colorado Obligations is in Futures and options on
them. Any gains on Futures and options (including gains imputed
under the Code) paid as part or all of a short-term gains
distribution or a long-term gains distribution will be taxed as
indicated above.
Persons or entities who are not Colorado residents should
not be subject to Colorado income taxation on dividends and
distributions made by the Fund unless the nonresident employs his
or her interest in the Fund in a business, trade, profession or
occupation carried on in Colorado but may be subject to other state
and local taxes. As intangibles, shares of the Fund will be exempt
from Colorado property taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Fund and certain tax-free municipal bond funds and an equity
fund (the "Bond or Equity Funds") and certain money market funds
(the "Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have the
same Administrator and Distributor as the Fund. All exchanges are
subject to certain conditions described below. As of the date of
this Prospectus, the Aquila Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust,
Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, Churchill
Tax-Free Fund of Kentucky, Tax-Free Fund For Utah and Narragansett
Insured Tax-Free Income Fund; the Aquila Money-Market Funds are
Capital Cash Management Trust, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.
Class Y Shares of the Fund may be exchanged only for Class
Y Shares of the Bond or Equity Funds or for shares of a Money-
Market Fund.
Under the Class Y exchange privilege, once Class Y Shares
of any Bond or Equity Fund have been purchased, those shares (and
any shares acquired as a result of reinvestment of dividends and/or
distributions) may be exchanged any number of times between
Money-Market Funds and Class Y Shares of the Bond or Equity Funds
without the payment of any sales charge.
The "Class Y Eligible Shares" of any Bond or Equity Fund
are those shares which were (a) acquired by direct purchase
including by exchange by an institutional investor from a Money-
Market Fund, or which were received in exchange for Class Y Shares
of another Bond or Equity Fund; or (b) acquired as a result of
reinvestment of dividends and/or distributions on otherwise Class
Y Eligible Shares. Shares of a Money-Market Fund not acquired in
exchange for Class Y Eligible Shares of a Bond or Equity Fund can
be exchanged for Class Y Shares of a Bond or Equity Fund only by
persons eligible to make an initial purchase of Class Y Shares.
This Fund, 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 Fund may
also modify or terminate this exchange privilege at any time. In
the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange are at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-872-2651 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges of Class Y Shares will be effected at the
relative net asset values of the Class Y Shares being exchanged
next determined after receipt by the Agent of your exchange
request. Prices for exchanges are determined in the same manner as
for purchases of the Fund's shares. See "How to Invest in the
Fund."
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see the Additional
Statement); no representation is made as to the deductibility of
any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-Market
Fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Treasuries Cash Assets Trust (which invests in U.S. Treasury
obligations) are exempt from state income taxes. Dividends paid by
Aquila Rocky Mountain Equity Fund are taxable. If your state of
residence is not the same as that of the issuers of obligations in
which a tax-free municipal Bond Fund or a tax-free Money-Market
Fund invests, the dividends from that fund may be subject to income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of such a Bond
Fund or a tax-free Money-Market Fund under the exchange privilege
arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's performance
including current yield, taxable equivalent yield, various
expressions of total return, current distribution rate and taxable
equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes the applicable sales charge) for 1- and 5-year periods and
for a period since the inception of the Fund, to the extent
applicable, through the end of such periods, assuming reinvestment
(without sales charge) of all distributions. The Fund may also
furnish total return quotations for other periods or based on
investments at various applicable sales charge levels or at net
asset value. For such purposes total return equals the total of all
income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in
the value of the original investment, expressed as a percentage of
the purchase price. See the Additional Statement.
Current yield reflects the income per share earned by each
of the Fund's portfolio investments; it is calculated by (i)
dividing the Fund's net investment income per share during a recent
30-day period by (ii) the maximum public offering price on the last
day of that period and by (iii) annualizing the result. Taxable
equivalent yield shows the yield from a taxable investment that
would be required to produce an after-tax yield equivalent to that
of the Fund, which invests in tax-exempt obligations. It is
computed by dividing the tax-exempt portion of the Fund's yield
(calculated as indicated) by one minus a stated income tax rate and
by adding the product to the taxable portion (if any) of the Fund's
yield. See the Additional Statement.
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to
shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
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 Fund's distribution rate (calculated as indicated above). The
current distribution rate, unlike yield figures, is not limited to
investment performance, but takes into account expenses as well; it
also differs from the current yield computation because it could
include distributions to shareholders from sources, if any, other
than dividends and interest, such as short-term capital gains or
return of capital. If distribution rates are quoted in advertising,
they will be accompanied by calculations of current yield in
accordance with the formula of the Securities and Exchange
Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of expenses,
if any, and will assume the payment of the maximum sales charge on
the purchase of shares, but not on reinvestment of income
dividends. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's yield, tax equivalent
yield, distribution rate, taxable equivalent distribution rate or
total return may be in any future period. The annual report of the
Fund contains additional performance information that will be made
available upon request and without charge.
Description of the Fund and Its Shares
The Fund is an open-end, non-diversified management
investment company organized in 1987 as a Massachusetts business
trust. (See "Investment of the Fund's Assets" for further
information about the Fund's status as "non-diversified.")
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide or
combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in
the Fund. Each share represents an equal proportionate interest in
the Fund with each other share of its class; shares of the
respective classes represent proportionate interests in the Fund in
accordance with their respective net asset values. Income, direct
liabilities and direct operating expenses of each series will be
allocated directly to each series, and general liabilities and
expenses, if any, of the Fund will be allocated among the series in
a manner acceptable to the Board of Trustees. Upon liquidation of
a series, shareholders of the series are entitled to share pro-rata
in the net assets of that series available for distribution to
shareholders and upon liquidation of the Fund, the respective
series are entitled to share proportionately in the assets
available to the Fund after allocation to the various series.
Shareholders of each series or class are entitled to share pro-rata
in the net assets of the Fund available for distribution to
shareholders, in accordance with the respective net asset values of
the shares of that series or class at that time. All shares are
presently divided into three classes; however, if they deem it
advisable and in the best interests of shareholders, the Board of
Trustees of the Fund may create additional classes of shares
(subject to rules and regulations of the Securities and Exchange
Commission or by exemptive order) or the Board of Trustees may, at
its own discretion, create additional series of shares, each of
which may have separate assets and liabilities (in which case any
such series will have a designation including the word "Series").
See the Additional Statement for further information about possible
additional series. Shares are fully paid and non-assessable, except
as set forth under the caption "General Information" in the
Additional Statement; the holders of shares have no pre-emptive or
conversion rights.
The other two classes of shares of the Fund are Front-
Payment Class Shares ("Class A Shares") and Level-Payment Class
Shares ("Class C Shares"), which are fully described in a separate
prospectus that can be obtained by calling the Fund at 800-
872-2652.
The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields and
other measures of investment performance. All three classes
represent interests in the same portfolio of Colorado Obligations
and have the same rights, except that each class bears the separate
expenses, if any, of its Distribution Plan and has exclusive voting
rights with respect to its Plan. There are no distribution fees
with respect to Class Y Shares.
Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time, but may differ depending upon the
distribution and service fees, if any, and other class-specific
expenses borne by each class.
The Fund's Distribution Plan has three parts. In addition
to the defensive provisions described above, Parts I and II of the
Plan authorize payments, to certain "Qualified Recipients," out of
the Fund's assets allocable to the Class A Shares and Class C
Shares, respectively. See the Additional Statement. The Fund has
also adopted a Shareholder Services Plan under which the Fund is
authorized to make certain payments out of the Fund's assets
allocable to the Class C Shares. See the Additional Statement.
Of the shares of the Fund outstanding on March 25, 1996,
Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561, New
Brunswick, NJ held of record 1,148,574 shares (5.5%), all of which
were Class A Shares. The Fund's management is not aware of any
person beneficially owning more than 5% of its outstanding shares
as of such date. On the basis of information received from the
holders the Fund's management believes that all of the shares
indicated are held for the benefit of clients of that
institution.
Voting Rights
At any meeting of shareholders, shareholders are entitled
to one vote for each dollar of net asset value (determined as of
the record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). No amendment may
be made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the Fund
except that the Fund's Board of Trustees may change the name of the
Fund. The Fund may be terminated (i) upon the sale of its assets to
another issuer, or (ii) upon liquidation and distribution of the
assets of the Fund, in either case if such action is approved by
the vote of the holders of a majority of the outstanding shares of
the Fund. If not so terminated, the Fund will continue
indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE FUND OF COLORADO
FOR CLASS Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
Tel.# 1-800-872-2651
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s)
of Trustees in which account will be registered and the name and date
of the Trust Instrument. Account for a Pension or Profit Sharing Plan
or Trust may be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you
are a non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate Method of Payment (For either method, make check
payable to: TAX-FREE FUND OF COLORADO)
___Initial Investment $ ______________ (Minimum investment $1,000)
___Automatic Investment $______________ (Minimum $50)
For Automatic Investment of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you
to deposit the dividend. (A Financial Institution is a commercial
bank, savings bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested
in your Tax-Free Fund of Colorado 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 Fund toll-free at 1-800-872-2651. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks
prior to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, Administrative
Data Management Corp. (the Agent) is authorized to redeem sufficient
shares from this account at the then current Net Asset Value, in
accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate
Financial Institution name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the Aquila SM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will
be mailed or wired, whenever possible, upon request, if in an amount
of $1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4
Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account initiated
by the Agent, Administrative Data Management Corp., and to pay such
sums in accordance therewith, provided my/our account has sufficient
funds to cover such drafts or debits. I/We further agree that your
treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any
reason, you shall have no liabilities.
Financial Institution Account Number _______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit
in the normal course of business initiated by the Agent (except
any loss due to your payment of any amount drawn against insufficient
or uncollected funds), provided that you promptly notify us in
writing of any claim against you with respect to the same, and further
provided that you will not settle or pay or agree to settle or pay any
such claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause,
any such electronic debit.
STEP 4
Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund 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 Fund and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Fund 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
Fund and its agents to correct any transfer error by a debit or credit
to my/our Financial Institution account and/or Fund 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 Fund, 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 Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are effective
15 days after this form is received in good order by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Fund 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 Fund 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 1-800-872-2652 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 Fund'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 Fund purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Fund. 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
Fund 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 Fund) 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 Fund'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 Fund. 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 Fund, 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 Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever
is less.
<PAGE>
INVESTMENT ADVISER
KPM Investment Management, Inc.
1700 Lincoln Street, Suite 1300
Denver, Colorado 80203
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
William M. Cole
Anne J. Mills
J. William Weeks
John G. Welles
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Jean M. Smith, Vice President
Marie Aro, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................4
Financial Highlights.............................5
Introduction.....................................6
Investment Of The Fund's Assets..................6
Investment Restrictions.........................11
Net Asset Value Per Share.......................11
How To Invest In The Fund.......................12
How To Redeem Your Investment...................14
Automatic Withdrawal Plan.......................16
Management Arrangements.........................17
Dividend And Tax Information....................20
Exchange Privilege..............................24
General Information.............................25
Application
AQUILA
[LOGO]
Tax-Free Fund
of
Colorado
A tax-free
income investment
[LOGO]
PROSPECTUS
One Of The
Aquilasm Group Of Funds
<page
Aquila
Tax-Free Fund of Colorado
380 Madison Avenue Suite 2300
New York, NY 10017
800-USA-COL2 (800-872-2652)
212-697-6666
Statement
of Additional
Information April 30, 1996
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. The Additional Statement should be
read in conjunction with the Prospectus (the "Prospectus") dated
April 30, 1996, of Tax-Free Fund of Colorado (the "Fund"), which
may be obtained from the Fund's Shareholder Servicing Agent,
Administrative Data Management Corp., by writing to: 581 Main
Street, Woodbridge, New Jersey 07095-1198 or by calling at the
following numbers:
800-872-2651 toll free or 908-855-5731
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to
380 Madison Avenue, Suite 2300, New York, New York 10017;
or by calling: 800-872-2652 toll free
or 212-697-6666
The Annual Report of the Fund for the fiscal year ended
December 31, 1995 will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Fund's Assets . . . . . . . . . . . . . . . .2
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . .8
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Investment Restrictions. . . . . . . . . . . . . . . . . . . . 14
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . 15
Limitation of Redemptions in Kind. . . . . . . . . . . . . . . 18
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 18
Additional Information as to Management Arrangements . . . . . 23
Computation of Net Asset Value . . . . . . . . . . . . . . . . 26
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 28
Additional Tax Information . . . . . . . . . . . . . . . . . . 28
General Information. . . . . . . . . . . . . . . . . . . . . . 29
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 31
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
The investment objective and policies of the Fund are
described in the Prospectus, which refers to the matters described
below. See the Prospectus for the definition of "Colorado
Obligations."
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds and
notes which they undertake to rate. It should be emphasized,
however, that ratings are general and not absolute standards of
quality. Consequently, obligations with the same maturity, stated
interest rate and rating may have different yields, while
obligations of the same maturity and stated interest rate with
different ratings may have the same yield. See Appendix A to this
Additional Statement for further information about the ratings of
Moody's and S&P as to the various rated Colorado Obligations which
the Fund may purchase.
The table below gives information as to the percentage of
Fund net assets invested, as of December 31, 1995, in Colorado
Obligations in the various rating categories:
Highest rating (1) . . . . . . . . . . . . . . . 65.2%
Second highest rating (2). . . . . . . . . . . . 21.9%
Third highest rating (3) . . . . . . . . . . . . 12.1%
Fourth highest rating (4). . . . . . . . . . . . . 0.8%
Unrated. . . . . . . . . . . . . . . . . . . . . . 0.0
100.0%
(1) Aaa of Moody's or AAA of S&P (or other highest rating).
(2) Aa of Moody's or AA of S&P (or other second highest rating).
(3) A of Moody's or A of S&P (or other third highest rating).
(4) Baa of Moody's or BBB of S&P (or other fourth highest rating).
When-Issued and Delayed Delivery Obligations
The Fund may buy Colorado Obligations on a when-issued or
delayed delivery basis. The purchase price and the interest rate
payable on the Colorado Obligations are fixed on the transaction
date. At the time the Fund makes the commitment to purchase
Colorado Obligations on a when-issued or delayed delivery basis, it
will record the transaction and thereafter reflect the value each
day of such Colorado Obligations in determining its net asset
value. The Fund will make commitments for such when-issued
transactions only when it has the intention of actually acquiring
the Colorado Obligations. The Fund places an amount of assets equal
in value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account with the Custodian, which is marked to market
every business day. On delivery dates for such transactions, the
Fund will meet its commitments by selling the Colorado Obligations
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 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 Fund does not presently 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 Fund during
periods of changing interest rates, although in fact the Fund may
never do so. The following discussion is intended to explain
briefly the workings of Futures and options on them which would be
applicable if the Fund were to use them.
Unlike when the Fund purchases or sells a Colorado
Obligation, no price is paid or received by the Fund upon the
purchase or sale of a Future. Initially, however, when such
transactions are entered into, the Fund will be required to deposit
with the Futures commission merchant ("broker") an amount of cash
or Colorado 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
Fund as unrealized gains or losses. Margin deposits do not involve
borrowing by the Fund and may not be used to support any other
transactions. At any time prior to expiration of the Future, the
Fund may elect to close the position by taking an opposite position
which will operate to terminate the Fund'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 Fund 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 Fund and are made, offset or fulfilled
through a clearing house associated with the exchange on which the
contracts are traded. Although the Fund 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 financial Futures
contracts based on long-term Treasury bonds, Treasury notes, GNMA
Certificates and three-month Treasury bills. U.S. Government
Securities Futures have traded longer than Municipal Bond Index
Futures, and the depth and liquidity available in the trading
markets for them are in general greater.
Call Options on Futures Contracts. The Fund may also
purchase and sell exchange related call and put options on Futures.
The purchase of a call option on a Future is analogous to the
purchase of a call option on an individual security. Depending on
the pricing of the option compared to either the Future upon which
it is based, or upon the price of the underlying debt securities,
it may or may not be less risky than ownership of the Futures
contract or underlying debt securities. Like the purchase of a
Futures contract, the Fund may purchase a call option on a Future
to hedge against a market advance when the Fund 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 Fund will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund'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 Fund may purchase a put option on a
Future to hedge the Fund'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 Fund will retain
the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the
Fund 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 them to attempt to
protect against the price volatility of the Fund's Colorado
Obligations is that the Adviser could be incorrect in its
expectations as to the extent of various interest rate movements or
the time span within which the movements take place. For example,
if the Fund sold a Future in anticipation of an increase in
interest rates, and then interest rates went down instead, the Fund
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 Colorado Obligations
which are the subject of the hedge. The risk of imperfect
correlation increases as the composition of the Fund's portfolio
diverges from the municipal bonds included in the applicable index
or from the security underlying the U.S. Government Securities
Futures. The price of the Future or option may move more than or
less than the price of the Colorado Obligations being hedged. If
the price of the Future or option moves less than the price of the
Colorado Obligations which are the subject of the hedge, the hedge
will not be fully effective but, if the price of the Colorado
Obligations being hedged has moved in an unfavorable direction, the
Fund would be in a better position than if it had not hedged at
all. If the price of the Colorado 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 Colorado Obligations,
the Fund 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 Colorado Obligations which are the subject of the
hedge. To compensate for the imperfect correlation of movements in
the price of the Colorado Obligations being hedged and movements in
the price of the Futures or options, the Fund may buy or sell
Futures or options in a greater dollar amount than the dollar
amount of the Colorado Obligations being hedged if the historical
volatility of the prices of the Colorado Obligations being hedged
is less than the historical volatility of the debt securities
underlying the hedge. It is also possible that, where the Fund has
sold Futures or options to hedge its portfolio against decline in
the market, the market may advance and the value of the Colorado
Obligations held in the Fund's portfolio may decline. If this
occurred the Fund 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 Colorado Obligations before the
Fund is able to invest in them in an orderly fashion, it is
possible that the market may decline instead; if the Fund then
concludes not to invest in them at that time because of concern as
to possible further market decline or for other reasons, the Fund
will realize a loss on the Futures or options that is not offset by
a reduction in the price of the Colorado 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
Fund. The correlation of the hedge with such bonds may be affected
by disparities in the average maturity, ratings, geographical mix
or structure of the Fund'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 Fund 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 Fund 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 and limits on upward or downward price movement which
could at times make it difficult or impossible to liquidate
existing positions.
Regulatory Aspects of Futures and Options
The Fund will, due to requirements under the Investment
Company Act of 1940 (the "1940 Act"), deposit in a segregated
account with its custodian bank Colorado 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 Fund must operate within certain restrictions as to its
long and short positions in Futures under a rule (the "CFTC Rule")
adopted by the Commodity Futures Trading Commission ("CFTC") under
the Commodity Exchange Act (the "CEA") to be eligible for the
exclusion provided by the CFTC Rule as a "commodity pool operator"
(as defined under the CEA), and must represent to the CFTC that the
Fund will operate within such restrictions. Under these
restrictions the Fund 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 Fund 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 Fund'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 Fund must maintain
with its custodian bank as to its Futures and options activities
due to requirements other than those of the CFTC Rule; the Fund
will, as to long positions, be required to abide by the more
restrictive of this other requirement or the above requirements of
the CFTC Rule.) The "underlying commodity value" of a Future or
option is computed by multiplying the size of the Future by the
daily settlement price of the Future or option.
The "sale" of a Future means the acquisition by the Fund 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 Fund 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 Fund of an
obligation to take delivery of such an amount of cash. In this
case, the Fund 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.
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 Fund will be affected by
a number of factors, the Fund is unable to predict what rate the
Fund 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.
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 rating of the issue.
Since the Fund may invest in industrial development bonds or
private activity bonds, the Fund may not be an appropriate
investment for entities which are "substantial users" of facilities
financed by those bonds or for investors who are "related persons"
of such users. Generally, an individual will not be a "related
person" under the Internal Revenue Code unless such investor or his
or her immediate family (spouse, brothers, sisters and lineal
descendants) own directly or indirectly in the aggregate more than
50 percent of the equity of a corporation or is a partner of a
partnership which is a "substantial user" of a facility financed
from the proceeds of those bonds. A "substantial user" of such
facilities is defined generally as a "non-exempt person who
regularly uses a part of [a] facility" financed from the proceeds
of industrial development or private activity bonds.
As indicated in the Prospectus, there are certain Colorado
Obligations the interest on which is subject to the Federal
alternative minimum tax on individuals. While the Fund may purchase
these obligations, it may, on the other hand, refrain from
purchasing particular Colorado Obligations due to this tax
consequence. Also, as indicated in the Prospectus, the Fund will
not purchase obligations of Colorado 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
Fund.
Additional Information regarding a Colorado Constitutional
Provision
The following information is derived from sources that are
generally available to investors and is believed by the Fund to be
accurate, but has not been independently verified and may not be
complete.
General Description. At the November 3, 1992 general election,
Colorado voters approved an amendment to the Colorado Constitution,
which is commonly referred to as Amendment 1 and now constitutes
Section 20 of Article X of the Colorado Constitution ("Amendment
1"). Amendment 1 imposes various limits and new requirements on the
State of Colorado and other Colorado local governments (each of
which is referred to in this section as a "governmental unit"). Any
of the following actions, for example, now requires prior voter
approval: (1) any increase in a governmental unit's spending from
one year to the next in excess of the rate of inflation plus a
"growth factor" based on: (A) for school districts, the percentage
change in the school district's student enrollment, (B) for the
state, the percentage change in state population, and (C) for other
governmental units, the net percentage change in actual value of
all real property in the governmental unit from construction of
taxable real property improvements, minus destruction of similar
improvements, and additions to, minus deletions from, taxable real
property; (2) any increase in the real property tax revenues of a
local governmental unit (not including the state) from one year to
the next in excess of inflation plus the appropriate "growth
factor" referred to in clause (1) above; (3) any new tax, tax rate
increase, mill levy increase, valuation for assessment ratio
increase for a property class, extension of an expiring tax or a
tax policy change directly causing a net tax revenue gain; and (4)
except for refinancing bonded indebtedness at a lower interest rate
or adding new employees to existing pension plans, creation of any
multiple-fiscal year direct or indirect debt or other financial
obligation whatsoever without adequate present cash reserves
pledged irrevocably and held for payments in all future fiscal
years. Elections on such matter may only be held on the same day
as a state general election, at the governmental unit's regular
biennial election or on the first Tuesday in November of
odd-numbered years, and must be conducted in accordance with
procedures described in Amendment 1.
Amendment 1 also requires that revenue collected, kept or
spent in violation of its provisions be refunded, with interest,
and requires each governmental unit to have created an emergency
reserve of 1% of its fiscal year spending in 1993, increasing to 2%
in 1994 and 3% in 1995 and subsequent years. The last sentence of
paragraph (1) of Amendment 1 provides that "[w]hen [a governmental
unit's] annual...revenue is less than annual payments on general
obligation bonds, pensions, and final court judgments, [the voter
approval requirement for mill levy and other tax increases referred
to in clause (3) of the preceding paragraph and the voter approval
requirement for spending and real property tax revenue increases
referred to in clauses (1) and (2) of the preceding paragraph]
shall be suspended to provide for the deficiency." The second
sentence of paragraph (1) of Amendment 1 provides that the
"preferred interpretation [of Amendment 1] shall reasonably
restrain most the growth of government."
Court Interpretations. Many of the provisions of Amendment 1
are ambiguous, are the subject of much debate and likely will not
be clarified until courts rule on their meanings. In September,
1994, the Supreme Court of Colorado ruled that (i) the ballot
questions, authorizing issuance of bonds and the related increase
in taxes to pay such bonds in a single ballot questions, did not
violate the provisions of the Amendment and (ii) in approving the
ballot questions the related electorates authorized the adjusting
of the tax rates as necessary to repay the specific debt incurred
pursuant to the ballot questions (e.g. authorized mill levy rate
increases in response to declines in assessed value of property),
provided that the tax rate increases are consistent with the stated
estimate of the final fiscal year dollar amount of the tax increase
set forth in the ballot questions. Although this ruling has been
seen as meaning that general obligation bonds continue to exist in
Colorado and that it is not necessary to have a separate vote on
bonds and taxes to pay for the bonds, in January, 1995, the
plaintiffs applied to the United States Supreme court for a writ of
certiorari. It is not possible to predict whether the Supreme Court
will grant the writ or if it takes jurisdiction of the case what
further rulings the Supreme Court would make, or what course
further proceedings in the case might take.
There are a number of other lawsuits pending regarding
Amendment 1. The "Littleton Public Schools case" was filed on
January 25, 1993 in Arapahoe County District Court (Case No.
93-CV-185) by three taxpayers against Arapahoe County School
District Number Six, a/k/a/ Littleton Public Schools, challenging
increases in the school district's mill levy for, among other
things, increased debt service on general obligation bonds that
were outstanding prior to the adoption of Amendment 1. After a
trial to the court, the judge ruled that the school district had
received the "prior voter approval" for an increase in its mill
levy to pay general obligation bonds at the time when the bonds
were originally approved by the voters and, thus, upheld the school
district's increased mill levy imposed after the passage of
Amendment 1. The plaintiff taxpayers have appealed the decision of
the judge. The issues in the other lawsuits relate to the conduct
of elections, the wording of ballot issues and election notices,
the interpretation of the definitions of "district" and
"enterprise" in Amendment 1, whether the remarketing of debt
constitutes "creation" of debt, and the compliance with rate
covenants that may conflict with the revenue and spending limits of
Amendment 1. Other lawsuits regarding Amendment 1 may be filed in
the future. It is not possible to predict when final decisions in
any of the pending actions or any future actions regarding
Amendment 1 will be issued.
PERFORMANCE
As noted in the Prospectus, the Fund 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 Fund 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 Fund are based on these standardized methods and are computed
separately for each of the Fund's three classes. Prior to April 15,
1996, the Fund had outstanding only one class of shares which are
currently designated Class A Shares, Front Payment Class Shares."
