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. 12 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 13 [ 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 LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[_X_] on April 30, 1998 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 effective
date for a previous post-effective amendment.
<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;
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
Class A Shares
Class C Shares April 30, 1998
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 dated April 30, 1998, (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
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 the Prospectus. The Additional Statement is
incorporated by reference in its entirety in the Prospectus. Only
when you have read both the Prospectus and the Additional Statement
are all material facts about the 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 Shareholder Servicing Agent:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-872-2651 toll free
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>
TAX-FREE FUND OF COLORADO
[PICTURE]
Poudre Valley Hospital
[PICTURE]
E-470 Tollway
[PICTURE]
Platte River Power Authority
[PICTURE]
Snowmass Village
[PICTURE]
Community College of Aurora
[PICTURE]
University of Colorado
The Fund invests in tax-free municipal securities,
primarily the kinds of obligations issued by various communities
and political subdivisions within Colorado. Most of these
securities are used to finance long-term municipal projects;
examples are pictured above. (See "Investment of the Fund's
Assets.") The municipal obligations which financed these particular
projects were included in the Fund's portfolio as of April 24,
1998, and together represented 14.5% of the Fund's portfolio. Since
the portfolio is subject to change, the Fund may not necessarily
own these specific securities at the time of the delivery of this
Prospectus.
<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, and "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. If you redeem Class C Shares
before you have held them for 12 months from the date of
purchase you will pay a contingent deferred sales charge
("CDSC"); this charge is 1%, calculated on the net asset value
of the Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after Class C
Shares have been held beyond the applicable period. (See
"Alternative Purchase Plans," "Computation of the Holding
Periods for Class C Shares" and "How to Purchase Class C
Shares.")
The Fund also offers Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors and
Financial Intermediary Class Shares ("Class I Shares") which are
offered and sold only through certain financial intermediaries.
Class Y Shares and Class I Shares are not offered by this
Prospectus.
Class A Shares and Class C Shares are only offered for sale in
certain states. (See "How to Invest in the Fund.") If shares of the
Fund are sold outside those states the Fund can redeem them. If
your state of residence is not Colorado, the dividends from the
Fund may be subject to income taxes of the state in which you
reside. Accordingly, you should consult your tax adviser before
acquiring shares of the Fund.
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. Specific classes
of shares will have different dividend amounts due to their
particular expense levels. (See "Dividend and Tax Information.")
Many Different Issues - You have the advantages of a portfolio
which consists of over 154 issues with different maturities. (See
"Investment of the Fund's Assets.")
Local Portfolio Management - KPM Investment Management, Inc.
(the "Adviser") serves as the Fund's investment adviser. It is a
wholly-owned subsidiary of KFS Corporation, a member of the Mutual
of Omaha Companies. The Fund's portfolio is managed in the
Adviser's Denver office. Founded in 1981, the Adviser provides
discretionary equity, fixed-income and balanced account management
to mutual funds, retirement plans, foundations, endowments and high
net-worth individuals and currently manages over $1 billion of
clients' assets.
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. These arrangements are prosposed to be
changed. (See" Management Arrangements.")
Redemptions - Liquidity - You may redeem any amount of your
account on any business day at the next determined net asset value
by telephone, FAX or mail request, with proceeds being sent to a
predesignated financial institution, if you have elected Expedited
Redemption. Proceeds will be wired or transferred through the
facilities of the Automated Clearing House, wherever possible, upon
request, if in an amount of $1,000 or more, or will be mailed. For
these and other redemption procedures see "How to Redeem Your
Investment." There are no penalties or redemption fees for
redemption of Class A Shares. However, there is a contingent
deferred sales charge with respect to certain Class A Shares which
have been purchased in amounts of $1 million or more (see "Purchase
of $1 Million or More"). If you redeem Class C Shares before you
have held them for 12 months from the date of purchase you will pay
a contingent deferred sales charge ("CDSC") at the rate of 1%. (See
"Alternative Purchase Plans"- "Class C Shares.")
Certain Stabilizing Measures - The 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 tax-free
municipal bond mutual funds or two Aquila equity funds. You may
also exchange them into shares of the Aquila 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 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
Maximum 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) 0.50% 0.75%
Administration Fee(4) 0.30%(5) 0.30%(6)
Service Fee None 0.25%
Other Expenses(4) 0.20% 0.20%
Total Fund Operating Expenses(4) 0.75% 1.70%
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>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A Shares $47 $63 $80 $129
Class C Shares
With complete redemption
at end of period $27 $54 $92 $152(8)
With no redemption $17 $54 $92 $152(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".
</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.
</FN>
<FN>
(4) Other expenses do not reflect a 0.03% expense offset in custodian
fees received for uninvested cash balances. Reflecting this amount,
other expenses, all other expenses, and total Fund operating expenses for
Class A Shares would have been 0.17%, 0.47%, and 0.72%; for Class C
Shares, these expenses would have been 0.17%, 0.72% and 1.67%.
</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. Because of the effect of the
asset-based 12b-1 fee and service fee on Class C Shares, long term Class
C shareholders could pay the economic equivalent of an amount greater then
the maximum front-end sales charge allowed under applicable regulations.
</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 ASSUMED 5% ANNUAL RETURN SHOULD NOT BE
INTERPRETED AS A PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE HIGHER OR
LOWER. 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.
<PAGE>
<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, 1997 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included
with 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.
Class C4)(+)
Class A(3)(+) Year Period*
Year ended December 31, Ended Ended
1997 1996 1995 1994 12/31/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.41 $10.56 $9.82 $10.77 $10.41 $10.31
Income from Investment
Operations:
Net investment income 0.50 0.52 0.54 0.55 0.40 0.28
Net gain (loss) on
securities
(both realized
and unrealized) 0.23 (0.13) 0.74 (0.95) 0.21 0.12
Total from Investment
Operations 0.73 0.39 1.28 (0.40) 0.61 0.40
Less Distributions:
Dividends from net
investment income (0.52) (0.54) (0.54) (0.55) 0.42 (0.30)
Distributions fromom
capital gains - - - - - -
Total Distributions (0.52) (0.54) (0.54) (0.55) (0.42) (0.30)
Net Asset Value, End of
Period $10.62 $10.41 $10.56 $9.82 $10.60 $10.41
Total Return (not
reflecting
sales charge)(%) 7.21 3.78 13.28 (3.80) 5.99 3.78(1)
Ratios/Supplemental Data
Net Assets, End of
Period
($ in thousands) 216,321 214,392 219,306 199,075 1,036 915
Ratio of Expenses to
Average
Net Assets(%) 0.72 0.69 0.63 0.57 1.66 1.64(2)
Ratio of Net Investment
Income to Average Net
Assets(%) 4.81 5.03 5.21 5.36 3.84 4.08(2)
Portfolio Turnover
rate(%) 22.66 10.96 14.20 15.53 22.66 10.96
<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> <C>
Net Investment Income 0.50 0.51 0.52 0.53 0.40 0.27
Ratio of Expenses to
Average Net Assets(%) 0.75 0.75 0.77 0.76 1.69 1.70(2)
Ratio of Net Investment
Income to Average Net
Assets(%) 4.78 4.97 5.07 5.17 3.81 4.02(2)
<CAPTION>
Class A(3)
1993 1992 1991 1990 1989 1988
<C> <C> <C> <C> <C> <C>
$10.38 $10.18 $9.77 $9.80 $9.66 $9.51
0.57 0.61 0.62 0.64 0.67 0.63
0.55 0.28 0.41 (0.03) 0.14 0.14
1.12 0.89 1.03 0.61 0.81 0.77
(0.57) (0.61) (0.62) (0.64) (0.67) (0.62)
(0.16) (0.08) - - - -
(0.73) (0.69) (0.62) (0.64) (0.67) (0.62)
$10.77 $10.38 $10.18 $9.77 $9.80 $9.66
11.10 9.00 10.96 6.59 8.59 8.84
222,277 174,031 129,760 88,086 55,901 22,884
0.53 0.45 0.43 0.27 0.14 0.06
5.32 5.90 6.25 6.56 6.62 6.72
20.89 25.88 25.47 23.73 34.29 8.13
0.55 0.59 0.58 0.59 0.57 0.55
0.73 0.70 0.80 0.75 1.00 1.41
5.12 5.65 5.88 6.08 5.73 5.37
<FN>
(1) Not annualized.
</FN>
<FN>
(2) Annualized.
</FN>
<FN>
(3) Designated as Class A Shares on April 30, 1996.
</FN>
<FN>
(4) New Class of Shares established on April 30, 1996.
</FN>
<FN>
* For the period from April 30, 1996 to December 31, 1996.
</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, Kirkpatrick, Pettis, Smith, Polian Inc.'s 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 a similar 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. 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, 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 the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value of the
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, and may be subject to other market,
credit and economic factors as well. 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.
In 1992, an amendment to the Constitution of the State of
Colorado was approved and went into effect. In general, the effect
of the amendment was 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.
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 and
communications), 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 in the 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 of each of the Fund's classes of
shares is determined as of 4:00 p.m., New York time, on each day
that the New York Stock Exchange is open (a "business day"), by
dividing the Fund's net assets (i.e. the value of the assets less
liabilities), allocable to each class by the total number of shares
of such class then outstanding. 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 you with two alternative
ways to invest in the Fund through two separate classes of shares.
All classes represent interests in the same portfolio of Colorado
Obligations. The classes of shares offered to individuals differ in
their sales charge structures and ongoing expenses, as described
below. You should choose the class that best suits your own
circumstances and needs.
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 contingent deferred sales charge, described
below, but only if you redeem your Class C Shares before they have
been held 12 months from your purchase. (See "Computation of
Holding Periods for Class C Shares.")
* Class A Shares, "Front-Payment Class Shares," are offered to
anyone at net asset value plus a sales charge, paid at the
time of purchase, at the maximum rate of 4.0% of the public
offering price, with lower rates for larger purchases. When
you purchase Class A Shares, the amount of your investment is
reduced by the applicable sales charge.Class A Shares are
subject to an asset retention service fee under the Fund's
Distribution Plan at the rate 0.05 of 1% of the average annual
net assets represented by 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 " Purchase
of $1 Million or More.")
* Class C Shares, "Level-Payment Class Shares," are offered to
anyone at net asset value with no sales charge payable at
purchase but with a level charge for distribution fees and
service fees for six years after the date of purchase at the
aggregate annual rate of 1% of the average annual net assets
represented by Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares, including Class C
Shares acquired in exchange for other Class C Shares under the
Exchange Privilege (see "Exchange Privilege"), are
automatically converted to Class A Shares. If you redeem Class
C Shares before you have held them for 12 months from the date
of purchase you will pay a contingent deferred sales charge 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. For purposes of applying the CDSC and
determining the time of conversion, the 12-month and six-year
holding periods are considered modified by up to one month
depending upon when during a month your purchase of such
shares is made. (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>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4% of the None
Charge public offering price
Contingent
Deferred None (except for certain Maximum CDSC of 1% if shares
Sales Charge purchases over $1 Million) redeemed before 12 months;
0% after 12 months
Distribution and 0.05 of 1% Distribution fee of 0.75 of
Service Fees 1% and a service fee of 0.25
of 1% for a total of 1%,
payable for six years
Other Information Initial sales charge waived Shares convert to Class A
or reduced in some cases Shares after six years
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between Class
A Shares and Class C Shares. It is recommended that any investment
in the 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
within a reasonably short time after purchase, you should consider
the total cost of such an investment in Class A Shares compared
with a similar investment in Class C Shares. The example under
"Table of Expenses" shows the effect of 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 the
Fund's Shareholder Servicing Agent (the "Agent") at the address on
the Application. If you purchase Class A Shares, the applicable
sales charge will apply in either instance. Subsequent investments
are also subject to the applicable sales charges. You are urged to
complete an Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be made
in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus or
Additional Statement. You may also make an initial investment of at
least $50 by establishing an Automatic Investment Program. To do
this you must open an account for automatic investments of at least
$50 each month and make an initial investment of at least $50. (See
below and "Automatic Investment Program" in the Application.) Such
investment must be drawn in United States dollars on a United
States commercial or savings bank, credit union or a United States
branch of a foreign commercial bank (each of which is a "Financial
Institution"). You may make subsequent investments in the same
class of shares in any amount (unless you have an Automatic
Withdrawal Plan). Your subsequent investment may be made through a
selected dealer or by forwarding payment to the Agent, with the
name(s) of account owner(s), the account number, the name of the
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, except that 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. 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.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Fund are available only in the following states:
Colorado, Arizona, California, District of Columbia, Florida,
Georgia, Hawaii, Indiana, Maryland, Missouri, Nevada, New Jersey,
New Mexico (Class A Shares only), New York, Texas, Virginia and
Washington (Class A Shares only).
If you do not reside in one of these states you should not
purchase shares of the Fund. If Class A Shares or Class C Shares of
the Fund are sold outside of these states the Fund can redeem them.
Such a redemption may result in a loss to you and may have tax
consequences. In addition, if your state of residence is not
Colorado, the dividends from the Fund may not be exempt from income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of the Fund.
How to Purchase Class A Shares
(Front-Payment Class Shares)
The following table shows the amount of the sales charge to
a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions") for Class A Shares:
<TABLE>
<CAPTION>
Sales Sales
Charge as Charge as
Percentage Approximate Commissions
of Public Percentage as Percentage
Offering of Amount of Offering
Amount of 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%
</TABLE>
For purchases of $1 million or more see "Purchase of $1 Million or
More," below.
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 Class A Shares for his, her
or their own accounts; (c) a trustee or other fiduciary purchasing
Class A 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 under the following circumstances are
called "CDSC Class A Shares": (i) Class A Shares issued in a single
purchase of $1 million or more by a single purchaser; and (ii) all
Class A Shares issued in a single purchase to a single purchaser
the value of which, when added to the value of the CDSC Class A
Shares and Class A Shares on which a sales charge has been paid,
already owned at the time of such purchase, equals or exceeds $1
million. CDSC Class A Shares also include certain Class A Shares
issued under the program captioned "Special Dealer Arrangements,"
below. CDSC Class A Shares do not include (i) Class A Shares
purchased without sales charge pursuant to the terms described
under "General," below and (ii) Class A Shares purchased in
transactions of less than $1 million and when certain special
dealer arrangements are not in effect under "Certain Investment
Companies" set forth under "Reduced Sales Charges," below.
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will pay
to any dealer effecting such a purchase an amount equal to 1% of
the sales price of the shares purchased for purchases of $1 million
but less than $2.5 million, 0.50 of 1% for purchases of $2.5
million but less than $5 million, and 0.25 of 1% for purchases of
$5 million or more.
If you redeem all or part of your CDSC Class A Shares
during the four years after your purchase of such shares, at the
time of redemption you will be required to pay to the Distributor
a special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at the
time of purchase or (ii) the net asset value of your redeemed CDSC
Class A Shares at the time of redemption (the "Redemption Value").
The special charge will be an amount equal to 1% of the Redemption
Value if the redemption occurs within the first two years after
purchase, and 0.50 of 1% of the Redemption Value if the redemption
occurs within the third or fourth year after purchase. The special
charge will apply to redemptions of CDSC Class A Shares purchased
without a sales charge pursuant to a Letter of Intent, as described
below under "Reduced Sales Charges for Certain Purchases of Class
A Shares." The special charge does not apply to Class A 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 and still own, 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 Fund or 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 Class A 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 Class A 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 Fund's Shareholder Servicing Agent. (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
(i) 1% of such proceeds or (ii) the same amounts described under
"Purchase of $1 Million or More" above, on the same terms and
conditions. Class A Shares of the 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 "Purchase of $1 Million or
More," above, on the same terms and conditions. Whenever the
Special Dealer Arrangements are in effect the Prospectus will be
supplemented.
How to Purchase Class C Shares
(Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered
at net asset value with no sales charge payable at purchase. A
level charge is imposed for service and distribution fees for the
first six years after the date of purchase at the aggregate annual
rate of 1% of the average annual net assets of the Fund
represented by the Class C Shares. If you redeem Class C Shares
before you have held them for 12 months from the date of purchase
you will pay a contingent deferred sales charge ("CDSC"). The CDSC
is charged at the rate of 1%, calculated on the net asset value
of the redeemed Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after Class C
Shares have been held beyond the applicable period. The CDSC does
not apply to Class C 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 the 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.
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
four 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 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 Fund or 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.
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 Fund or 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.
Permitted Payments under the Plan commenced July 1,
1994.During the fiscal year ended December 31, 1997, $107,821 was
paid to Qualified Recipients with respect to Class A Shares, of
which $4,357 was retained by the Distributor. During the same
period, $7,193 was paid to Qualified Recipients with respect to
Class C Shares, of which $6,724 was retained by the Distributor.