On that date the Fund began to offer shares of two other classes,
Class C Shares, "Level Payment Class Shares" and Class Y Shares,
"Institutional Class Shares." During the historical periods listed
below, there were no Class C Shares or Class Y Shares outstanding
and the information below relates solely to Class A Shares. Each of
these and other methods that may be used by the Fund are described
in the following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over 1- and 5-year
periods and a period since the inception of the operations of the
Fund (on May 21, 1987) that would equate an initial hypothetical
$1,000 investment to the value such an investment would have if it
were completely redeemed at the end of each such period. The
calculation assumes the maximum sales charge is deducted from the
hypothetical initial $1,000 purchase, that on each reinvestment
date during each such period any capital gains are reinvested at
net asset value, and all income dividends are reinvested at net
asset value, without sales charge (because the Fund does not impose
any sales charge on reinvestment of dividends). The computation
further assumes that the entire hypothetical account was completely
redeemed at the end of each such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations is a one time charge, paid at
the time of initial investment. The greatest impact of this charge
is during the early stages of an investment in the Fund. Actual
performance will be affected less by this one time charge the
longer an investment remains in the Fund.
The average annual compounded rates of return for the Fund
for the 1- and 5-year periods ended December 31, 1995, were
8.74% and 7.04%, respectively. The average annual compounded rate
of return for the Fund from inception to December 31, 1995, was
7.11%.
These figures were calculated according to the following SEC
formula:
n
P(1+T) =ERV
where
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1- and 5-year
periods or the period since inception, at the end
of each such period.
As discussed in the Prospectus, the Fund may quote total
rates of return in addition to its average annual total return.
Such quotations are computed in the same manner as the Fund's
average annual compounded rate, except that such quotations will be
based on the Fund's actual return for a specified period as opposed
to its average return over the periods described above. The total
return for the Fund for the 1- and 5-year periods ended December
31, 1995, were 8.74% and 40.54%, respectively. The total return for
the Fund from inception to December 31, 1995, was 80.78%. In
general, actual total rate of return will be lower than the average
annual rate of return because the average annual rate of return
reflects the effect of compounding. See discussion of the impact of
the sales charge on quotations of rates of return, above.
Yield
Current yield reflects the income per share earned by the
Fund's portfolio investments. Current yield is determined by
dividing the net investment income per share earned during a 30-day
base period by the maximum offering price per share on the last day
of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base
period net of fee waivers and reimbursements of expenses, if any.
The yield for the Fund for the 30-day period ended on December 31,
1995, (the date of the Fund's most recent audited financial
statements, which are included in the Fund's annual report for the
year ended December 31, 1995) was 4.07%.
These figures were obtained using the Securities and Exchange
Commission formula:
6
Yield = 2 [(a-b + 1) -1]
----
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Taxable Equivalent Yield
The Fund may also quote a taxable equivalent yield which
shows the taxable yield that would be required to produce an
after-tax yield equivalent to that of a fund which invests in
tax-exempt obligations. Such yield is computed by dividing that
portion of the yield of the Fund (computed as indicated above)
which is tax-exempt by one minus the highest applicable combined
federal and Colorado income tax rate (and adding the result to that
portion of the yield of the Fund that is not tax-exempt, if any).
The taxable equivalent yield for the Fund for the 30-day period
ended on December 31, 1995, (the date of the Fund's most recent
audited financial statements, which are included in the Fund's
annual report for the year ended December 31, 1995) was 7.03%.
The Colorado and the combined Colorado and federal income
tax rates upon which the Fund's tax equivalent yield quotations are
based are 5.00% and 42.62% respectively. From time to time, as any
changes to such rates become effective, tax equivalent yield
quotations advertised by the Fund will be updated to reflect such
changes. Any tax rate increases will tend to make a tax free
investment, such as the Fund, relatively more attractive than
taxable investments. Therefore, the details of specific tax
increases may be used in Fund sales material.
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative of
the amounts which were or will be paid to the Fund'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 Fund 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 Fund'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. If distribution rates
are quoted published, they will be accompanied by calculations of
current yield in accordance with the formula of the Securities and
Exchange Commission.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase shares of the Fund at net asset value, the
Fund may quote a "Current Distribution for Net Asset Value
Investments." This rate is computed by (i) dividing the total
amount of dividends per share paid by the Fund during a recent
30-day period by (ii) the current net asset value of the Fund and
by (iii) annualizing the result. Figures for yield, total return
and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described above with
the substitution of net asset value for public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used. If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with the
formula of the Securities and Exchange Commission.
INVESTMENT RESTRICTIONS
The Fund 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 Fund's outstanding shares vote to change them. Under
that Act, the vote of the holders of a "majority" of the Fund's
outstanding shares means the vote of the holders of the lesser of
(a) 67% or more of the Fund'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 Fund's
outstanding shares. Those fundamental policies not set forth in the
Prospectus are set forth below:
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Colorado
Obligations (discussed under "Investment of the Fund's Assets" in
the Prospectus), Municipal Bond Index Futures, U.S. Government
Securities Futures and options on Futures; therefore the Fund
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 Fund 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 Fund does not buy for control.
The Fund cannot invest for the purpose of exercising control
or management of other companies.
3. The Fund 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 Fund
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 Fund is not an underwriter.
The Fund cannot engage in the underwriting of securities, that
is, the selling of securities for others. Also, it cannot invest in
restricted securities. Restricted securities are securities which
cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Fund's Distribution Plan has three parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II) and to certain defensive provisions (Part
III).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Fund would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Adviser or
the Distributor^. The Distributor will consider shares which are
not Qualified Holdings of such unrelated broker-dealers to be
Qualified Holdings of the Distributor and will authorize Permitted
Payments to the Distributor with respect to such shares whenever
Permitted Payments are being made under the Plan.
Part I of the Plan applies only to the Front Payment Class
Shares ("Class A Shares") of the Fund (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 Fund, with which the Fund 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 Fund'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.
At the date of this Additional Statement, subject to the
direction and control of the Fund's Board of Trustees, the Fund
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
Fund (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), 0.05 of 1% of the average
annual net assets of the Fund represented by the Front-Payment
Class Shares up to $250 million and 0.15 of 1% of such net assets
above $250 million. Such payments shall be made only out of the
Fund'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) 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 Fund 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 Fund, proxy statements,
annual reports, updating prospectuses and other communications from
the Fund to its shareholders; receiving, tabulating and
transmitting to the Fund proxies executed by shareholders with
respect to meetings of shareholders of the Fund; 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. As noted in the Prospectus, the shareholders
of the Fund have approved a change in the Distribution Plan that
would allow the above payments at the annual rate of 0.15 of 1% of
all of the average annual net assets of the Fund represented by the
Front Payment Shares class of shares. Implementation of this
change, which was to have taken place on October 1, 1996 has been
indefinitely postponed. When and if it is determined to implement
the change the Additional Statement will be supplemented.
While Part I is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which the
amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the Fund,
the Adviser, the Administrator or the Distributor, such person
shall agree to furnish to the Distributor for transmission to the
Board of Trustees of the Fund 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 (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
June 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 Fund'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 Fund
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 Fund, 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 Fund, the
Class A Plan Agreements with them shall be (i) their agreements
with the Distributor with respect to payments under the Fund'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 Fund (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 Fund, with which the Fund 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 Fund'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 Fund's Board of
Trustees, the Fund 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 Fund (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 Fund represented by the Level
Payment Class Shares. Such payments shall be made only out of the
Fund'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 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 Fund 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 Fund, proxy statements,
annual reports, updating prospectuses and other communications from
the Fund to its shareholders; receiving, tabulating and
transmitting to the Fund proxies executed by shareholders with
respect to meetings of shareholders of the Fund; 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 Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which the
amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the Fund,
the Adviser, the Administrator or the Distributor, such person
shall agree to furnish to the Distributor for transmission to the
Board of Trustees of the Fund 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 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 Fund'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 Fund 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 Fund, 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 Fund, the
Class C Plan Agreements with them shall be their agreements with
the Distributor with respect to payments under Part II.
Defensive Provisions (Part III)
Another part of the Plan (Part III) states that if and to the
extent that any of the payments listed below are considered to be
"primarily intended to result in the sale of" shares issued by the
Fund 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 Fund 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 Fund'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 Fund 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 Fund'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 Fund who are not "interested
persons" of the Fund shall be committed to the discretion of such
disinterested Trustees but that nothing in the Plan shall prevent
the involvement of others in such selection and nomination if the
final decision on any such selection and nomination is approved by
a majority of such disinterested Trustees.
The Plan states that while it is in effect, the Fund's
Administrator and Distributor shall report at least quarterly to
the Fund's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this Plan,
the identity of the Qualified Recipient of each Payment, and the
purposes for which the amounts were expended; (ii) all costs of
each item of cost specified in the Plan (making estimates of such
costs where necessary or desirable) during the preceding calendar
or fiscal quarter; and (iii) all fees of the Fund to the
distributor, sub-adviser or administrator paid or accrued during
such quarter. In addition if any such Qualified Recipient is an
affiliate, as that term is defined in the Act, of the Fund, the
Adviser, the Administrator or the Distributor, such person shall
agree to furnish to the Distributor for transmission to the Board
of Trustees of the Fund an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Plan defines as the Fund's Independent Trustees those
Trustees who are not "interested persons" of the Fund as defined in
the 1940 Act and who have no direct or indirect financial interest
in the operation of the Plan or in any agreements related to the
Plan. The Plan, unless terminated as hereinafter provided,
continues in effect from year to year only so long as such
continuance is specifically approved at least annually by the
Fund'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 Fund 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 Fund. The Plan may not be amended to increase materially the
amount of payments to be made without shareholder approval and all
amendments must be approved in the manner set forth above as to
continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act as
now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by Rule
18f-3, with respect to each outstanding class of shares of the
Fund.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares of the Fund of "Service Fees" within the meaning of
Article III, Section 26(b)(9) of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. The Services Plan
applies only to the Class C Shares of the Fund (regardless of
whether such class is so designated or is redesignated by some
other name).
As used in the Services Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to the Distributor
and any other principal underwriter of the Fund, who have, pursuant
to written agreements with the Fund 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.
"Administrator" shall mean Aquila Management Corporation or any
successor serving as sub-adviser or administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund 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 Fund (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 Fund represented by the Level
Payment Class Shares. Such payments shall be made only out of the
Fund'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 Fund may
be effected; assisting shareholders in designating and changing
dividend options, account designations and addresses; providing
necessary personnel and facilities to establish and maintain
shareholder accounts and records; assisting in processing purchase
and redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees (as
defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years.
While the Services Plan is in effect, the Fund's Distributor
shall report at least quarterly to the Fund'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 Fund to the Distributor
paid or accrued during such quarter. In addition, if any Qualified
Recipient is an "affiliated person," as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund 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 Fund 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 Act as now in force or
hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others in
such selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the Fund 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 Fund during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such
limitation, the Fund will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets
into cash. The method of valuing securities used to make
redemptions in kind will be the same as the method of valuing
portfolio securities described under "Net Asset Value Per Share" in
the Prospectus, and such valuation will be made as of the same time
the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund, their affiliations, if
any, with the Administrator 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 Fund is affiliated
with the Adviser. Mr. Herrmann is an "interested person" of the
Fund as that term is defined in the 1940 Act as an officer of the
Fund and a Director, officer and shareholder of the Distributor.
As of the date of this Additional Statement, all of the
Trustees and officers as a group owned less than 1% of its
outstanding shares.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila
Management Corporation since 1984, the sponsoring organization and
Administrator and/or Sub-Adviser to the following open-end
investment companies, and Founder, Chairman of the Board of
Trustees, and President of each: Prime Cash Fund, 1982-1996;
Pacific Capital Cash Assets Trust since 1984; Short Term Asset
Reserves since 1984; Churchill Cash Reserves Trust since 1985;
Pacific Capital U.S. Treasuries Cash Assets Trust since 1988;
Pacific Capital Tax-Free Cash Assets Trust since 1988; each of
which is a money market fund, and together with Capital Cash
Management Trust ("CCMT") are called the Aquila Money-Market Funds;
and Hawaiian Tax-Free Trust since 1984; Tax-Free Trust of Arizona
since 1986; Tax-Free Trust of Oregon since 1986; Churchill Tax-Free
Fund of Kentucky since 1987 ^; Tax-Free Fund For Utah since 1992;
and Narragansett Insured Tax-Free Income Fund since 1992^; each of
which is a tax-free municipal bond fund, and an equity fund, Aquila
Rocky Mountain Equity Fund since 1993 and together with this Fund
are called the Aquila Bond and Equity Funds; Vice President,
Director, Secretary and formerly Treasurer of Aquila Distributors,
Inc. since 1981, distributor of the above funds; President and
Chairman of the Board of Trustees of CCMT, a money market fund
since 1981, and an Officer and Trustee/Director of its predecessors
since 1974; President and a Director of STCM Management Company,
Inc., sponsor and sub-adviser to CCMT; Chairman, President, and a
Director since 1984, of InCap Management Corporation, formerly
sub-adviser and administrator of Prime Cash Fund and Short Term
Asset Reserves, and Founder and Chairman of several other money
market funds; Director or Trustee of OCC Cash Reserves, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Value
Fund, Inc., and Trustee of Quest For Value Accumulation Trust, The
Saratoga Advantage Trust, and of the Rochester Group of Funds, each
of which is an open-end investment company; Trustee of Brown
University since 1990; actively involved for many years in
leadership roles with university, school and charitable
organizations.
Tucker Hart Adams, Trustee, 4822 Alteza Drive, Colorado Springs,
Colorado 80917
President of the Adams Group, an economic consulting firm, since
1989; Trustee of Aquila Rocky Mountain Equity Fund since 1993; Vice
President of United Banks of Colorado, 1985-1988; Chief Economist
of United Banks of Colorado, 1981-1988; Director of University
Hospital, 1990-1994; Director of the Colorado Health Facilities
Authority^; Vice Chair of the University of Colorado Foundation;
currently or formerly an officer or director of numerous
professional and community organizations.
Arthur K. Carlson, Trustee, 8702 North Via La Serena, Paradise
Valley, Arizona 85253
Retired; Advisory Director of the Renaissance Companies (design
and construction companies of commercial, industrial and upscale
residential 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 and Pacific Capital Cash Assets Trust since 1987,
of Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital
U.S. Treasuries Cash Assets Trust since 1988 and of Aquila Rocky
Mountain Equity Fund since 1993; previously Vice President of
Investment Research at Citibank, New York City, and prior to that
Vice President and Director of Investment Research of Irving Trust
Company, New York City; past President of The New York Society of
Security Analysts and currently a member of the Phoenix Society of
Financial Analysts; formerly Director of the Financial Analysts
Federation; past Chairman of the Board and, currently, Director of
Mercy Healthcare of Arizona, Phoenix, Arizona since 1990; Director
of Northern Arizona University Foundation since 1990; present or
formerly an officer and/or director of various other community and
professional organizations.
William M. Cole, Trustee, 852 Ramapo Way, Westfield, New Jersey
07090
President of Cole International, Inc., financial and shipping
consultants, since 1974; President of Cole Associates, shopping
center and real estate developers, 1974-1976; President of Seatrain
Lines, Inc., 1970-1974; former General Partner of Jones & Thompson,
international shipping brokers; Trustee of Pacific Capital Cash
Assets Trust since 1984, of Hawaiian Tax-Free Trust since 1985 and
of Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital
U.S. Treasuries Cash Assets Trust since 1988; Chairman of Cole
Group, a financial consulting and real estate firm, since 1985.
Anne J. Mills, Trustee, 167 Glengarry Place, Castle Pines Village,
Castle Rock, Colorado 80104
Vice President for Business Affairs of Ottawa University since
1992;Director of Customer Fulfillment, U.S. Marketing and Services
Group, IBM Corporation, 1990-1991; Director of Business
Requirements of that Group, 1988-1990; Director of Phase Management
of that Group, 1985-1988; Budget Review Officer of the American
Baptist Churches/USA since 1994; Director of the American Baptist
Foundation since 1985; Trustee of Brown University; Trustee of
Churchill Cash Reserves Trust since 1985, of Tax-Free Trust of
Arizona since 1986, of Churchill Tax-Free Fund of Kentucky and
Capital Cash Management Trust since 1987 and of Tax-Free Fund For
Utah since 1994.
J. William Weeks, Trustee, 380 Madison Avenue, New York, New
York 10017
Trustee of Narragansett Insured Tax-Free Income Fund since 1995;
Senior Vice President of Tax-Free Fund of Colorado and Narragansett
Insured Tax-Free Income Fund, 1992-1995; Vice President of Hawaiian
Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of Oregon
and Churchill Tax-Free Fund of Kentucky, 1990-1995; Senior Vice
President or Vice President of the Bond and Equity Funds and Vice
President of Short Term Asset Reserves and Pacific Capital Cash
Assets Trust, 1984-1988; President and Director of Weeks & Co.,
Inc., financial consultants, since 1978; limited partner and
investor in various real estate partnerships since 1988; Partner of
Alex. Brown & Sons, investment bankers, 1966-1976; Vice President
of Finance and Assistant to the President of Howard Johnson
Company, a restaurant and motor lodge chain, 1961-1966; formerly
with Blyth & Co., Inc., investment bankers.
John G. Welles, Trustee, 1133 Race Street 11 South, Denver,
Colorado 80206
Retired; Executive Director Emeritus of the Denver Museum of
Natural History since 1995; Director of the Museum, 1987-1994;
Regional Administrator of Region VIII, U.S. Environmental
Protection Agency, 1983-1987; Vice President for Planning and
Public Affairs of the Colorado School of Mines, 1974-1983; Member
of the Board of Directors of Intra West Mortgage Corporation,
1976-1983; Member of the Board of Directors of the Gulf of Maine
Foundation; formerly head of the Industrial Economics Division of
the University of Denver Research Institute, consultant to the
United Nations Conference on the Human Environment and to Business
International, and Chairman of the Colorado Front Range Project;
formerly Vice President and member of Ethics Commission of the
American Association of Museums.
W. Dennis Cheroutes, Senior Vice President, 410 17th Street, Suite
1715, Denver, Colorado 80202
Investment Executive, Dain Bosworth, Inc., 1986-1995; and branch
office mutual fund co-ordinator, 1990-1995; owner of special order
clothing business, 1976-1986.
William C. Wallace, Vice President, 380 Madison Avenue, New York,
New York 10017
Vice President of Capital Cash Management Trust and Pacific
Capital Cash Assets Trust since 1984; Senior Vice President of
Hawaiian Tax-Free Trust since 1985 and Vice President, 1984-1985;
Senior Vice President of Tax-Free Trust of Arizona since 1989 and
Vice President, 1986-1988; Vice President of Tax-Free Trust of
Oregon since 1986, of Churchill Tax-Free Fund of Kentucky since
1987, of Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Treasuries Cash Assets Trust since 1988 and of
Narragansett Insured Tax-Free Income Fund since 1992; Secretary and
Director of STCM Management Company, Inc. since 1974; President of
the Distributor since 1995 and formerly Vice President of the
Distributor, 1986-1992; Member of the Panel of Arbitrators,
American Arbitration Association, since 1978; Assistant Vice
President, American Stock Exchange, Market Development Division,
and Director of Marketing, American Gold Coin Exchange, a
subsidiary of the American Stock Exchange, 1976-1984.
Jean M. Smith, Vice President, 410 17th Street, Suite 1715,
Denver, Colorado 80208
Assistant Treasurer of Bradford Trust Company, 1977-1978; Staff
Supervisor of Wood Struthers & Winthrop, an investment advisory
firm, 1976-1977; Client Administrator of Bradford Trust Company,
1972-1976.
Marie E. Aro, Vice President, 410 17th Street, Suite 1715, Denver,
Colorado 80202
Vice President and Mutual Fund marketing Director of Boettcher
& Company, Inc., a regional brokerage firm, 1981-1990; Marketing
and Shareholder Services Representative with AIM Management Inc.,
a mutual funds adviser and underwriter, 1980-1981.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-1991;
formerly Treasurer of the predecessor of CCMT; Treasurer and
Director of STCM Management Company, Inc., since 1974; Treasurer of
Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash
Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Administrator
since 1984 and of the Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New York
10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres Group
of Investment Companies and HT Insight Funds, Inc., 1986-1988; Vice
President of Lehman Management Co., Inc. and Assistant Treasurer of
Lehman Money Market Funds, 1981-1985; Controller of Seligman Group
of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust,
1982-1985 and Trustee of that Trust, 1985-1986; Secretary of Oxford
Cash Management Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New York,
New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer,
380 Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the
Administrator and the Distributor since 1995; formerly a Legal
Associate for Oppenheimer Management Corporation, 1993-1995.
For its fiscal year ended December 31, 1995, the Fund paid
a total of $60,783 in compensation and reimbursement of expenses to
those Trustees to whom it pays fees. No other compensation or
remuneration of any type, direct or contingent, was paid by the
Trust to its Trustees. The Fund does not pay fees to Trustees
affiliated with the Administrator or to any of its officers.
The Fund is one of the 13 funds in the Aquilasm Group of
Funds, which consist of tax-free municipal bond funds, money market
funds and an equity fund. The following table lists the
compensation of all Trustees who received compensation from the
Fund and the compensation they received during the Fund's fiscal
year from other funds in the Aquilasm Group of Funds. None of such
Trustees has any pension or retirement benefits from the Fund 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 Fund Group now serves
<S> <C> <C> <C>
Tucker H.
Adams $5,725 $7,829 2
Arthur K.
Carlson $5,350 $32,828 7
William M.
Cole $6,050 $27,008 5
Anne J.
Mills $6,340 $29,714 6
J. William
Weeks $1,284 $2,884 2
John G.
Welles $5,450 $5,450 1
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
The Investment Advisory Agreement (the "Advisory Agreement")
between the Fund and KPM Investment Management, Inc. (the
"Adviser") contains the provisions described below, in addition to
those described in the Prospectus.
The Advisory Agreement contains the following provisions as to
the Fund's portfolio transactions. In connection with its duties to
arrange for the purchase and sale of the Fund's portfolio
securities, the Adviser shall select such broker-dealers
("dealers") as shall, in the Adviser's judgment, implement the
policy of the Fund to achieve "best execution," i.e., prompt,
efficient and reliable execution of orders at the most favorable
net price. The Adviser shall cause the Fund to deal directly with
the selling or purchasing principal or market maker without
incurring brokerage commissions unless the Adviser determines that
better price or execution may be obtained by paying such
commissions; the Fund expects that most transactions will be
principal transactions at net prices and that the Fund will incur
little or no brokerage costs. The Fund understands that purchases
from underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions placed
through dealers include a spread between the bid and asked price.
In allocating transactions to dealers, the Adviser is authorized to
consider, in determining whether a particular dealer will provide
best execution, the dealer's reliability, integrity, financial
condition and risk in positioning the securities involved, as well
as the difficulty of the transaction in question, and thus need not
pay the lowest spread or commission available if the Adviser
determines in good faith that the amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by the dealer, viewed either in terms of the
particular transaction or the Adviser's overall responsibilities as
to the accounts as to which it exercises investment discretion. If,
on the foregoing basis, the transaction in question could be
allocated to two or more dealers, the Adviser is authorized, in
making such allocation, to consider (i) whether a dealer has
provided research services, as further discussed below; and (ii)
whether a dealer has sold shares of the Fund or any other
investment company or companies having the Adviser as its
investment adviser or having the same Administrator, sub-adviser or
principal underwriter as the Fund. 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 Fund recognizes that no dollar value
can be placed on such research services or on execution services,
that such research services may or may not be useful to the Fund
and/or other accounts of the Adviser and that research received by
such other accounts may or may not be useful to the Fund.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory Agreement may be terminated by the Adviser at any
time without penalty upon giving the Fund sixty days' written
notice, and may be terminated by the Fund at any time without
penalty upon giving the Adviser sixty days' written notice,
provided that such termination by the Fund shall be directed or
approved by the vote of a majority of all its Trustees in office at
the time or by the vote of the holders of a majority (as defined in
the 1940 Act) of its voting securities at the time outstanding and
entitled to vote; it automatically terminates in the event of its
assignment (as so defined).
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, the Adviser is not liable for any loss
sustained by the adoption of any investment policy or the purchase,
sale or retention of any security and permits the Adviser to act as
investment adviser for any other person, firm or corporation. The
Fund agrees to indemnify the Adviser to the full extent permitted
under the Fund's Declaration of Trust.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the accuracy
or completeness of the Fund's Registration Statement under the
Securities Act of 1933 and the 1940 Act, except for the information
supplied by the Adviser for inclusion therein.
During the fiscal year ended December 31, 1994, all of the
Fund's transactions were principal transactions and no brokerage
commissions were paid.
Former Advisory Arrangements
From the commencement of the Fund's operations in 1987
until April 19, 1991, Norwest Bank Denver, National Association
("NBD"), formerly known as United Bank of Denver National
Association, provided investment advisory and other services to the
Fund. It acted as the Fund's investment adviser under an investment
advisory agreement until April 19, 1991, when, upon completion of
the merger of NBD's parent, Norwest Colorado, Inc. ("NCI"),
formerly known as United Banks of Colorado, into Norwest
Corporation ("Norwest"), one of the banking subsidiaries of
Norwest, Norwest Bank Minnesota, National Association ("Norwest
Bank") became investment adviser to the Fund under an advisory
agreement (the "Former Advisory Agreement"), and NBD, which after
the merger became an indirect subsidiary of Norwest, became
sub-adviser to the Fund under a sub-advisory agreement (the "Former
Sub-Advisory Agreement"). Both agreements were approved by the
shareholders of the Fund on March 28, 1991, went into effect on
April 19, 1991 and remained in effect until terminated on October
1, 1992, when an advisory agreement with Kirkpatrick, Pettis,
Smith, Pollian, Inc. ("Kirkpatirck, Pettis") went into effect. That
Agreement remained in effect until June 8, 1994 when the current
Advisory Agreement went into effect. On July 1, 1994, with the
approval of the Board of Trustees, Kirkpatrick, Pettis transferred
the Advisory Agreement to its wholly owned subsidiary, the Adviser,
which has acted as the Fund's adviser since that time using the
same personnel.
The Former Advisory Agreement contained a provision allowing
the Former Adviser to delegate some or all of its advisory
functions to the Former Sub-Adviser. Although no change in the
level of investment advisory fees paid by the Fund occurred as a
result of the foregoing arrangements, under the Former Advisory
Agreement and the Former Sub-Advisory Agreement, the Fund paid all
such fees to the Former Adviser, and paid no fees directly to the
Former Sub-Adviser. The Former Adviser then paid over a portion of,
or all of, the fees it received from the Fund to the Former
Sub-Adviser.
For the year ended December 31, 1995, advisory fees of
$427,046 were paid or accrued to the Adviser, of which $49,985 was
voluntarily waived. For the year ended December 31, 1994, advisory
fees of $424,965 were paid or accrued to Kirkpatrick Pettis until
July 1, 1994, and to the Adviser thereafter, of which $63,762 was
voluntarily waived. For the year ended December 31, 1993, advisory
fees of $403,554 were paid or accrued to the Kirkpatirck, Pettis,
of which $80,650 was voluntarily waived.
Additional Information as to the Administration Agreement
The Administration Agreement (the "Administration Agreement")
between Aquila Management Corporation, as Administrator, and the
Fund contains the provisions described below in addition to those
described in the Prospectus.
Since the Fund pays its own legal and audit expenses, to the
extent that the Fund's counsel and accountants prepare or assist in
the preparation of prospectuses, proxy statements and reports to
shareholders, the costs of such preparation or assistance are paid
by the Fund.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Administration Agreement may be terminated at any time
without penalty by the Administrator upon sixty days' written
notice to the Fund and the Adviser; it may be terminated by the
Fund at any time without penalty upon giving the Administrator
sixty days' written notice, provided that such termination by the
Fund shall be directed or approved by a vote of a majority of the
Trustees in office at the time, including a majority of the
Trustees who are not interested persons of the Fund. In either case
the notice provision may be waived.
The Administration Agreement provides that the
Administrator shall not be liable for any error in judgement or for
any loss suffered by the Fund in connection with the matters to
which the Administration Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence of the
Administrator in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the
Administration Agreement. The Fund agrees to indemnify the
Administrator to the full extent permitted by the Declaration of
Trust.
During the years ended December 31, 1995, 1994 and 1993
respectively, administration fees of $640,488, $637,386 and 605,331
were paid or accrued to the Administrator under the Administration
Agreement of which $228,480, 254,945 and $282,366, respectively was
voluntarily waived.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined as of
4:00 p.m., New York time, on each day that the New York Stock
Exchange is open, by dividing the value of the Fund's net assets by
the total number of its shares then outstanding. However, Futures
and options on them are valued at the last sales price on the
principal commodities exchange on which the Future or option is
traded or, if there are no sales, at the mean between the bid and
asked prices as of the close of that exchange; such close may be
later than 4:00 p.m., New York time. Securities having a remaining
maturity of less than sixty days when purchased and securities
originally purchased with maturities in excess of sixty days but
which currently have maturities of sixty days or less are valued at
cost adjusted for amortization of premiums and accretion of
discounts. All other portfolio securities are valued at the mean
between bid and asked quotations which, for Colorado Obligations,
may be obtained from a reputable pricing service or from one or
more broker/dealers dealing in Colorado Obligations, either of
which may, in turn, obtain quotations from broker/dealers or banks
which deal in specific issues. However, since Colorado 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 Colorado
Obligations in the Fund's portfolio may be priced, with the
approval of the Fund'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 Fund's Board of
Trustees. In the case of Colorado 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 Fund's Board of Trustees, the Adviser may at
its own expense and without reimbursement from the Fund employ a
pricing service, bank or broker/dealer experienced in such matters
to perform any of the above described functions.
As indicated above, the net asset value per share of the
Fund's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, that Exchange may close on days not included in that
announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number
of instances in which the Fund's shares are sold or issued on a
basis other than the maximum public offering price, that is, the
net asset value plus the highest sales charge. Some of these relate
to lower or eliminated sales charges for larger purchases, whether
made at one time or over a period of time as under a Letter of
Intent or right of accumulation. (See the table of sales charges in
the Prospectus.) The reasons for these quantity discounts are, in
general, that (i) they are traditional and have long been permitted
in the industry and are therefore necessary to meet competition as
to sales of shares of other funds having such discounts; 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 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 Fund. Limited reinvestments of redemptions at no
sales charge are permitted to attempt to protect against mistaken
or incompletely informed redemption decisions. Shares may be issued
at no sales charge in plans of reorganization due to reduced or
eliminated sales expenses and since, in some cases, such issuance
is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in
which there is a reduced or eliminated sales charge are the
interests of existing shareholders adversely affected since, in
each case, the Fund receives the net asset value per share of all
shares sold or issued.
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases Class A Shares or
Class Y Shares of the Fund having a net asset value of at least
$5,000 may establish an Automatic Withdrawal Plan under which he or
she will receive a monthly or quarterly check in a stated amount,
not less than $50. Stock certificates will not be issued for shares
held under an Automatic Withdrawal Plan. All dividends and
distributions must be reinvested. Shares will be redeemed on the
last business day of the month or quarter as may be necessary to
meet withdrawal payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate the account. Monthly or quarterly payments paid to
shareholders may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
Any investor who incurs a sales commission on purchase of
shares of one mutual fund (the original fund) and who then sells
such shares or exchanges them for shares of a different mutual fund
without having held them at least 91 days must reduce 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 the investor's gain
or reduce his or her loss on the original fund shares. The amount
of the basis reduction on the original fund shares, however, is
added on the investor's basis for the fund shares acquired in the
exchange or later acquired. The provision applies to commissions
charged after October 3, 1989.
CONVERSION OF CLASS C SHARES
Level Payment Class Shares ("Class C Shares") of the Fund,
which you hold will automatically convert to Front Payment Class
Shares ("Class A Shares") of the Fund based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the sixth
anniversary of the your initial purchase of such Class C Shares
occurs. For these purposes, the date of your initial purchase shall
mean (1) the first business day of the month in which such Class C
Shares were issued to you, or (2) for Class C Shares of the Fund
you have obtained through an exchange or series of exchanges under
the Exchange Privilege (see "Exchange Privilege" in the
Prospectus), the first business day of the month in which you made
the original purchase of Class C Shares so exchanged. For
conversion purposes, Class C Shares purchased through reinvestment
of dividends or other distributions paid in respect of Class C
Shares will be held in a separate sub-account. Each time any Class
C Shares in your regular account (other than those in the
sub-account) convert to Class A Shares, a pro-rata portion of the
Class C Shares in the sub-account will also convert to Class A
Shares. The portion will be determined by the ratio that your Class
C Shares then converting to Class A Shares bears to the total of
your Class C Shares not acquired through reinvestment of dividends
and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the dividends
and other distributions paid on Class A Shares and Class C Shares
will not result in "preferential dividends" under the Code; and (2)
the conversion of shares does not constitute a taxable event. If
the conversion feature ceased to be available, the Class C Shares
of the Fund would not be converted and would continue to be subject
to the higher ongoing expenses of the Class C Shares beyond six
years from the date of purchase. The Fund has no reason to believe
that these conditions for the availability of the conversion
feature will not continue to be met.
If the Fund implements any amendments to its Distribution Plan
that would increase materially the costs that may be borne under
such Distribution Plan by Class A Shares shareholders, Class C
Shares will stop converting into Class A Shares unless a majority
of Class C Shares shareholders, voting separately as a class,
approve the proposal.
GENERAL INFORMATION
Possible Additional Series
If additional Series (as discussed in the Prospectus) were
created by the Board of Trustees, shares of each such Series would
be entitled to vote as a Series only to the extent permitted by the
1940 Act (see below) or as permitted by the Board of Trustees.
Income and operating expenses would be allocated among two or more
Series in a manner acceptable to the Board of Trustees.
Under Rule 18f-2 under the 1940 Act, as to any investment
company which has two or more Series outstanding, on any matter
required to be submitted to shareholder vote, such matter is not
deemed to have been effectively acted upon unless approved by the
holders of a "majority" (as defined in that Rule) of the voting
securities of each Series affected by the matter. Such separate
voting requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, Series. A change in
investment policy may go into effect as to one or more Series whose
holders so approve the change, even though the required vote is not
obtained as to the holders of other affected Series.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Fund may, under certain circumstances, be held personally liable as
partners for the obligations of the Fund. For shareholder
protection, however, an express disclaimer of shareholder liability
for acts or obligations of the Fund 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 Fund or the Trustees. The Declaration of Trust provides for
indemnification out of the Fund's property of any shareholder held
personally liable for the obligations of the Fund. The Declaration
of Trust also provides that the Fund shall, upon request, assume
the defense of any claim made against any shareholder for any act
or obligation of the Fund 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 Fund itself would be unable to meet its
obligations.
The Declaration of Trust further indemnifies the Trustees of
the Fund out of the property of the Fund, and provides that they
will not be liable for errors of judgment or mistakes of fact or
law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his
office.
Underwriting Commissions
During the year ended December 31, 1995, the aggregate
dollar amount of sales charges on sales of shares in the Fund was
$548,997 and the amount retained by the Distributor was
$105,085.
Custodian and Auditors
The Fund's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Fund's assets.
The Fund's auditors, KPMG Peat Marwick LLP, perform an annual
audit of the Fund's financial statements.
The financial statements for the Fund for the year ended
December 31, 1995, which are contained in the Annual Report for
that fiscal year, are hereby incorporated by reference into the
Additional Statement. Those financial statements have been audited
by KPMG Peat Marwick LLP, independent auditors, whose report
thereon is incorporated herein by reference.
<PAGE>
APPENDIX A
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.
Standard & Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing the
designation SP-1 are deemed very strong or to have strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+)
designation. Notes bearing the designation SP-2 are deemed to have
a satisfactory capacity to pay principal and interest.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in
Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some
time in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's Investment
Grade as MIG 1 through MIG 4. In the case of variable rate demand
obligations (VRDOs), two ratings are assigned; one representing an
evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an
evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of
VRDOs is designated as VMIG. When no rating is applied to the long
or short-term aspect of a VRDO, it will be designated NR. Issues or
the features associated with MIG or VMIG ratings are identified by
date of issue, date of maturity or maturities or rating expiration
date and description to distinguish each rating from other ratings.
Each rating designation is unique with no implication as to any
other similar issue of the same obligor. MIG ratings terminate at
the retirement of the obligation while VMIG rating expiration will
be a function of each issuer's specific structural or credit
features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality. Margins
of protection are ample although not so large
as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access for
refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of an
investment security is present and although
not distinctly or predominantly speculative,
there is specific risk.
<PAGE>
INVESTMENT ADVISER
KPM Investment Management, Inc.
1700 Lincoln Street, Suite 1300
Denver, Colorado 80203
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
William M. Cole
Anne J. Mills
J. William Weeks
John G. Welles
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Jean M. Smith, Vice President
Marie Aro, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
AQUILA
[LOGO]
Tax-Free Fund
of
Colorado
A tax-free
income investment
[LOGO]
STATEMENT OF
ADDITIONAL
INFORMATION
One Of The
Aquilasm Group Of Funds
<PAGE>
TAX-FREE FUND OF COLORADO
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Incorporated by reference into Part B:
Report of Independent Certified Public
Accountants
Statement of Investments as of
December 31, 1995
Statement of Assets and Liabilities
as of December 31, 1995
Statement of Operations for the year
ended December 31, 1995
Statement of Changes in Net Assets for the
years ended December 31, 1995 and 1994
Notes to Financial Statements
Included in Part C:
Consent of Independent Certified Public
Accountants
(b) Exhibits:
(1) Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust (viii)
(2) By-laws (viii)
(3) Not applicable
(4) Specimen share certificate (ii)
(5) Investment Advisory Agreement (vii)
(6) (a) Distribution Agreement (iv)
(b) Sales Agreement (for brokerage firms) (v)
(c) Sales Agreement (for financial
institutions) (v)
(d) Shareholder Services Agreement (viii)
(7) Not applicable
(8) Custody Agreement (viii)
(9) (a) Transfer Agency Agreement (iii)
(b) Administration Agreement (vii)
(10) Opinion and consent of counsel (viii)
(11) Not applicable
(12) Not applicable
(13) Agreement with initial shareholder (ii)
(14) Not applicable
(15) Distribution Plan (viii)
(15) (a) Shareholder Services Plan (viii)
(16) Schedule for computation of performance
quotations (viii)
(17) Financial Data Schedule (viii)
(18) Plan pursuant to Rule 18f-3
under the 1940 Act (viii)
(i) Filed as an exhibit to Registrant's Initial Registra-
tion Statement dated March 3, 1987 and incorporated
herein by reference.
(ii) Filed as an exhibit to Registrant's Pre-Effective
Amendment No. 1 dated May 15, 1987 and incorporated
herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 3 dated March 1, 1989 and incorporated
herein by reference.
(iv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 4 dated March 1, 1990 and incorporated
herein by reference.
(v) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 5 dated February 28, 1991 and incorpora-
ted herein by reference.
(vi) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 6 dated March 1, 1993 and incorpora-
ted herein by reference.
(vii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 9 dated February 27, 1995 and incorpora-
ted herein by reference.
(viii) Filed herewith.
ITEM 25. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 26. Number of Holders of Securities
As of April 18, 1996 Registrant had 4780 holders
of record of its shares.
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Supplemental Declaration of Trust,
filed herewith, is incorporated
herein by reference.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to Trustees, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in that Act and is, therefore, unenforce-
able. In the event that a claim for indemnifica-
tion against such liabilities (other than the pay-
ment by Registrant of expenses incurred or paid by
a Trustee, officer, or controlling person of Regis-
trant in the successful defense of any action,
suit, or proceeding) is asserted by such Trustee,
officer, or controlling person in connection with
the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against pub-
lic policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. Business & Other Connections of Investment Adviser
KPM Investment Management Inc., Registrant's investment
adviser, is a registered investment adviser. For
information about the business, profession, vocation, or
employment of a substantial nature of the investment
adviser, its directors, and its officers, reference is
made to the Form ADV filed by it under the Investment
Adviser's Act of 1940.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal underwriter
to Aquila Rocky Mountain Equity Fund, Capital Cash
Management Trust, Churchill Cash Reserves Trust,
Churchill Tax-Free Fund of Kentucky, Hawaiian Tax-Free
Trust, Narragansett Insured Tax-Free Income Fund, Pacific
Capital Cash Assets Trust, Pacific Capital Tax-Free Cash
Assets Trust, Pacific Capital U.S. Treasuries Cash Assets
Trust, Prime Cash Fund, Short Term Asset Reserves, Tax-
Free Fund For Utah, Tax-Free Trust of Arizona, and
Tax-Free Trust of Oregon, in addition to serving as the
Registrant's principal underwriter.
(b) For information about the Directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange
Act of 1934.
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All such accounts, books, and other documents are
maintained by the adviser, the administrator, the
custodian, and the transfer agent, whose addresses
appear on the back cover pages of the Prospectus
and Statement of Additional Information.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to provide to any person to
whom the Prospectus is delivered a copy of its most
recent annual report upon request and without charge.
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
To the Trustees and Shareholders of
Tax-Free Fund of Colorado:
We consent to the use of our report dated February 2, 1996
incorporated herein by reference and to the reference to our firm
under the heading "Financial Highlights" in the Prospectus.
/s/KPMG Peat Marwick LLP
New York, New York KPMG Peat Marwick LLP
April 16, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has caused this
Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New
York and State of New York, on the 23rd day of April, 1996.
TAX-FREE FUND OF COLORADO
(Registrant)
/s/Lacy B. Herrmann
By____________________________
Lacy B. Herrmann, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement or Amendment has been signed
below by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/Lacy B. Herrmann 4/23/96
______________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Tucker Hart Adams 4/23/96
______________________ Trustee ___________
Tucker Hart Adams
/s/Arthur K. Carlson 4/23/96
______________________ Trustee ___________
Arthur K. Carlson
/s/William M. Cole 4/23/96
______________________ Trustee ___________
William M. Cole
/s/Anne J. Mills 4/23/96
______________________ Trustee ___________
Anne J. Mills
/s/John G. Welles 4/23/96
______________________ Trustee ___________
John G. Welles
/s/Rose F. Marotta 4/23/96
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
TAX-FREE FUND OF COLORADO
EXHIBIT INDEX
Exhibit Exhibit Page
Number Name Number
1 Supplemental Declaration of Trust Amending
and Restating the Declaration of Trust
2 Bylaws
6 Shareholder Services Agreement
8 Custody Agreement
10 Opinion and Consent of Fund Counsel
15 Distribution Plan
15(a) Services Plan
16 Performance Computations
17 Financial Data Schedule
18 Plan pursuant to Rule 18f-3
Correspondence
TAX-FREE FUND OF COLORADO
SUPPLEMENTAL DECLARATION OF TRUST
AMENDING AND RESTATING THE DECLARATION OF TRUST
SUPPLEMENTAL DECLARATION OF TRUST made March 6, 1996 to the
DECLARATION OF TRUST (the "Present Declaration of Trust") of TAX-
FREE FUND OF COLORADO (the "Trust").
WHEREAS, paragraph 12 of Article EIGHTH of the Present
Declaration of Trust permits the Trustees of the Trust to amend
or otherwise supplement the Present Declaration of Trust by
making a Supplemental Declaration of Trust, if authorized by vote
of the Trustees and the Shareholders; and
WHEREAS, the making of this Supplemental Declaration of
Trust was duly authorized by the Trustees on April 19, 1995 and
by the shareholders on June 7, 1995, such approval having been by
the vote of the holders of a majority of the shares issued,
outstanding and entitled to vote; and
WHEREAS, the officer of the Trust executing this
Supplemental Declaration of Trust has been authorized and
directed to do so by the Trustees of the Trust and the
shareholders of the Trust on behalf of the Trustees and the
Trust;
NOW, THEREFORE, the Present Declaration of Trust is amended
and restated so that the Declaration of Trust of the Trust
(hereinafter referred to as the "Declaration of Trust") shall
read in its entirety as follows:
<PAGE>
WHEREAS, the Trustees desire to establish a trust fund under
the laws of the Commonwealth of Massachusetts, for the investment
and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and
property contributed to the trust fund hereunder shall be held
and managed under this Declaration of Trust IN TRUST as herein
set forth below.
FIRST: This Trust shall be known as TAX-FREE FUND OF
COLORADO.
SECOND: Whenever used herein, unless otherwise required by
the context or specifically provided:
1. All terms used in this Declaration of Trust which are
defined in the 1940 Act shall have the meanings given to them in
the 1940 Act.
2. The "Trust" refers to TAX-FREE FUND OF COLORADO.
3. "Shareholder" means a record owner of Shares of the
Trust.
4. The "Trustees" refer to the individual trustees in
their capacity as trustees hereunder of the Trust and their
successor or successors for the time being in office as such
trustees.
5. "Shares" means the units of interest into which the
beneficial interest in the Trust shall be divided from time to
time and includes fractions of Shares as well as whole Shares.
6. The "1940 Act" refers to the Investment Company Act of
1940, as amended from time to time.
7. "Commission" means the Securities and Exchange
Commission.
8. "Board" or "Board of Trustees" means the Board of
Trustees of the Trust.
THIRD: The purpose or purposes for which the Trust is
formed and the business or objects to be transacted, carried on
and promoted by it are as follows:
1. To hold, invest and reinvest its funds, and in
connection therewith to hold part or all of its funds in cash,
and to purchase or otherwise acquire, hold for investment or
otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize
upon, securities (which term "securities" shall for the purposes
of this Declaration of Trust, without limitation of the
generality thereof, be deemed to include any stocks, shares,
bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests
therein, or in any property or assets) created or issued by any
issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality
thereof be deemed to include any persons, firms, associations,
corporations, syndicates, combinations, organizations,
governments, or subdivisions thereof); and to exercise, as owner
or holder of any securities, all rights, powers and privileges in
respect thereof; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value of
any or all such securities.
2. To borrow money and pledge assets in connection with
any of the objects or purposes of the Trust, and to issue notes
or other obligations evidencing such borrowings, to the extent
permitted by the 1940 Act and by the Trust's fundamental
investment policies under the 1940 Act.
3. To issue and sell its Shares in such amounts and on
such terms and conditions, for such purposes and for such amount
or kind of consideration (including without limitation thereto,
securities) now or hereafter permitted by the laws of the
Commonwealth of Massachusetts and by this Declaration of Trust,
as the Trustees may determine.
4. To purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or
consent of the Shareholders of the Trust) its Shares, in any
manner and to the extent now or hereafter permitted by the laws
of Commonwealth of Massachusetts and by this Declaration of
Trust.
5. To conduct its business in all its branches at one or
more offices in the Commonwealth of Massachusetts and elsewhere
in any part of the world, without restriction or limit as to
extent.
6. To carry out all or any of the foregoing objects and
purposes as principal or agent, and alone or with associates or,
to the extent now or hereafter permitted by the laws of the
Commonwealth of Massachusetts, as a member of, or as the owner or
holder of any stock of, or share of interest in, any issuer, and
in connection therewith to make or enter into such deeds or
contracts with any issuers and to do such acts and things and to
exercise such powers, as a natural person could lawfully make,
enter into, do or exercise.
7. To do any and all such further acts and things and to
exercise any and all such further powers as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of all or any of the
foregoing purposes or objects.
The foregoing objects and purposes shall, except as
otherwise expressly provided, be in no way limited or restricted
by reference to, or inference from, the terms of any other clause
of this or any other Articles of this Declaration of Trust, and
shall each be regarded as independent and construed as powers as
well as objects and purposes, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the
general powers of the Trust now or hereafter conferred by the
laws of the Commonwealth of Massachusetts, nor shall the
expression of one thing be deemed to exclude another, though it
be of like nature, not expressed; provided, however, that the
Trust shall not carry on any business, or exercise any powers, in
any state, territory, district or country except to the extent
that the same may lawfully be carried on or exercised under the
laws thereof.
FOURTH: The beneficial interest in the Trust shall at all
times be divided into an unlimited number of transferable Shares,
each such Share having a par value of one cent per Share, each of
which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or
preference over another, subject to the further provisions of
this Article FOURTH. The Trustees may from time to time divide
or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the
Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a
Share or multiple thereof.
Subject to the further provisions of Article FOURTH, the
Board of Trustees may, without obtaining any authorization or
vote of the Shareholders of any series or class of Shares,
classify unissued Shares into one or more additional series and
classes which shall, together with the issued Shares of
beneficial interest of the Trust, have such designations as the
Board may determine (but which shall in the case of a series
include the word "Series" and in the case of a class include the
word "Class"). Subject to the distinctions permitted among
classes of the same series established by the Board of Trustees
consistent with the requirements of the 1940 Act and any rule,
regulation or order of the Commission, each Share of a series of
the Trust shall represent an equal interest in the net assets of
the series, and each holder of Shares of a series shall be
entitled to receive such holder's pro-rata share of distributions
of income and capital gains, if any, made with respect to such
series. Upon redemption of the Shares of any series, the
applicable Shareholder shall be paid solely out of funds and
property of such series of the Trust.
All references to Shares in this Declaration of Trust shall
be deemed to be to Shares of any or all series or classes
thereof, as the context may require.
Series and classes shall, subject to any applicable rule,
regulation or order of the Commission or other applicable law or
regulation, have the characteristics set forth in (a) through and
including (h) below.
(a) All consideration received by the Trust for the
issue or sale of Shares of each such series, together with all
income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to the series of Shares with respect to which such assets,
payments, or funds were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust. Such assets, income,
earnings, profits and proceeds thereof, and any asset derived
from any reinvestment of such proceeds, in whatever form the same
may be, are herein referred to as "assets belonging to" such
series.
(b) Dividends or distributions on Shares of any such
series, whether payable in Shares or cash, shall be paid only out
of earnings, surplus or other assets belonging to such series.
(c) In the event of the liquidation or dissolution of
the Trust, Shareholders of each such series shall be entitled to
receive, as a series, out of the assets of the Trust available
for distribution to Shareholders, but other than general assets
not belonging to any particular series, the assets belonging to
such series; and the assets so distributable to the Shareholders
of any such series shall be distributed among such Shareholders
in proportion to the number of Shares of such series held by them
and recorded on the books of the Trust. In the event that there
are any general assets not belonging to any particular series of
Shares and available for distribution, such distribution shall be
made to the holders of Shares of all series in proportion to the
asset value of the Shares.
(d) The assets belonging to any such series of Shares
shall be charged with the liabilities in respect to such series
and shall be charged with their share of the general liabilities
of the Trust, in proportion to the asset value of the respective
series. The determination of the Board of Trustees shall be
conclusive as to the amount of liabilities, including accrued
expenses and reserves, and as to the allocation of the same as to
a given series, and as to whether the same, or general assets of
the Trust, are allocable to one or more series. The liabilities
so allocated to a series are herein referred to as "liabilities
belonging to" such series.
(e) The Board of Trustees may without the requirement
of Shareholder approval, classify Shares of any series or divide
the Shares of any series into classes, each class having such
different dividend, liquidation, voting and other rights as the
Trustees may determine, and may establish and designate the
specific classes of Shares of each series. The fact that a
series shall have initially been established and designated
without any specific establishment or designation of classes
(i.e., that all Shares of such series are initially of a single
class), or that a series shall have more than one established and
designated class, shall not limit the authority of the Trustees
to establish and designate separate classes, or one or more
further classes, of said series without approval of the holders
of the initial class thereof, or previously established and
designated class or classes thereof, provided that the
establishment and designation of such further separate classes
would not adversely affect the rights of the holders of the
initial or previously established and designated class or
classes.
(f) At all meetings of Shareholders, each Shareholder
of each Share of each such series or class of the Trust shall be
entitled to one vote for each dollar of net asset value
represented by such Share, determined as provided in the then
current Prospectus of such series or class, as of the record date
for such meeting, irrespective of series or class, standing in
his name on the books of the Trust, except that where a vote of
the holders of the Shares of any series or class, or of more than
one series or class, voting by series or class, is required by
the 1940 Act, any rule, regulation or order of the Commission or
other applicable law or regulation as to any proposal, only the
holders of such series or series, or class or classes, voting by
series or class, shall be entitled to vote upon such proposal and
the holders of any other series or class or classes shall not be
entitled to vote thereon. Any fractional Share, if any such
fractional Shares are outstanding, shall carry proportionately
all the rights of a whole Share, including the right to vote and
the right to receive dividends. There shall be no cumulative
voting rights with respect to any Shares or series or class of
Shares of the Trust.