All of such payments were for compensation. (See the Additional
Statement for a description of the Distribution Plan.)
A third part of the plan authorizes "Permitted Payments" with
respect to the Fund's Class I Shares. (See "General Information.")
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 Fund or 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 Shares shareholder accounts. (See
the Additional Statement.) Service Fees with respect to Class C
Shares will be paid to the Distributor. During the fiscal year
ended December 31, 1997, $2,397 of Service Fees was paid to
Qualified Recipients with respect to the Fund's Class C Shares of
which $2,397 was retained by 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 "Purchase of
$1 Million or More") there are no redemption fees or withdrawal
penalties for Class A Shares. Class C Shares are subject to a
contingent deferred sales charge if redeemed before they have been
held 12 months from the date of purchase. (See "Alternative
Purchase Plans.") A redemption may result in a transaction taxable
to you. If you own both Class A Shares and Class C Shares and do
not specify which you wish to redeem, it will be assumed that you
wish to redeem Class A Shares.
For your convenience the Fund offers expedited redemption for
both 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 either
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
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: PFPC Inc, by FAX at
302-791-1777 or by mail to 400 Bellevue Parkway,
Wilmington, DE 19809, indicating account name(s), account
number, amount to be redeemed, and any payment directions,
signed by the registered holder(s). Signature guarantees are
not required. See "Redemption Payments" below for payment
methods.
If you wish to have redemption proceeds sent to a Financial
Institution Account, you should so elect on the Expedited
Redemption section of the Application or the Ready Access Features
form and provide the required information concerning your
Financial Institution account number. The Financial Institution
account must be in the exclusive name(s) of the shareholder(s) as
registered with the 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: PFPC Inc, 400
Bellevue Parkway, Wilmington, DE 19809 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 the Fund's Shareholder Servicing
Agent: PFPC Inc, 400 Bellevue Parkway, Wilmington, DE 19809,
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 determination 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
Class A Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. (See the
Automatic Withdrawal Plan provisions of the Application included
in the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.)
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, you may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases.
While an occasional lump sum investment may be made, such
investment should normally be an amount at least equal to three
times the annual withdrawal or $5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the 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 Board of Trustees has approved changes in the
management arrangements described below under which the
Administrator will become Investment Adviser and Administrator and
the Adviser will become Sub-Adviser. The change will not result
in any change of personnel or any change in overall management
fees. The proposed changes will be submitted for consideration by
the shareholders of the Fund at the annual meting of shareholders
June 29, 1998. If approved by the shareholders, the new
arrangements will go into effect at that time and the Prospectus
will be supplemented.
The Advisory Agreement
KPM Investment Management, Inc. (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 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 were not to 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.
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 $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 were not to 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 is a wholly-owned subsidiary of KFS Corporation,
a member of the Mutual of Omaha Companies. The Fund's portfolio
is managed in the Adviser's Denver office. Founded in 1981, the
Adviser provides discretionary equity fixed-income and balanced
account management to mutual funds, retirement plans, foundations,
endowments and high net-worth individuals and currently manages
over $1 billion of clients' assets.
Mr. Christopher Johns is the Fund's portfolio manager. Mr.
Johns is First Vice President and 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. John
Wyszynski is the back-up portfolio manager. He has been employed
by the Adviser since 1993 as a Vice President. He has 14 years
experience in managing Colorado Obligations having worked at
several firms including Kirchner Moore and First Interstate Bank
of Denver. He has an MBA in Finance and Accounting from the
University of Chicago.
The Adviser has its primary office 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 wholly-owned by Mutual of Omaha Insurance
Company, whose principal office is at Mutual of Omaha Plaza,
Omaha, NE 68175.
For the year ended December 31, 1997, advisory fees of
$437,704 were paid or accrued to the Adviser.
The Fund's Administrator is founder and administrator to
the Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and two equity funds. As of
December 31, 1997, these funds had aggregate assets of
approximately $2.8 billion, of which approximately $1.9 billion
consisted of assets of the tax-free municipal bond funds. The
Administrator, which was founded in 1984, is controlled by Mr.
Lacy B. Herrmann (directly, through a trust and through share
ownership by his wife). See the Additional Statement for
information on Mr. Herrmann.
During the year ended December 31, 1997, administration
fees of $656,555 were paid or accrued to the Administrator under
the Administration Agreement of which $5,270 was voluntarily
waived.
The Distributor currently handles the distribution of the
shares of fourteen funds (five money market funds, seven tax-free
municipal bond funds and two equity funds), 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 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Administrator and/or the Distributor, including Mr. Herrmann
and Ms. 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.
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. Dividends and
other distributions paid by the Fund with respect to each class
of its shares are calculated at the same time and in the same
manner.
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. On the Application or by completing a Ready Access
Features form, you may elect to have dividends deposited without
charge by electronic funds transfers into your account at a
Financial Institution if it is a member of the Automated Clearing
House.
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, 1997, 96.87% of
the Fund's dividends were "exempt-interest dividends." For the
calendar year 1997, 3.13% of the total dividends paid were taxable
as ordinary income. 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 Code 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 gain from the sale or exchange
of a capital asset held for more than one year. 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.
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.
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 contingent deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of your
loss as the case may be. Your gain or loss will be long-term if
you held the redeemed shares for over 18 months, mid-term if you
held the redeemed shares for over one year but not more than 18
months and short-term, if for a year or less. Long term capital
gains are currently taxed at a maximum rate of 20%, mid-term
capital gains are currently taxed at a maximum rate of 28%, and
short-term gains are currently taxed at ordinary income tax rates.
However, if shares held for six months or less are redeemed and
you have a loss, two special rules apply: the loss is reduced by
the amount of exempt-interest dividends, if any, which you
received on the redeemed shares, and any loss over and above the
amount of such exempt-interest dividends is treated as a long-term
loss to the extent you have received capital gains dividends on
the redeemed shares.
Tax Effect of Conversion
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 two equity
funds(together with this 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 the Prospectus, the
Aquila Bond or Equity Funds are this Fund, Aquila Rocky Mountain
Equity Fund, Aquila Cascadia 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. Government Securities Cash
Assets Trust (Original Shares) and Churchill Cash Reserves
Trust.
Generally, you can exchange shares of a given class of a
Bond or Equity Funds including the Fund for shares of the same
class of any other Bond or Equity Funmarketd, or for shares of any
Money Market Fund, without the payment of a sales charge or any
other fee, and there is no limit on the number of exchanges you
can make from fund to fund. However, the following important
information should be noted:
(1) CDSCs upon redemptions of shares acquired through
exchanges. If you exchange shares subject to a CDSC no CDSC will
be imposed at the time of exchange, but the shares you receive
in exchange for them will be subject to the applicable CDSC if you
redeem them before the requisite holding period (extended, if
required) has expired.
If the shares you redeem would have incurred a CDSC if you
had not made any exchanges, then the same CDSC will be imposed
upon the redemption regardless the exchanges that have taken place
since the original purchase.
(2) Extension of Holding Periods by owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
shares received on an exchange of CDSC Class A Shares or Class C
Shares are held is not counted in computing the applicable holding
period for CDSC Class A Shares or Class C Shares.
(3) Originally purchased Money Market Fund shares.
Shares of a Money Market Fund (and any shares acquired as a result
of reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money Market
Fund Shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they been
purchased rather than acquired in exchange for Money Market Fund
shares. If the shares received in exchange are shares that would
be subject to a CDSC if purchased directly, the holding period
governing the CDSC will run from the date of the exchange, not
from the date of the purchase of Money Market 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 is at least equal to
the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-872-2651 toll free
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 "Tax Effects of Redemptions" and the Additional Statement);
no representation is made as to the deductibility of any such loss
should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid
by Pacific Capital Tax-Free Cash Assets Trust (a tax-free
money-market Fund) are exempt from regular Federal income tax, and
to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Government Securities Cash Assets Trust
(which invests in U.S. Government obligations) are exempt from
state income taxes. Dividends paid by Aquila Rocky Mountain Equity
Fund and Aquila Cascadia Equity Fund are taxable. If your state
of residence is not the same as that of the issuers of obligations
in which a 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, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1-, 5- and 10-year periods and for
a period since the inception of the 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 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. Upon
liquidation of the Fund, shareholders 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 each of the Fund's classes at that time.
All shares are presently divided into four classes; however, if
they deem it advisable and in the best interests of shareholders,
the Board of Trustees of the Fund may create additional classes
of shares, which may differ from each other as provided in rules
and regulations of the Securities and Exchange Commission or by
exemptive order. The Board of Trustees may, at its own discretion,
create additional series of shares, each of which may have
separate assets and liabilities (in which case any such series
will have a designation including the word "Series"). 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, except that Class C Shares automatically
convert to Class A Shares after being held for six years.
In addition to Class A Shares and Class C Shares, which
are offered by this Prospectus, the Fund also has (i)
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 and (ii) Financial
Intermediary Class Shares ("Class I Shares"), which are offered
and sold only through certain financial intermediaries. Class Y
Shares and Class I Shares are offered by a separate prospectus,
which can be obtained by calling the Fund at 800-872-2652.
The primary distinction among the Fund's four 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 four 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 participation in the
Distribution Plan and Shareholder Services Plan and has exclusive
voting rights with respect to such participation.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted
to the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment
of an applicable part of the Distribution Plan. No amendment may
be made to the Declaration of Trust without the affirmative vote
of the holders of a majority of the outstanding shares of the 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:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
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
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, PFPC Inc. ("the Agent")
is authorized to redeem sufficient shares from this account at the then
current Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
_______________________________ ____________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ____________________________________
Street Financial Institution Street Address
_______________________________ ____________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
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, PFPC Inc., and to pay such sums in accordance therewith,
provided my/our account has sufficient funds to cover such drafts or
debits. I/We further agree that your treatment of such orders will be
the same as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number _____________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit in
the normal course of business initiated by the Agent (except any loss
due to your payment of any amount drawn against insufficient or uncollected
funds), provided that you promptly notify us in writing of any claim
against you with respect to the same, and further provided that you will
not settle or pay or agree to settle or pay any such claim without the
written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any such
electronic debit.
STEP 4
Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of legal
age to purchase shares of the 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 3c and signing the Application, the investor is
entitled to make each purchase at the public offering price applicable
to a single transaction of the dollar amount checked above, and agrees
to be bound by the terms and conditions applicable to Letters of Intent
appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such purchases
added to the investor's present holdings do not aggregate the minimum
amount specified above, the investor will pay the increased amount of
sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall
be at the rate applicable to the minimum amount of the investor's
specified intended purchases checked above. If the investor's actual
purchases do not reach this minimum amount, the commissions previously
paid to the dealer will be adjusted to the rate applicable to the
investor's total purchases. If the investor's purchases exceed the
dollar amount of the investor's intended purchases and pass the next
commission break-point, the investor shall receive the lower sales
charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would
be applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent
in placing any future purchase orders for the investor while this Letter
is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary),
3% of the dollar amount specified in the Letter of Intent (computed
to the nearest full share) shall be held in escrow in shares of the
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 3c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor as his
attorney to surrender for redemption any or all escrowed shares on the
books of the 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
Jerry G. McGrew, Senior Vice President
Jean M. Smith, Vice President
Jessica Wiltshire, 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Deleware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights......................................
Table of Expenses...............................
Financial Highlights............................
Introduction....................................
Investment Of The Fund's Assets.................
Investment Restrictions.........................
Net Asset Value Per Share.......................
Alternative Purchase Plans......................
How To Invest In The Fund.......................
How To Redeem Your Investment...................
Automatic Withdrawal Plan.......................
Management Arrangements.........................
Dividend And Tax Information....................
Exchange Privilege..............................
General Information.............................
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
Class Y Shares
Class I Shares April 30, 1998
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, 1998, has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
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 the Prospectus. The Additional Statement is
incorporated by reference in its entirety in the Prospectus. Only
when you have read both the Prospectus and the Additional Statement
are all material facts about the 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 Shareholder Servicing Agent:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-872-2651 toll free
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.")
Alternative Purchase Plans -- The Fund provides alternative
ways to invest. (See "How to Invest in the Fund.") For this purpose
the Fund offers classes of shares, which differ in their expense
levels and sales charges. This Prospectus offers the following
classes of shares:
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.")
Financial Intermediary Class Shares ("Class I Shares")
are offered and sold only through financial
intermediaries with which the Aquila Distributors, Inc.
the ("Distributor") has entered into sales agreements,
and are not offered directly to retail customers. Class
I Shares are offered at net asset value with no sales
charge and no redemption fee or contingent deferred sales
charge, although a financial intermediary may charge a
fee for effecting a purchase or other transaction on
behalf of its customers. Class I Shares may carry a
distribution fee of up to 0.25 of 1% of average annual
net assets allocable to Class I Shares, currently 0.10 of
1% of such net assets, and a services fee of 0.25 of 1%
of such assets. (See "How to Purchase Class I
Shares.")
The Fund's other classes of shares, 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.")
At the date of the Prospectus, Class Y Shares and Class I
Shares are registered for sale only in certain states. (See "How to
Invest in the Fund.") If Class Y Shares or Class I Shares of the
Fund are sold outside those states, except to certain institutional
investors, the Fund can redeem them. If your state of residence is
not Colorado, dividends from the Fund may be subject to income
taxes of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of the Fund.
Initial Investment - - You may open your account for Class
Y Shares with any purchase of $100,000 or more for fiduciary
accounts and $250,000 for all other eligible purchasers. These
minimums do not apply to shareholders with accounts open on April
30, 1998. (See the Application, which is in the back of the
Prospectus.) Class I Shares are sold only through financial
intermediaries, which may have their own minimum investment
requirement. (See "How to Invest in the Fund.")
Additional Investments - You may make additional
investments in Class Y Shares 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. Additional investments in Class
I Shares can be made only through financial intermediaries, which
may have their own requirements for subsequent investments. (See
"How to Invest in the Fund.")
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends on Class Y Shares are paid by
check mailed to you, directly deposited into your financial
institution account or automatically reinvested without sales
charge in additional Class Y Shares at the then-current net asset
value. All arrangements for the payment of dividends with respect
to Class I Shares, including reinvestment of dividends, must be
made through financial intermediaries. (See "Dividend and Tax
Information.")
Many Different Issues - You have the advantages of a portfolio
which consists of over 154 issues with different maturities. (See
"Investment of the Fund's Assets.")
Local Portfolio Management - KPM Investment Management, Inc.
(the "Adviser") serves as the Fund's investment adviser. It is a
wholly-owned subsidiary of KFS Corporation, a member of the Mutual
of Omaha Companies. The Fund's portfolio is managed in the
Adviser's Denver office. Founded in 1981, the Adviser provides
discretionary equity, fixed-income and balanced account management
to mutual funds, retirement plans, foundations, endowments and high
net-worth individuals and currently manages over $1 billion of
clients' assets.
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. These arrangements are
proposed to be changed. (See "Management Arrangements.")
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." All arrangements for redemptions of Class
I Shares must be made through financial intermediaries. The Fund
does not impose redemption fees for redemption of Class Y Shares or
Class I Shares. However, financial intermediaries may charge a fee
for effecting redemptions.
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 two Aquila-sponsored equity funds. You may
also exchange them into shares of the Aquila-sponsored money market
funds. Similar exchangability is available to Class I Shares to the
extent that other Aquila-sponsored funds are made available to its
customers by a financial intermediary. 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 Class Y Shares account monthly as well as each time you add to
your account or take money out. Financial intermediaries provide
their own statements of Class I Shares accounts. 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 I Class Y
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases None None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested
Dividends None None
Maximum Deferred Sales Charge None None
Redemption Fees None None
Exchange Fee None None
Annual Fund Operating Expenses(1)
(as a percentage of average net assets)
Investment Advisory Fee 0.20% 0.20%
12b-1 Fee(2) 0.10% None
All Other Expenses(3) 0.75% 0.50%
Administration Fee 0.30% 0.30%
Other Expenses(3) 0.45% 0.20%
Total Fund Operating Expenses(3) 1.05% 0.70%
Example(4)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class I Shares $11 $33 $58 $128
Class Y Shares $7 $22 $39 $87
<FN>
(1) Estimated based upon amounts incurred by the Fund's Class Y Shares
during its most recent fiscal year, restated to reflect current
arrangements.
</FN>
<FN>
(2) Current rates; up to 0.25% can be authorized.