(g) The provisions of Article FIFTH relating to voting
shall apply when the Trust has only one series or class of Shares
outstanding or when the Trust has more than one series or class
of Shares outstanding but which differ only as to their dividend
rights. Otherwise, the provisions of Article FIFTH shall be
subject to the provisions of this Article FOURTH.
(h) When the Trust has more than one series or class
of Shares outstanding: (i) the redemption rights provided to the
holders of the Trust's Shares shall be deemed to apply only to
the assets belonging to the series or class of Shares in
question; and (ii) the net asset value per Share computation as
provided for in Article SEVENTH shall be applied as if each such
series or class of Shares were the Trust as referred to in such
computation, but with its assets limited to the assets belonging
to such series or class and its liabilities limited to the
liabilities belonging to such series or class.
(i) The ownership of Shares shall be recorded in the
books of the Trust or a transfer agent. The Trustees may make
such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust or any
transfer agent, as the case may be, shall be conclusive as to who
are the holders of Shares and as to the number of Shares held
from time to time by each.
(j) The Trustees shall accept investments in the Trust
from such persons and on such terms as they may from time to time
authorize.
(k) Shareholders shall have no pre-emptive or other
right to subscribe to any additional Shares or other securities
issued by the Trust or the Trustees.
(l) The dividends payable to Shareholders shall,
subject to any applicable rule, regulation or order of the
Commission or other applicable law or regulation, be determined
by the Board and need not be individually declared but may be
declared and paid in accordance with a formula adopted by the
Board.
FIFTH: The following provisions are hereby adopted with
respect to voting Shares of the Trust and certain other rights:
1. The Shareholders shall have power to vote (i) for
the election of Trustees, (ii) with respect to the amendment
of this Declaration of Trust, (iii) to the same extent as
the shareholders of a Massachusetts business corporation, as
to whether or not a court action, proceeding or claim should
be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, and (iv) with
respect to such additional matters relating to the Trust as
may be required by the 1940 Act or authorized by law, by
this Declaration of Trust, or the By-Laws of the Trust or
any registration statement of the Trust with the Commission
or any State, or as the Trustees may consider desirable.
2. At all meetings of Shareholders each Shareholder
shall be entitled to one vote for each dollar of net asset
value for each Share (determined in the manner described in
the current Prospectus or Prospectuses, if more than one
class or series is outstanding) standing in his name on the
books of the Trust on the date, fixed in accordance with the
By-Laws, for determination of Shareholders entitled to vote
at such meeting except (if so determined by the Board of
Trustees) for Shares redeemed prior to the meeting. Any
fractional Share shall carry proportionately all the rights
of a whole Share, including the right to vote and the right
to receive dividends. The presence in person or by proxy of
the holders of Shares outstanding and entitled to vote
thereat representing one-third of the net asset value of the
Trust as so determined shall constitute a quorum at any
meeting of the Shareholders. If at any meeting of the
Shareholders there shall be less than a quorum present, the
Shareholders present at such meeting may, without further
notice, adjourn the same from time to time until a quorum
shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been
lawfully transacted had the meeting not been adjourned.
3. Each Shareholder, upon request to the Trust in
proper form determined by the Trust, shall be entitled to
require the Trust to redeem all or any part of the Shares
standing in the name of such Shareholder. The method of
computing such net asset value, the time at which such net
asset value shall be computed and the time within which the
Trust shall make payment therefor, shall be determined as
hereinafter provided in Article SEVENTH of this Declaration
of Trust. Notwithstanding the foregoing, the Trustees, when
permitted or required to do so by the 1940 Act, may suspend
the right of the Shareholders to require the Trust to redeem
Shares.
4. No Shareholder shall, as such holder, have any
right to purchase or subscribe for any security of the Trust
which it may issue or sell, other than such right, if any,
as the Trustees, in their discretion, may determine.
5. All persons who shall acquire Shares shall acquire
the same subject to the provisions of this Declaration of
Trust.
SIXTH: Each Trustee shall hold office until the annual
meeting of Shareholders next succeeding his election or until his
successor is duly elected and qualifies. The persons who shall
act as Trustees until the first annual meeting or until their
successors are duly chosen and qualify were the initial Trustees
who executed the Declaration of Trust or any counterpart thereof.
However, the By-Laws of the Trust may fix the number of
Trustees at a number greater than that of the number of initial
Trustees and may authorize the Trustees, by the vote of a
majority of the entire number of Trustees, to increase or
decrease the number of Trustees fixed by this Declaration of
Trust or by the By-Laws within limits specified in the By-Laws,
provided that in no case shall the number of Trustees be less
than three, and to fill the vacancies created by any such
increase in the number of Trustees. Unless otherwise provided by
the By-Laws of the Trust, the Trustees need not be Shareholders.
SEVENTH: The following provisions are hereby adopted for
the purpose of defining, limiting and regulating the powers of
the Trust and of the Trustees and Shareholders.
1. As soon as any Trustee is duly elected by the
Shareholders or the Trustees and shall have accepted this
trust, the Trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any
further act or conveyance, and he shall be deemed a Trustee
hereunder.
2. The death, declination, resignation, retirement,
removal, or incapacity of the Trustees, or any one of them
shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this
Declaration of Trust.
3. The assets of the Trust shall be held separate and
apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any
successor Trustees. All of the assets of the Trust shall at
all times be considered as vested in the Trustees. Except
as provided in this Declaration of Trust, no Shareholder
shall have, as such holder of beneficial interest in the
Trust, any authority, power or right whatsoever to transact
business for or on behalf of the Trust, or on behalf of the
Trustees, in connection with the property or assets of the
Trust, or in any part thereof, except the rights to receive
the income and distributable amounts arising therefrom as
set forth herein.
4. The Trustees in all instances shall act as
principals, and are and shall be free from the control of
the Shareholders. The Trustees shall have full power and
authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider
necessary or appropriate in connection with the management
of the Trust. The Trustees shall not in any way be bound or
limited by present or future laws or customs in regard to
Trust investments, but shall have full authority and power
to make any and all investments which they, in their
uncontrolled discretion, shall deem proper to accomplish the
purposes of this Trust. Subject to any applicable
limitation in this Declaration of Trust or in the By-Laws of
the Trust, the Trustees shall have power and authority:
(a) to adopt By-laws not inconsistent with this
Declaration of Trust providing for the conduct of the
business of the Trust and to amend and repeal them to the
extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint
and terminate such officers as they consider appropriate
with or without cause;
(c) to employ a bank or trust company as
custodian of any assets of the Trust subject to any
conditions set forth in this Declaration of Trust or in the
By-Laws;
(d) to retain a transfer agent and Shareholder
servicing agent, or both;
(e) to provide for the distribution of Shares
either through a principal underwriter or the Trust itself
or both;
(f) to set record dates in the manner provided
for in the By-Laws of the Trust;
(g) to delegate such authority as they consider
desirable to any officers of the Trust and to any agent,
custodian or underwriter;
(h) to vote or give assent, or exercise any
rights of ownership, with respect to stock or other
securities or property held in trust hereunder; and to
execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(i) to exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of
securities held in trust hereunder;
(j) to hold any security or property in a form
not indicating any trust, whether in bearer, unregistered or
other negotiable form; or either in its own name or in the
name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual
practice of Massachusetts business trusts or investment
companies;
(k) to consent to or participate in any plan for
the reorganization, consolidation or merger of any
corporation or concern, any security of which is held in the
Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to
any security held in the Trust;
(l) to compromise, arbitrate, or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy including, but not limited to, claims for taxes;
(m) to make, in the manner provided in the
By-Laws, distributions of income and of capital gains to
Shareholders;
(n) to borrow money to the extent and in the
manner permitted by the 1940 Act and the Trust's fundamental
policy thereunder as to borrowing; and
(o) to enter into investment advisory or
management contracts, subject to the 1940 Act, with any one
or more corporations, partnerships, trusts, associations or
other persons; if the other party or parties to any such
contract are authorized to enter into securities
transactions on behalf of the Trust, such transactions shall
be deemed to have been authorized by all of the Trustees.
5. No one dealing with the Trustees shall be under
any obligation to make any inquiry concerning the authority
of the Trustees, or to see to the application of any
payments made or property transferred by the Trustees or
upon their order.
6. (a) The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time
personally agree to pay by way of subscription to any Shares
or otherwise. Every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the
Trustees relating to the Trust shall include a recitation
limiting the obligation represented thereby to the Trust and
its assets (but the omission of such a recitation shall not
operate to bind any Shareholder).
(b) Except as otherwise provided in this
Declaration of Trust or the By-Laws, whenever this
Declaration of Trust calls for or permits any action to be
taken by the Trustees hereunder, such action shall mean that
taken by the Board of Trustees by vote of the majority of a
quorum of Trustees as set forth from time to time in the
By-Laws of the Trust or as required pursuant to the
provisions of the 1940 Act and the rules and regulations
promulgated thereunder.
(c) The Trustees shall possess and exercise any
and all such additional powers as are reasonably implied
from the powers herein contained such as may be necessary or
convenient in the conduct of any business or enterprise of
the Trust, to do and perform anything necessary, suitable,
or proper for the accomplishment of any of the purposes, or
the attainment of any one or more of the objects, herein
enumerated, or which shall at any time appear conducive to
or expedient for the protection or benefit of the Trust, and
to do and perform all other acts or things necessary or
incidental to the purposes herein before set forth, or that
may be deemed necessary by the Trustees.
(d) The Trustees shall have the power to
determine conclusively whether any moneys, securities, or
other properties of the Trust property are, for the purposes
of this Trust, to be considered as capital or income and in
what manner any expenses or disbursements are to be borne as
between capital and income whether or not in the absence of
this provision such moneys, securities, or other properties
would be regarded as capital or income and whether or not in
the absence of this provision such expenses or disbursements
would ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees
into classes and prescribe the tenure of office of the
several classes, but no class shall be elected for a period
shorter than that from the time of the election following
the division into classes until the next annual meeting and
thereafter for a period shorter than the interval between
annual meetings or for a period longer than five years, and
the term of office of at least one class shall expire each
year.
8. The Shareholders shall have the right to inspect
the records, documents, accounts and books of the Trust,
subject to reasonable regulations of the Trustees, not
contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what
conditions and regulations, such right shall be exercised.
9. Any Trustee, or any officer elected or appointed
by the Trustees or by any committee of the Trustees or by
the Shareholders or otherwise, may be removed at any time,
with or without cause, in such lawful manner as may be
provided in the By-Laws of the Trust.
10. If the By-Laws so provide, the Trustees shall have
power to hold their meetings, to have an office or offices
and, subject to the provisions of the laws of the
Commonwealth of Massachusetts, to keep the books of the
Trust outside of said Commonwealth at such places as may
from time to time be designated by them.
11. Securities held by the Trust shall be voted in
person or by proxy by the President or a Vice-President, or
such officer or officers of the Trust as the Trustees shall
designate for the purpose, or by a proxy or proxies
thereunto duly authorized by the Trustees, except as
otherwise ordered by vote of the holders of a majority of
the Shares outstanding and entitled to vote in respect
thereto.
12. (a) Subject to the provisions of the 1940 Act,
any Trustee, officer or employee, individually, or any
partnership of which any Trustee, officer or employee may be
a member, or any corporation or association of which any
Trustee, officer or employee may be an officer, director,
trustee, employee or stockholder, may be a party to, or may
be pecuniarily or otherwise interested in, any contract or
transaction of the Trust, and in the absence of fraud no
contract or other transaction shall be thereby affected or
invalidated; provided that in case a Trustee, or a
partnership, corporation or association of which a Trustee
is a member, officer, director, trustee, employee or
stockholder is so interested, such fact shall be disclosed
or shall have been known to the Trustees or a majority
thereof; and any Trustee who is so interested, or who is
also a director, officer, trustee, employee or stockholder
of such other corporation or association or a member of such
partnership which is so interested, may be counted in
determining the existence of a quorum at any meeting of the
Trustees which shall authorize any such contract or
transaction, and may vote thereat to authorize any such
contract or transaction, with like force and effect as if he
were not such director, officer, trustee, employee or
stockholder of such other trust or corporation or
association or a member of a partnership so interested.
(b) Specifically, but without limitation of the
foregoing, the Trust may enter into a management, investment
advisory, sub-advisory, administration or underwriting
contract and other contracts with, and may otherwise do
business with any manager, investment adviser, sub-adviser,
or administrator for the Trust, or principal underwriter of
the Shares of the Trust, or any subsidiary or affiliate of
any such manager, investment adviser, sub-adviser or
administrator and/or principal underwriter and may permit
any such firm or corporation to enter into any contracts or
other arrangements with any other firm or corporation
relating to the Trust notwithstanding that the Board of
Trustees of the Trust may be composed in part of partners,
directors, officers or employees of any such firm or
corporation, and officers of the Trust may have been or may
be or become partners, directors, officers or employees of
any such firm or corporation, and in the absence of fraud
the Trust and any such firm or corporation may deal freely
with each other, and no such contract or transaction between
the Trust and any such firm or corporation shall be
invalidated or in any wise affected thereby, nor shall any
Trustee or officer of the Trust be liable to the Trust or to
any Shareholder or creditor thereof or to any other person
for any loss incurred by it or him solely because of the
existence of any such contract or transaction; provided that
nothing herein shall protect any Trustee or officer of the
Trust against any liability to the Trust or to its security
holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office.
(c) (1) As used in this paragraph the following
terms shall have the meanings set forth below:
(i) the term "indemnitee" shall mean any
present or former Trustee, officer or
employee of the Trust, any present or former
Trustee or officer of another trust or
corporation whose securities are or were
owned by the Trust or of which the Trust is
or was a creditor and who served or serves in
such capacity at the request of the Trust,
any present or former investment adviser,
sub-adviser, administrator or principal
underwriter of the Trust and the heirs,
executors, administrators, successors and
assigns of any of the foregoing; however,
whenever conduct by an indemnitee is referred
to, the conduct shall be that of the original
indemnitee rather than that of the heir,
executor, administrator, successor or
assignee;
(ii) the term "covered proceeding" shall
mean any threatened, pending or completed
action, suit or proceeding, whether civil,
criminal, administrative or investigative, to
which an indemnitee is or was a party or is
threatened to be made a party by reason of
the fact or facts under which he or it is an
indemnitee as defined above;
(iii) the term "disabling conduct" shall
mean willful misfeasance, bad faith, gross
negligence or reckless disregard of the
duties involved in the conduct of the office
in question;
(iv) the term "covered expenses" shall mean
expenses (including attorney's fees),
judgments, fines and amounts paid in
settlement actually and reasonably incurred
by an indemnitee in connection with a covered
proceeding; and
(v) the term "adjudication of liability"
shall mean, as to any covered proceeding and
as to any indemnitee, an adverse
determination as to the indemnitee whether by
judgment, order, settlement, conviction or
upon a plea of nolo contendere or its
equivalent.
(d) The Trust shall not indemnify any indemnitee
for any covered expenses in any covered proceeding if there
has been an adjudication of liability against such
indemnitee expressly based on a finding of disabling
conduct.
(e) Except as set forth in (d) above, the Trust
shall indemnify any indemnitee for covered expenses in any
covered proceeding, whether or not there is an adjudication
of liability as to such indemnitee, if a determination has
been made that the indemnitee was not liable by reason of
disabling conduct by (i) a final decision of the court or
other body before which the covered proceeding was brought;
or (ii) in the absence of such decision, a reasonable
determination, based on a review of the facts, by either (a)
the vote of a majority of a quorum of Trustees who are
neither "interested persons," as defined in the 1940 Act nor
parties to the covered proceeding or (b) an independent
legal counsel in a written opinion; provided that such
Trustees or counsel, in reaching such determination, may but
need not presume the absence of disabling conduct on the
part of the indemnitee by reason of the manner in which the
covered proceeding was terminated.
(f) Covered expenses incurred by an indemnitee in
connection with a covered proceeding shall be advanced by
the Trust to an indemnitee prior to the final disposition of
a covered proceeding upon the request of the indemnitee for
such advance and the undertaking by or on behalf of the
indemnitee to repay the advance unless it is ultimately
determined that the indemnitee is entitled to
indemnification thereunder, but only if one or more of the
following is the case: (i) the indemnitee shall provide a
security for such undertaking; (ii) the Trust shall be
insured against losses arising out of any lawful advances;
or (iii) there shall have been a determination, based on a
review of the readily available facts (as opposed to a full
trial-type inquiry) that there is a reason to believe that
the indemnitee ultimately will be found entitled to
indemnification by either independent legal counsel in a
written opinion or by the vote of a majority of a quorum of
trustees who are neither "interested persons" as defined in
the 1940 Act nor parties to the covered proceeding.
(g) Nothing herein shall be deemed to affect the
right of the Trust and/or any indemnitee to acquire and pay
for any insurance covering any or all indemnitees to the
extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be
entitled to the extent permitted by the 1940 Act.
13. For purposes of the computation of net asset
value, as in this Declaration of Trust referred to, the
following rules shall apply:
(a) The net asset value of each Share of the
Trust tendered to the Trust for redemption shall be
determined as of the close of business on the New York Stock
Exchange next succeeding the tender of such Share;
(b) The net asset value of each Share of the
Trust for the purpose of the issue of such Shares shall be
determined as of the close of business on the New York Stock
Exchange next succeeding the receipt of an order to purchase
such Shares;
(c) The net asset value of each Share of the
Trust, as of time of valuation on any day, shall be the
quotient obtained by dividing the value, as at such time, of
the net assets of the Trust (i.e., the value of the assets
of the Trust less its liabilities exclusive of its surplus)
by the total number of Shares outstanding at such time. The
assets and liabilities of the Trust shall be determined in
accordance with generally accepted accounting principles;
provided, however, that in determining the liabilities of
the Trust there shall be included such reserves for taxes or
contingent liabilities as may be authorized or approved by
the Trustees, and provided further that in determining the
value of the assets of the Trust for the purpose of
obtaining the net asset value, each security listed on the
New York Stock Exchange shall be valued on the basis of the
closing sale at the time of valuation on the business day as
of which such value is being determined; if there be no sale
on such day, then the security shall be valued on the basis
of the mean between closing bid and asked prices on such
day; if no bid and asked prices are quoted for such day,
then the security shall be valued by such method as the
Trustees shall deem in good faith to reflect its fair market
value; securities not listed on the New York Stock Exchange
shall be valued in like manner on the basis of quotations on
any other stock exchange which the Trustees may from time to
time approve for that purpose; readily marketable securities
traded in the over-the-counter market shall be valued at the
mean between their bid and asked prices, or, if the Trustees
shall so determine, at their bid prices; and all other
assets of the Trust and all securities as to which the Trust
might be considered an "underwriter" (as that term is used
in the Securities Act of 1933), whether or not such
securities are listed or traded in the over-the-counter
market, shall be valued by such method as they shall deem in
good faith to reflect their fair market value. In
connection with the accrual of any fee or refund payable to
or by an investment adviser of the Trust, the amount of
which accrual is not definitely determinable as of any time
at which the net asset value of each Share of the Trust is
being determined due to the contingent nature of such fee or
refund, the Trustees are authorized to establish from time
to time formulae for such accrual, on the basis of the
contingencies in question to the date of such determination,
or on such other basis as the Trustees may establish.
(1) Shares to be issued shall be deemed to
be outstanding as of the time of the determination
of the net asset value per share applicable to
such issuance and the net price thereof shall be
deemed to be an asset of the Trust;
(2) Shares to be redeemed by the Trust shall
be deemed to be outstanding until the time of the
determination of the net asset value applicable to
such redemption and thereupon and until paid the
redemption price thereof shall be deemed to be a
liability of the Trust; and
(3) Shares voluntarily purchased or
contracted to be purchased by the Trust pursuant
to the provisions of paragraph 13(d) of this
Article SEVENTH shall be deemed to be outstanding
until whichever is the later of (i) the time of
the making of such purchase or contract of
purchase, and (ii) the time as of which the
purchase price is determined, and thereupon and
until paid, the purchase price thereof shall be
deemed to be a liability of the Trust.
(d) The net asset value of each Share of the
Trust, as of any time other than the close of business on
the New York Stock Exchange of any day, may be determined by
applying to the net asset value as of the close of business
on that Exchange on the preceding business day, computed as
provided in this Article SEVENTH, such adjustments as are
authorized by or pursuant to the direction of the Trustees
and designed reasonably to reflect any material changes in
the market value of securities and other assets held and any
other material changes in the assets or liabilities of the
Trust and in the number of its outstanding Shares which
shall have taken place since the close of business on such
preceding business day.
(e) In addition to the foregoing, the Trustees
are empowered, in their absolute discretion, to establish
other bases or times, or both, for determining the net asset
value of each Share of the Trust in accordance with the 1940
Act and to authorize the voluntary purchase by the Trust,
either directly or through an agent, of Shares of the Trust
upon such terms and conditions and for such consideration as
the Trustees shall deem advisable in accordance with any
such provision, rule or regulation.
(f) Payment of the net asset value of Shares of
the Trust properly surrendered to it for redemption shall be
made by the Trust within seven days after tender of such
Shares to the Trust for such purpose plus any period of time
during which the right of the holders of the Shares of the
Trust to require the Trust to redeem such Shares has been
suspended. Any such payment may be made in portfolio
securities of the Trust and/or in cash, as the Trustees
shall deem advisable, and no Shareholder shall have a right,
other than as determined by the Trustees, to have his Shares
redeemed in kind.
EIGHTH:
1. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of
his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other
general successor) shall be entitled out of the Trust estate
to be held harmless from and indemnified against all loss
and expense arising from such liability. This Trust shall,
upon request by the Shareholder, assume the defense of any
claim made against any Shareholder for any act or obligation
of the Trust and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and
not a partnership is created hereby. No Trustee hereunder
shall have any power to bind personally either the Trust's
officers or any Shareholder. All persons extending credit
to, contracting with or having any claim against the Trust
or the Trustees shall look only to the assets of the Trust
for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of their
agents, whether past, present or future, shall be personally
liable therefor. Nothing in this Declaration of Trust shall
protect a Trustee against any liability to which such
Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the
office of Trustee hereunder.
3. The exercise by the Trustees of their powers and
discretion hereunder in good faith and with reasonable care
under the circumstances then prevailing, shall be binding
upon everyone interested. Subject to the provisions of
paragraph 2 of this Article EIGHTH, the Trustees shall not
be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts
with respect to the meaning and operations of this
Declaration of Trust, and subject to the provisions of
paragraph 2 of this Article EIGHTH, shall be under no
liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any
surety if a bond is required.
4. This Trust shall continue without limitation of
time but subject to the provisions of sub-sections (a), (b)
and (c) of this paragraph 4.
(a) The Trustees, with the favorable vote of the
holders of more than 50% of the outstanding Shares entitled
to vote and if the Trust has outstanding Shares of more than
one series or class, such vote shall be in accordance with
the provisions of Article FIFTH section (2), may sell and
convey the assets of the Trust (which sale may be subject to
the retention of assets for the payment of liabilities and
expenses) to another issuer for a consideration which may be
or include securities of such issuer. Upon making provision
for the payment of liabilities, by assumption by such issuer
or otherwise, the Trustees shall distribute the remaining
proceeds ratably among the holders of the Shares of the
Trust then outstanding.
(b) The Trustees, with the favorable vote of the
holders of more than 50% of the outstanding Shares entitled
to vote, and if the Trust has outstanding Shares of more
than one series or class, such vote shall be in accordance
with the provisions of Article FIFTH section (2), may at any
time sell and convert into money all the assets of the
Trust. Upon making provision for the payment of all
outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust, the Trustees shall
distribute the remaining assets of the Trust ratably among
the holders of the outstanding Shares.
(c) Upon completion of the distribution of the
remaining proceeds or the remaining assets as provided in
sub-sections (a) and (b), the Trust shall terminate and the
Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and
interest of all parties shall be cancelled and discharged.
5. The original or a copy of this instrument and of
each declaration of trust supplemental hereto shall be kept
at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each
supplemental declaration of trust shall be filed with the
Massachusetts Secretary of State, as well as any other
governmental office where such filing may from time to time
be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not
any such supplemental declarations of trust have been made
and as to any matters in connection with the Trust
hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such
supplemental declaration of trust. In this instrument or in
any such supplemental declaration of trust, references to
this instrument, and all expressions like "herein," "hereof"
and "hereunder" shall be deemed to refer to this instrument
as amended or affected by any such supplemental declaration
of trust. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
6. The trust set forth in this instrument is created
under and is to be governed by and construed and
administered according to the laws of the Commonwealth of
Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
7. The Board of Trustees is empowered to cause the
redemption of the Shares held in any account if the
aggregate net asset value of such Shares (taken at cost or
value, as determined by the Board) has been reduced by a
Shareholder to $500 or less upon such notice to the
Shareholders in question, with such permission to increase
the investment in question and upon such other terms and
conditions as may be fixed by the Board of Trustees in
accordance with the 1940 Act.
8. In the event that any person advances the
organizational expenses of the Trust, such advances shall
become an obligation of the Trust subject to such terms and
conditions as may be fixed by, and on a date fixed by, or
determined in accordance with criteria fixed by the Board of
Trustees, to be amortized over a period or periods to be
fixed by the Board.
9. Whenever any action is taken under this
Declaration of Trust under any authorization to take action
which is permitted by the 1940 Act, such action shall be
deemed to have been properly taken if such action is in
accordance with the construction of the 1940 Act then in
effect as expressed in "no action" letters of the staff of
the Commission or any release, rule, regulation or order
under the 1940 Act or any decision of a court of competent
jurisdiction, notwithstanding that any of the foregoing
shall later be found to be invalid or otherwise reversed or
modified by any of the foregoing.
10. Any action which may be taken by the Board of
Trustees under this Declaration of Trust or its By-Laws may
be taken by the description thereof in the then effective
prospectus relating to the Shares under the Securities Act
of 1933 or in any proxy statement of the Trust rather than
by formal resolution of the Board.
11. Whenever under this Declaration of Trust, the
Board of Trustees is permitted or required to place a value
on assets of the Trust, such action may be delegated by the
Board, and/or determined in accordance with a formula
determined by the Board, to the extent permitted by the 1940
Act.
12. If authorized by vote of the Trustees and the
favorable vote of the holders of more than 50% of the
outstanding Shares entitled to vote, or by any larger vote
which may be required by applicable law in any particular
case, the Trustees shall amend or otherwise supplement this
instrument, by making a declaration of trust supplemental
hereto, which thereafter shall form a part hereof; however,
any such supplemental declaration of trust may be authorized
by the vote of a majority of the Trustees then in office
without any Shareholder vote if the sole purpose of such
supplemental declaration of trust is to change the name of
the Trust; any supplemental declaration of trust may be
executed by and on behalf of the Trust and the Trustees by
any officer or officers of the Trust.
13. The address of the Trust is 380 Madison Avenue,
Suite 2300, New York, NY 10017. The agent of the Trust in
the Commonwealth of Massachusetts is United Corporate
Services, Inc., 9 Crestway Road, East Boston, Massachusetts
02128.
IN WITNESS WHEREOF, the undersigned have executed
this Supplemental Declaration of Trust on behalf of the
Trust and the Trustees as of the date first above written.
TAX-FREE FUND OF COLORADO
______________________________
Lacy B. Herrmann
President, Chairman of the
Board of Trustees and Trustee
Attest:
______________________________
Patricia A. Craven
Assistant Secretary
THE UNDERSIGNED, President, Chairman of the Board of
Trustees and Trustee of TAX-FREE FUND OF COLORADO who executed on
behalf of said Trust and its Trustees the foregoing Supplemental
Declaration of Trust, hereby acknowledges, in the name and on
behalf of said Trust and its Trustees, the foregoing Supplemental
Declaration of Trust to be the act of said Trust and its Trustees
and further certifies that to the best of his information,
knowledge and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material
respects, under penalties of perjury.
________________________________
Lacy B. Herrmann
Dated: March 6, 1996
TAX-FREE FUND OF COLORADO
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the
Shareholders (which term as used herein shall, together with all
other terms defined in the Declaration of Trust, have the same
meaning as in the Declaration of Trust) shall be held at the
principal office of the Fund or at such other place as may from
time to time be designated by the Board of Trustees and stated in
the notice of meeting.
Section 1A. Shareholder Voting. At any meeting of
Shareholders, Shareholders are entitled to one (1) vote for each
dollar of net asset value (determined as of the record date for
the meeting) per Share held (and fractional votes for fractional
dollar amounts.)
Section 2. Annual Meeting. In any year in which the
Trustees determine that a meeting of the Shareholders of the Fund
shall be held for the purpose of electing Trustees, that meeting
shall be held on such date and at such time as may be determined
by the Board of Trustees and as shall be designated in the notice
of meeting for the purpose of electing Trustees until the next
meeting for such purpose and for the transaction of such other
business as may properly be brought before the meeting.
Section 3. Special or Extraordinary Meetings. Special or
extraordinary meetings of Shareholders for any purpose or
purposes may be called by the Chairman of the Board of Trustees,
if any, or by the President or by the Board of Trustees and shall
be called by the Secretary upon receipt of the request in writing
signed by holders of Shares representing not less than ten
percent (10%) of the votes eligible to be cast thereat. Such
request shall state the purpose or purposes of the proposed
meeting.
Section 4. Notice of Meetings of Shareholders. Not less
than ten days' and not more than ninety days' written or printed
notice of every meeting of Shareholders, stating the time and
place thereof (and the general nature of the business proposed to
be transacted at any special or extraordinary meeting), shall be
given to each Shareholder entitled to vote thereat by leaving the
same with him or at his residence or usual place of business or
by mailing it, postage prepaid and addressed to him at his
address as it appears upon the books of the Fund.
No notice of the time, place or purpose of any meeting of
Shareholders need be given to any Shareholder who attends in
person or by proxy or to any Shareholder who, in writing executed
and filed with the records of the meeting, either before or after
the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Trustees may fix,
in advance, a date, not exceeding ninety days and not less than
ten days preceding the date of any meeting of Shareholders, and
not exceeding ninety days preceding any dividend payment date or
any date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to receive such
dividends or rights, as the case may be; and only Shareholders of
record on such date shall be entitled to notice of and to vote at
such meeting or to receive such dividends or rights, as the case
may be.
Section 6. Quorum, Adjournment of Meetings. The presence
in person or by proxy of the holders of record of outstanding
Shares of the Fund representing at least one-third of the votes
eligible to be cast thereat shall constitute a quorum at all
meetings of Shareholders. If at any meeting of the Shareholders
there shall be less than a quorum present, the Shareholders
present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall attend, but no
business shall be transacted at any such adjourned meeting except
such as might have been lawfully transacted had the meeting not
been adjourned.
Section 7. Voting and Inspectors. At all meetings of
Shareholders every Shareholder of record entitled to vote thereat
shall be entitled to vote at such meeting either in person or by
proxy appointed by instrument in writing subscribed by such
Shareholder or his duly authorized attorney-in-fact.
All elections of Trustees shall be had by a plurality of the
votes cast and all questions shall be decided by a majority of
the votes cast, in each case at a duly constituted meeting,
except as otherwise provided in the Declaration of Trust or in
these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of
Trust or in these By-Laws.
At any election of Trustees, the Board of Trustees prior
thereto may, or, if they have not so acted, the Chairman of the
meeting may, and upon the request of the holders of the
outstanding Shares of the Fund representing 10% of its net asset
value entitled to vote at such election shall, appoint two
inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at
such election with strict impartiality and according to the best
of their ability, and shall after the election make a certificate
of the result of the vote taken. No candidate for the office of
Trustee shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter, and such vote shall be taken
upon the request of the holders of the outstanding Shares of the
Fund representing 10% of its net asset value entitled to vote on
such election or matter.
Section 8. Conduct of Shareholders' Meetings. The meetings
of the Shareholders shall be presided over by the Chairman of
the Board of Trustees, if any, or if he shall not be present, by
the President, or if he shall not be present, by a Vice-
President, or if neither the Chairman of the Board of Trustees,
the President nor any Vice-President is present, by a chairman to
be elected at the meeting. The Secretary of the Fund, if
present, shall act as Secretary of such meetings, or if he is not
present, an Assistant Secretary shall so act; if neither the
Secretary nor an Assistant Secretary is present, then the meeting
shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At
every meeting of the Shareholders, all proxies shall be received
and taken in charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all
questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in
Section 7, in which event such inspectors of election shall
decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number and Tenure of Office. The business and
property of the Fund shall be conducted and managed by a Board of
Trustees consisting of the number of initial Trustees, which
number may be increased or decreased as provided in Section 2 of
this Article. Each Trustee shall, except as otherwise provided
herein, hold office until the annual meeting of Shareholders of
the Fund next succeeding his election or until his successor is
duly elected and qualifies. Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees;
Removal. The Board of Trustees, by the vote of a majority of the
entire Board, may increase the number of Trustees to a number not
exceeding fifteen, and may elect Trustees to fill the vacancies
created by any such increase in the number of Trustees until the
next annual meeting or until their successors are duly elected
and qualify; the Board of Trustees, by the vote of a majority of
the entire Board, may likewise decrease the number of Trustees to
a number not less than two but the tenure of office of any
Trustee shall not be affected by any such decrease. Vacancies
occurring other than by reason of any such increase shall be
filled as provided for a Massachusetts business corporation. In
the event that after proxy material has been printed for a
meeting of Shareholders at which Trustees are to be elected any
one or more management nominees dies or becomes incapacitated,
the authorized number of Trustees shall be automatically reduced
by the number of such nominees, unless the Board of Trustees
prior to the meeting shall otherwise determine. Any Trustee at
any time may be removed either with or without cause by
resolution duly adopted by the affirmative votes of the holders
of the majority of the Shares of the Fund present in person or by
proxy at any meeting of Shareholders at which such vote may be
taken, provided that a quorum is present, or by such larger vote
as may be required by Massachusetts law. Any Trustee at any time
may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is
contained in the notice of such meeting and that such resolution
is adopted by the vote of at least two thirds of the Trustees
whose removal is not proposed. As used herein, "for cause" shall
mean any cause which under Massachusetts law would permit the
removal of a Trustee of a business trust.
Section 3. Place of Meeting. The Trustees may hold their
meetings, have one or more offices, and keep the books of the
Fund outside Massachusetts, at any office or offices of the Fund
or at any other place as they may from time to time by resolution
determine, or, in the case of meetings, as they may from time to
time by resolution determine or as shall be specified or fixed
in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board
of Trustees shall be held at such time and on such notice, if
any, as the Trustees may from time to time determine.
The annual meeting of the Board of Trustees shall be held as
soon as practicable after the annual meeting of the Shareholders
for the election of Trustees.
Section 5. Special Meetings. Special meetings of the Board
of Trustees may be held from time to time upon call of the
Chairman of the Board of Trustees, if any, the President or two
or more of the Trustees, by oral or telegraphic or written notice
duly served on or sent or mailed to each Trustee not less than
one day before such meeting. No notice need be given to any
Trustee who attends in person or to any Trustee who, in writing
executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Such notice or
waiver of notice need not state the purpose or purposes of such
meeting.
Section 6. Quorum. One-third of the Trustees then in
office shall constitute a quorum for the transaction of business,
provided that a quorum shall in no case be less than two
Trustees. If at any meeting of the Board there shall be less
than a quorum present (in person or by open telephone line, to
the extent permitted by the 1940 Act), a majority of those
present may adjourn the meeting from time to time until a quorum
shall have been obtained. The act of the majority of the
Trustees present at any meeting at which there is a quorum shall
be the act of the Board, except as may be otherwise specifically
provided by statute, by the Declaration of Trust or by these By-
Laws.
Section 7. Executive Committee. The Board of Trustees may,
by the affirmative vote of a majority of the entire Board, elect
from the Trustees an Executive Committee to consist of such
number of Trustees as the Board may from time to time determine.
The Board of Trustees by such affirmative vote shall have power
at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When
the Board of Trustees is not in session, the Executive Committee
shall have and may exercise any or all of the powers of the Board
of Trustees in the management of the business and affairs of the
Fund (including the power to authorize the seal of the Fund to be
affixed to all papers which may require it) except as provided by
law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its
own rules of procedure, and may meet, when and as provided by
such rules or by resolution of the Board of Trustees, but in
every case the presence of a majority shall be necessary to
constitute a quorum. In the absence of any member of the
Executive Committee the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a member of
the Board of Trustees to act in the place of such absent member.
Section 8. Other Committees. The Board of Trustees, by the
affirmative vote of a majority of the entire Board, may appoint
other committees which shall in each case consist of such number
of members (not less than two) and shall have and may exercise
such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee
may determine its action, and fix the time and place of its
meetings, unless the Board of Trustees shall otherwise provide.
The Board of Trustees shall have power at any time to change the
members and powers of any such committee, to fill vacancies, and
to discharge any such committee.
Section 9. Informal Action by and Telephone Meetings of
Trustees and Committees. Any action required or permitted to be
taken at any meeting of the Board of Trustees or any committee
thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of a
committee of the Board of Trustees may participate in a meeting
by means of a conference telephone or similar communications
equipment; such participation shall, except as otherwise required
by the 1940 Act, have the same effect as presence in person.
Section 10. Compensation of Trustees. Trustees shall be
entitled to receive such compensation from the Fund for their
services as may from time to time be voted by the Board of
Trustees.
Section 11. Dividends. Dividends or distributions payable
on the Shares may, but need not be, declared by specific
resolution of the Board as to each dividend or distribution; in
lieu of such specific resolutions, the Board may, by general
resolution, determine the method of computation thereof, the
method of determining the Shareholders to which they are payable
and the methods of determining whether and to which Shareholders
they are to be paid in cash or in additional Shares.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of
the Fund shall be chosen by the Board of Trustees as soon as may
be practicable after the annual meeting of the Shareholders.
These may include a Chairman of the Board of Trustees, and shall
include a President, one or more Vice-Presidents (the number
thereof to be determined by the Board of Trustees), a Secretary
and a Treasurer. The Chairman of the Board of Trustees, if any,
and the President may, but need not be, selected from among the
Trustees. The Board of Trustees may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and
perform such duties as the Board or the Executive Committee may
determine. The Board of Trustees may fill any vacancy which may
occur in any office. Any two offices, except those of President
and Vice-President, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law or
these By-Laws to be executed, acknowledged or verified by two or
more officers.
Section 2. Term of Office. The term of office of all
officers shall be one year and until their respective successors
are chosen and qualify; however, any officer may be removed from
office at any time with or without cause by the vote of a
majority of the entire Board of Trustees.
Section 3. Powers and Duties. The officers of the Fund
shall have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as may from
time to time be conferred by the Board of Trustees or the
Executive Committee.
ARTICLE IV
SHARES
Section 1. Certificates of Shares. Each Shareholder of
the Fund may be issued a certificate or certificates for his
Shares in such form as the Board of Trustees may from time to
time prescribe, but only if and to the extent and on the
conditions prescribed by the Board.
Section 2. Transfer of Shares. Shares shall be
transferable on the books of the Fund by the holder thereof in
person or by his duly authorized attorney or legal
representative, upon surrender and cancellation of certificates,
if any, for the same number of Shares, duly endorsed or
accompanied by proper instruments of assignment and transfer,
with such proof of the authenticity of the signature as the Fund
or its agent may reasonably require; in the case of Shares not
represented by certificates, the same or similar requirements may
be imposed by the Board of Trustees.
Section 3. Stock Ledgers. The stock ledgers of the Fund,
containing the name and address of the Shareholders and the
number of Shares held by them respectively, shall be kept at the
principal offices of the Fund or, if the Fund employs a transfer
agent, at the offices of the transfer agent of the Fund.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Trustees may determine the conditions upon which a new
certificate may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their
discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety to the Fund
and the transfer agent, if any, to indemnify it and such
transfer agent against any and all loss or claims which may arise
by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.
ARTICLE V
SEAL
The Board of Trustees shall provide a suitable seal of the
Fund, in such form and bearing such inscriptions as it may
determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Fund shall be fixed by the Board of
Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
The By-Laws of the Fund may be altered, amended, added to or
repealed by the Shareholders or by majority vote of the entire
Board of Trustees, but any such alteration, amendment, addition
or repeal of the By-Laws by action of the Board of Trustees may
be altered or repealed by the Shareholders.
draft 3/22/96
SHAREHOLDER SERVICING AGREEMENT
Aquila Distributors, Inc. (the "Distributor")
380 Madison Avenue
Suite 2300
New York, NY 10017
Dear Sirs:
Tax-Free Fund of Colorado (the "Fund") confirms its
agreement with Aquila Distributors, Inc. (the "Distributor") with
respect to the servicing of shareholder accounts representing
shares of the Level-Payment Class of the Fund. This Agreement is
entered into pursuant to the Fund's Shareholder Services Plan
dated _________, 1996 (the "Plan").
Section 1. Compensation and Services to be Rendered
(a) The Fund will pay the Distributor an annual fee (the
"Service Fee") in compensation for its services in connection
with the servicing of shareholder accounts. The Service Fee paid
will be calculated daily and paid monthly by the Fund at the
annual rate of .25% of the average annual net assets of the Fund
represented by the Level-Payment ("Class C") Shares.
(b) The Service Fee will be used by the Distributor to
provide compensation for ongoing servicing and/or maintenance of
shareholder accounts and to cover an allocable portion of
overhead and other office expenses of the Distributor and/or
selected dealers related to the servicing and/or maintenance of
shareholder accounts. It is understood that compensation may be
paid by the Distributor to persons, including employees of the
Distributor, who respond to inquiries of Level-Payment
Shareholders of the Fund regarding their ownership of shares or
their accounts with the Fund or who provide other similar
services not otherwise required to be provided by the Fund's
investment manager, transfer agent or other agent of the Fund.
Section 2. Reports
While this Agreeement is in effect, the Distributor shall
provide the reports called for in Section 4 of the Plan.
Section 3. Approval of Trustees
This agreement has been approved by a majority vote of both
(a) the full Board of Trustees of the Fund and (b) those Trustees
who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or
this Agreement (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Agreement.
Section 4. Continuance of Agreement
This Agreement will continue in effect for a period of more
than one year from the date of its effectiveness only so long as
its continuance is specifically approved annually by vote of the
Fund's Board of Trustees in the manner described in Section 3
above.
Section 5. Termination
(a) This agreement may be terminated at any time, without
the payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of a majority of the
outstanding Level-Payment Shares on not more than 60 days'
written notice to the Distributor.
(b) This Agreement will terminate automatically in the
event of its assignment.
Section 6. Selection of Certain Trustees
While this Agreement is in effect, the selection and
nomination of the Fund's Trustees who are not interested persons
of the Fund will be committed to the discretion of the Trustees
then in office who are not interested persons of the Fund.
Section 7. Amendments
No material amendment to this Agreement may be made unless
approved by the Fund's Board of Trustees in the manner described
in Section 3 above.
Section 8. Meaning of Certain Terms
As used in this Agreement, the terms "assignment,"
"interested person" and "majority of this outstanding voting
securities" will be deemed to have the same meaning that those
terms have under the Investment Company Act of 1940, as amended
(the "Act") and the rules and regulations under the Act, subject
to any exemption that may be granted to the Fund under the Act by
the Securities and Exchange Commission.
Section 9. Dates
This Agreement has been executed by the parties as of
________, 1996 and will become effective on _______, 1996.
If the terms and conditions described above are in
accordance with your understanding, kindly indicate your
acceptance of this Agreement by signing and returning to us the
enclosed copy of this Agreement.
Very truly yours,
TAX-FREE FUND OF COLORADO
By:________________________
Richard F. West,
Treasurer
Accepted:
AQUILA DISTRIBUTORS, INC.
By:_____________________________
Lacy B. Herrmann
Secretary
CUSTODY AGREEMENT
THIS AGREEMENT, is made as of March 30, 1995, by and between
Tax-Free Fund of Colorado, a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), and BANK
ONE TRUST COMPANY, N.A., a banking company organized under the laws
of the United States (the "Custodian").
WITNESSETH:
WHEREAS, the Trust desires that Securities and cash of the
Trust be held and administered by the Custodian pursuant to this
Agreement; and
WHEREAS, the Trust is an open-end management investment
company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements
herein made, the Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1.1 "Authorized Person" means any Officer or other person
duly authorized by resolution of the Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Trust and
named in Exhibit B hereto or in such resolutions of the Board of
Trustees, certified by an Officer, as may be received by the
Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to
time serving under the Trust's Declaration of Trust, dated 1987, as
from time to time amended.
1.3 "Book-Entry System" shall mean a federal book-entry
system as provided in Subpart O of Treasury Circular No. 300, 31
CFR 306, in Subpart B of 31 CFR Part 350, or in such book-entry
regulations of federal agencies as are substantially in the form of
such Subpart O.
1.4 "Business Day" shall mean any day recognized as a
settlement day by The New York Stock Exchange, Inc. and any other
day for which the Fund computes the net asset value of the Fund.
1.5 "Fund" shall mean any of the individual investment
portfolios of the Trust, including any additional portfolios
hereafter created, as each are or will be identified in Exhibit A
hereto; provided, however, that in the event that the Trust
consists of only one such portfolio, "Fund" shall refer to the
Trust.
1.6 "NASD" shall mean The National Association of Securities
Dealers, Inc.
1.7 "Officer" shall mean the President, any Senior Vice
President, Vice President or Assistant Vice President, the
Secretary, any Assistant Secretary, the Chief Financial Officer,
the Treasurer, or any Assistant Treasurer of the Trust.
1.8 "Oral Instructions" shall mean instructions orally
transmitted to and accepted by the Custodian because such
instructions are: (i) reasonably believed by the Custodian to have
been given by an Authorized Person, (ii) recorded and kept among
the records of the Custodian made in the ordinary course of
business and (iii) orally confirmed by the Custodian. The Trust
shall cause all Oral Instructions to be confirmed by Written
Instructions. If such Written Instructions confirming Oral
Instructions are not received by the Custodian prior to a
transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Trust. If Oral
Instructions vary from the Written Instructions which purport to
confirm them, the Custodian shall notify the Trust of such variance
but such Oral Instructions will govern unless the Custodian has not
yet acted.
1.9 "Custody Account" shall mean any account in the name of
a Fund, which is provided for in Section 3.2 below, or of the
Trust.
1.10 "Proper Instructions" shall mean Oral Instructions or
Written Instructions. Proper Instructions may be continuing
Written Instructions when deemed appropriate by both parties.
1.11 "Securities Depository" shall mean The Participants Trust
Company or The Depository Trust Company and (provided that the
Custodian shall have received a copy of a resolution of the Board
of Trustees, certified by an Officer, specifically approving the
use of such clearing agency as a depository for the Trust) any
other clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities and Exchange Act of
1934 (the "1934 Act"), which acts as a system for the central
handling of Securities where all Securities of any particular class
or series of an issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of the Securities.
1.12 "Securities" shall include, without limitation, common
and preferred stocks, bonds, call options, put options, debentures,
notes, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities, other money market instruments or other
obligations, and any certificates, receipts, warrants or other
instruments or documents representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that
the Custodian has the facilities to clear and to service.
1.13 "Shares" shall mean the units of beneficial interest
issued by the Trust.
1.14 "Written Instructions" shall mean (i) written
communications actually received by the Custodian and signed by one
or more persons as the Board of Trustees shall have from time to
time authorized, or (ii) communications by telex or any other such
system from a person or persons reasonably believed by the
Custodian to be Authorized, or (iii) communications transmitted
electronically through the Institutional Delivery System (IDS), or
any other similar electronic instruction system acceptable to the
Custodian and approved by resolutions of the Board of Trustees, a
copy of which, certified by an Officer, shall have been delivered
to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints
the Custodian as custodian of all Securities and cash owned by or
in the possession of the Trust at any time during the period of
this Agreement, provided that such Securities or cash at all times
shall be and remain the property of the Trust.
2.2 Acceptance. The Custodian hereby accepts appointment as
such custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held
by the Custodian for the account of the Fund, except Securities
maintained in a Securities Depository or Book-Entry System, shall
be physically segregated from other Securities and non-cash
property in the possession of the Custodian and shall be identified
as subject to this Agreement.
3.2 Custody Account. The Custodian shall open and maintain
in its trust department a custody account in the name of each Fund,
subject only to draft or order of the Custodian, in which the
Custodian shall enter and carry all Securities, cash and other
assets of the Fund which are delivered to it.
3.3 Appointment of Agents. Subject to the continuing
approval of the Board of Trustees, the Custodian may appoint, and
at any time remove, any domestic bank or trust company, and is
qualified to act as a custodian under the 1940 Act, as sub-
custodian to hold Securities and cash of the Funds and to carry out
such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such
a bank or trust company (any such accounts to be in the name of the
Custodian and subject only to its draft or order), provided,
however, that the appointment of any such agent shall not relieve
the Custodian of any of its obligations or liabilities under this
Agreement.
3.4 Delivery of Assets to Custodian. The Fund shall deliver,
or cause to be delivered, to the Custodian all of the Fund's
Securities, cash and other assets, including (a) all payments of
income, payments of principal and capital distributions received by
the Fund with respect to such Securities, cash or other assets
owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time
during such period, of Shares. The Custodian shall not be
responsible for such Securities, cash or other assets until
actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The
Custodian may deposit and/or maintain Securities of the Funds in a
Securities Depository or in a Book-Entry System, subject to the
following provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Fund
shall deliver to the Custodian a resolution of the Board
of Trustees, certified by an Officer, authorizing and
instructing the Custodian on an on-going basis to deposit
in such Securities Depository or Book-Entry System all
Securities eligible for deposit therein and to make use
of such Securities Depository or Book-Entry System to the
extent possible and practical in connection with its
performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and
returns of collateral consisting of Securities.
(b) Securities of a Fund kept in a Book-Entry System or
Securities Depository shall be kept in an account
("Depository Account") of the Custodian in such Book-
Entry System or Securities Depository which includes only
assets held by the Custodian as a fiduciary, custodian or
otherwise for customers.
(c) The records of the Custodian and the Custodian's account
on the books of the Book-Entry System and Securities
Depository as the case may be, with respect to Securities
of a Fund maintained in a Book-Entry System or Securities
Depository shall, by book-entry or otherwise, identify
such Securities as belonging to the Fund.
(d) If Securities purchases by the Fund are to be held in a
Book-Entry System or Securities Depository, the Custodian
shall pay for such Securities upon (i) receipt of advice
from the Book-Entry System or Securities Depository that
such Securities have been transferred to the Depository
Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for
the account of the Fund. If Securities sold by the Fund
are held in a Book-Entry System or Securities Depository,
the Custodian shall transfer such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities depository that payment for such Securities
has been transferred to the Depository Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Fund.
(e) Upon request, the Custodian shall provide the Fund with
copies of any report (obtained by the Custodian from a
Book-Entry System or Securities Depository in which
Securities of the Fund is kept) on the internal
accounting controls and procedures for safeguarding
Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting (i)
from the use of a Book-Entry System or Securities
Depository by reason of any negligence or willful
misconduct on the part of the Custodian or any sub-
custodian appointed pursuant to Section 3.3 above or any
of its or their employees, or (ii) from failure of the
Custodian or any such sub-custodian to enforce
effectively such rights as it may have against a Book-
Entry System or Securities Depository. At its election,
the Trust shall be subrogated to the rights of the
Custodian with respect to any claim against a Book-Entry
System or Securities Depository or any other person for
any loss or damage to the Funds arising from the use of
such Book-Entry System or Securities Depository, if and
to the extent that the Custodian has been made whole for
any such loss or damage.