</FN>
<FN>
(3) Does not reflect a 0.03% expense offset in custodian fees received
for uninvested cash balances. Reflect this offset and based on estimates
for Class I, other expenses, all other expenses, and total Fund operating
expenses for Class I Shares would have been 0.42%, 0.72% and 1.02%,
respectively; for Class Y Shares, these expenses would have been 0.17%,
0.47%, and 0.67%, respectively. Operating expenses for Class I Shares
include a 0.25% Service fee. (See "Shareholder Services Plan for Class I
Shares.")
</FN>
<FN>
(4) The expense example is based upon the 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>
</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 ASSUMED 5% ANNUAL RETURN SHOULD NOT BE INTERPRETED
AS A PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE HIGHER OR LOWER.
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.
<PAGE>
The table shown below for Class A Shares is for information purposes only.
Class A Shares are not 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, 1997 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included
with 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.
Class A(3)(+) Class Y(4)(+)
Year Period
Year ended December 31, Ended Ended
1997 1996 1995 1994 12/31/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $10.41 $10.56 $9.82 $10.77 $10.41 $10.38
Income from Investment
Operations:
Net investment income 0.50 0.52 0.54 0.55 0.52 0.38
Net gain (loss) on
securities (both
realized and unrealized) 0.23 (0.13) 0.74 (0.95) 0.25 0.12
Total from Investment
Operations 0.73 0.39 1.28 (0.40) 0.77 0.50
Less Distributions:
Dividends from net
investment income (0.52) (0.54) (0.54) (0.55) (0.54) (0.40)
Distributions from
capital gains - - - - - -
Total Distributions (0.52) (0.54) (0.54) (0.55) (0.54) (0.40)
Net Asset Value, End of
Period $10.62 $10.41 $10.56 $9.82 $10.64 $10.41
Total Return (not
reflecting sales
charge)(%) 7.21 3.78 13.28 (3.80) 7.65 4.87(1)
Ratios/Supplemental Data
Net Assets, End of Period
($ in thousands) 216,321 214,392 219,306 199,075 5,668 0.1
Ratio of Expenses to
Average Net Assets($) 0.72 0.69 0.63 0.57 0.67 0.64(2)
Ratio of Net Investment
Income to Average Net
Assets(%) 4.81 5.03 5.21 5.36 4.79 5.08(2)
Portfolio Turnover
Rate(%) 22.66 10.96 14.20 15.53 22.66 10.96
<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> <C>
Net Investment Income(%) 0.50 0.51 0.52 0.53 0.52 0.37
Ratio of Expenses to
Average Net Assets(%) 0.75 0.75 0.77 0.76 0.70 0.70(2)
Ratio of Net Investment
Income to Average Net
Assets(%) 4.78 4.97 5.07 5.17 4.76 5.02(2)
<CAPTION> Class A(3)
1993 1992 1991 1990 1989 1988
<C> <C> <C> <C> <C> <C>
$10.38 $10.18 $9.77 $9.80 $9.66 $9.51
0.57 0.61 0.62 0.64 0.67 0.63
0.55 0.28 0.41 (0.03) 0.14 0.14
1.12 0.89 1.03 0.61 0.81 0.77
(0.57) (0.61) (0.62) (0.64) (0.67) (0.62)
(0.16) (0.08) - - - -
(0.73) (0.69) (0.62) (0.64) (0.67) (0.62)
$10.77 $10.38 $10.18 $9.77 $9.80 $9.66
11.10 9.00 10.96 6.59 8.59 8.84
222,277 174,031 129,760 88,086 55,901 22,884
0.53 0.45 0.43 0.27 0.14 0.06
5.32 5.90 6.25 6.56 6.62 6.72
20.89 25.88 25.47 23.73 34.29 8.13
0.55 0.59 0.58 0.59 0.57 0.55
0.73 0.70 0.80 0.75 1.00 1.41
5.12 5.65 5.88 6.08 5.73 5.37
<FN>
(1) Not annualized.
</FN>
<FN>
(2) Annualized.
</FN>
<FN>
(3) Designated as Class A Shares on April 30, 1996.
</FN>
<FN>
(4) New Class of Shares established on April 30, 1996.
</FN>
<FN>
* For the period from April 30, 1996 to December 31, 1996.
</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, Kirkpatrick, Pettis, Smith's 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 a similar 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. 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, 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 the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value of
the 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, and may be subject to other market,
credit and economic factors as well. 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.
In 1992, an amendment to the Constitution of the State of
Colorado was approved and went into effect. In general, the effect
of the amendment was 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.
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 and
communications), 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 in the 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 net asset value of the shares of each of the Fund's
classes of shares is determined as of 4:00 p.m., New York time, on
each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Fund's net assets (i.e., the
value of the assets less liabilities) allocable to each class by
the total number of shares of such class then 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
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of Colorado
Obligations.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are not
offered directly to retail customers. Class Y Shares are
offered at net asset value with no sales charge, no redemption
fee, no contingent deferred sales charge and no distribution
fee.
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. (the "Distributor") has
entered into sales agreements, and are not offered directly to
retail customers. Class I Shares are offered at net asset
value with no sales charge and no redemption fee or contingent
deferred sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other transaction on
behalf of its customers. Class I Shares may carry a
distribution fee of up to 0.25 of 1% of average annual net
assets allocable to Class I Shares, currently 0.10 of 1% of
such net assets, and a service fee of 0.25 of 1% of such
assets. (See "Distribution Plan" and "Shareholder Services
Plan for Class I Shares.")
The Fund's other classes of shares, 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.")
At the date of the Prospectus, Class Y Shares of the Fund
are registered for sale only in Colorado, California, District of
Columbia, Florida, Georgia, Hawaii, Indiana, Missouri, Nevada, New
Jersey, New York and Virginia. Class I Shares of the Fund are
registered for sale only in Colorado and New York.
If you do not reside in one of those states you should not
purchase shares. If shares are sold outside of those states except
to certain institutional investors, the Fund can redeem them. Such
a redemption may result in a loss to you and may have tax
consequences. In addition, if your state of residence is not
Colorado, the dividends from the Fund may not be exempt from income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of the Fund. 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.
How to Purchase Class Y Shares
Institutional Class Shares ("Class Y Shares") are offered
only to institutional investors for investments held in a
fiduciary, advisory, agency, custodial or similar capacity, or
through them to their clients, and are not offered directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee.
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 the Fund's Shareholder Servicing Agent (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
$100,000 for fiduciaries and $250,000 for all other eligible
purchasers, except that this limitation does not apply to
shareholders with accounts open on April 30, 1998, or as otherwise
stated in the Prospectus or Additional Statement. 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 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.
How to Purchase Class I Shares
Initial and subsequent investments in Class I Shares must
be made through financial intermediaries and cannot be made
directly. Financial intermediaries may set minimum amounts for
initial purchase and subsequent investments in Class I Shares and
may charge a fee for effecting a purchase or other transaction on
behalf of customers. Financial intermediaries that make Class I
Shares of the Fund and other mutual funds available to their
customers may offer distinct services, may have their own charges
for services and may impose their own minimum requirements for
initial and subsequent investments. Customers of financial
intermediaries should read the Prospectus in light of the terms of
their accounts with financial intermediaries. Financial
intermediaries that have entered into specific agreements with the
Fund may enter confirmed purchase orders on behalf of clients and
customers, with payment to follow not later than the Fund's pricing
of Class I Shares on the following business day. If payment is not
received by that time the financial intermediary could be held
liable for resulting fees or losses.
Offering Price
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,
except that,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.
The offering price for Class I Shares is the net asset
value per share. The offering price determined on any day applies
to all purchases received by each financial intermediary prior to
4:00 p.m. New York time on any business day. Purchase orders
received by financial intermediaries after that time will be filled
at the next determined offering price.
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 Class Y 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). Purchases of Class I Shares will be confirmed
by financial intermediaries. No share certificates will be issued
for Class Y Shares or Class I Shares.
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.
Under a part of the Plan, the Fund is authorized to make
payments with respect to Class I Shares ("Class I Permitted
Payments") to Qualified Recipients. Class I 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), at a rate set from
time to time by the Board of Trustees (currently 0.10 of 1%) but
not more than 0.25 of 1% of the average annual net assets
represented by the Class I Shares of the Fund. Such payments shall
be made only out of the Fund's assets allocable to the Class I
Shares. "Qualified Recipients" means financial intermediaries
selected by the Distributor with which the Fund or the Distributor
has entered into written agreements to act in such capacity.
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 under other parts of the Plan, and with respect to
Class I Shares as discussed above,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.)
Shareholder Services Plan for Class I Shares
Under a Shareholder Services Plan, (the "Plan") the Fund is
authorized to make payments with respect to Class I Shares
("Service Payments") to Qualified Recipients. Fees paid under the
Plan are subject to such limits as may be necessary for Class I
Shares to qualify as a "no-load" class for purposes of the Conduct
Rules of the National Association of Securities Dealers, Inc.
("NASD"). The current limitation is as follows: fees paid under the
Plan that satisfy the definition of "service fees" in Rule 2830(d)
of the Conduct Rules of the National Association of Securities
Dealers, Inc. may not exceed an amount equal to the difference
between (i) 0.25 of 1% of the average annual net assets of the Fund
represented by Class I Shares and (ii) the amount paid under the
Fund's Distribution Plan with respect to the assets represented by
the Class I Shares. That is, the total payments under both plans
will be not exceed 0.25 of 1% of such net assets. Where necessary
or appropriate, the Independent Trustees, or such appropriate
officer or officers of the Fund as they may designate, shall, with
the advice of counsel, determine what fees paid under this Plan are
to be deemed "service fees." The Fund's management believes that,
in general, fees allocable to activities such as sub-accounting and
record-keeping are not "service fees," while fees allocable to
activities such as account service are "service fees." In like
manner, allocation of payments among activities is also determined
by the Independent Trustees or their delegates. Subject to the
foregoing, Service Payments 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 I Shares of the Fund.
Such payments shall be made only out of the Fund's assets
represented by the Class I 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 Fund or the
Distributor has entered into written agreements to provide personal
services to Class I Shares shareholders, maintenance of Class I
Shares shareholder accounts and/or pursuant to specific agreements
entering of confirmed purchase orders on behalf of customers or
clients and which have provided services to holders of Class I
Shares and/or maintenance of Class I Shares shareholder
accounts.
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 Class I Shares, including
without limitation, (i) activities relating to sub accounting and
record-keeping, including the providing of necessary personnel and
facilities to establish and maintain shareholder accounts and
records, and (ii) activities relating to account service, such as
assisting shareholders in designating and changing dividend
options, account designations and addresses; answering customer
inquiries regarding account status and history and the manner in
which purchases and redemptions of shares of the Fund may be
effected; transmitting and receiving funds in connection with
customer orders to purchase or redeem shares, including, where
appropriate, arranging for the wiring of funds; assisting in
processing purchase and redemption transactions; and verifying and
guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated
accounts. A majority of the Independent Trustees (as defined in the
Plan) may remove any person as a Qualified Recipient and no fees
shall be paid pursuant to the Plan for activities primarily
intended to result in the sale of shares of the Fund or to finance
sales or sales promotion expenses. No fees shall be paid, or be
deemed to have been paid, for any of the listed activities to the
extent that such payments are deemed by the Independent Trustees to
be intended for distribution. Service Payments shall be paid
through the Distributor or shareholder servicing agent as
disbursing agent. (See the Additional Statement.)
HOW TO REDEEM YOUR INVESTMENT
Redemption of Class Y Shares
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
You have the flexibility of two expedited methods of
initiating redemptions of Class Y Shares.
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
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: PFPC Inc., by FAX at 302-791-1777 or
by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter must provide account name(s), account number, amount to
be redeemed, and any payment directions, signed by the
registered holder(s). Signature guarantees are not required.
See "Redemption Payments" below for payment methods.
If you wish to have redemption proceeds sent to a Financial
Institution Account, you should so elect on the Expedited
Redemption section of the Application or the Ready Access Features
form and provide the required information concerning your Financial
Institution account number. The Financial Institution account must
be in the exclusive name(s) of the shareholder(s) as registered
with the 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 the Fund's Shareholder Servicing
Agent: PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809. The
letter must contain:
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 your redemption request to be in "proper form," the
signature or signatures must be the same as in the registration of
the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required if
sufficient documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature
guarantor.
Redemption of Class I Shares
You may redeem all or any part of your Class I Shares at
the net asset value next determined after acceptance of your
redemption request by your financial intermediary. Redemption
requests for Class I Shares must be made through a financial
intermediary and cannot to be made directly. Financial
intermediaries may charge a fee for effecting redemptions. There is
no minimum period for any investment in the Fund. The Fund does not
impose redemption fees or penalties on redemption of Class I
Shares. A redemption may result in a transaction taxable to
you.
Redemption Payments
Redemption payments for Class Y Shares 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. Redemption payments for Class I Shares
are made to financial intermediaries.
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 determination 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 for
Class Y Shares 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
If you had a Class Y Shares account with the Fund before
April 30, 1998, 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. The Automatic Withdrawal Plan is not
otherwise available through this Prospectus. 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 Board of Trustees has approved changes in the
management arrangements described below under which the
Administrator will become Investment Adviser and Administrator and
the Adviser will become Sub-Adviser. The change will not result in
any change of personnel or any change in overall management fees.
The proposed changes will be submitted for consideration by the
shareholders of the Fund at the annual meeting of shareholders on
June 29, 1998. If approved by the shareholders, the new
arrangements will go into effect at that time and the Prospectus
will be supplemented.
The Advisory Agreement
KPM Investment Management, Inc. (the "Adviser") supervises the
investment program of the Fund and the composition of its
portfolio. The services of the Adviser are rendered under an
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 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
were not to 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.
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.
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 $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. The changes were not to 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 is a wholly-owned subsidiary of KFS Corporation,
a member of the Mutual of Omaha Companies. The Fund's portfolio is
managed in the Adviser's Denver office. Founded in 1981, the
Adviser provides discretionary equity, fixed-income and balanced
account management to mutual funds, retirement plans, foundations,
endowments and high net-worth individuals and currently manages
over $1 billion of clients' assets.
Mr. Christopher Johns is the Fund's portfolio manager. Mr.
Johns is First Vice President and 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. John
Wyszynski is the back-up portfolio manager. He has been employed by
the Adviser since 1993 as a Vice President. He has 14 years
experience in managing Colorado Obligations having worked at
several firms including Kirchner Moore and First Interstate Bank of
Denver. He has an MBA in Finance and Accounting from the University
of Chicago.
The Adviser has its primary office 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 wholly-owned by Mutual of Omaha Insurance Company,
whose principal office is at Mutual of Omaha Plaza, Omaha, NE
68175.
For the year ended December 31, 1997, advisory fees of
$437,704 were paid or accrued to the Adviser.
The Fund's Administrator is founder and administrator to
the Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and two equity funds. As of December
31, 1997, these funds had aggregate assets of approximately $2.8
billion, of which approximately $1.9 billion consisted of assets of
the tax-free municipal bond funds. The Administrator, which was
founded in 1984, is controlled by Mr. Lacy B. Herrmann (directly,
through a trust and through share ownership by his wife). See the
Additional Statement for information on Mr. Herrmann.
During the year ended December 31, 1997, administration
fees of $656,555 were paid or accrued to the Administrator under
the Administration Agreement of which $5,270 was voluntarily
waived.
The Distributor currently handles the distribution of the
shares of fourteen funds (five money market funds, seven tax-free
municipal bond funds and two equity funds), 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 75% by Mr. Herrmann and 25% by Diana P. Herrmann,
will be owned by certain directors and/or officers of the
Administrator and/or the Distributor, including Mr. Herrmann and
Ms. 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 each class
of its shares are calculated at the same time and in the same
manner. In addition, the dividends of each class can vary because
each class will bear certain class-specific charges.
It is the Fund's present policy to pay dividends so that
they will be received or credited by approximately the first day of
each month. On the Application or by completing a Ready Access
Features form, you may elect to have dividends deposited without
charge by electronic funds transfers into your account at a
Financial Institution if it is a member of the Automated Clearing
House.
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, 1997, 96.87% of the Fund's dividends were
"exempt-interest dividends." For the calendar year 1997, 3.13% of
the total dividends paid were taxable as ordinary income. 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 Code 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 gain from the sale or exchange of a
capital asset held for more than one year. 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.
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.
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 contingent deferred sales
charge at the time of redemption, the amount of that charge will
reduce the amount of your gain or increase the amount of your loss
as the case may be. Your gain or loss will be long-term if you held
the redeemed shares for over 18 months, mid-term if you held the
redeemed shares for over one year but not more than 18 months and
short-term, if for a year or less. Long term capital gains are
currently taxed at a maximum rate of 20%, mid-term capital gains
are currently taxed at a maximum rate of 28%, and short-term gains
are currently taxed at ordinary income tax rates. However, if
shares held for six months or less are redeemed and you have a
loss, two special rules apply: the loss is reduced by the amount of
exempt-interest dividends, if any, which you received on the
redeemed shares, and any loss over and above the amount of such
exempt-interest dividends is treated as a long-term loss to the
extent you have received capital gains dividends on the redeemed
shares.
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 two equity
funds (together with this 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 the Prospectus, the Aquila Bond
or Equity Funds are this Fund, Aquila Rocky Mountain Equity Fund,
Aquila Cascadia 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. Government Securities 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. Similar exchangability is available to Class I
Shares to the extent that other Aquila-sponsored funds are made
available to its customers by a financial intermediary. All
exchanges of Class I Shares must be made through your financial
intermediary.
Under the Class Y exchange privilege, once Class Y Shares
of any Bond or Equity Fund have been purchased, those shares (and
any Class Y 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, provided that
the applicable minimum investment requirements for purchase of
Class Y Shares are met. (See "How to Purchase Class Y 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 is at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-872-2651 toll free
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. Exchanges of Class I Shares will be effected at the
relative net asset values of the Class I Shares being exchanged
next determined after receipt by the financial intermediary of your
exchange request.
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see "Tax Effects of
Redemptions" and the Additional Statement); no representation is
made as to the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
money-market Fund) are exempt from regular Federal income tax, and
to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Government Securities Cash Assets Trust (which
invests in U.S. Government obligations) are exempt from state
income taxes. Dividends paid by Aquila Rocky Mountain Equity Fund
and Aquila Cascadia Equity Fund are taxable. If your state of
residence is not the same as that of the issuers of obligations in
which a 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, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1-, 5- and 10-year periods and for a
period since the inception of the 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 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
the Fund, shareholders 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
each of the Fund's classes at that time. All shares are presently
divided into four classes; however, if they deem it advisable and
in the best interests of shareholders, the Board of Trustees of the
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, except that Class C Shares automatically convert
to Class A Shares after being held for six years.
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 four 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 four 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 participation in the Distribution Plan and
Shareholder Services Plan and has exclusive voting rights with
respect to such participation. There are no Distribution fees with
respect to Class Y Shares.
The Fund's Distribution Plan has four parts. In addition to
the provisions described above under "Distribution Plan," Parts I
and II of the Plan authorize payments, to certain "Qualified
Recipients," out of the Fund 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
assets allocable to the Class C Shares. (See the Additional
Statement.)
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted to
the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment
of an applicable part of the Distribution Plan. No amendment may be
made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the 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 I and Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
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 $100,000 for
Fiduciaries and $250,000 for all other eligible purchasers.)
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
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
Available only to Shareholders who had Class Y Shares before
April 30, 1998.
(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, PFPC Inc. ("the Agent")
is authorized to redeem sufficient shares from this account at the then
current Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
______________________________________ ______________________________
First Name Middle Initial Last Name Financial Institution Name
______________________________________ ______________________________
Street Financial Institution Street Address
______________________________________ ______________________________
City State Zip City State Zip
_________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the 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, PFPC Inc., and to pay such sums in accordance therewith,
provided my/our account has sufficient funds to cover such drafts or
debits. I/We further agree that your treatment of such orders will be
the same as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number _____________________________________
Name and Address where my/our account is maintained
Name of Financial Institution_____________________________________________
Street Address____________________________________________________________
City___________________________________________State _________ Zip _______
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit in
the normal course of business initiated by the Agent (except any loss
due to your payment of any amount drawn against insufficient or
uncollected funds), provided that you promptly notify us in writing of
any claim against you with respect to the same, and further provided
that you will not settle or pay or agree to settle or pay any such
claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any such
electronic debit.
STEP 4
Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the 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
Jerry G. McGrew, Senior Vice President
Jean M. Smith, Vice President
Jessica Wiltshire, 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Deleware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights......................................
Table of Expenses...............................
Financial Highlights............................
Introduction....................................
Investment Of The Fund's Assets.................
Investment Restrictions.........................
Net Asset Value Per Share.......................
How To Invest In The Fund.......................
How To Redeem Your Investment...................
Automatic Withdrawal Plan.......................
Management Arrangements.........................
Dividend And Tax Information....................
Exchange Privilege..............................
General Information.............................
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, 1998
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for the
Fund dated April 30, 1998: one Prospectus describes Front-Payment
Class Shares ("Class A Shares") and Level-Payment Class Shares
("Class C Shares") of the Fund and the other describes
Institutional Class Shares ("Class Y Shares") of the Fund and
Financial Intermediary Class Shares ("Class I Shares"). References
in the Additional Statement to "the Prospectus" refer to either of
these Prospectuses. The Additional Statement should be read in
conjunction with the Prospectus for the class of shares in which
you are considering investing. Either or both Prospectuses may be
obtained from the Fund's Shareholder Servicing Agent, PFPC Inc. by
writing to: 400 Bellevue Parkway, Wilmington, DE 19809 or by
calling at the following numbers:
800-872-2651 toll free
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, 1997 (audited) will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Fund's Assets . . . . . . . . . . . . . . . .2
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . .7
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Restrictions. . . . . . . . . . . . . . . . . . . . 15
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . 16
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 22
Limitation of Redemptions in Kind. . . . . . . . . . . . . . . 24
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 25
Additional Information as to Management Arrangements . . . . . 30
Computation of Net Asset Value . . . . . . . . . . . . . . . . 33
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 34
Additional Tax Information . . . . . . . . . . . . . . . . . . 34
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 35
General Information. . . . . . . . . . . . . . . . . . . . . . 36
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 37
<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, 1997, in Colorado
Obligations in the various rating categories:
Highest rating (1) . . . . . . . . . . . . . . . 70.2%
Second highest rating (2). . . . . . . . . . . . 20.9%
Third highest rating (3) . . . . . . . . . . . . . 7.6%
Fourth highest rating(4) . . . . . . . . . . . . . 1.3%
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 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").
Futures contracts based on the Municipal Bond Index began trading
on June 11, 1985. The Municipal Bond Index is comprised of 40
tax-exempt municipal revenue and general obligation bonds. Each
bond included in the Municipal Bond Index must be rated A or higher
by Moody's or S&P and must have a remaining maturity of 19 years or
more. Twice a month new issues satisfying the eligibility
requirements are added to, and an equal number of old issues are
deleted from, the Municipal Bond Index. The value of the Municipal
Bond Index is computed daily according to a formula based on the
price of each bond in the Municipal Bond Index, as evaluated by six
dealer-to-dealer brokers.
The Municipal Bond Index Futures contract is traded only on
the CBT. Like other contract markets, the CBT assures performance
under Futures contracts through a clearing corporation, a nonprofit
organization managed by the exchange membership which is also
responsible for handling daily accounting of deposits or
withdrawals of margin.
There are at present U.S. Government Securities Futures
contracts based on long-term Treasury bonds, Treasury notes, GNMA
Certificates and three-month Treasury bills. U.S. Government
Securities Futures have traded longer than Municipal Bond Index
Futures, and the depth and liquidity available in the trading
markets for them are in general greater.
Call Options on Futures Contracts. The 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 or limits on upward or downward price movements which
could at times make it difficult or impossible to liquidate
existing positions.
Regulatory Aspects of Futures and Options
The 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 as to its long and short positions in
Futures under in conformity with 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). 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 these restrictions the Fund 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 a
right 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 matters 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 question, 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 of shares. Prior to
April 30, 1996, the Fund had outstanding only one class of shares
which are currently designated "Class A Shares." On that date the
Fund began to offer shares of two other classes, Class C Shares and
Class Y Shares. During most of the historical periods listed below,
there were no Class C Shares or Class Y Shares outstanding and the
information below relates solely to Class A Shares unless otherwise
indicated. Class I Shares were first offered on April 30, 1998, and
none were outstanding during the periods indicated. 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-, 5- and 10- 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 in shares of each of the Fund's classes to the
value such an investment would have if it were completely redeemed
at the end of each such period.
In the case of Class A Shares, the calculation assumes the
maximum sales charge is deducted from the hypothetical initial
$1,000 purchase. In the case of Class C Shares, the calculation
assumes the applicable Contingent Deferred Sales Charge ("CDSC")
imposed on a redemption of Class C Shares held for the period is
deducted. In the case of Class Y Shares, the calculation assumes
that no sales charge is deducted and no CDSC is imposed. For all
three classes, it is assumed that on each reinvestment date during
each such period any capital gains are reinvested at net asset
value, and all income dividends are reinvested at net asset value,
without sales charge (because the Fund does not impose any sales
charge on reinvestment of dividends for any class). The computation
further assumes that the entire hypothetical account was completely
redeemed at the end of each such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations for Class A Shares is a one
time charge, paid at the time of initial investment. The greatest
impact of this charge is during the early stages of an investment
in the Fund. Actual performance will be affected less by this one
time charge the longer an investment remains in the Fund. Sales
charges at the time of purchase are payable only on purchases of
Class A Shares of the Fund.
Average Annual Compounded Rates of Return:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 2.95% 4.95% 7.55%
Five Years 5.28% N/A N/A
Ten Years 7.01% N/A N/A
Since
inception on
May 21, 1987 6.80% 5.91%(1) 8.19%(1)
<FN>
(1) Period from April 30, 1996 (inception of class) through
December 31, 1997.
</FN>
</TABLE>
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 for
each of its classes of shares. 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.
Total Return
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 2.95% 4.95% 7.55%
Five Years 29.32% N/A N/A
Ten Years 96.85% N/A N/A
Since
inception on
May 21, 1987 101.1% 10.08% 14.07%
<FN>
(1) Period from April 30, 1997 (inception of class) through
December 31, 1997.
</FN>
</TABLE>
In general, actual total rate of return will be lower than
average annual rate of return because the average annual rate of
return reflects the effect of compounding. See discussion of the
impact of the sales charge on quotations of rates of return, above.
Yield
Current yield reflects the income per share earned by the
Fund's portfolio investments. Current yield is determined by
dividing the net investment income per share earned for each of the
Fund's three classes during a 30-day base period by the maximum
offering price per share on the last day of the period and
annualizing the result. Expenses accrued for the period include any
fees charged to all shareholders of each class during the base
period net of fee waivers and reimbursements of expenses, if any.
The Fund may also quote a taxable equivalent yield for each of
its three classes of shares which shows the taxable yield that
would be required to produce an after-tax yield equivalent to that
of a fund which invests in tax-exempt obligations. Such yield is
computed by dividing that portion of the yield of the 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 Colorado and the combined Colorado and federal income tax
rates upon which the Fund's tax equivalent yield quotations are
based are 5.0% and 43.75% respectively. The latter rate reflects
currently-enacted Federal income tax law. From time to time, as any
changes to such rates become effective, tax equivalent yield
quotations advertised by the 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.
Yield for the 30-day period ended December 31, 1997 (the
date of the Fund's most recent audited financial statements):
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
Yield 3.56% 2.76% 3.75%
Taxable
Equivalent
Yield 6.12% 4.75% 6.45%
</TABLE>
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
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.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase Class A 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.
The Fund may include in advertisements and sales literature,
information, examples and statistics that illustrate the effect of
taxable versus tax-free compounding income at a fixed rate of
return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital
gains distributions in additional shares. The examples used will be
for illustrative purposes only and are not representations by the
Fund of past or future yield or return.
From time to time, in reports and promotional literature,
the Fund may compare its performance to, or cite the historical
performance of, U.S. Treasury bills, notes and bonds, or indices of
broad groups of unmanaged securities considered to be
representative of, or similar to, the Fund's portfolio holdings,
such as:
Lipper Analytical Services, Inc. ("Lipper") is a
widely-recognized independent service that monitors and ranks the
performance of regulated investment companies. The Lipper
performance analysis includes the reinvestment of capital gain
distributions and income dividends but does not take sales charges
into consideration. The method of calculating total return data on
indices utilizes actual dividends on ex-dividend dates accumulated
for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance and are subject to
change every month. Funds with at least three years of performance
history are assigned ratings from one star (lowest) to five stars
(highest). Morningstar ratings are calculated from the funds'
three-, five-, and ten-year average annual returns (when available)
and a risk factor that reflects fund performance relative to
three-month Treasury bill monthly returns. Fund's returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars,
35% receive three stars, 22.5% receive two stars, and the bottom
10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly
publication which tracks principal return, total return and yield
on the Salomon Brothers Broad Investment-Grade Bond Index and the
components of the Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices," a monthly corporate government index publication which
lists principal, coupon and total return on over 100 different
taxable bond indices which Merrill Lynch tracks. They also list the
par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly
publication which tracks principal, coupon and total return on the
Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as well
as all the components of these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index
shows changes in the cost of selected consumer goods and does not
represent a return on an investment vehicle.
From time to time, in reports and promotional literature,
performance rankings and ratings reported periodically in national
financial publications such as MONEY, FORBES, BUSINESS WEEK,
BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In
addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL
STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be
cited.
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
the 1940 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 four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II) to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part
IV).
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 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.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part I of the Plan; and (ii) by a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities of
the Front-Payment Class Shares class (or of any predecessor class
or category of shares, whether or not designated as a class) and a
vote of holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Level-Payment Class Shares
and/or of any other class whose shares are convertible into
Front-Payment Class Shares. Part I has continued, and will, unless
terminated as herein 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 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 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.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part II of the Plan; and (ii) by a vote of holders of at least
a "majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class Shares. Part II has continued, and will,
unless terminated as therein provided, continue in effect, until
the April 30 next succeeding such effectiveness, and from year to
year thereafter only so long as such continuance is specifically
approved at least annually by the 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 (i) their agreements
with the Distributor with respect to payments under the Fund's
Distribution Plan in effect prior to April 30, 1996 or (ii) Class
C Plan Agreements entered into thereafter.
Payments under the Plan
During the fiscal year ended December 31, 1997, $107,821
was paid to Qualified Recipients with respect to Class A Shares, of
which $4,357 was retained by the Distributor. During the same
period, $7,193 was paid to Qualified Recipients with respect to
Class C Shares, of which $6,724 was retained by the Distributor.
During the fiscal year ended December 31, 1996, $107,593 was paid
to qualified Recipients with respect to Class A Shares, of which
$2,606 was retained by the Distributor. No or nominal payments were
made with respect to Class C Shares. During the fiscal year ended
December 31, 1995, $106,748 was paid to Qualified Recipients with
respect to what are now designated Class A Shares of which $2,553
was retained by the Distributor. All of such payments were for
compensation.
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name).
As used in Part III of the Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to any principal underwriter of the Fund, with which the Fund or
the Distributor has entered into written agreements in connection
with Part III ("Class I Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Class I Shares or
servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient, all
Class I Shares beneficially owned by such Qualified Recipient, or
beneficially owned by its brokerage customers, other customers,
other contacts, investment advisory clients, or other clients, if
the Qualified Recipient was, in the sole judgment of the
Distributor, instrumental in the purchase and/or retention of such
shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class I Permitted Payments")
to Qualified Recipients, which Class I Permitted Payments may be
made directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the 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), at a rate fixed
for time to time by the Board of Trustees, initially 0.10 of 1% of
the average annual net assets of the Fund represented by the Class
I Shares, but not more than 0.25 of 1% of such assets. Such
payments shall be made only out of the Fund's assets allocable to
Class I Shares. The Distributor shall have sole authority (i) as to
the selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Class C
Permitted Payments, if any, to each Qualified Recipient provided
that the total Class I Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into account,
in addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Class I Shares, including
without limitation, any or all of the following activities:
answering customer inquiries regarding account status and history,
and the manner in which purchases and redemptions of shares of the
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 III 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 I 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 III originally went into effect when it was approved
(i) by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part III of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Class I Shares Class. Part III has continued, and
will, unless terminated as herein 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 III applies. Part III may not be amended
to increase materially the amount of payments to be made without
shareholder approval of the class or classes of shares affected by
Part III as set forth in (ii) above, and all amendments must be
approved in the manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the 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 I 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 I
Plan Agreements entered into thereafter.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to
the extent that any of the payments listed below are considered to
be "primarily intended to result in the sale of" shares issued by
the 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 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 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 and Class I Shares of the Fund of "Service Fees" within
the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. The Services Plan applies
only to the Class C Shares and Class I Shares of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name).
Provisions for Level-Payment Class Shares (Part I)
As used in Part I of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the 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. Service
Fees with respect to Class C Shares will be paid to the
Distributor. During the fiscal year ended December 31, 1997, $2,397
was paid to the Distributor.