3.6 Disbursement of Moneys from Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall disburse moneys
from a Custody Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only upon
compliance with Section 4.1 of this Agreement and only
(i) in the case of Securities (other than options on
Securities, futures contracts and options on futures
contracts), against the delivery to the Custodian (or any
sub-custodian appointed pursuant to Section 3.3 above) of
such Securities registered as provided in Section 3.9
below in proper form for transfer, or if the purchase of
such Securities is effected through a Book-Entry System
or Securities Depository, in accordance with the
conditions set forth in Section 3.5 above; (ii) in the
case of options on Securities, against delivery to the
Custodian (or such sub-custodian) of such receipts as are
required by the customs prevailing among dealers in such
options; (iii) in the case of futures contracts and
options on futures contracts, against delivery to the
Custodian (or such sub-custodian) of evidence of title
thereto in favor of the Trust or any nominee referred to
in Section 3.9 below; and (iv) in the case of repurchase
or reverse repurchase agreements entered into between the
Trust and a bank which is a member of the Federal Reserve
System or between the Trust and a primary dealer in U.S.
Government securities, against delivery of the purchased
Securities either in certificate form or through an entry
crediting the Custodian's account at a Book-Entry System
or Securities Depository for the account of the Fund with
such Securities;
(b) In connection with the conversion, exchange or surrender,
as set forth in Section 3.7(f) below, of Securities owned
by the Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as provided
in Section 5.1 below;
(e) For the payment of any expense or liability incurred by
the Trust, including but not limited to the following
payments for the account of a Fund: interest; taxes;
administration, investment management, investment
advisory, accounting, auditing, transfer agent,
custodian, trustee and legal fees; and other operating
expenses of a Fund; in all cases, whether or not such
expenses are to be in whole or in part capitalized or
treated as deferred expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of the
NASD, relating to compliance with rules of The Options
Clearing Corporation and of any registered national
securities exchange (or of any similar organization or
organizations) regarding escrow or other arrangements in
connection with transactions by the Trust;
(g) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Trust;
(h) For the funding of any uncertificated time deposit or
other interest-bearing account with any banking
institution (including the Custodian), which deposit or
account has a term of one year or less; and
(i) For any other proper purposes, but only upon receipt, in
addition to Proper Instructions, of a copy of a
resolution of the Board of Trustees, certified by an
Officer, specifying the amount and purpose of such
payment, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such
payment is to be made.
3.7 Delivery of Securities from Fund Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall release and
deliver Securities from a Custody Account but only in the following
cases:
(a) Upon the sale of Securities for the account of a Fund but
only against receipt of payment therefor in cash, by
certified or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry
System or Securities Depository, in accordance with the
provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with
tender or other similar offers for Securities of a Fund;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into
the name of the Trust, the Custodian or any sub-custodian
appointed pursuant to Section 3.3 above, or of any
nominee or nominees of any of the foregoing, or (ii) for
exchange for a different number of certificates or other
evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
Securities are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the issuer of such Securities, or
pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement,
including surrender or receipt of underlying Securities
in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the
new Securities and cash, if any, are to be delivered to
the Custodian;
(g) Upon receipt of payment therefor pursuant to any
repurchase or reverse repurchase agreement entered into
by a Fund;
(h) In the case of warrants, rights or similar Securities,
upon the exercise thereof, provided that, in any such
case, the new Securities and cash, if any, are to be
delivered to the Custodian;
(i) For delivery in connection with any loans of Securities
of a Fund, but only against receipt of such collateral as
the Trust shall have specified to the Custodian in Proper
Instructions;
(j) For delivery as security in connection with any
borrowings by the Trust on behalf of a Fund requiring a
pledge of assets by such Fund, but only against receipt
by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization
of the Trust or a Fund;
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of the
NASD, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Trust
on behalf of a Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust on behalf of a Fund, the
Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits
in connection with transactions by the Trust on behalf of
a Fund; or
(n) For any other proper corporate purposes, but only upon
receipt, in addition to Proper Instructions, of a copy of
a resolution of the Board of Trustees, certified by an
Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom
delivery of such Securities shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless
otherwise instructed by the Trust, the Custodian shall with respect
to all Securities held for a Fund;
(a) Subject to Section 7.4 below, collect on a timely basis
all income and other payments to which the Trust is
entitled either by law or pursuant to custom in the
securities business;
(b) Present for payment and, subject to Section 7.4 below,
collect on a timely basis the amount payable upon all
Securities which may mature or be called, redeemed, or
retired, or otherwise become payable;
(c) Endorse for collection, in the name of the Trust, checks,
drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary
form for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax
laws or the laws or regulations of any other taxing
authority now or hereafter in effect, and prepare and
submit reports to the Internal Revenue Service ("IRS")
and to the Trust at such time, in such manner and
containing such information as is prescribed by the IRS;
(f) Hold for a Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
Securities Depository, all rights and similar securities
issued with respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with sale, exchange, substitution, purchase,
transfer and other dealings with Securities and assets of
the Fund.
3.9 Registration and Transfer of Securities. All Securities
held for a Fund that are issued or issuable only in bearer form
shall be held by the Custodian in that form, provided that any such
Securities shall be held in a Book-Entry System for the account of
the Trust on behalf of a Fund, if eligible therefor. All other
Securities held for a Fund may be registered in the name of the
Trust on behalf of such Fund, the Custodian, or any sub-custodian
appointed pursuant to Section 3.3 above, or in the name of any
nominee of any of them, or in the name of a Book-Entry System,
Securities Depository or any nominee of either thereof; provided,
however, that such Securities are held specifically for the account
of the Trust on behalf of a Fund. The Trust shall furnish to the
Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name
of any of the nominees hereinabove referred to or in the name of a
Book-Entry System or Securities Depository, any Securities
registered in the name of a Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund,
complete and accurate records with respect to Securities, cash or
other property held for the Trust, including (i) journals or other
records of original entry containing an itemized daily record in
detail of all receipts and deliveries of Securities and all
receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical
possession, (C) monies and Securities borrowed and monies and
Securities loaned (together with a record of the collateral
therefor and substitutions of such collateral), (D) dividends and
interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related
thereto. The Custodian shall keep such other books and records of
the Trust as the Trust shall reasonably request, or as may be
required by the 1940 Act, including, but not limited to Section 31
and Rule 31a-1 and 31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian
shall (i) be maintained in a form acceptable to the Trust and in
compliance with rules and regulations of the Securities and
Exchange Commission, (ii) be the property of the Trust and at all
times during the regular business hours of the Custodian be made
available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the
Securities and Exchange Commission, and (iii) if required to be
maintained by Rule 31a-1 under the 1940 Act, be preserved for the
periods prescribed in Rule 31a-2 under the 1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish
the Trust with a daily activity statement by Fund and a summary of
all transfers to or from the Custody Account on the day following
such transfers. At least monthly and from time to time, the
Custodian shall furnish the Trust with a detailed statement, by
Fund, of the Securities and moneys held for the Trust under this
Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide
the Trust with such reports, as the Trust may reasonably request
from time to time, on the internal accounting controls and
procedures for safeguarding Securities, which are employed by the
Custodian or any sub-custodian appointed pursuant to Section 3.3
above.
3.13 Proxies and Other Materials. The Custodian shall cause
all proxies, if any, relating to Securities which are not
registered in the name of a Fund, to be promptly executed by the
registered holder of such Securities, without indication of the
manner in which such proxies are to be voted, and shall include all
other proxy materials, if any, promptly deliver to the Trust such
proxies, all proxy soliciting materials, and all notices to the
holders of such Securities.
3.14 Information on Corporate Actions. The Custodian will
promptly notify the Trust of corporate actions, limited to those
Securities registered in nominee name and to those Securities held
at a Depository or sub-Custodian acting as agent for the Custodian.
The Custodian will be responsible only if the notice of such
corporate actions is published by the Financial Card Service, J.J.
Kenny's Munibase System, Depository Trust Reorganization Notices,
Xcitek Inc., Standard & Poor's Called Bond Listing or The Wall
Street Journal or received by first class mail from the agent. For
market announcements not yet received and distributed by the
Custodian's services, the Trust will inform its custody
representative with appropriate instructions. The Custodian will,
upon receipt of the Trusts's response within the required deadline,
effect such action for receipt or payment for the Trust. For those
responses received after the deadline, the Custodian will effect
such action for receipt or payment, subject to the limitations of
the agent(s) effecting such actions. The Custodian will promptly
notify the Trust for put options only if the notice is received by
first class mail from the agent. The Trust will provide or cause
to be provided to the Custodian with all relevant information
contained in the prospectus for any security which has unique
put/option provisions and provide the Custodian with specific
tender instructions at least ten business days prior to the
beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of
Securities for the Trust, Written Instructions shall be delivered
to the Custodian, specifying (a) the Fund making the purchase, (b)
the name of the issuer or writer of such Securities, and the title
or other description thereof, (c) the number of shares, principal
amount (and accrued interest, if any) or other units purchased, (d)
the date of purchase and settlement, (e) the purchase price per
unit, (f) the total amount payable upon such purchase, and (g) the
name of the person to whom such amount is payable. The Custodian
shall upon receipt of such Securities purchased by a Fund pay out
of the moneys held for the account of such Fund the total amount
specified in such Written Instructions to the person named therein.
The Custodian shall not be under any obligation to pay out moneys
to cover the cost of a purchase of Securities for a Fund, if in the
relevant Custody Account there is insufficient cash available to
the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of
Securities for a Fund is made by the Custodian in advance of
receipt for the account of the Fund of the Securities purchased but
in the absence of specific Written or Oral Instructions to so pay
in advance, the Custodian shall be liable to the Fund for such
Securities to the same extent as if the Securities had been
received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of
Securities by a Fund, Written Instructions shall be delivered to
the Custodian, specifying (a) the Fund making the purchase, (b) the
name of the issuer or writer of such Securities, and the title or
other description thereof, (c) the number of shares, principal
amount (and accrued interest, if any), or other units sold, (d) the
date of sale and settlement (e) the sale price per unit, (f) the
total amount payable upon such sale, and (g) the person to whom
such Securities are to be delivered. Upon receipt of the total
amount payable to the Trust as specified in such Written
Instructions, the Custodian shall deliver such Securities to the
person specified in such Written Instructions. Subject to the
foregoing, the Custodian may accept payment in such form as shall
be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in
Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3
above or any other provision of this Agreement, the Custodian, when
instructed to deliver Securities against payment, shall be
entitled, if so directed in Written Instructions and if in
accordance with generally accepted market practice, to deliver such
Securities prior to actual receipt of final payment therefor. In
any such case, the Trust shall bear the risk that final payment for
such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person
to whom they were delivered, and the Custodian shall have no
liability for any of the foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion
and from time to time, the Custodian may credit the relevant
Custody Account, prior to actual receipt of final payment thereof,
with (i) proceeds from the sale of Securities which it has been
instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Trust, and (iii)
income from cash, Securities or other assets of the Trust. Any
such credit shall be conditional upon actual receipt by the
Custodian of final payment and may be reversed if final payment is
not actually received in full. The Custodian may, in its sole
discretion and from time to time, permit the Trust to use funds so
credited to its Custody Account in anticipation of actual receipt
of final payment. Any such funds shall be repayable immediately
upon demand made by the Custodian at any time prior to the actual
receipt of all final payments in anticipation of which funds were
credited to the Custody Account.
4.6 Advances by Custodian for Settlement. If the Custodian
should, in its sole discretion, advance funds to the Trust to
facilitate the settlement of transactions on behalf of a Fund in
its Custody Account, then such advance shall be repayable
immediately upon demand made by the Custodian and shall bear
interest from the date incurred at a rate per annum (based on a
360-day year from the actual number of days involved) equal to 1%
over the Federal Funds rate in effect from time to time as
announced by The Wall Street Journal under the section entitled
Money Rates, or any successor title, such rate to be adjusted on
the effective date of any changes in such rate.
ARTICLE V
REDEMPTION OF TRUST SHARES
5.1 Transfer of Funds. From such funds as may be available
for the purpose in the relevant Custody Account, and upon receipt
of Proper Instructions specifying that the funds are required to
redeem Shares of a Fund, the Custodian shall wire each amount
specified in such Proper Instructions to or through such bank as
the Trust may designate with respect to such amount in such Proper
Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not
be under any obligation to effect payment or distribution by any
bank designated in Proper Instructions given pursuant to Section
5.1 above of any amount paid by the Custodian to such bank in
accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of and in conformity with Proper Instructions,
the Custodian shall establish and maintain a segregated account or
accounts for and on behalf of each Fund, into and from which
account or accounts may be transferred cash and/or Securities,
including Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among
the Trust, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD (or any
futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity
Futures Trading commission or any registered contract
market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Trust,
(b) for purposes of segregating cash or Securities in
connection with securities options purchased or written
by a Fund or in connection with financial futures
contracts (or options thereon) purchased or sold by a
Fund,
(c) which constitute collateral for loans of Securities made
by a Fund,
(d) for purposes of compliance by the Trust with requirements
under the 1940 Act for the maintenance of segregated
accounts by registered investment companies in connection
with reverse repurchase agreements and when-issued,
delayed delivery and firm commitment transactions, and
(e) for other proper corporate purposes, but only upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Trustees,
certified by an Officer, setting forth the purpose or
purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the
exercise of reasonable care in carrying out its obligations under
this Agreement, and shall be without liability to the Trust for any
loss, damage, cost, expense (including attorneys' fees and
disbursements), liability or claim unless such loss, damages, cost,
expense, liability or claim arises from negligence, bad faith or
willful misconduct on its part or on the part of any sub-custodian
appointed pursuant to Section 3.3 above. The Custodian shall be
entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. The Custodian shall
promptly notify the Trust of any action taken or omitted by the
Custodian pursuant to advice of counsel. The Custodian shall not
be under any obligation at any time to ascertain whether the Trust
is in compliance with the 1940 Act, the regulations thereunder, the
provisions of the Trust's charter documents or by-laws, or its
investment objectives and policies as then in effect.
7.2 Actual Collection Required. The Custodian shall not be
liable for, or considered to be custodian of, any cash belonging to
the Trust or any money represented by a check, draft or other
instrument for the payment of money, until the Custodian or its
agents actually receive such cash or collect on such instrument.
7.3 No Responsibility for title, etc. So long as and to the
extent that it is in the exercise of reasonable care, the Custodian
shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received or delivered by
it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. The Custodian shall not
be required to enforce collection, by legal means or otherwise, of
any money or property due and payable with respect to Securities
held for the Trust if such Securities are in default or payment is
not made after due demand or presentation. The Custodian shall
inform the Trust promptly of any such default or failure to make
payment.
7.5 Reliance Upon Documents and Instructions. The Custodian
shall be entitled to rely upon any certificate, notice or other
instrument in writing received by it and reasonably believed by it
to be genuine. The Custodian shall be entitled to rely upon any
Oral Instructions and/or any Written Instructions actually received
by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties
or obligations whatsoever except such duties and obligations as are
specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the
Custodian.
7.7 Cooperation. The Custodian shall cooperate with and
supply necessary information to the entity or entities appointed by
the Trust to keep the books of account of the Trust and/or compute
the value of the assets of the Trust. The Custodian shall take all
such reasonable actions as the Trust may from time to time request
to enable the Trust to obtain, from year to year, favorable
opinions from the Trust's independent accountants with respect to
the Custodian's activities hereunder in connection with (a) the
preparation of the Trust's filings on Form N-1A and Form N-SAR and
any other reports required by the Securities and Exchange
Commission, and (b) the fulfillment by the Trust of any other
requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Trust shall indemnify and hold
harmless the Custodian and any sub-custodian appointed pursuant to
Section 3.3 above, and any nominee of the Custodian or of such sub-
custodian from and against any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state
or foreign securities and/or banking laws) or claim arising
directly or indirectly (a) from the fact that Securities are
registered in the name of any such nominee, or (b) from any action
or inaction by the Custodian or such sub-custodian (i) at the
request or direction of or in reliance on the advice of the Trust,
or (ii) upon Proper Instructions, or (c) generally, from the
performance of its obligations under this Agreement or any sub-
custody agreement with a sub-custodian appointed pursuant to
Section 3.3 above or, in the case of any such sub-custodian, from
the performance of its obligations under such custody agreement,
provided that neither the Custodian nor any such sub-custodian
shall be indemnified and held harmless from and against any such
loss, damage, cost, expense, liability or claim arising from the
Custodian's or such sub-custodian's negligence, bad faith or
willful misconduct.
8.2 Indemnity to be Provided. If the Trust requests the
Custodian to take any action with respect to Securities, which may,
in the opinion of the Custodian, result in the Custodian or its
nominee becoming liable for the payment of money or incurring
liability of some other form, the Custodian shall not be required
to take such action until the Trust shall have provided indemnity
therefor to the Custodian in an amount and form satisfactory to the
Custodian.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any
failure or delay in performance of its obligations under this
Agreement arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including, without
limitation, acts of God; earthquakes; fires; floods; wars; civil or
military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its
reasonable control as may cause interruption, loss or malfunction
of utility, transportation, computer (hardware or software) or
telephone communication service; accidents; labor disputes, acts of
civil or military authority; governmental actions; or inability to
obtain labor, material, equipment or transportation; provided,
however, that the Custodian in the event of a failure or delay
shall use its best efforts to ameliorate the effects of any such
failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective
as of the date first set forth above and shall continue in full
force and effect until terminated as hereinafter provided.
10.2 Termination. Either party hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less
than ninety (90) days after the date of the giving of such notice.
If a successor custodian shall have been appointed by the Board of
Trustees, the Custodian shall, upon receipt of a notice of
acceptance by the successor custodian, on such specified date of
termination (a) deliver directly to the successor custodian all
Securities (other than Securities held in a Book-Entry System or
Securities Depository) and cash then owned by the Trust and held by
the Custodian as custodian, and (b) transfer any Securities held in
a Book-Entry System or Securities Depository to an account of or
for the benefit of the Trust at the successor custodian, provided
that the Trust shall have paid to the Custodian all fees, expenses
and other amounts to the payment or reimbursement of which it shall
then be entitled. Upon such delivery and transfer, the Custodian
shall be relieved of all obligations under this Agreement. The
Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the
Custodian by regulatory authorities in the State of Ohio or upon
the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor
custodian is not designated by the Trust on or before the date of
termination specified pursuant to Section 10.1 above, then the
Custodian shall have the right to deliver to a bank or trust
company of its own selection, which is (a) a "Bank" as defined in
the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not
less than $25 million, and (c) is doing business in New York, New
York, all Securities, cash and other property held by the Custodian
under this Agreement and to transfer to an account of or for the
Trust at such bank or trust company all Securities of the Trust
held in a Book-Entry System or Securities Depository. Upon such
delivery and transfer, such bank or trust company shall be the
successor custodian under this Agreement and the Custodian shall be
relieved of all obligations under this Agreement. If, after
reasonable inquiry, the Custodian cannot find a successor custodian
as contemplated in this Section 10.3, then the Custodian shall have
the right to deliver to the Trust all Securities and cash then
owned by the Trust and to transfer any Securities held in a Book-
Entry System or Securities Depository to an account of or for the
Trust. Thereafter, the Trust shall be deemed to be its own
custodian with respect to the Trust and the Custodian shall be
relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon
from time to time by the Trust and the Custodian. The fees and
other charges in effect on the date hereof and applicable to the
Funds are set forth in Exhibit C attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
The Trust is a business trust organized under the laws of the
Commonwealth of Massachusetts and under a Declaration of Trust, to
which reference is hereby made a copy of which is on file at the
office of the Secretary of State of Massachusetts as required by
law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of the Trust entered into in the name of
the Trust or on behalf thereof by any of the Trustees, officers,
employees or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, officers,
employees, agents or shareholders of the Trust or the Funds
personally, but bind only the assets of the Trust, and all persons
dealing with any of the Funds of the Trust must look solely to the
assets of the Trust belonging to such Fund for the enforcement of
any claims against the Trust.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices,
instructions, and other communications to be given to a party
hereunder shall be in writing and shall be sent or delivered to the
party at the address set forth after its name herein below:
To the Trust:
Tax-Free Fund of Colorado
380 Madison Avenue
New York, NY 10017
Attn: Mr. Richard F. West, Treasurer and Mr.
William Killeen, Senior Operations
Officer
Telephone: (212)-697-6666
Facsimile: (212)-687-5373
To the Custodian:
BANK ONE TRUST COMPANY, N.A.,
100 East Broad Street
Columbus, OH 43271-0187
Attention: Mr. Robert F. Schultz, Senior Trust
Officer
Telephone: (614)-248-5445
Facsimile: (614)-248-2554
or at such other address as either party shall have provided to the
other by notice given in accordance with this Article XIII.
Writing shall include transmission by or through teletype,
facsimile, central processing unit connection, on-line terminal and
magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
14.2 No Waiver. No failure by either party hereto to exercise
and no delay by such party in exercising, any right hereunder shall
operate as a waiver thereof. The exercise by either party hereto
of any right hereunder shall not preclude the exercise of any other
right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
14.3 Amendments. This Agreement cannot be changed orally and
no amendment to this Agreement shall be effective unless evidenced
by an instrument in writing executed by the parties hereto.
14.4 Counterparts. This Agreement may be executed in one or
more counterparts, and by the parties hereto on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
14.5 Severability. If any provision of this Agreement shall
be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the
remaining provisions shall not be affected or impaired thereby.
14.6 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that this
Agreement shall not be assignable by either party hereto without
the written consent of the other party hereto.
14.7 Headings. The headings of sections in this Agreement are
for convenience of reference only and shall not affect the meaning
or construction of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its
behalf by its representatives thereunto duly authorized, all as of
the day and year first above written.
ATTEST: Tax-Free Fund of Colorado
_____________________ By: _____________________
Assistant Secretary President
ATTEST: BANK ONE TRUST COMPANY, N.A.
______________________ By: _______________________
Senior Trust Officer
<PAGE>
EXHIBIT A
Name of Fund (if different Date Added (if different from
from the Trust date of original Custody
Agreement
<PAGE>
EXHIBIT B
I, Richard F. West, Treasurer, and I, Patricia Craven, Assistant
Secretary, of Tax-Free Fund of Colorado, a Massachusetts business
trust (the "Fund"), do hereby certify that:
The following individuals have been duly authorized by the Board of
Trustees of the Fund in conformity with the Fund's Declaration of
Trust and By-Laws to give Oral Instructions and Certificate on
behalf of the Fund, and the signatures set forth opposite their
respective names are their true and correct signatures:
NAME SIGNATURE
Lacy B. Herrmann _____________________________
Rose F. Marotta _____________________________
Richard F. West _____________________________
William C. Wallace _____________________________
Diana P. Herrmann _____________________________
Charles E. Childs III _____________________________
John M. Herndon _____________________________
William Killeen _____________________________
Patricia A. Craven _____________________________
________________________ _____________________________
Richard F. West, Patricia A. Craven,
Treasurer Assistant Secretary
<PAGE>
EXHIBIT C
Compensation of Custodian - Bond Funds
Whereas Article XI of the Custody Agreement between Tax-Free Fund
of Colorado and Bank One Trust Company, N.A. stipulates that the
compensation of Custodian shall be agreed upon by the Trust and
Custodian, the following is hereby agreed:
The compensation of the Custodian shall be computed according to
the following schedule:
I. Annual Holding Fee:
.00006 times the market value of assets held
II. Activity Fee:
A. $5.00 per book entry security transaction.
For the purpose of this agreement, a "transaction "
includes, but is not limited to, a purchase sale,
maturity, redemption, tender, exchange, deposit,
withdrawal, and collateral movement of a security.
B. $28.00 per ineligible security transaction.
C. $10.00 per principal paydown on amortized issues.
II. Other Activity Fees:
A. $5.00 per wire.
B. $2.00 per outgoing check from custody account.
III. Overdraft Charges:
As described in Section 4.6 of the Custody Agreement,
overdraft charges will be at 100 basis points above the
Fed Funds rate.
An earnings credit using the most recent 90-day T-bill auction rate
applied to 90% of each day's positive collected balance will reduce
custody, FDIC and other fees as allowed by law. For each month
that the charges exceed the earnings credit, the deficiency shall
be paid to Custodian. For each month that the earnings credit
exceeds the charges, the Custodian shall carry such surplus credits
forward to subsequent month(s) and calendar year(s) until utilized.
Custodian is to be reimbursed for out of pocket expenses deemed to
be exceptional.
The above fee schedule will remain in effect until March 31, 1998
and thereafter unless changed.
As stated by the Custodian in bidding to provide custody services
to the Fund if at any time the Fund is not completely satisfied
with the Custodian's service levels, the Custodian will cease to
charge custody fees until its responsiveness and accuracy meet the
requirements of the Fund.
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
e-mail: [email protected]
April 19, 1996
Tax-Free Fund of Colorado
380 Madison Avenue, Suite 2300
New York, New York 10017
Ladies and Gentlemen:
You have requested that we render an opinion to Tax-Free
Fund of Colorado (the "Fund") with respect post-effective
amendment No. 10 (the "Amendment") to the Registration Statement
of the Fund under the Securities Act of 1933 (the "1933 Act") and
No. 11 under the Investment Company Act of 1940 (the "1940 Act")
which you propose to file with the Securities and Exchange
Commission (the "Commission"). The purpose of the Amendment is to
redesignate existing shares of the Fund as Front-Payment Class
Shares ("Class A Shares") and to designate two new classes of
shares to be offered by the Fund as Level-Payment Class Shares
("Class C Shares") and Institutional Class Shares ("Class Y
Shares").
We have examined originals or copies, identified to our
satisfaction as being true copies, of those corporate records of
the Fund, certificates of public officials, and other documents
and matters as we have deemed necessary for the purpose of this
opinion. We have assumed without independent verification the
authenticity of the documents submitted to us as originals and
the conformity to the original documents of all documents
submitted to us as copies.
Upon the basis of the foregoing and in reliance upon such
other matters as we deem relevant under the circumstances, it is
our opinion that the Class A Shares, Class C Shares and Class Y
Shares of the Fund as described in the Amendment, when issued and
paid for in accordance with the terms set forth in the prospectus
and statement of additional information of the Fund forming a
part of its then effective Registration Statement as heretofore,
herewith and hereafter amended, will be duly issued, fully-paid
and non-assessable to the extent set forth therein.