Provisions for Financial Intermediary Class Shares (Part II)
As used in Part II of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the Fund,
who have, pursuant to written agreements with the Fund or the
Distributor, agreed to provide personal services to shareholders of
Financial Intermediary Class Shares, maintenance of Financial
Intermediary Class Shares shareholder accounts and/or pursuant to
specific agreements entering confirmed purchase orders on behalf of
customers or clients. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Financial Intermediary Class Shares
beneficially owned by such Qualified Recipient's customers, clients
or other contacts. "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 Financial
Intermediary Class Shares. Such payments shall be made only out of
the Fund's assets allocable to the Financial Intermediary Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and provided,
further, that no Qualified Recipient may receive more than 0.25 of
1% of the average annual net asset value of shares sold by such
Recipient. The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the 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.
General Provisions
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
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 1940 Act as now in
force or hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the 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 Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: 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 two equity funds, Aquila Rocky Mountain
Equity Fund since 1993 and Aquila Cascadia Equity Fund, since 1996,
which, together with this Fund are called the Aquila Bond and
Equity Funds; Pacific Capital Cash Assets Trust since 1984;
Churchill Cash Reserves Trust since 1985; Pacific Capital U.S.
Government Securities 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; 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; Chairman of
the Board of Trustees and President of Prime Cash Fund (which is
inactive), since 1982 and of Short Term Asset Reserves 1984-1996;
President and a Director of STCM Management Company, Inc., sponsor
and sub-adviser to CCMT; Chairman, President, and a Director since
1984, of InCap Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term Asset Reserves, and
Founder and Chairman of several other money market funds; Director
or Trustee of OCC Cash Reserves, Inc., 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, 1990-1996
and currently Trustee Emeritus; 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; 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.
Government Securities 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;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,
Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital U.S.
Government Securities 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, 1994-1997; Director of the American Baptist
Foundation, 1985-1996 and since 1998; 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 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.
Jerry G. McGrew, Senior Vice President, P.O. Box 662, Radcliff,
Kentucky 40159
Senior Vice President of Aquila Rocky Mountain Equity Fund since
1997; Senior Vice President of Churchill Tax-Free Fund of Kentucky
since 1994, Vice President since 1987; Vice President of Tax-Free
Fund For Utah since 1992; Vice President of Churchill Cash Reserves
Trust since 1995; Registered Principal since 1993; Vice President
of Aquila Distributors, Inc. since 1993; Registered Representative
of J.J.B. Hilliard, W.L. Lyons Inc., 1983-1987; Account Manager
with IBM Corporation, 1967-1981; Gubernatorial appointee, Kentucky
Financial Institutions Board, since 1993; Chairman, Total Quality
Management for Small Business, 1990-1994; President of
Elizabethtown/Hardin County, Kentucky, Chamber of Commerce, 1989-
1991; President of Elizabethtown Country Club, 1983-1985.
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. Government Securities 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.
Jessica L. Wiltshire, Vice President, 410 17th Street, Suite 1715,
Denver, Colorado 80202
Investor Representative with Oppenheimer Funds, 1996-1997; Sales
Representative for Tax-Free Fund of Colorado and Aquila Rocky
Mountain Equity Fund, 1993-1996.
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; Secretary of the
Distributor since 1997; formerly a Legal Associate for Oppenheimer
Management Corporation, 1993-1995.
Compensation of Trustees
For its fiscal year ended December 31, 1997, the Fund paid
a total of $59,804 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
Fund 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 14 funds in the Aquilasm Group of Funds, which
consists of tax-free municipal bond funds, money market funds and
two equity funds. 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 $8,135 $9,985 2
Arthur K.
Carlson $7,794 $59,122 7
William M.
Cole $7,799 $47,061 5
Anne J.
Mills $9,042 $39,424 6
J. William
Weeks $9,106 $14,744 2
John G.
Welles $8,470 $8,470 1
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
The Board of Trustees has approved changes in the
management arrangements described below under which the
Administrator will become Investment Adviser and Administrator and
the Adviser will become Sub-Adviser. The change will not result in
any change of personnel or any change in overall management fees.
The proposed changes will be submitted for consideration by the
shareholders of the Fund at the annual meeting of shareholders on
June 29, 1998. If approved by the shareholders, the new
arrangements will go into effect at that time and the Prospectus
and Additional Statement will be supplemented.
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, 1997, 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, Polian, Inc. ("Kirkpatrick,
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. In 1996,
Kirkpatrick, Pettis transferred ownership of the adviser to KFS
Corporation, another subsidiary of their corporate parent, Mutual
of Omaha Insurance Company.
For the year ended December 31, 1997, advisory fees of
$437,704 were paid or accrued to the Adviser. For the year ended
December 31, 1996, advisory fees of $429,661 were paid or accrued
to the Adviser, of which $7,388 was voluntarily waived. 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.
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 year ended December 31, 1997, administration
fees of $656,555 were paid or accrued to the Administrator under
the Administration Agreement of which $5,270 was voluntarily
waived. During the years ended December 31, 1996 and 1995
respectively, administration fees of $644,125 and $640,488 were
paid or accrued to the Administrator under the Administration
Agreement of which $99,853 and $228,480, respectively was
voluntarily waived.
COMPUTATION OF NET ASSET VALUE
The net asset value of the shares of each of the Fund's three
classes is determined as of 4:00 p.m., New York time, on each day
that the New York Stock Exchange is open, by dividing the value of
the Fund's net assets allocable to each class by the total number
of its shares of such class then outstanding.Securities having a
remaining maturity of less than sixty days when purchased and
securities originally purchased with maturities in excess of sixty
days but which currently have maturities of sixty days or less are
valued at cost adjusted for amortization of premiums and accretion
of discounts. All other portfolio securities are valued at the mean
between bid and asked quotations which, for 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, Martin Luther King 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 Class A Shares are sold or issued
on a basis other than the maximum public offering price, that is,
the net asset value plus the highest sales charge. Some of these
relate to lower or eliminated sales charges for larger purchases,
whether made at one time or over a period of time as under a Letter
of Intent or right of accumulation. (See the table of sales charges
in the Prospectus.) The reasons for these quantity discounts are,
in general, that (i) they are traditional and have long been
permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such
discounts; and (ii) they are designed to avoid an unduly large
dollar amount of sales charge on substantial purchases in view of
reduced selling expenses. Quantity discounts are made available to
certain related persons ("single purchasers") for reasons of family
unity and to provide a benefit to tax-exempt plans and
organizations.
The reasons for the other instances in which there are reduced
or eliminated sales charges for Class A Shares are as follows.
Exchanges at net asset value are permitted because a sales charge
has already been paid on the shares exchanged. Sales without sales
charge are permitted to Trustees, officers and certain others due
to reduced or eliminated selling expenses and/or since such sales
may encourage incentive, responsibility and interest and an
identification with the aims and policies of the Fund. Limited
reinvestments of redemptions of Class A Shares and Class C Shares
at no sales charge are permitted to attempt to protect against
mistaken or incompletely informed redemption decisions. Shares may
be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such
issuance is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in
which there is a reduced or eliminated sales charge are the
interests of existing shareholders adversely affected since, in
each case, the Fund receives the net asset value per share of all
shares sold or issued.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchase Class A Shares or Class Y Shares
(Plan only available to shareholders with Class Y accounts on
October 31, 1997) of the Fund having a net asset value of at least
$5,000 you may establish an Automatic Withdrawal Plan under which
you will receive a monthly or quarterly check in a stated amount,
not less than $50. Stock certificates will not be issued for shares
held under an Automatic Withdrawal Plan. All dividends 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 your account. The monthly or quarterly payments paid
to you may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
If you incur a sales commission on purchase of shares of one
mutual fund (the original fund) and then sell such shares or
exchange them for shares of a different mutual fund without having
held them at least 91 days, you must reduce the tax basis for the
shares sold or exchanged to the extent that the standard sales
commission charged for acquiring shares in the exchange or later
acquiring shares of the original fund or another fund is reduced
because of the shareholder's having owned the original fund shares.
The effect of the rule is to increase your gain or reduce your loss
on the original fund shares. The amount of the basis reduction on
the original fund shares, however, is added on the investor's basis
for the fund shares acquired in the exchange or later acquired. 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.
Ownership of Securities
Of the Class A Shares of the Fund outstanding on April 23,
1998, Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561,
New Brunswick, NJ held of record 1,173,337 shares (5.4%). On the
basis of information received from those holders, the Fund's
management believes that all of such shares are held for the
benefit of clients.
Of the Class C Shares of the Fund outstanding on that date,
PaineWebber F/B/O held of record 16,978 shares (15.9% of the
class), and Everen Clearing Corp. (two accounts) held of record
17,874 shares and 50,494 shares, (16.7% and 47.4% of the class). On
the basis of information received from those holders, the Fund's
management believes that all of such shares are held for the
benefit of clients.
Of the Class Y Shares of the Fund outstanding on that date,
Haws & Co. held of record 139,112 shares (31.5% of the class) and
Heritage Trust & Asset Management Inc., 200 Grand Avenue, Grand
Junction, CO held of record 286,913 shares (64.9% of the class). On
the basis of information received from those holders, the Fund's
management believes that all of such shares are held for the
benefit of clients.
The Fund's management is not aware of any other person owning
of record or beneficially 5% or more of the shares of any class of
Fund's outstanding shares as of that date.
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, 1997, the aggregate
dollar amount of sales charges on sales of shares in the Fund was
$377,482 and the amount retained by the Distributor was
$68,322.
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, 1997 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
Jerry G. McGrew, Senior Vice President
Jean M. Smith, Vice President
Jessica Wiltshire, 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Deleware 19809
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, 1997
Statement of Assets and Liabilities
as of December 31, 1997
Statement of Operations for the year
ended December 31, 1997
Statement of Changes in Net Assets for the
years ended December 31, 1997 and 1996
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 (i)
(2) By-laws (i)
(3) Not applicable
(4) Specimen share certificate (ii)
(5) Investment Advisory Agreement (ii)
(6) (a) Distribution Agreement (ii)
(b) Sales Agreement (for brokerage firms) (ii)
(c) Sales Agreement (for financial institutions) (ii)
(d) Shareholder Services Agreement (i)
(7) Not applicable
(8) Custody Agreement (i)
(9) (a) Transfer Agency Agreement (iii)
(b) Administration Agreement (ii)
(10) Opinion and consent of counsel (iii)
(11) Not applicable
(12) Not applicable
(13) Not Applicable
(14) Not applicable
(15) Distribution Plan (iii)
(15) (a) Shareholder Services Plan (iii)
(16) Schedule for computation of performance quotations (iii)
(17) Financial Data Schedules (iii)
(18) Plan pursuant to Rule 18f-3 under the 1940 Act (iii)
(i) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 10 dated April 26, 1996 and incorporated
herein by reference.
(ii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 11 dated April 28, 1997 and incorporated
herein by reference.
(iii) Filed herewith.
ITEM 25. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 26. Number of Holders of Securities
As of April 20, 1998 Registrant had 4457 holders
of record of its Class A Shares, 9 of its Class C Shares
and 3 of its Class Y Shares.
ITEM 27. Indemnification
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Supplemental Declaration of Trust Amending
and Restating the Declaration of Trust, filed as Exhibit
1 to Registrant's Post-Effective Amendment No. 15 dated
March 28, 1996, 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,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a
Trustee, officer, or controlling person of Registrant 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 public
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
the following Funds, including the Registrant: 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, Tax-Free Fund For Utah, Tax-Free Fund of
Colorado, Tax-Free Trust of Arizona, Aquila Rocky Mountain
Equity Fund, Aquila Cascadia Equity Fund and Tax-Free Trust
of Oregon.
(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>
Consent of Independent Auditors
To The Shareholders and Board of Trustees
Tax-Free Fund of Colorado:
We consent to the use of our report dated February 6, 1998,
incorporated herein by reference, and to the reference to our
firm under the headings "Financial Highlights" in the Prospectus
and "Custodian and Auditors" in the Statement of Additional
Information.
New York, New York KPMG Peat Marwick LLP
April 24, 1998 /s/KPMG Peat Marwick LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant 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 28th day of April, 1998.
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.
/s/Lacy B. Herrmann 4/28/98
______________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Tucker Hart Adams 4/28/98
______________________ Trustee ___________
Tucker Hart Adams
/s/Arthur K. Carlson 4/28/98
______________________ Trustee ___________
Arthur K. Carlson
/s/William M. Cole 4/28/98
______________________ Trustee ___________
William M. Cole
/s/Anne J. Mills 4/28/98
______________________ Trustee ___________
Anne J. Mills
/s/J. William Weeks 4/28/98
- ---------------------- Trustee -----------
J. William Weeks
/s/John G. Welles 4/28/98
______________________ Trustee ___________
John G. Welles
/s/Rose F. Marotta 4/28/98
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
TAX-FREE FUND OF COLORADO
Exhibit List
Number Description
(9) (a) Transfer Agency Agreement
(10) Opinion and consent of counsel
(15) Distribution Plan
(15) (a) Shareholder Services Plan
(16) Schedule for computation of performance
quotations
(17) Financial Data Schedules
(18) Plan pursuant to Rule 18f-3
under the 1940 Act
Correspondence
`
TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of November 7, 1997 by and between
PFPC INC., a Delaware corporation ("PFPC"), and TAX-FREE FUND OF
COLORADO, a Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer
agent, registrar, dividend disbursing agent and shareholder
servicing agent to its investment portfolios listed on Exhibit A
attached hereto and made a part hereof, as such Exhibit A may be
amended from time to time (each a "Portfolio"), and PFPC wishes
to furnish such services, on the terms and for the considerations
set forth in this agreement (the "Agreement").
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Definitions. As used in this Agreement:
(a) "1933 Act" means the Securities Act of 1933, as
amended.
(b) "1934 Act" means the Securities Exchange Act of
1934, as amended.
(c) "Authorized Person" means any officer of the Fund
and any other person duly authorized by the Fund's Board of
Trustees to give Oral Instructions and Written Instructions on
behalf of the Fund and listed on the Authorized Persons Appendix
attached hereto and made a part hereof or any amendment thereto
as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such
limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as
amended.
(e) "Oral Instructions" mean oral instructions
received by PFPC from an Authorized Person or from a person
reasonably believed by PFPC to be an Authorized Person.
(f) "SEC" means the Securities and Exchange
Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act,
the 1940 Act and the CEA.
(h) "Shares" mean the shares of beneficial interest
of any series or class of the Fund.
(i) "Written Instructions" mean written instructions
signed by an Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as
transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent to the Fund in accordance with the
terms set forth in this Agreement. PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide PFPC with the following:
(a) Certified or authenticated copies of the
resolutions of the Fund's Board of Trustees,
approving the appointment of PFPC or its
affiliates to provide services to the Fund and
approving this Agreement;
(b) A copy, and all amendments thereto, of the Fund's
most recent effective registration statement;
(c) A copy of the applicable administration, advisory
and/or sub-advisory agreements, and all amendments
thereto, with respect to each Portfolio;
(d) A copy of the distribution agreement, and all
amendments thereto, with respect to each class of
Shares;
(e) Copies of any shareholder servicing agreements,
and all amendments thereto, made in respect of the
Fund or a Portfolio;
(f) The Fund's Declaration of Trust filed with the
Secretary of State of the Commonwealth of
Massachusetts and all amendments thereto (such
Declaration of Trust, as presently in effect and
as it shall from time to time be amended, is
herein called the "Declaration of Trust"); and
(g) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they
shall from time to time be amended, are
hereinafter called the "By-Laws").
PFPC has furnished the Fund with copies properly
certified or authenticated of its Registration Statement on Form
TA-1 under the Securities and Exchange Act of 1934, as amended
and all other public reports filed with the SEC related to the
services provided to the Fund as may be requested from time to
time by the Fund.
4. Compliance with Rules and Regulations. PFPC undertakes
to comply with all applicable requirements of the Securities Laws
and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by
PFPC hereunder. Except as specifically set forth herein, PFPC
assumes no responsibility for such compliance by the Fund or any
of its investment portfolios.