This letter is furnished to you pursuant to your request and
to the requirements imposed upon you under the 1933 Act and 1940
Act and is intended solely for your use for the purpose of
completing the filing of the Amendment with the Commission. This
letter may not be used for any other purpose or furnished to or
relied upon by any other persons, or included in any filing made
with any other regulatory authority, without our prior written
consent.
We hereby consent to the filing of this opinion with the
Amendment.
Very truly yours,
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
/s/ W.L.D. Barrett
By:_________________________________
W. L. D. Barrett
Dated:________, 1996
TAX-FREE FUND OF COLORADO
DISTRIBUTION PLAN
1. The Plan. This amended and restated Plan (the "Plan") is
the written plan, contemplated by Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act"), of Tax-Free
Fund of Colorado (the "Fund"). Part I of the Plan applies solely
to the Front-Payment Class ("Class A") of shares of the Fund,
Part II solely to the Level-Payment Class ("Class C") and Part
III to all classes.
2. Disinterested Trustees. While any Part of this Plan is in
effect, the selection and nomination of those Trustees of the
Fund who are not "interested persons" of the Fund shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
Part I
Payments Involving Fund Assets Allocated to Front-Payment Shares
3. Applicability. This Part I of the Plan applies only to the
Front-Payment Class ("Class A") of shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name).
4. Definitions for Part I. As used in this Part I of the Plan,
"Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Fund, with which the Fund or the Distributor has entered into
written agreements in connection with this Part I ("Class A Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Fund's Front-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Front-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
5. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Fund, the Fund 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 Fund (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) 0.05 of 1% of the average annual
net assets of the Fund represented by the Front-Payment Class of
shares up to $250 million and 0.15 of 1% of such net assets above
$250 million. Such payments shall be made only out of the Fund
assets allocable to the Front-Payment Shares. The Distributor
shall have sole authority (i) as to the selection of any
Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class A Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class A Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Front-Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Fund
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 Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
6. Reports. While this Part I is in effect, the Fund's
Distributor shall report at least quarterly to the Fund's
Trustees in writing for their review on the following matters:
(i) all Class A Permitted Payments made under Section 5 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Fund to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
7. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part I of the Plan has
been approved (i) by a vote of the Trustees, including those
Trustees (the "Independent Trustees") who, at the time of such
vote, were not "interested persons" (as defined in the 1940 Act)
of the Fund and had no direct or indirect financial interest in
the operation of this Plan or in any agreements related to this
Plan, with votes cast in person at a meeting called for the
purpose of voting on Part I of the Plan; and (ii) by a vote of
holders of at least a "majority" (as defined in the 1940 Act) of
the outstanding voting securities of the Front-Payment Class (or
of any predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class and/or of any other class whose shares
are convertible into Front-Payment Shares. This Part I is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect until
April 30 of each year only so long as such continuance is
specifically approved at least annually by the Fund's Trustees
and its Independent Trustees with votes cast in person at a
meeting called for the purpose of voting on such continuance.
This Part I may be terminated at any time by the vote of a
majority of the Independent Trustees or by shareholder approval
of the class or classes of shares affected by this Part I as set
forth in (ii) above. This Part I may not be amended to increase
materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by this Part
I as set forth in (ii) above, and all amendments must be approved
in the manner set forth in (i) above.
8. Class A Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Fund, 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 Fund, the Class A Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part I, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Fund in effect prior to the effective date of this Part I and
not terminated at or prior to such effective date are deemed to
be "Class A Plan Agreements" for purposes of this Part I and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part I and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part II
Payments Involving Fund Assets Allocated to Level-Payment Shares
9. Applicability. This Part II of the Plan applies only to the
Level-Payment Class ("Class C") of shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name).
10. Definitions for Part II. As used in this Part II of the
Plan, "Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Fund, with which the Fund or the Distributor has entered into
written agreements in connection with this Part II ("Class C Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Fund's Level-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
11. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Fund, the Fund 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 Fund (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 Fund represented by the Level-Payment Class of
shares. Such payments shall be made only out of the Fund assets
allocable to the Level-Payment Shares. The Distributor shall
have sole authority (i) as to the selection of any Qualified
Recipient or Recipients; (ii) not to select any Qualified
Recipient; and (iii) the amount of Class C Permitted Payments, if
any, to each Qualified Recipient provided that the total Class C
Permitted Payments to all Qualified Recipients do not exceed the
amount set forth above. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in
the shareholder servicing area with respect to holders of Level-
Payment Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund 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 Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
12. Reports. While this Part II is in effect, the Fund's
Distributor shall report at least quarterly to the Fund's
Trustees in writing for their review on the following matters:
(i) all Class C Permitted Payments made under Section 11 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Fund to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
13. Effectiveness, Continuation, Termination and Amendment.
This Part II has been approved (i) by a vote of the Trustees,
including the Independent Trustees, with votes cast in person at
a meeting called for the purpose of voting on Part II of the
Plan; and (ii) by a vote of holders of at least a "majority" (as
defined in the 1940 Act) of the outstanding voting securities of
the Level-Payment Class. This Part II is effective as of the
date first above written and will, unless terminated as
hereinafter provided, continue in effect until April 30 of each
year only so long as such continuance is specifically approved at
least annually by the Fund's Trustees and its Independent
Trustees with votes cast in person at a meeting called for the
purpose of voting on such continuance. This Part II may be
terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Level-Payment Class. This Part II may not be
amended to increase materially the amount of payments to be made
without shareholder approval of the class or classes of shares
affected by this Part II as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
14. Class C Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Fund, 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 Fund, the Class C Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part II, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Fund in effect prior to the effective date of this Part II
and not terminated at or prior to such effective date are deemed
to be "Class C Plan Agreements" for purposes of this Part II and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part II and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part III
Defensive Provisions
15. Certain Payments Permitted. Whenever the Administrator of
the Fund (i) makes any payment directly or through the Fund's
Distributor for additional compensation to dealers in connection
with sales of shares of the Fund, which additional compensation
may include payment or partial payment for advertising of the
Fund's shares, payment of travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered
representatives and members of their families to locations within
or outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences, or other items described in the Fund's
prospectus, in amounts that will not exceed the amount of the
sales charges in respect of sales of shares of the Fund effected
through such participating dealers whether retained by the
Distributor or reallowed to participating dealers, or (ii) bears
the costs, not borne by the Distributor, of printing and
distributing all copies of the Fund's prospectuses, statements of
additional information and reports to shareholders which are not
sent to the Fund's shareholders, or the costs of supplemental
sales literature and advertising, such payments are authorized.
It is recognized that, in view of the bearing by the
Administrator of certain distribution expenses, the profits, if
any, of the Administrator are dependent primarily on the
administration fees paid by the Fund to the Administrator and
that its profits, if any, would be less, or losses, if any, would
be increased due to the bearing by it of such expenses. If and to
the extent that any such administration fees paid by the Fund
might, in view of the foregoing, be considered as indirectly
financing any activity which is primarily intended to result in
the sale of shares issued by the Fund, the payment of such fees
is authorized by the Plan.
16. Certain Fund Payments Authorized. If and to the extent that
any of the payments listed below are considered to be "primarily
intended to result in the sale of" shares issued by the Fund
within the meaning of the Rule, such payments are authorized
under this Plan: (i) the costs of the preparation of all reports
and notices to shareholders and the costs of printing and mailing
such reports and notices to existing shareholders, irrespective
of whether such reports or notices contain or are accompanied by
material intended to result in the sale of shares of the Fund or
other funds or other investments; (ii) the costs of the
preparation and setting in type of all prospectuses and
statements of additional information, and the costs of printing
and mailing of all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of the
preparation, printing and mailing of all proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Fund'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 Fund 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 Fund's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors.
17. Reports. While Part III of this Plan is in effect, the
Fund's sub-adviser, Administrator or Distributor shall report at
least quarterly to the Fund's Trustees in writing for their
review on the following matters: (i) all payments made under
Section 15 of this Plan; (ii) all costs of each item specified in
Section 16 of this Plan (making estimates of such costs where
necessary or desirable) during the preceding calendar or fiscal
quarter; and (iii) all fees of the Fund to the Distributor,
sub-adviser or Administrator paid or accrued during such quarter.
18. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part III of the Plan
has, with respect to each class of shares outstanding, been
approved (i) by a vote of the Trustees of the Fund and of the
Independent Trustees, with votes cast in person at a meeting
called for the purpose of voting on this Plan; and (ii) by a vote
of holders of at least a "majority" (as defined in the 1940 Act)
of the outstanding voting securities of such class and a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of any class whose shares are
convertible into shares of such class. This Part III is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect with
respect to each class of shares to which it applies until April
30 of each year only so long as such continuance is specifically
approved with respect to that class at least annually by the
Fund's Trustees and its Independent Trustees with votes cast in
person at a meeting called for the purpose of voting on such
continuance. This Part III of the Plan may be terminated at any
time with respect to a given class by the vote of a majority of
the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of that class. This Part III may not be amended to
increase materially the amount of payments to be made without
shareholder approval as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
--------------------------
19. Additional Terms and Conditions. This Plan and each Part of
it shall also be subject to all applicable terms and conditions
of Rule 18f-3 under the Act as now in force or hereafter amended.
Specifically, but without limitation, the provisions of Part III
shall be deemed to be severable, within the meaning of and to the
extent required by Rule 18f-3, with respect to each outstanding
class of shares of the Fund.
Dated: , 1996
TAX-FREE FUND OF COLORADO
SHAREHOLDER SERVICES PLAN
1. The Plan. This Shareholder Services Plan (the "Plan") is the
written plan of TAX-FREE FUND OF COLORADO (the "Fund") adopted to
provide for the payment by the Level-Payment Class of shares of
the Fund of ""service fees" within the meaning of Article III,
Section 26(b)(9) of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. This Plan applies only
to the Level-Payment Class ("Class C") of shares of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name).
2. Definitions. As used in this Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the
Fund, who have, pursuant to written agreements with the Fund or
the Distributor, agreed to provide personal services to Level-
Payment shareholders and/or maintenance of Level-Payment
shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment Shares beneficially owned
by such Qualified Recipient's customers, clients or other
contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Fund.
3. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Fund, the Fund 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 Fund (as adjusted for any part
or parts of a fiscal year during which payments under the Plan
are not accruable or for any fiscal year which is not a full
fiscal year) 0.25 of 1% of the average annual net assets of the
Fund represented by the Level-Payment Class of shares. Such
payments shall be made only out of the Fund assets allocable to
the Level-Payment Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Level-Payment Shares,
including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
4. Reports. While this Plan is in effect, the Fund's
Distributor shall report at least quarterly to the Fund's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor paid or accrued during such quarter. In addition, if
any Qualified Recipient is an "affiliated person," as that term
is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Fund, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Fund
an accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
5. Effectiveness, Continuation, Termination and Amendment. This
Plan has been approved by a vote of the Trustees, including those
Trustees who, at the time of such vote, were not "interested
persons" (as defined in the 1940 Act) of the Fund and had no
direct or indirect financial interest in the operation of this
Plan or in any agreements related to this Plan (the "Independent
Trustees"), with votes cast in person at a meeting called for the
purpose of voting on this Plan. It is effective as of the date
first above written and will continue in effect for a period of
more than one year from such date only so long as such
continuance is specifically approved at least annually as set
forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
6. Additional Terms and Conditions. (a) This Plan shall also be
subject to all applicable terms and conditions of Rule 18f-3
under the Act as now in force or hereafter amended.
(b) While this Plan is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of
the Fund, as that term is defined in the 1940 Act, shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Tax-Free Fund of Colorado
<S> <C>
1-YR AVG. TOTAL RETURN AS OF 12/31/95 8.74%
1-YR CUM. TOTAL RETURN AS OF 12/31/95 8.74%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.82 As of 12/31/94
Public Offering Price Per Share (POP) $10.23 As of 12/31/94
Number of Shares Purchased 97.752 Based on POP
<CAPTION>
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
JANUARY 1995 1,000.00 97.752 0.040591 * 3.97 9.93
FEBRUARY 1995 974.64 98.151 0.043314 4.25 10.16
MARCH 1995 1,001.47 98.570 0.045424 4.48 10.24
APRIL 1995 1,013.83 99.007 0.044180 4.37 10.26
MAY 1995 1,020.19 99.433 0.043958 4.37 10.37
JUNE 1995 1,035.49 99.855 0.045676 4.56 10.38
JULY 1995 1,041.05 100.294 0.045625 4.58 10.34
AUGUST 1995 1,041.62 100.737 0.046793 4.71 10.36
SEPTEMBER 1995 1,048.35 101.192 0.043948 4.45 10.35
OCTOBER 1995 1,051.78 101.621 0.043996 4.47 10.46
NOVEMBER 1995 1,067.43 102.049 0.045150 4.61 10.51
DECEMBER 27, 1995** 1,077.14 102.487 0.044257 4.54 10.55
DECEMBER 31, 1995 1,085.78 102.917 0.005894 0.61 10.56
<CAPTION>
ENDING
OFFERING INVESTMENT CUMULATIVE
PRICE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JANUARY 1995 10.34 0.400 974.64 -2.54%
FEBRUARY 1995 10.58 0.418 1,001.47 0.15%
MARCH 1995 10.67 0.437 1,013.83 1.38%
APRIL 1995 10.69 0.426 1,020.19 2.02%
MAY 1995 10.80 0.421 1,035.49 3.55%
JUNE 1995 10.81 0.439 1,041.05 4.11%
JULY 1995 10.77 0.443 1,041.62 4.16%
AUGUST 1995 10.79 0.455 1,048.35 4.83%
SEPTEMBER 1995 10.78 0.430 1,051.78 5.18%
OCTOBER 1995 10.90 0.427 1,067.43 6.74%
NOVEMBER 1995 10.95 0.438 1,077.14 7.71%
DECEMBER 27, 1995** 10.99 0.430 1,085.78 8.58%
DECEMBER 31, 1995 11.00 0.057 1,087.41 8.74%
<FN>
* For the period 1/1/95-1/26/95
</FN>
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Tax-Free Fund of Colorado
<S> <C>
5-YR AVG. TOTAL RETURN AS OF 12/31/95 7.04%
5-YR CUM. TOTAL RETURN AS OF 12/31/95 40.54%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.77 As of 12/30/90
Public Offering Price Per Share (POP) $10.18 As of 12/30/90
Number of Shares Purchased 98.232 Based on POP
<CAPTION>
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
JANUARY 1991 1,000.00 98.232 0.044180 * 4.34 9.82
FEBRUARY 1991 968.98 98.674 0.053517 5.28 9.91
MARCH 1991 983.14 99.207 0.050928 5.05 9.84
APRIL 1991 981.25 99.720 0.051932 5.18 9.87
MAY 1991 989.42 100.245 0.049455 4.96 9.90
JUNE 1991 997.38 100.746 0.053214 5.36 9.84
JULY 1991 996.70 101.290 0.053806 5.45 9.90
AUGUST 1991 1,008.22 101.841 0.054206 5.52 9.96
SEPTEMBER 1991 1,019.86 102.395 0.050831 5.20 10.02
OCTOBER 1991 1,031.20 102.915 0.051638 5.31 10.06
NOVEMBER 1991 1,040.64 103.443 0.053734 5.56 10.03
DECEMBER 1991 1,043.09 103.997 0.051780 5.38 10.14
JANUARY 1992 1,059.91 104.528 0.053195 5.56 10.19
FEBRUARY 1992 1,070.70 105.074 0.050183 5.27 10.12
MARCH 1992 1,068.62 105.595 0.050055 5.29 10.07
APRIL 1992 1,068.63 106.120 0.051784 5.50 10.10
MAY 1992 1,077.30 106.664 0.049496 5.28 10.15
JUNE 1992 1,087.92 107.184 0.049783 5.34 10.24
JULY 1992 1,102.90 107.705 0.050785 5.47 10.48
AUGUST 1992 1,134.22 108.227 0.049229 5.33 10.31
SEPTEMBER 1992 1,121.15 108.744 0.049366 5.37 10.35
OCTOBER 1992 1,130.87 109.262 0.051565 5.63 10.16
NOVEMBER 1992 1,115.74 109.817 0.049893 5.48 10.40
DECEMBER 1992 1,147.57 110.344 0.134741 14.87 10.37
JANUARY 1993 1,159.13 111.777 0.048667 5.44 10.43
FEBRUARY 1993 1,171.28 112.299 0.048354 5.43 10.74
MARCH 1993 1,211.52 112.805 0.049454 5.58 10.57
APRIL 1993 1,197.92 113.332 0.047707 5.41 10.63
MAY 1993 1,210.13 113.841 0.046359 5.28 10.64
JUNE 1993 1,216.55 114.337 0.049060 5.61 10.74
JULY 1993 1,233.59 114.859 0.046982 5.40 10.68
AUGUST 1993 1,232.09 115.365 0.046605 5.38 10.85
SEPTEMBER 1993 1,257.08 115.860 0.047712 5.53 10.92
OCTOBER 1993 1,270.72 116.366 0.046082 5.36 10.87
NOVEMBER 1993 1,270.26 116.860 0.045914 5.37 10.77
DECEMBER 1993 1,263.94 117.358 0.212504 24.94 10.76
JANUARY 1994 1,287.71 119.676 0.044222 5.29 10.77
FEBRUARY 1994 1,294.20 120.167 0.045263 5.44 10.55
MARCH 1994 1,273.20 120.683 0.043469 5.25 10.31
APRIL 1994 1,249.48 121.191 0.046178 5.60 10.22
MAY 1994 1,244.17 121.739 0.045269 5.51 10.21
JUNE 1994 1,248.47 122.279 0.044888 5.49 10.18
JULY 1994 1,250.29 122.818 0.046224 5.68 10.20
AUGUST 1994 1,258.42 123.375 0.045455 5.61 10.18
SEPTEMBER 1994 1,261.56 123.925 0.047365 5.87 10.07
OCTOBER 1994 1,253.80 124.508 0.042822 5.33 9.91
NOVEMBER 1994 1,239.21 125.046 0.046727 5.84 9.62
DECEMBER 1994 1,208.79 125.654 0.048688 6.12 9.82
JANUARY 1995 1,240.04 126.277 0.045102 5.70 9.93
FEBRUARY 1995 1,259.62 126.850 0.043314 5.49 10.16
MARCH 1995 1,294.29 127.391 0.045424 5.79 10.24
APRIL 1995 1,310.27 127.956 0.044180 5.65 10.26
MAY 1995 1,318.48 128.507 0.043958 5.65 10.37
JUNE 1995 1,338.27 129.052 0.045676 5.89 10.38
JULY 1995 1,345.45 129.620 0.045625 5.91 10.34
AUGUST 1995 1,346.18 130.192 0.046793 6.09 10.36
SEPTEMBER 1995 1,354.88 130.780 0.043948 5.75 10.35
OCTOBER 1995 1,359.32 131.335 0.043996 5.78 10.46
NOVEMBER 1995 1,379.54 131.887 0.045150 5.95 10.51
DECEMBER 27, 1995** 1,392.09 132.454 0.044257 5.86 10.55
DECEMBER 31, 1995** 1,403.25 133.010 0.005894 0.78 10.56
<CAPTION>
ENDING
OFFERING INVESTMENT CUMULATIVE
PRICE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JANUARY 1991 10.23 0.442 968.98 -3.10%
FEBRUARY 1991 10.32 0.533 983.14 -1.69%
MARCH 1991 10.25 0.513 981.25 -1.88%
APRIL 1991 10.28 0.525 989.42 -1.06%
MAY 1991 10.31 0.501 997.38 -0.26%
JUNE 1991 10.25 0.545 996.70 -0.33%
JULY 1991 10.31 0.551 1,008.22 0.82%
AUGUST 1991 10.38 0.554 1,019.86 1.99%
SEPTEMBER 1991 10.44 0.519 1,031.20 3.12%
OCTOBER 1991 10.48 0.528 1,040.64 4.06%
NOVEMBER 1991 10.45 0.554 1,043.09 4.31%
DECEMBER 1991 10.56 0.531 1,059.91 5.99%
JANUARY 1992 10.61 0.546 1,070.70 7.07%
FEBRUARY 1992 10.54 0.521 1,068.62 6.86%
MARCH 1992 10.49 0.525 1,068.63 6.86%
APRIL 1992 10.52 0.544 1,077.30 7.73%
MAY 1992 10.57 0.520 1,087.92 8.79%
JUNE 1992 10.67 0.521 1,102.90 10.29%
JULY 1992 10.92 0.522 1,134.22 13.42%
AUGUST 1992 10.74 0.517 1,121.15 12.11%
SEPTEMBER 1992 10.78 0.519 1,130.87 13.09%
OCTOBER 1992 10.58 0.555 1,115.74 11.57%
NOVEMBER 1992 10.83 0.527 1,147.57 14.76%
DECEMBER 1992 10.80 1.434 1,159.13 15.91%
JANUARY 1993 10.86 0.522 1,171.28 17.13%
FEBRUARY 1993 11.19 0.506 1,211.52 21.15%
MARCH 1993 11.01 0.528 1,197.92 19.79%
APRIL 1993 11.07 0.509 1,210.13 21.01%
MAY 1993 11.08 0.496 1,216.55 21.65%
JUNE 1993 11.19 0.522 1,233.59 23.36%
JULY 1993 11.13 0.505 1,232.09 23.21%
AUGUST 1993 11.30 0.496 1,257.08 25.71%
SEPTEMBER 1993 11.38 0.506 1,270.72 27.07%
OCTOBER 1993 11.32 0.493 1,270.26 27.03%
NOVEMBER 1993 11.22 0.498 1,263.94 26.39%
DECEMBER 1993 11.21 2.318 1,287.71 28.77%
JANUARY 1994 11.22 0.491 1,294.20 29.42%
FEBRUARY 1994 10.99 0.516 1,273.20 27.32%
MARCH 1994 10.74 0.509 1,249.48 24.95%
APRIL 1994 10.65 0.548 1,244.17 24.42%
MAY 1994 10.64 0.540 1,248.47 24.85%
JUNE 1994 10.60 0.539 1,250.29 25.03%
JULY 1994 10.63 0.557 1,258.42 25.84%
AUGUST 1994 10.60 0.551 1,261.56 26.16%
SEPTEMBER 1994 10.49 0.583 1,253.80 25.38%
OCTOBER 1994 10.32 0.538 1,239.21 23.92%
NOVEMBER 1994 10.02 0.607 1,208.79 20.88%
DECEMBER 1994 10.23 0.623 1,240.04 24.00%
JANUARY 1995 10.34 0.574 1,259.62 25.96%
FEBRUARY 1995 10.58 0.541 1,294.29 29.43%
MARCH 1995 10.67 0.565 1,310.27 31.03%
APRIL 1995 10.69 0.551 1,318.48 31.85%
MAY 1995 10.80 0.545 1,338.27 33.83%
JUNE 1995 10.81 0.568 1,345.45 34.55%
JULY 1995 10.77 0.572 1,346.18 34.62%
AUGUST 1995 10.79 0.588 1,354.88 35.49%
SEPTEMBER 1995 10.78 0.555 1,359.32 35.93%
OCTOBER 1995 10.90 0.552 1,379.54 37.95%
NOVEMBER 1995 10.95 0.567 1,392.09 39.21%
DECEMBER 27, 1995** 10.99 0.556 1,403.25 40.33%
DECEMBER 31, 1995** 11.00 0.074 1,405.37 40.54%
<FN>
* For the period 1/1/95-1/26/95
</FN>
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Tax-Free Fund of Colorado
<S> <C>
INCEPTION AVG. TOTAL RETURN AS OF 12/31/95 7.11%
INCEPTION CUM. TOTAL RETURN AS OF 12/31/95 80.78%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.60 As of 5/21/87
Public Offering Price Per Share (POP) $10.00 As of 5/21/87
Number of Shares Purchased 100.000 Based on POP
<CAPTION>
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
JUNE 1987 1,000.00 100.000 0.003604 0.36 9.64
JULY 1987 964.36 100.037 0.006015 0.60 9.65
AUGUST 1987 965.96 100.100 0.054279 5.43 9.63
SEPTEMBER 1987 969.39 100.664 0.053214 5.36 9.32
OCTOBER 1987 943.54 101.239 0.055201 5.59 9.11
NOVEMBER 1987 927.87 101.852 0.057606 5.87 9.43
DECEMBER 1987 966.33 102.474 0.056938 5.83 9.51
JANUARY 1988 980.37 103.088 0.053637 5.53 9.71
FEBRUARY 1988 1,006.51 103.657 0.055543 5.76 9.74
MARCH 1988 1,015.38 104.248 0.055645 5.80 9.54
APRIL 1988 1,000.33 104.856 0.053801 5.64 9.54
MAY 1988 1,005.97 105.448 0.059147 6.24 9.55
JUNE 1988 1,013.26 106.101 0.055585 5.90 9.66
JULY 1988 1,030.83 106.711 0.053274 5.68 9.60
AUGUST 1988 1,030.11 107.304 0.060302 6.47 9.61
SEPTEMBER 1988 1,037.66 107.977 0.055070 5.95 9.69
OCTOBER 1988 1,052.24 108.591 0.055470 6.02 9.73
NOVEMBER 1988 1,062.61 109.210 0.054741 5.98 9.61
DECEMBER 1988 1,055.48 109.832 0.055132 6.06 9.66
JANUARY 1989 1,067.03 110.459 0.058791 6.49 9.71
FEBRUARY 1989 1,079.05 111.127 0.052863 5.87 9.63
MARCH 1989 1,076.03 111.737 0.058418 6.53 9.57
APRIL 1989 1,075.85 112.419 0.051107 5.75 9.64
MAY 1989 1,089.47 113.015 0.059811 6.76 9.71
JUNE 1989 1,104.14 113.712 0.052734 6.00 9.78
JULY 1989 1,118.10 114.325 0.050069 5.72 9.82
AUGUST 1989 1,128.39 114.908 0.059131 6.79 9.75
SEPTEMBER 1989 1,127.14 115.605 0.052367 6.05 9.65
OCTOBER 1989 1,121.64 116.232 0.051515 5.99 9.75
NOVEMBER 1989 1,139.25 116.846 0.059136 6.91 9.74
DECEMBER 1989 1,144.99 117.555 0.051217 6.02 9.80
JANUARY 1990 1,158.06 118.170 0.053853 6.36 9.74
FEBRUARY 1990 1,157.34 118.823 0.057178 6.79 9.74
MARCH 1990 1,164.13 119.521 0.049037 5.86 9.70
APRIL 1990 1,165.21 120.125 0.053058 6.37 9.65
MAY 1990 1,165.58 120.785 0.052503 6.34 9.70
JUNE 1990 1,177.96 121.439 0.056143 6.82 9.71
JULY 1990 1,185.99 122.141 0.052898 6.46 9.76
AUGUST 1990 1,198.56 122.803 0.052533 6.45 9.64
SEPTEMBER 1990 1,190.28 123.473 0.054626 6.74 9.63
OCTOBER 1990 1,195.79 124.173 0.054650 6.79 9.64
NOVEMBER 1990 1,203.81 124.877 0.055175 6.89 9.76
DECEMBER 1990 1,225.69 125.583 0.051902 6.52 9.76
JANUARY 1991 1,232.21 126.251 0.052935 6.68 9.82
FEBRUARY 1991 1,246.46 126.931 0.053517 6.79 9.91
MARCH 1991 1,264.68 127.617 0.050928 6.50 9.84
APRIL 1991 1,262.25 128.277 0.051932 6.66 9.87
MAY 1991 1,272.76 128.952 0.049455 6.38 9.90
JUNE 1991 1,283.00 129.596 0.053214 6.90 9.84
JULY 1991 1,282.12 130.297 0.053806 7.01 9.90
AUGUST 1991 1,296.95 131.005 0.054206 7.10 9.96
SEPTEMBER 1991 1,311.91 131.718 0.050831 6.70 10.02
OCTOBER 1991 1,326.51 132.386 0.051638 6.84 10.06
NOVEMBER 1991 1,338.64 133.066 0.053734 7.15 10.03
DECEMBER 1991 1,341.80 133.779 0.051780 6.93 10.14
JANUARY 1992 1,363.45 134.462 0.053195 7.15 10.19
FEBRUARY 1992 1,377.32 135.164 0.050183 6.78 10.12
MARCH 1992 1,374.64 135.834 0.050055 6.80 10.07
APRIL 1992 1,374.65 136.509 0.051784 7.07 10.10
MAY 1992 1,385.81 137.209 0.049496 6.79 10.15
JUNE 1992 1,399.47 137.878 0.049783 6.86 10.24
JULY 1992 1,418.74 138.549 0.050785 7.04 10.48
AUGUST 1992 1,459.03 139.220 0.049229 6.85 10.31
SEPTEMBER 1992 1,442.21 139.885 0.049366 6.91 10.35
OCTOBER 1992 1,454.71 140.552 0.051565 7.25 10.16
NOVEMBER 1992 1,435.26 141.265 0.049893 7.05 10.40
DECEMBER 1992 1,476.21 141.943 0.134741 19.13 10.37
JANUARY 1993 1,491.08 143.787 0.048667 7.00 10.43
FEBRUARY 1993 1,506.70 144.458 0.048354 6.99 10.74
MARCH 1993 1,558.47 145.109 0.049454 7.18 10.57
APRIL 1993 1,540.98 145.788 0.047707 6.96 10.63
MAY 1993 1,556.68 146.442 0.046359 6.79 10.64
JUNE 1993 1,564.93 147.080 0.049060 7.22 10.74
JULY 1993 1,586.86 147.752 0.046982 6.94 10.68
AUGUST 1993 1,584.93 148.402 0.046605 6.92 10.85
SEPTEMBER 1993 1,617.08 149.039 0.047712 7.11 10.92
OCTOBER 1993 1,634.62 149.690 0.046082 6.90 10.87
NOVEMBER 1993 1,634.03 150.325 0.045914 6.90 10.77
DECEMBER 1993 1,625.90 150.966 0.212504 32.08 10.76
JANUARY 1994 1,656.47 153.947 0.044222 6.81 10.77
FEBRUARY 1994 1,664.82 154.580 0.045263 7.00 10.55
MARCH 1994 1,637.81 155.243 0.043469 6.75 10.31
APRIL 1994 1,607.30 155.897 0.046178 7.20 10.22
MAY 1994 1,600.47 156.602 0.045269 7.09 10.21
JUNE 1994 1,605.99 157.296 0.044888 7.06 10.18
JULY 1994 1,608.33 157.990 0.046224 7.30 10.20
AUGUST 1994 1,618.80 158.706 0.045455 7.21 10.18
SEPTEMBER 1994 1,622.84 159.414 0.047365 7.55 10.07
OCTOBER 1994 1,612.85 160.164 0.042822 6.86 9.91
NOVEMBER 1994 1,594.08 160.856 0.046727 7.52 9.62
DECEMBER 1994 1,554.95 161.637 0.048688 7.87 9.82
JANUARY 1995 1,595.15 162.439 0.045102 7.33 9.93
FEBRUARY 1995 1,620.34 163.177 0.043314 7.07 10.16
MARCH 1995 1,664.94 163.872 0.045424 7.44 10.24
APRIL 1995 1,685.50 164.599 0.044180 7.27 10.26
MAY 1995 1,696.06 165.308 0.043958 7.27 10.37
JUNE 1995 1,721.51 166.009 0.045676 7.58 10.38
JULY 1995 1,730.75 166.739 0.045625 7.61 10.34
AUGUST 1995 1,731.69 167.475 0.046793 7.84 10.36
SEPTEMBER 1995 1,742.88 168.231 0.043948 7.39 10.35
OCTOBER 1995 1,748.59 168.946 0.043996 7.43 10.46
NOVEMBER 1995 1,774.61 169.656 0.045150 7.66 10.51
DECEMBER 27, 1995* 1,790.75 170.385 0.044257 7.54 10.55
DECEMBER 31, 1995 1,805.10 171.100 0.005894 1.01 10.56
<CAPTION>
ENDING
OFFERING INVESTMENT CUMULATIVE
PRICE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JUNE 1987 10.04 0.037 964.36 -3.56%
JULY 1987 10.05 0.062 965.96 -3.40%
AUGUST 1987 10.03 0.564 969.39 -3.06%
SEPTEMBER 1987 9.71 0.575 943.54 -5.65%
OCTOBER 1987 9.49 0.613 927.87 -7.21%
NOVEMBER 1987 9.82 0.622 966.33 -3.37%
DECEMBER 1987 9.91 0.614 980.37 -1.96%
JANUARY 1988 10.11 0.569 1,006.51 0.65%
FEBRUARY 1988 10.15 0.591 1,015.38 1.54%
MARCH 1988 9.94 0.608 1,000.33 0.03%
APRIL 1988 9.94 0.591 1,005.97 0.60%
MAY 1988 9.95 0.653 1,013.26 1.33%
JUNE 1988 10.06 0.611 1,030.83 3.08%
JULY 1988 10.00 0.592 1,030.11 3.01%
AUGUST 1988 10.01 0.673 1,037.66 3.77%
SEPTEMBER 1988 10.09 0.614 1,052.24 5.22%
OCTOBER 1988 10.14 0.619 1,062.61 6.26%
NOVEMBER 1988 10.01 0.622 1,055.48 5.55%
DECEMBER 1988 10.06 0.627 1,067.03 6.70%
JANUARY 1989 10.11 0.669 1,079.05 7.90%
FEBRUARY 1989 10.03 0.610 1,076.03 7.60%
MARCH 1989 9.97 0.682 1,075.85 7.59%
APRIL 1989 10.04 0.596 1,089.47 8.95%
MAY 1989 10.11 0.696 1,104.14 10.41%
JUNE 1989 10.19 0.613 1,118.10 11.81%
JULY 1989 10.23 0.583 1,128.39 12.84%
AUGUST 1989 10.16 0.697 1,127.14 12.71%
SEPTEMBER 1989 10.05 0.627 1,121.64 12.16%
OCTOBER 1989 10.16 0.614 1,139.25 13.92%
NOVEMBER 1989 10.15 0.709 1,144.99 14.50%
DECEMBER 1989 10.21 0.614 1,158.06 15.81%
JANUARY 1990 10.15 0.653 1,157.34 15.73%
FEBRUARY 1990 10.15 0.698 1,164.13 16.41%
MARCH 1990 10.10 0.604 1,165.21 16.52%
APRIL 1990 10.05 0.660 1,165.58 16.56%
MAY 1990 10.10 0.654 1,177.96 17.80%
JUNE 1990 10.11 0.702 1,185.99 18.60%
JULY 1990 10.17 0.662 1,198.56 19.86%
AUGUST 1990 10.04 0.669 1,190.28 19.03%
SEPTEMBER 1990 10.03 0.700 1,195.79 19.58%
OCTOBER 1990 10.04 0.704 1,203.81 20.38%
NOVEMBER 1990 10.17 0.706 1,225.69 22.57%
DECEMBER 1990 10.17 0.668 1,232.21 23.22%
JANUARY 1991 10.23 0.681 1,246.46 24.65%
FEBRUARY 1991 10.32 0.685 1,264.68 26.47%
MARCH 1991 10.25 0.660 1,262.25 26.22%
APRIL 1991 10.28 0.675 1,272.76 27.28%
MAY 1991 10.31 0.644 1,283.00 28.30%
JUNE 1991 10.25 0.701 1,282.12 28.21%
JULY 1991 10.31 0.708 1,296.95 29.70%
AUGUST 1991 10.38 0.713 1,311.91 31.19%
SEPTEMBER 1991 10.44 0.668 1,326.51 32.65%
OCTOBER 1991 10.48 0.680 1,338.64 33.86%
NOVEMBER 1991 10.45 0.713 1,341.80 34.18%
DECEMBER 1991 10.56 0.683 1,363.45 36.34%
JANUARY 1992 10.61 0.702 1,377.32 37.73%
FEBRUARY 1992 10.54 0.670 1,374.64 37.46%
MARCH 1992 10.49 0.675 1,374.65 37.46%
APRIL 1992 10.52 0.700 1,385.81 38.58%
MAY 1992 10.57 0.669 1,399.47 39.95%
JUNE 1992 10.67 0.670 1,418.74 41.87%
JULY 1992 10.92 0.671 1,459.03 45.90%
AUGUST 1992 10.74 0.665 1,442.21 44.22%
SEPTEMBER 1992 10.78 0.667 1,454.71 45.47%
OCTOBER 1992 10.58 0.713 1,435.26 43.53%
NOVEMBER 1992 10.83 0.678 1,476.21 47.62%
DECEMBER 1992 10.80 1.844 1,491.08 49.11%
JANUARY 1993 10.86 0.671 1,506.70 50.67%
FEBRUARY 1993 11.19 0.650 1,558.47 55.85%
MARCH 1993 11.01 0.679 1,540.98 54.10%
APRIL 1993 11.07 0.654 1,556.68 55.67%
MAY 1993 11.08 0.638 1,564.93 56.49%
JUNE 1993 11.19 0.672 1,586.86 58.69%
JULY 1993 11.13 0.650 1,584.93 58.49%
AUGUST 1993 11.30 0.637 1,617.08 61.71%
SEPTEMBER 1993 11.38 0.651 1,634.62 63.46%
OCTOBER 1993 11.32 0.635 1,634.03 63.40%
NOVEMBER 1993 11.22 0.641 1,625.90 62.59%
DECEMBER 1993 11.21 2.981 1,656.47 65.65%
JANUARY 1994 11.22 0.632 1,664.82 66.48%
FEBRUARY 1994 10.99 0.663 1,637.81 63.78%
MARCH 1994 10.74 0.655 1,607.30 60.73%
APRIL 1994 10.65 0.704 1,600.47 60.05%
MAY 1994 10.64 0.694 1,605.99 60.60%
JUNE 1994 10.60 0.694 1,608.33 60.83%
JULY 1994 10.63 0.716 1,618.80 61.88%
AUGUST 1994 10.60 0.709 1,622.84 62.28%
SEPTEMBER 1994 10.49 0.750 1,612.85 61.29%
OCTOBER 1994 10.32 0.692 1,594.08 59.41%
NOVEMBER 1994 10.02 0.781 1,554.95 55.50%
DECEMBER 1994 10.23 0.801 1,595.15 59.51%
JANUARY 1995 10.34 0.738 1,620.34 62.03%
FEBRUARY 1995 10.58 0.696 1,664.94 66.49%
MARCH 1995 10.67 0.727 1,685.50 68.55%
APRIL 1995 10.69 0.709 1,696.06 69.61%
MAY 1995 10.80 0.701 1,721.51 72.15%
JUNE 1995 10.81 0.731 1,730.75 73.08%
JULY 1995 10.77 0.736 1,731.69 73.17%
AUGUST 1995 10.79 0.756 1,742.88 74.29%
SEPTEMBER 1995 10.78 0.714 1,748.59 74.86%
OCTOBER 1995 10.90 0.711 1,774.61 77.46%
NOVEMBER 1995 10.95 0.729 1,790.75 79.07%
DECEMBER 27, 1995* 10.99 0.715 1,805.10 80.51%
DECEMBER 31, 1995 11.00 0.095 1,807.82 80.78%
<FN>
* Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND OF COLORADO SEC YIELD
<S> <C> <C> <C> <C> <C>
12/01/95 4,285,266.58 215,253,589.00 4.78 29,149.88 3,821.67
12/02/95 4,285,266.58 215,253,589.00 4.78 29,149.88 3,824.60
12/03/95 4,285,266.58 215,253,589.00 4.78 29,149.88 3,824.60
12/04/95 2,439,590.96 215,877,269.25 4.73 28,684.41 3,824.60
12/05/95 2,486,041.42 218,263,146.00 4.72 28,942.67 3,832.65
12/06/95 2,520,238.80 218,510,374.25 4.69 28,795.38 3,834.83
12/07/95 2,463,044.79 218,083,850.50 4.73 28,977.41 3,837.84
12/08/95 2,497,569.59 217,899,753.25 4.75 29,080.20 3,833.64
12/09/95 2,497,569.59 217,899,753.25 4.75 29,080.20 3,831.58
12/10/95 2,497,569.59 217,899,753.25 4.75 29,080.20 3,831.58
12/11/95 2,601,143.93 217,843,579.25 4.75 29,086.46 3,831.58
12/12/95 2,635,668.80 214,303,269.50 4.83 29,105.97 3,831.37
12/13/95 2,672,455.40 214,303,269.50 4.83 29,110.91 3,822.36
12/14/95 2,712,729.34 213,631,107.75 4.86 29,206.42 3,820.39
12/15/95 2,728,368.98 218,750,952.50 4.88 30,022.75 3,817.65
12/16/95 2,728,368.98 218,750,952.50 4.88 30,022.75 3,813.73
12/17/95 2,728,368.98 218,750,952.50 4.88 30,022.75 3,813.73
12/18/95 1,736,675.39 215,604,439.75 4.97 30,005.15 3,813.73
12/19/95 1,693,002.62 214,789,777.00 4.98 29,946.78 3,801.48
12/20/95 1,752,538.60 215,545,161.50 4.91 29,636.99 3,801.98
12/21/95 1,786,775.70 215,688,225.50 4.90 29,600.76 3,811.30
12/22/95 1,821,012.78 216,255,560.00 4.85 29,379.76 3,812.47
12/23/95 1,821,012.78 216,255,560.00 4.85 29,379.76 3,820.28
12/24/95 1,821,012.78 216,255,560.00 4.85 29,379.76 3,820.28
12/25/95 1,821,012.78 216,255,560.00 4.85 29,379.76 3,820.28
12/26/95 1,957,961.01 216,444,067.50 4.84 29,362.94 3,820.28
12/27/95 1,992,349.07 216,619,980.50 4.82 29,269.76 3,823.32
12/28/95 2,026,736.94 216,698,768.75 4.81 29,224.16 3,822.74
12/29/95 2,061,124.78 216,878,660.25 4.79 29,131.15 3,830.36
12/30/95 2,061,124.78 216,878,660.25 4.79 29,131.15 3,833.06
12/31/95 2,061,124.78 216,878,660.25 4.79 29,131.15 3,833.06
<C> <C>
20,668,544.420 11.01
20,668,544.420 11.04
20,668,544.420 11.04
20,681,847.201 11.04
20,674,222.276 11.05
20,672,825.450 11.06
20,682,008.285 11.04
20,674,746.002 11.03
20,674,746.002 11.03
20,674,746.002 11.03
20,682,001.646 11.03
20,691,914.603 10.98
20,701,139.147 10.97
20,707,767.633 10.96
20,716,094.944 10.95
20,716,094.944 10.91
20,716,094.944 10.91
20,694,698.672 10.91
20,680,163.689 10.90
20,680,599.150 10.94
20,680,596.781 10.95
20,690,317.089 10.97
20,690,317.089 10.98
20,690,317.089 10.98
20,690,317.089 10.98
20,699,837.947 10.98
20,676,942.402 10.99
20,743,640.963 11.00
20,741,230.989 11.00
20,741,230.989 11.00
20,741,230.989 11.00
</TABLE>
notes: Market Value= @par & <par then Par; >par then MV 4.07%
Daily shares outstanding= shares used for rate calculation
SEC Income=(MV + Acc Int * Avg Yld)/360
SEC Yield= 2[(((a+b)/(cd))+1)^6-1]
a=interest
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Fund of Colorado
Taxable Equivalent Yield
December 31, 1995
<S> <C>
S.E.C. Yield 4.07 %
Taxable Portion 2 %
Tax-Exempt Portion 98 %
Combined Effective Tax Rate 42.62 %
Balance (remainder) 57.38 %
Taxable Equivalent Yield 7.03 %
</TABLE>
[ (.0407 * .9800) / .5738) + (.0407 * .0200) ]
0.06951203 + 0.000814
0.0703
OR
7.03%
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811239
<NAME> TAX-FREE FUND OF COLORADO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 205,402,606
<INVESTMENTS-AT-VALUE> 216,865,160
<RECEIVABLES> 2,697,765
<ASSETS-OTHER> 370,512
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219,933,437
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 627,630
<TOTAL-LIABILITIES> 627,630
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 208,838,256
<SHARES-COMMON-STOCK> 20,757,916
<SHARES-COMMON-PRIOR> 20,275,042
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (995,003)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,462,554
<NET-ASSETS> 219,305,807
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,456,131
<OTHER-INCOME> 0
<EXPENSES-NET> 1,338,101
<NET-INVESTMENT-INCOME> 11,118,030
<REALIZED-GAINS-CURRENT> (610,206)
<APPREC-INCREASE-CURRENT> 15,943,831
<NET-CHANGE-FROM-OPS> 26,451,655
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,118,030
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,989,814
<NUMBER-OF-SHARES-REDEEMED> 2,154,129
<SHARES-REINVESTED> 647,189
<NET-CHANGE-IN-ASSETS> 482,874
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 427,046
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,638,820
<AVERAGE-NET-ASSETS> 213,496,003
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .74
<PER-SHARE-DIVIDEND> .54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> .63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
TAX-FREE FUND OF COLORADO
Rule 18f-3
Multiple Class Plan
TAX-FREE FUND OF COLORADO (the "Fund") has elected to
rely on Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), in offering multiple classes of shares
with differing distribution arrangements, voting rights and
expense allocations.
Pursuant to Rule 18f-3, the Board of Trustees of the
Fund has approved and adopted this written plan (the "Plan")
specifying all of the differences among the classes of shares to
be offered by the Fund. Prior to such offering, the Plan will be
filed as an exhibit to the Fund's registration statement. The
Plan sets forth the differences among the classes, including
shareholder services, distribution arrangements, expense
allocations, and conversion or exchange options.
I. Attributes of Share Classes
This section discusses the attributes of the various classes
of shares. Each share of the Fund represents an equal pro rata
interest in the Fund and has identical voting rights, powers,
qualifications, terms and conditions, and in proportion to each
share's net asset value, liquidation rights and preferences.
Each class differs in that: (a) each class has a different class
designation; (b) only the Front-Payment Shares are subject to a
front-end sales charge ("FESC"); (c) only the Level-Payment
Shares are subject to a contingent deferred sales charge
("CDSC"); (d) only the Front-Payment Shares and Level-Payment
Shares (as described below) are subject to distribution fees
under a plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), the distribution fee for the Level-Payment
Class being higher than that for the Front-Payment Class; (e)
only the Level-Payment Shares are subject to a shareholder
servicing fee under a non-Rule 12b-1 shareholder services plan (a
"Shareholder Services Plan"); (f) to the extent that one class
alone is affected by a matter submitted to a vote of the
shareholders, then only that class has voting power on the
matter, provided, however, that any class whose shares convert
automatically to shares of another class also votes separately
with respect to class-specific Rule 12b-1 matters applying to the
latter class; (g) the expenses attributable to a specific class
("Class Expenses")* are borne only by shares of that class on a
pro-rata basis; and (h) exchange privileges may vary among the
classes.
* Class Expenses are limited to (i) transfer agency fees;
(ii) preparation and mailing expenses for shareholder
communications required by law, sent to current shareholders
of a class; (iii) state Blue Sky registration fees; (iv)
Securities and Exchange Commission ("SEC") registration
fees; (v) trustees' fees; (vi) expenses incurred for
periodic meetings of trustees or shareholders; and (vii)
legal and accounting fees, other than fees for income tax
return preparation or income tax advice.
A. Front-Payment Shares
Front-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Front-Payment
Shares under the exchange privileges of the Fund. Shares of
the Fund outstanding on the date that the three classes of
shares are first made available will be redesignated Front-
Payment Shares. Front-Payment Shares will also be issued
upon automatic conversion of Level-Payment Shares, as
described below.
1. Sales Loads. Front-Payment Shares are sold
subject to the current maximum FESC (with scheduled
variations or eliminations of the sales charge, as
permitted by the 1940 Act).
2. Distribution and Service Fees. Front-Payment
Shares are subject to a distribution fee pursuant to
Part I of the Fund's Rule 12b-1 Plan. They are not
subject to charges applicable to a Shareholder Services
Plan.
3. Class Expenses. Class Expenses that are
attributable to the Front-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Front-Payment Shares are exchangeable for Front-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Fund.
Front-Payment Shares have no conversion features.
B. Level-Payment Shares
Level-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Level-Payment
Shares under the exchange privileges of the Fund.
1. Sales Loads. Level-Payment Shares are sold
without the imposition of any FESC, but are subject to
a CDSC (with scheduled variations or eliminations of
the sales charge, as permitted by the 1940 Act).
2. Distribution and Service Fees. Level-Payment
Shares are subject to a distribution fee pursuant to
Part II of the Fund's Rule 12b-1 Plan and to a
shareholder servicing fee under a Shareholder Services
Plan not to exceed .25% of the average daily net assets
of the Level-Payment Class.
3. Class Expenses. Class Expenses that are
attributable to the Level-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Level-Payment Shares are exchangeable for Level-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Fund. After
a period of no greater than six years, Level-Payment
Shares automatically convert to Front-Payment Shares on
the basis of the relative net asset values of the two
classes without the imposition of any sales charge,
fee, or other charge, provided, however, that the
expenses, including distribution fees, for Front-
Payment Shares are not higher than the expenses,
including distribution fees, for Level-Payment Shares.
If the amount of expenses, including distribution fees,
for the Front-Payment Class is increased materially
without approval of the shareholders of the Level-
Payment Class, a new class will be established -- on
the same terms as apply to the Front-Payment Class
prior to such increase -- as the class into which
Level-Payment Shares automatically convert.
C. Institutional Shares
Institutional Shares are not offered to retail
customers but are sold only to (1) institutional investors
investing funds held in a fiduciary, advisory, agency,
custodial or other similar capacity and (2) persons entitled
to exchange into Institutional Shares under the exchange
privileges of the Fund.
1. Sales Loads. Institutional Shares are sold
without the imposition of any FESC, CDSC or any other
sales charge.
2. Distribution and Service Fees. Institutional
Shares are not subject to any distribution fee or
shareholder servicing fee.
3. Class Expenses. Class Expenses that are
attributable to the Institutional Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Institutional Shares are exchangeable for Institutional
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Fund.
Institutional Shares have no conversion features.
D. Additional Classes
In the future, the Fund may offer additional classes of
shares which differ from the classes discussed above.
However, any additional classes of shares must be approved
by the Board, and the Plan must be amended to describe those
classes.
II. Approval of Multiple Class Plan
The Board of the Fund, including a majority of the
independent Trustees, must approve the Plan initially. In
addition, the Board must approve any material changes to the
classes and the Plan prior to their implementation. The Board
must find that the Plan is in the best interests of each class
individually and the Fund as a whole. In making its findings,
the Board should focus on, among other things, the relationships
among the classes and examine potential conflicts of interest
among classes regarding the allocation of fees, services, waivers
and reimbursements of expenses, and voting rights. Most
significantly, the Board should evaluate the level of services
provided to each class and the cost of those services to ensure
that the services are appropriate and that the allocation of
expenses is reasonable. In accordance with the foregoing
provisions of this Section II, the Board of the Fund has approved
and adopted this Plan as of the date written below.
III. Dividends and Distributions
Because of the differences in fees paid under a Rule
12b-1 Plan and Shareholder Services Plan and the special
allocation of Class Expenses among the classes of shares of the
Fund, the dividends payable to shareholders of a class will
differ from the dividends payable to shareholders of the other
classes. Dividends paid to each class of shares in the Fund
will, however, be declared and paid at the same time and, except
for the differences in expenses listed above, will be determined
in the same manner and paid in the same amounts per outstanding
shares.
IV. Expense Allocations
The methodology and procedures for calculating the net
asset value and dividends and distributions of the various
classes of shares and the proper allocation of income and
expenses among the various classes of shares are set forth in the
Memorandum (together with exhibits) of Richard F. West,
Treasurer, dated November 24, 1995 and entitled "Methodologies
Used In Accounting For Multiple Class Shares."
Dated: December 4, 1995