5. Instructions.
(a) Unless otherwise provided in this Agreement, PFPC
shall act only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an
Authorized Person (or from a person reasonably believed by PFPC
to be an Authorized Person) pursuant to this Agreement. PFPC may
assume that any Oral Instruction or Written Instruction received
hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote,
resolution or proceeding of the Fund's Board of Trustees or of
the Fund's shareholders, unless and until PFPC receives Written
Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written
Instructions confirming Oral Instructions so that PFPC receives
the Written Instructions by the close of business on the same day
that such Oral Instructions are received. The fact that such
confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral
Instructions or Written Instructions reasonably appear to have
been received from an Authorized Person, PFPC shall incur no
liability to the Fund in acting upon such Oral Instructions or
Written Instructions provided that PFPC's actions comply with the
other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any
action it should or should not take, PFPC may request directions
or advice, including Oral Instructions or Written Instructions,
from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as
to any question of law pertaining to any action it should or
should not take, PFPC may request advice at its own cost from
such counsel of its own choosing (who may be counsel for the
Fund, the Fund's investment adviser or PFPC, at the option of
PFPC).
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral Instructions or Written
Instructions PFPC receives from the Fund, and the advice it
receives from counsel, PFPC may rely upon and follow the advice
of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the
part of PFPC which constitutes willful misfeasance, bad faith,
negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in
any action it takes or does not take in reliance upon directions,
advice or Oral Instructions or Written Instructions it receives
from the Fund or from counsel and which PFPC believes, in good
faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to
seek such directions, advice or Oral Instructions or Written
Instructions, or (ii) to act in accordance with such directions,
advice or Oral Instructions or Written Instructions unless, under
the terms of other provisions of this Agreement, the same is a
condition of PFPC's properly taking or not taking such action.
Nothing in this subsection shall excuse PFPC when an action or
omission on the part of PFPC constitutes willful misfeasance, bad
faith, negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
7. Records; Visits. The books and records pertaining to
the Fund which are in the possession or under the control of PFPC
shall be the property of the Fund. Such books and records shall
be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. PFPC will,
if so requested by counsel to the Fund, work with such counsel to
develop an acceptable modification to the manner in which such
books and records are prepared and maintained so as to comply
with the reasonable opinion of such counsel as to such laws and
rules. Such modification will be subject to additional mutually-
agreed upon pricing, if any. The Fund and Authorized Persons
shall have access to such books and records at all times during
PFPC's normal business hours. Copies of any such books and
records shall be provided by PFPC to the Fund or to an Authorized
Person at the Fund's expense. Prior to any destruction of any
books or records, PFPC will advise the Fund of the proposed
destruction and in accordance with instructions of the Fund, the
records will be destroyed or, at the expense of the Fund,
delivered to the Fund or as it may otherwise direct.
8. Confidentiality. PFPC agrees to keep confidential all
records of the Fund and information relating to the Fund and its
shareholders, unless the release of such records or information
is otherwise consented to, in writing, by the Fund, and shall
maintain procedures reasonably designed to protect such
confidentiality. The Fund agrees that its consent shall not be
unreasonably withheld and may not be withheld where PFPC may be
exposed to civil or criminal contempt proceedings or when
required to divulge such information or records to duly
constituted authorities, and that such consent shall not be
required where consent or notice to the Fund is not permitted by
law or regulation.
9. Cooperation with Accountants. PFPC shall cooperate
with the Fund's independent public accountants and shall take all
reasonable actions in the performance of its obligations under
this Agreement to ensure that the necessary information is made
available on a timely basis to such accountants for the
expression of their opinion, as required by the Fund.
10. Adequate Facilities; Disaster Recovery. PFPC shall
maintain adequate personnel and facilities, as well as adequate
and reliable computer and other equipment, necessary and
appropriate to carry out its obligations under this Agreement,
including appropriate duplicate files (which shall be readable
by computer or otherwise or maintained in hard copy form, and
shall be maintained at a frequency and in a detail reasonably
designed pursuant to industry standards to provide for protection
of such files in the event of a disaster to PFPC's facilities).
PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making adequate and
reliable provisions for emergency use of electronic data
processing equipment to the extent appropriate equipment is
available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize
service interruptions. PFPC shall periodically back up data
(including all predecessor transfer agent data delivered to PFPC
by the Fund's prior transfer agent in a machine readable format
and converted by PFPC) on appropriate media to be stored at an
offsite facility of PFPC's choosing. PFPC shall have no
liability with respect to the loss of data or service
interruptions caused by equipment failure or otherwise, provided
such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its
duties or obligations under this Agreement.
11. Insurance. PFPC shall maintain adequate fidelity,
error and omissions and other insurance coverage in connection
with its transfer agent services throughout the duration of this
Agreement.
12. Compensation. As compensation for services rendered by
PFPC during the term of this Agreement, for the period commencing
on the date upon which PFPC becomes transfer agent for the Fund,
the Fund will pay to PFPC a fee or fees as agreed to from time to
time in writing by the Fund and PFPC. All services detailed in
this Agreement and expenses incurred in the performance of these
services will be provided by PFPC without cost to the Fund except
as otherwise stated in this Agreement or otherwise agreed to in
writing.
13. Indemnification. The Fund agrees to indemnify and hold
harmless PFPC and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any
state and foreign securities and blue sky laws, and amendments
thereto), and expenses, including (without limitation) attorneys'
fees and disbursements, arising directly or indirectly from (i)
any action or omission to act which PFPC takes (a) at the request
or on the direction of or in reliance on the advice of the Fund
or (b) upon Oral Instructions or Written Instructions or (ii) the
acceptance, processing and/or negotiation of checks or other
methods utilized for the purchase of Shares. Neither PFPC nor
any of its affiliates shall be indemnified against any liability
(or any expenses incident to such liability) arising out of
PFPC's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations
under this Agreement.
14. Release. PFPC understands that the obligations of this
Agreement are not binding upon any shareholder of the Fund
personally, but bind only the Fund's property; PFPC represents
that it has notice of the provision in the Fund's Declaration of
Trust disclaiming shareholder liability for acts or obligations
of the Fund.
15. Responsibility of PFPC.
(a) PFPC shall be under no duty to take any action on
behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by PFPC in writing. PFPC shall be
obligated to exercise care and diligence in the performance of
its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, to ensure the accuracy and
completeness of all services performed under this Agreement.
PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent
such damages arise out of PFPC's willful misfeasance, bad faith,
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing
or of any other provision of this Agreement, (i) PFPC shall not
be liable for losses beyond its control, provided that PFPC has
acted in accordance with the standard of care set forth above;
and (ii) PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction
or Written Instruction, notice or other instrument which conforms
to the applicable requirements of this Agreement, and which PFPC
reasonably believes to be genuine; or (B) subject to Section 10,
delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or
military authority, national emergencies, labor difficulties,
fire, flood, catastrophe, acts of God, insurrection, war, riots
or failure of the mails, transportation, communication or power
supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PFPC nor its affiliates shall be liable to the
Fund for any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PFPC's or its affiliates' performance of the services provided
hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
16. Description of Services.
(a) Itemized Services. PFPC shall:
(i) Calculate 12b-1 payments and payments under
any Shareholder Services Plan of the Fund,
produce and mail statements and checks where
applicable or generate payments through the
National Securities Clearing Corp. (the
"NSCC") to all eligible dealers, and forward
ineligible checks and statements to Aquila
Distributors, Inc. (the "Distributor");
(ii) Make weekly payment of direct commissions,
including settlement through NSCC;
(iii) Establish and maintain proper shareholder
registrations;
(iv) Review new applications for required
information and correspond with shareholders
to complete or correct information;
(v) Provide payment processing of checks or
wires;
(vi) Prepare and certify stockholder lists in
conjunction with proxy solicitations;
(vii) Issue and countersign share certificates
(when requested in writing by a shareholder)
and cancel share certificates;
(viii) Prepare and mail to shareholders confirmation
of activity;
(ix) Provide toll-free lines and voice response
unit for direct shareholder use, plus
customer liaison staff for on-line inquiry
response (generally until 6 p.m., New York
time, on days on which the New York Stock
Exchange is open), including the ability to
receive redirected toll-free calls from the
Distributor on an as-needed basis;
(x) On a monthly basis, mail duplicate statements
to: (1) broker-dealers of their clients'
activity, whether executed through the
broker-dealer or directly with PFPC, and (2)
other parties (e.g., lawyers and accountants)
as requested by the shareholders;
(xi) Provide periodic shareholder lists and
statistics to the Fund;
(xii) Provide detailed data for underwriter/broker
confirmations, including daily outstanding
confirmed purchases, redemptions, and paid
not issued shares;
(xiii) Prepare periodic mailing of year-end tax and
statement information;
(xiv) Provide reports, notification, and where
applicable reconciliation on a timely basis
to the investment adviser, sub-adviser,
administrator, accounting agent, and
custodian of fund activity;
(xv) Perform other participating broker-dealer
shareholder services, including Fund/Serv,
Automated Customer Account Transfer System
("ACATS"), Networking and terminal access for
selected dealers, and such other services as
may be agreed upon from time to time;
(xvi) Promptly transmit to the Fund all reports,
documents and information as are requested by
the Fund and agreed to by PFPC, which
agreement shall not be unreasonably withheld,
that are necessary to enable the Fund and its
service providers to comply with the
requirements of the Internal Revenue Service,
the SEC, the National Association of
Securities Dealers, Inc, the National
Securities Clearing Corp., the state blue sky
authorities and any other regulatory bodies
having jurisdiction over the Fund, it being
understood and agreed that such reports shall
include those on the list contained in
Exhibit B hereto, as such list may be
amended from time to time by agreement
between the parties;
(xvii) Process all clerical transactions;
(xviii) Screen and maintain Transfer on Death
registrations according to Fund guidelines
(except those guidelines hereafter adopted by
the Fund which are considered in PFPC's sole
good-faith discretion to be more burdensome
than the guidelines in effect on the date of
this Agreement);
(xix) Provide electronic imaging and time-stamping
of all incoming mail;
(xx) Compute and track all front-end and
contingent deferred sales charges imposed
upon the purchase and redemption of Shares;
(xxi) Track and convert Shares in accordance with
the share conversion features described in
the prospectus of the Fund;
(xxii) Answer written or telephonic correspondence
relating to its duties hereunder (including
providing written acknowledgement of address
changes to previous addresses of record) and
such other correspondence as may from time to
time be mutually agreed upon between PFPC and
the Fund; inquiries of a non-routine nature
shall be referred to the Fund;
(xxiii) Remit supporting detail of underwriter fees
to the Distributor on a semi-monthly basis;
(xxiv) Until such time as Fund management and legal
counsel to the Fund determine otherwise and
so inform PFPC in Written Instructions,
establish, maintain for the benefit of the
Fund and control the flow of funds through
separate subscription, redemption and
dividend disbursement accounts (each an
"Operational Account") provided by PNC Bank,
N.A. or by such other financial institution
as may be agreed upon by the Fund and PFPC;
(xxv) To the extent reasonably feasible, reverse
trades (including backing out dividends) due
to nonreceipt of funds, improper
registration, or other sufficient reason;
(xxvi) Compute and track all letters of intent;
(xxvii) Screen all transactions with respect to the
Fund's Blue Sky requirements of which PFPC is
informed by the Fund by Written Instructions,
and comply with the Written Instructions of
the Fund in effect from time to time limiting
issuance of Shares to specified states (based
on address of registration), including
screening for Shares sold in states other
than those so specified (but relating only to
those Shares sold after PFPC commences its
duties as transfer agent hereunder);
(xxviii) Provide abandoned property reporting and
filing to meet the escheat requirements of
each of the states named by the Fund in
Written Instructions;
(xxix) Maintain a record of all incoming checks, new
account applications and documentation set
forth in Section 16(g), on filmstrips,
another microfilm retrieval method or
otherwise so as to be retrievable and
reproducible, upon reasonable request, within
time frames that meet reasonable industry
standards;
(xxx) Process W-9 or similar forms received by PFPC
and review taxpayer identification numbers
for all same number (e.g., 888 88 8888),
sequential numbering (e.g., 123 45 6789) and
non-numeric numbers (e.g., 128 4A 3927) and
other conditions of obvious irregularity in
accordance with PFPC's normal operating
procedures;
(xxxi) On a semi-monthly or other basis acceptable
to PFPC and the Fund (but in no event more
frequently than once per month per
shareholder account) initiate, accept and
process pre-authorized checks or, when
available, electronic funds transfers drawn
against shareholders' checking accounts;
(xxxii) In accordance with policies and procedures
established by the Fund and PFPC, furnish to
shareholders dividend and redemption checks
alleged to have been lost, stolen, destroyed
or not received; and
(xxxiii) Record all incoming telephone conversations
and telephonic transactions that are received
via the Fund's published customer service
numbers and retain such recordings for a
minimum of six months.
(xxxiv) Post and perform shareholder transfers and
post and perform exchanges for shares of
other funds with which the Fund has exchange
privileges, pursuant to shareholder
instructions; and
(xxxv) Reconcile to Fund accounting records and pay
dividends and other distributions, including
direct deposit credits through the Automatic
Clearing House ("ACH") upon proper written
shareholder authorization.
(b) Purchase of Shares. PFPC shall issue Shares and
credit an account of an investor, in the manner described in the
Fund's prospectus, once it has screened for blue sky compliance
pursuant to Section 16(a)(xxvii) and Transfer on Death
registration compliance pursuant to Section 16(a)(xviii) and
receives:
(i) A purchase order or application, either
directly from an investor or otherwise,
complying with requirements for purchases
prescribed by the prospectus;
(ii) Proper information to establish a shareholder
account; and
(iii) A purchase check or confirmation of receipt
or crediting of available funds for such
order to the Fund's custodian.
In opening new shareholder accounts, PFPC will assign account
numbers. PFPC shall assign Aquila Distributors, Inc. as broker
of record whenever dealer information is omitted and send a copy
of any related application to Aquila Distributors, Inc.
PFPC must receive a completed application before any
redemption orders are accepted and processed for an account
opened directly by an investor.
(c) Redemption of Shares. PFPC shall redeem Shares
only if that function is properly authorized by the Declaration
of Trust or resolution of the Fund's Board of Trustees. If the
Fund is a money-market fund, PFPC shall arrange, in accordance
with the Fund's prospectus, for a shareholder's redemption of
shares from a shareholder's account with a checkwriting
privilege. Shares shall be redeemed and payment therefor shall
be made in accordance with the Fund's prospectus, including
provisions set forth therein for automatic redemption, telephone
redemption requests and check-writing privileges, when the
recordholder tenders Shares in proper form and amount and
properly directs the method of redemption. If Shares are
received in proper form, Shares shall be redeemed before the
funds are provided to PFPC from the Fund's custodian. If the
recordholder has not directed that redemption proceeds be wired,
when the custodian provides PFPC with funds, a redemption check
shall be sent to and made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to the
order of an assignee or holder and transfer
authorization is signed by the recordholder;
(ii) Transfer authorizations are signed by the
recordholder when Shares are held in
book-entry form;
(iii) Such redemption is through money market fund
check-writing capabilities; or
(iv) such redemption is in settlement of dealer
confirmed redemptions via Fund/Serv.
Consistent with provisions set forth in the prospectus,
redemption proceeds shall be wired upon request. When a
broker-dealer notifies PFPC of a redemption desired by a
customer, and the Fund's custodian provides PFPC with funds, PFPC
shall prepare and send the redemption check to the broker-dealer,
made payable to the broker-dealer on behalf of its customer.
PFPC shall establish procedures reasonably designed to
ensure that redemption requirements established by PFPC and
agreed to by the Fund have been met, including the receipt and
examination of stock certificates and related endorsements,
signature guarantees and obtaining any needed papers or
documents, including a properly completed application, where
required. No redemptions in accounts represented in whole or in
part by certificates shall be effected without cancellation of an
adequate number of certificate Shares, if necessary. No
signature guarantees shall be acceptable if received by facsimile
and signature guarantees must reasonably appear to have been
provided by an eligible guarantor institution of a type described
as such in the prospectus which is a participant in a medallion
program recognized by the Securities Transfer Association or in
instructions received from the Fund; provided, however, that PFPC
may accept a signature guarantee received by facsimile if so
instructed by Oral or Written Instructions.
(d) Dividends and Distributions. Upon receipt of a
resolution of the Fund's Board of Trustees authorizing the
declaration and payment of dividends and distributions, PFPC
shall issue dividends and distributions declared by the Fund in
Shares, or, upon shareholder election, pay such dividends and
distributions in cash, if and as provided for in the Fund's
prospectus. Such issuance or payment, as well as payments upon
redemption as described above, shall be made after deduction and
payment of the required amount of funds to be withheld in
accordance with any applicable tax laws or other laws, rules or
regulations. PFPC shall timely mail to the Fund's shareholders
and appropriate taxing authorities such tax forms and other
information, or permissible substitute notice, relating to
dividends and distributions paid by the Fund as are required to
be filed and mailed by applicable law, rule or regulation. PFPC
shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends
paid by the Fund to its shareholders as required by tax or other
law, rule or regulation.
(e) Communications to Shareholders. PFPC shall
address, enclose and mail all communications by the Fund to its
shareholders (pre-sorting where reasonably practicable),
including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of
Shares;
(iii) Monthly or quarterly statements (with extra
print lines for additional information, such
as additional dividend information, to
shareholders), generally by the fifth
business day after the dividend payable date,
providing a combined check and statement to
shareholders electing cash distributions;
(iv) Dividend and distribution notices (at year-
end, such notices will be upon Written
Instructions);
(v) Tax form information (upon Written
Instructions);
(vi) Forms W-9 or W-8 as appropriate;
(vii) Prospectuses;
(viii) Account-related shareholder correspondence
that is considered in PFPC's sole discretion
to be routine; and
(ix) Any other routine shareholder communications
as agreed to between the Fund and PFPC.
(f) Third Party Proxy Provider. PFPC shall assist the
Fund in obtaining competitive bids for proxy services. Proxy
services shall be provided by a third party. The Fund
understands and agrees that PFPC bears no responsibility for the
provision of any proxy services or the manner in which any proxy
services are provided, that PFPC will not be considered the
Fund's agent in connection with the provision of any proxy
services, and that any party providing proxy services to the Fund
shall not be considered to be the agent of PFPC or to have any
other relationship with PFPC with respect to such services. Such
proxy services, which will be decided upon solely between the
Fund and the third party provider, shall include proxy mailing,
receiving and tabulating proxy cards for the meetings of the
Fund's shareholders, communicating to the Fund daily and final
results of such tabulation accompanied by appropriate
certificates, and preparing and furnishing to the Fund certified
lists of shareholders as of such date, and in such form and
containing such information as may be required by the Fund to
comply with any applicable provisions of law or its Declaration
of Trust and/or By-Laws relating to such meetings.
Notwithstanding the foregoing provisions of this Subsection (f),
PFPC shall furnish to the third-party proxy provider such
information as is reasonably requested by such provider
pertaining to shareholder registration information and record-
date share positions to permit the Fund to obtain the benefits of
the services necessary for conduct of its shareholder meetings.
(g) Records. PFPC shall maintain records of the
accounts for each shareholder showing the following information:
(i) Name, address, United States Tax
Identification or Social Security number, and
any pertinent beneficiary information;
(ii) Number and class of Shares held and number
and class of Shares for which certificates,
if any, have been issued, including
certificate numbers and denominations;
(iii) Historical information regarding the account
of each shareholder, including dividends and
distributions paid and the date and price for
all transactions in a shareholder's account;
(iv) Any stop or restraining order placed against
a shareholder's account;
(v) Any correspondence relating to the current
maintenance of a shareholder's account;
(vi) Information with respect to withholdings,
including withholdings in the case of a
foreign account and accounts subject to
backup withholding; and
(vii) Any information required in order for the
transfer agent to perform any calculations
contemplated or required by this Agreement.
PFPC shall use its best efforts to convert for use in
its system such data of the predecessor transfer agent that has
been provided to PFPC as shall permit PFPC to maintain on its
system such converted data covering a minimum of 18 months prior
to commencement of its services as transfer agent of the Fund.
PFPC is not responsible for errors or omissions in or caused by
the records of any predecessor transfer agent. PFPC shall inform
the Fund of material errors coming to its attention in the course
of performance of its duties hereunder. PFPC shall maintain on
its system in a readily viewable form pertinent account
information (i.e., the information listed in this Section 16(g))
relating to shareholders of the Fund (including all predecessor
transfer agent data delivered to PFPC by the Fund's prior
transfer agent in a machine readable format and converted by
PFPC) for a minimum of 13 months after the date of the
transaction or other matter to which the information relates and
shall thereafter maintain such information in a readily
accessible format to the extent required by the 1940 Act and
other applicable securities laws, rules and regulations.
(h) Lost or Stolen Certificates. PFPC shall place a
stop notice against any certificate reported to be lost, stolen,
destroyed or not received and comply with all applicable federal
regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and
issued only upon:
(i) The shareholder's pledge of a lost instrument
bond or such other appropriate indemnity bond
issued by a surety company approved by PFPC;
and
(ii) Completion of a release and indemnification
agreement signed by the shareholder to
protect PFPC and its affiliates.
(i) Shareholder Inspection of Fund Records. Upon a
request from any Fund shareholder to inspect Fund records, PFPC
will notify the Fund and the Fund will issue instructions
granting or denying each such request. Unless PFPC has acted
contrary to the Fund's instructions, the Fund agrees and does
hereby release PFPC from any liability for refusal of permission
for a particular shareholder to inspect the Fund's records.
(j) Withdrawal of Shares and Cancellation of
Certificates. Upon receipt of Written Instructions, PFPC shall
cancel outstanding certificates surrendered by the Fund to reduce
the total amount of outstanding Shares by the number of Shares
surrendered by the Fund.
(k) Fraud Detection Procedures. PFPC shall establish
procedures that are reasonably designed to detect fraudulent
purchase, redemption and distribution checks (including
fraudulent or forged endorsements and altered payment amounts);
however, PFPC shall have no liability for loss resulting from any
fraud perpetrated or attempted to be perpetrated on the Fund,
unless PFPC has acted with willful misfeasance, bad faith,
negligence or reckless disregard of its duties hereunder. Such
procedures shall take into account the type of accounts involved,
the sums involved and cost/benefit considerations.
(l) Third Party Checks. PFPC shall not accept any
third party check (i.e., an investment check whose payee is other
than the Fund or PFPC) except pursuant to Written Instructions.
(m) Relationship Officer. PFPC agrees to provide a
Relationship Officer to serve as the primary point of contact
between the Fund and PFPC. PFPC will exercise due care in
assigning an individual who is conversant with standard
investment company practices.
(n) Additional Services.
(i) PFPC shall, in addition to the services
herein itemized, if so requested by the Fund
and agreed to by PFPC, which shall bargain in
good faith regarding such requests and the
fees and charges to be paid therefor, for
such additional fees and charges as the Fund
and PFPC may from time to time agree, perform
and do all other acts and services as
required by the Fund's prospectus or the law
or that are customarily performed and done by
transfer agents, dividend disbursing agents,
and shareholder servicing agents of open-end
mutual funds such as the Fund.
(ii) PFPC shall, in addition to the services
herein itemized, provide such additional
services to the Fund and in such manner as
are normally provided by PFPC to its mutual
fund transfer agency customers in the normal
course of business, subject to additional
mutually-agreed upon pricing, if any.
(o) Procedures. In order to facilitate the carrying
out of the services set forth in this Agreement, PFPC shall
follow the procedures attached hereto as Exhibit C and PFPC and
the Fund may from time to time mutually agree to changes thereto.
17. Duration and Termination. This Agreement shall
continue until terminated by the Fund on sixty (60) days' prior
written notice or by PFPC on one-hundred-twenty (120) days' prior
written notice to the other party, provided, however, that
without the Fund's consent PFPC shall not for a period of three
years after the date of this Agreement terminate this Agreement
with the intent to enter into a new agreement with the Fund that
provides for higher fees.
18. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending device.
Notices shall be addressed (a) if to PFPC, at 400 Bellevue
Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at 380
Madison Avenue, Suite 2300, New York, NY 10017, Attn: President
or (c) if to neither of the foregoing, at such other address as
shall have been given by like notice to the sender of any such
notice or other communication by the other party. If notice is
sent by confirming telegram, cable, telex or facsimile sending
device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have
been given three days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the
day it is delivered.
19. Amendments. This Agreement, or any term thereof, may
be changed or waived only by a written amendment, signed by the
party against whom enforcement of such change or waiver is
sought.
20. Delegation; Assignment. PFPC may assign its rights and
delegate its duties hereunder only to any wholly-owned direct or
indirect subsidiary of PNC Bank, National Association or PNC Bank
Corp., provided that (i) PFPC gives the Fund thirty (30) days'
prior written notice; (ii) the delegate (or assignee) agrees with
PFPC and the Fund to comply with all relevant provisions of the
1940 Act; and (iii) PFPC and such delegate (or assignee) promptly
provide such information as the Fund may request, and respond to
such questions as the Fund may ask, relative to the delegation
(or assignment), including (without limitation) the capabilities
of the delegate (or assignee).
21. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
22. Further Actions. Each party agrees to perform such
further acts and execute such further documents as are necessary
to effectuate the purposes hereof.
23. Miscellaneous.
(a) Entire Agreement. This Agreement embodies the
entire agreement and understanding between the parties and
supersedes all prior agreements and understandings relating to
the subject matter hereof, provided that the parties may embody
in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are
included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their
construction or effect.
(c) Governing Law. This Agreement shall be deemed to
be a contract made in Delaware and governed by Delaware law,
without regard to principles of conflicts of law.
(d) Partial Invalidity. If any provision of this
Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
(e) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of
any party to this Agreement shall constitute the valid and
binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.
PFPC INC.
By: /s/Robert J. Perlsveg
Title: E V P
TAX-FREE FUND OF COLORADO
By: /s/Diana P. Herrmann
Title: Vice President
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of November 7, 1997, is Exhibit A
to that certain Transfer Agency Services Agreement dated as of
November 7, 1997 between PFPC Inc. and Tax-Free Fund Of Colorado.
PORTFOLIOS
TAX-FREE FUND OF COLORADO
<PAGE>
AUTHORIZED PERSONS APPENDIX
On the date of the Agreement and thereafter until further
notice, the following persons shall be Authorized Persons as
defined therein:
Name (Type) Signature
Lacy B. Herrmann
Lacy B. Herrmann
William C. Wallace
William C. Wallace
Diana P. Herrmann
Diana P. Herrmann
Charles E. Childs, III
Charles E. Childs, III
John M. Herndon
John M. Herndon
Rose F. Marotta
Rose F. Marotta
Richard F. West
Richard F. West
Patricia A. Craven
Patricia A. Craven
Stephen J. Caridi
Stephen J. Caridi
William Killeen
William Killeen
<PAGE>
Exhibit B
Report List for Aquila Group of Funds
12b-1 Report
5 Percent or More Shareholder Listing
5 Percent or More Shareholder Listing - sorted by ssn
Account Analysis by Type
Asset Report by Dealer for Management Company
Asset Report by Fund and Dealer
Blue Sky Sales Report
Capital Stock Reporting
Daily Transaction Journal
Dealer Commission Check Register/Dealer Commission Statement
DTS Activity Summary
DTS Liquidation Placements
DTS Outstanding Trades by Fund
DTS Posted Transactions
DTS Purchase Placement
Matrix Summary by Fund With Dealer Name
Matrix Summary by Management Company With Dealer Name
Month to Sales (Demographics by Account Group)
Monthly Statistical Report
Monthly Wire Order (Purchases/Redemptions)
New Account Journal
Next Day NSCC Settlement Detail
NSAR Based on trade date
Transactions at a Glance
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 23, 1998
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 to Post-Effective
Amendment No. 12 (the "Amendment") to the Registration Statement
of the Fund under the Securities Act of 1933 (the "1933 Act") and
No. 13 under the Investment Company Act of 1940 (the "1940 Act")
which you propose to file with the Securities and Exchange
Commission (the "Commission"). The purpose of the Amendment is to
add a new class of shares, Financial Intermediary Class Shares
("Class I Shares"), as well as other changes. The Fund already
has outstanding Class A Shares, Class C Shares and 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, Class Y
Shares and Class I 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: April 30, 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: April 30, 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 (Class A Shares)
1-YR AVG. TOTAL RETURN AS OF 12/31/97 2.95%
1-YR CUM. TOTAL RETURN AS OF 12/31/97 2.95%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.41 As of 12/31/96
Public Offering Price Per Share (POP) $10.84 As of 12/31/96
Number of Shares Purchased 92.251 Based on POP
INVESTMENT NUMBER PERIOD PERIOD
@ BEGINNING OF DIVIDEND $
OF PERIOD SHARES FACTOR DIVIDEND
<S> <C> <C> <C> <C>
JANUARY 1997 1,000.00 92.251 0.03889112 * 3.59
FEBRUARY 1997 959.31 92.597 0.04175295 3.87
MARCH 1997 973.36 92.966 0.04336324 4.03
APRIL 1997 960.66 93.358 0.04674953 4.36
MAY 1997 961.29 93.784 0.04201399 3.94
JUNE 1997 972.73 94.166 0.04243560 4.00
JULY 1997 985.20 94.549 0.04412475 4.17
AUGUST 1997 1,002.61 94.944 0.04245164 4.03
SEPTEMBER 1997 997.15 95.329 0.04248726 4.05
OCTOBER 1997 1,007.87 95.714 0.04353229 4.17
NOVEMBER 1997 1,013.95 96.109 0.04501414 4.33
DECEMBER 27, 1997** 1,016.35 96.520 0.03941085 3.80
DECEMBER 31, 1997 1,029.81 96.878 0.00705906 0.68
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JANUARY 1997 10.36 0.346 959.31 -4.07%
FEBRUARY 1997 10.47 0.369 973.36 -2.66%
MARCH 1997 10.29 0.392 960.66 -3.93%
APRIL 1997 10.25 0.426 961.29 -3.87%
MAY 1997 10.33 0.381 972.73 -2.73%
JUNE 1997 10.42 0.383 985.20 -1.48%
JULY 1997 10.56 0.395 1,002.61 0.26%
AUGUST 1997 10.46 0.385 997.15 -0.29%
SEPTEMBER 1997 10.53 0.385 1,007.87 0.79%
OCTOBER 1997 10.55 0.395 1,013.95 1.39%
NOVEMBER 1997 10.53 0.411 1,016.35 1.64%
DECEMBER 27, 1997** 10.63 0.358 1,029.81 2.98%
DECEMBER 31, 1997 10.62 0.064 1,029.52 2.95%
<FN>
* For the period 1/1/97-1/27/97
</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 (Class C Shares)
1-YR AVG. TOTAL RETURN AS OF 12/31/97 4.95%
1-YR CUM. TOTAL RETURN AS OF 12/31/97 4.95%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.41 As of 12/31/96
Number of Shares Purchased 96.061 Based on NAV
Includes CDSC of 1% at end of period
INVESTMENT NUMBER PERIOD PERIOD
@ BEGINNING OF DIVIDEND $
OF PERIOD SHARES FACTOR DIVIDEND
<S> <C> <C> <C> <C>
JANUARY 1997 1,000.00 96.061 0.03075703 * 2.95
FEBRUARY 1997 996.23 96.347 0.03381673 3.26
MARCH 1997 1,011.05 96.659 0.03520897 3.40
APRIL 1997 997.05 96.990 0.03815703 3.70
MAY 1997 996.88 97.351 0.03384819 3.30
JUNE 1997 1,007.96 97.670 0.03425012 3.35
JULY 1997 1,020.09 97.992 0.03561314 3.49
AUGUST 1997 1,036.32 98.323 0.03417735 3.36
SEPTEMBER 1997 1,029.85 98.645 0.03423231 3.38
OCTOBER 1997 1,040.13 98.966 0.03498171 3.46
NOVEMBER 1997 1,045.57 99.295 0.03618290 3.59
DECEMBER 27, 1997** 1,048.17 99.636 0.03163209 3.15
DECEMBER 31, 1997 1,060.29 99.933 0.00566605 0.57
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JANUARY 1997 10.34 0.286 996.23 -0.38%
FEBRUARY 1997 10.46 0.311 1,011.05 1.11%
MARCH 1997 10.28 0.331 997.05 -0.29%
APRIL 1997 10.24 0.361 996.88 -0.31%
MAY 1997 10.32 0.319 1,007.96 0.80%
JUNE 1997 10.41 0.321 1,020.09 2.01%
JULY 1997 10.54 0.331 1,036.32 3.63%
AUGUST 1997 10.44 0.322 1,029.85 2.99%
SEPTEMBER 1997 10.51 0.321 1,040.13 4.01%
OCTOBER 1997 10.53 0.329 1,045.57 4.56%
NOVEMBER 1997 10.52 0.342 1,048.17 4.82%
DECEMBER 27, 1997** 10.61 0.297 1,060.29 6.03%
DECEMBER 31, 1997 10.50 0.054 1,049.46 4.95%
<FN>
* For the period 1/1/97-1/27/97
</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 N A V
Tax-Free Fund of Colorado (Class Y Shares)
1-YR AVG. TOTAL RETURN AS OF 12/31/97 7.55%
1-YR CUM. TOTAL RETURN AS OF 12/31/97 7.55%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.42 As of 12/31/96
Number of Shares Purchased 95.969 Based on NAV
INVESTMENT NUMBER PERIOD PERIOD
@ BEGINNING OF DIVIDEND $
OF PERIOD SHARES FACTOR DIVIDEND
<S> <C> <C> <C> <C>
JANUARY 1997 1,000.00 95.969 0.05677912 5.45
FEBRUARY 1997 1,004.49 96.493 0.04830150 4.66
MARCH 1997 1,013.01 96.939 0.04540676 4.40
APRIL 1997 1,002.87 97.366 0.04413918 4.30
MAY 1997 1,008.14 97.783 0.04397036 4.30
JUNE 1997 1,018.31 98.198 0.04296079 4.22
JULY 1997 1,027.44 98.602 0.04458887 4.40
AUGUST 1997 1,049.58 99.017 0.04432220 4.39
SEPTEMBER 1997 1,043.08 99.436 0.04311184 4.29
OCTOBER 1997 1,053.33 99.842 0.04384991 4.38
NOVEMBER 1997 1,057.71 100.257 0.04258758 4.27
DECEMBER 1997 1,061.98 100.662 0.04418353 4.45
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JANUARY 1997 10.41 0.523 1,004.49 0.45%
FEBRUARY 1997 10.45 0.446 1,013.01 1.30%
MARCH 1997 10.30 0.427 1,002.87 0.29%
APRIL 1997 10.31 0.417 1,008.14 0.81%
MAY 1997 10.37 0.415 1,018.31 1.83%
JUNE 1997 10.42 0.405 1,027.44 2.74%
JULY 1997 10.60 0.415 1,049.58 4.96%
AUGUST 1997 10.49 0.418 1,043.08 4.31%
SEPTEMBER 1997 10.55 0.406 1,053.33 5.33%
OCTOBER 1997 10.55 0.415 1,057.71 5.77%
NOVEMBER 1997 10.55 0.405 1,061.98 6.20%
DECEMBER 1997 10.64 0.418 1,075.49 7.55%
</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 (Class A Shares)
5-YEAR AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97 5.28%
5-YEAR CUMULATIVE TOTAL RETURN AS OF 12/31/97 29.32%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.38 As of 12/30/92
Public Offering Price Per Share (POP) $10.81 As of 12/30/92
Number of Shares Purchased 92.507 Based on POP
INVESTMENT NUMBER PERIOD PERIOD
@ BEGINNING OF DIVIDEND $
OF PERIOD SHARES FACTOR DIVIDEND
<S> <C> <C> <C> <C>
JANUARY 1993 1,000.00 92.507 0.043802 4.05
FEBRUARY 1993 968.90 92.895 0.048354 4.49
MARCH 1993 1,002.19 93.314 0.049454 4.61
APRIL 1993 990.94 93.750 0.047707 4.47
MAY 1993 1,001.04 94.171 0.046359 4.37
JUNE 1993 1,006.35 94.581 0.049060 4.64
JULY 1993 1,020.44 95.013 0.046982 4.46
AUGUST 1993 1,019.21 95.431 0.046605 4.45
SEPTEMBER 1993 1,039.88 95.841 0.047712 4.57
OCTOBER 1993 1,051.16 96.260 0.046082 4.44
NOVEMBER 1993 1,050.78 96.668 0.045914 4.44
DECEMBER 1993 1,045.55 97.080 0.212504 20.63
JANUARY 1994 1,065.21 98.997 0.044222 4.38
FEBRUARY 1994 1,070.58 99.404 0.045263 4.50
MARCH 1994 1,053.21 99.830 0.043469 4.34
APRIL 1994 1,033.59 100.251 0.046178 4.63
MAY 1994 1,029.20 100.704 0.045269 4.56
JUNE 1994 1,032.75 101.151 0.044888 4.54
JULY 1994 1,034.26 101.597 0.046224 4.70
AUGUST 1994 1,040.98 102.057 0.045455 4.64
SEPTEMBER 1994 1,043.58 102.513 0.047365 4.86
OCTOBER 1994 1,037.16 102.995 0.042822 4.41
NOVEMBER 1994 1,025.09 103.440 0.046727 4.83
DECEMBER 1994 999.93 103.943 0.048688 5.06
JANUARY 1995 1,025.78 104.458 0.045102 4.71
FEBRUARY 1995 1,041.98 104.932 0.043314 4.55
MARCH 1995 1,070.66 105.380 0.045424 4.79
APRIL 1995 1,083.88 105.847 0.044180 4.68
MAY 1995 1,090.67 106.303 0.043958 4.67
JUNE 1995 1,107.03 106.754 0.045676 4.88
JULY 1995 1,112.98 107.223 0.045625 4.89
AUGUST 1995 1,113.58 107.696 0.046793 5.04
SEPTEMBER 1995 1,120.77 108.183 0.043948 4.75
OCTOBER 1995 1,124.45 108.642 0.043996 4.78
NOVEMBER 1995 1,141.18 109.099 0.045150 4.93
DECEMBER 1995 1,151.56 109.568 0.044257 4.85
JANUARY 1996 1,160.79 110.028 0.044200 4.86
FEBRUARY 1996 1,166.75 110.488 0.045506 5.03
MARCH 1996 1,168.47 110.966 0.043808 4.86
APRIL 1996 1,156.68 111.434 0.043370 4.83
MAY 1996 1,155.94 111.902 0.046284 5.18
JUNE 1996 1,161.12 112.403 0.042076 4.73
JULY 1996 1,156.86 112.865 0.04393098 4.96
AUGUST 1996 1,169.72 113.345 0.04518734 5.12
SEPTEMBER 1996 1,177.11 113.840 0.04476559 5.10
OCTOBER 1996 1,181.07 114.334 0.04679117 5.35
NOVEMBER 1996 1,186.42 114.852 0.04427429 5.08
DECEMBER 1996 1,206.43 115.338 0.04319445 4.98
JANUARY 1997 1,207.95 115.815 0.04466372 5.17
FEBRUARY 1997 1,205.02 116.315 0.04175295 4.86
MARCH 1997 1,222.67 116.778 0.04336324 5.06
APRIL 1997 1,206.71 117.271 0.04674953 5.48
MAY 1997 1,207.51 117.805 0.04201399 4.95
JUNE 1997 1,221.88 118.285 0.04243560 5.02
JULY 1997 1,237.54 118.766 0.04412475 5.24
AUGUST 1997 1,259.41 119.263 0.04245164 5.06
SEPTEMBER 1997 1,252.55 119.747 0.04248726 5.09
OCTOBER 1997 1,266.02 120.230 0.04353229 5.23
NOVEMBER 1997 1,273.66 120.726 0.04501414 5.43
DECEMBER 26, 1997 1,276.68 121.242 0.03941085 4.78
DECEMBER 31, 1997 1,293.58 121.691 0.00705906 0.86
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JANUARY 1993 10.43 0.388 968.90 -3.11%
FEBRUARY 1993 10.74 0.418 1,002.19 0.22%
MARCH 1993 10.57 0.437 990.94 -0.91%
APRIL 1993 10.63 0.421 1,001.04 0.10%
MAY 1993 10.64 0.410 1,006.35 0.63%
JUNE 1993 10.74 0.432 1,020.44 2.04%
JULY 1993 10.68 0.418 1,019.21 1.92%
AUGUST 1993 10.85 0.410 1,039.88 3.99%
SEPTEMBER 1993 10.92 0.419 1,051.16 5.12%
OCTOBER 1993 10.87 0.408 1,050.78 5.08%
NOVEMBER 1993 10.77 0.412 1,045.55 4.56%
DECEMBER 1993 10.76 1.917 1,065.21 6.52%
JANUARY 1994 10.77 0.406 1,070.58 7.06%
FEBRUARY 1994 10.55 0.426 1,053.21 5.32%
MARCH 1994 10.31 0.421 1,033.59 3.36%
APRIL 1994 10.22 0.453 1,029.20 2.92%
MAY 1994 10.21 0.447 1,032.75 3.27%
JUNE 1994 10.18 0.446 1,034.26 3.43%
JULY 1994 10.20 0.460 1,040.98 4.10%
AUGUST 1994 10.18 0.456 1,043.58 4.36%
SEPTEMBER 1994 10.07 0.482 1,037.16 3.72%
OCTOBER 1994 9.91 0.445 1,025.09 2.51%
NOVEMBER 1994 9.62 0.502 999.93 -0.01%
DECEMBER 1994 9.82 0.515 1,025.78 2.58%
JANUARY 1995 9.93 0.474 1,041.98 4.20%
FEBRUARY 1995 10.16 0.447 1,070.66 7.07%
MARCH 1995 10.24 0.467 1,083.88 8.39%
APRIL 1995 10.26 0.456 1,090.67 9.07%
MAY 1995 10.37 0.451 1,107.03 10.70%
JUNE 1995 10.38 0.470 1,112.98 11.30%
JULY 1995 10.34 0.473 1,113.58 11.36%
AUGUST 1995 10.36 0.486 1,120.77 12.08%
SEPTEMBER 1995 10.35 0.459 1,124.45 12.44%
OCTOBER 1995 10.46 0.457 1,141.18 14.12%
NOVEMBER 1995 10.51 0.469 1,151.56 15.16%
DECEMBER 1995 10.55 0.460 1,160.79 16.08%
JANUARY 1996 10.56 0.461 1,166.75 16.68%
FEBRUARY 1996 10.53 0.477 1,168.47 16.85%
MARCH 1996 10.38 0.468 1,156.68 15.67%
APRIL 1996 10.33 0.468 1,155.94 15.59%
MAY 1996 10.33 0.501 1,161.12 16.11%
JUNE 1996 10.25 0.461 1,156.86 15.69%
JULY 1996 10.32 0.480 1,169.72 16.97%
AUGUST 1996 10.34 0.495 1,177.11 17.71%
SEPTEMBER 1996 10.33 0.493 1,181.07 18.11%
OCTOBER 1996 10.33 0.518 1,186.42 18.64%
NOVEMBER 1996 10.46 0.486 1,206.43 20.64%
DECEMBER 1996 10.43 0.478 1,207.95 20.80%
JANUARY 1997 10.36 0.499 1,205.02 20.50%
FEBRUARY 1997 10.47 0.464 1,222.67 22.27%
MARCH 1997 10.29 0.492 1,206.71 20.67%
APRIL 1997 10.25 0.535 1,207.51 20.75%
MAY 1997 10.33 0.479 1,221.88 22.19%
JUNE 1997 10.42 0.482 1,237.54 23.75%
JULY 1997 10.56 0.496 1,259.41 25.94%
AUGUST 1997 10.46 0.484 1,252.55 25.25%
SEPTEMBER 1997 10.53 0.483 1,266.02 26.60%
OCTOBER 1997 10.55 0.496 1,273.66 27.37%
NOVEMBER 1997 10.53 0.516 1,276.68 27.67%
DECEMBER 26, 1997 10.63 0.450 1,293.58 29.36%
DECEMBER 31, 1997 10.62 0.081 1,293.22 29.32%
</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 (Class A Shares)
10-YEAR AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97 7.01%
10-YEAR CUMULATIVE TOTAL RETURN AS OF 12/31/97 96.85%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.51 As of 12/31/88
Public Offering Price Per Share (POP) $9.91 As of 12/31/88
Number of Shares Purchased 100.908 Based on POP
INVESTMENT NUMBER PERIOD PERIOD
@ BEGINNING OF DIVIDEND $
OF PERIOD SHARES FACTOR DIVIDEND
<S> <C> <C> <C> <C>
JANUARY 1988 1,000.00 100.908 0.053637 5.41
FEBRUARY 1988 985.23 101.466 0.055543 5.64
MARCH 1988 993.91 102.044 0.055645 5.68
APRIL 1988 979.18 102.639 0.053801 5.52
MAY 1988 984.70 103.218 0.059147 6.11
JUNE 1988 991.84 103.858 0.055585 5.77
JULY 1988 1,009.04 104.455 0.053274 5.56
AUGUST 1988 1,008.33 105.035 0.060302 6.33
SEPTEMBER 1988 1,015.72 105.694 0.055070 5.82
OCTOBER 1988 1,029.99 106.295 0.055470 5.90
NOVEMBER 1988 1,040.14 106.901 0.054741 5.85
DECEMBER 1988 1,033.17 107.509 0.055132 5.93
JANUARY 1989 1,044.47 108.123 0.058791 6.36
FEBRUARY 1989 1,056.23 108.778 0.052863 5.75
MARCH 1989 1,053.28 109.375 0.058418 6.39
APRIL 1989 1,053.11 110.042 0.051107 5.62
MAY 1989 1,066.43 110.626 0.059811 6.62
JUNE 1989 1,080.79 111.307 0.052734 5.87
JULY 1989 1,094.45 111.907 0.050069 5.60
AUGUST 1989 1,104.53 112.478 0.059131 6.65
SEPTEMBER 1989 1,103.31 113.160 0.052367 5.93
OCTOBER 1989 1,097.92 113.774 0.051515 5.86
NOVEMBER 1989 1,115.16 114.375 0.059136 6.76
DECEMBER 1989 1,120.78 115.070 0.051217 5.89
JANUARY 1990 1,133.58 115.671 0.053853 6.23
FEBRUARY 1990 1,132.87 116.311 0.057178 6.65
MARCH 1990 1,139.52 116.994 0.049037 5.74
APRIL 1990 1,140.57 117.585 0.053058 6.24
MAY 1990 1,140.93 118.232 0.052503 6.21
JUNE 1990 1,153.05 118.871 0.056143 6.67
JULY 1990 1,160.92 119.559 0.052898 6.32
AUGUST 1990 1,173.22 120.207 0.052533 6.31
SEPTEMBER 1990 1,165.11 120.862 0.054626 6.60
OCTOBER 1990 1,170.50 121.547 0.054650 6.64
NOVEMBER 1990 1,178.36 122.236 0.055175 6.74
DECEMBER 1990 1,199.77 122.928 0.051902 6.38
JANUARY 1991 1,206.15 123.581 0.052935 6.54
FEBUARY 1991 1,220.11 124.247 0.053517 6.65
MARCH 1991 1,237.94 124.918 0.050928 6.36
APRIL 1991 1,235.56 125.565 0.051932 6.52
MAY 1991 1,245.85 126.226 0.049455 6.24
JUNE 1991 1,255.88 126.856 0.053214 6.75
JULY 1991 1,255.01 127.542 0.053806 6.86
AUGUST 1991 1,269.53 128.235 0.054206 6.95
SEPTEMBER 1991 1,284.17 128.933 0.050831 6.55
OCTOBER 1991 1,298.46 129.587 0.051638 6.69
NOVEMBER 1991 1,310.34 130.252 0.053734 7.00
DECEMBER 1991 1,313.43 130.950 0.051780 6.78
JANUARY 1992 1,334.62 131.619 0.053195 7.00
FEBRUARY 1992 1,348.20 132.306 0.050183 6.64
MARCH 1992 1,345.58 132.962 0.050055 6.66
APRIL 1992 1,345.58 133.623 0.051784 6.92
MAY 1992 1,356.51 134.308 0.049496 6.65
JUNE 1992 1,369.88 134.963 0.049783 6.72
JULY 1992 1,388.74 135.619 0.050785 6.89
AUGUST 1992 1,428.18 136.276 0.049229 6.71
SEPTEMBER 1992 1,411.72 136.927 0.049366 6.76
OCTOBER 1992 1,423.96 137.580 0.051565 7.09
NOVEMBER 1992 1,404.91 138.279 0.049893 6.90
DECEMBER 1992 1,445.00 138.942 0.134741 18.72
JANUARY 1993 1,459.55 140.747 0.048667 6.85
FEBRUARY 1993 1,474.84 141.404 0.048354 6.84
MARCH 1993 1,525.52 142.041 0.049454 7.02
APRIL 1993 1,508.39 142.705 0.047707 6.81
MAY 1993 1,523.76 143.346 0.046359 6.65
JUNE 1993 1,531.84 143.970 0.049060 7.06
JULY 1993 1,553.30 144.628 0.046982 6.79
AUGUST 1993 1,551.42 145.264 0.046605 6.77
SEPTEMBER 1993 1,582.88 145.888 0.047712 6.96
OCTOBER 1993 1,600.06 146.525 0.046082 6.75
NOVEMBER 1993 1,599.48 147.147 0.045914 6.76
DECEMBER 1993 1,591.52 147.774 0.212504 31.40
JANUARY 1994 1,621.45 150.692 0.044222 6.66
FEBRUARY 1994 1,629.62 151.311 0.045263 6.85
MARCH 1994 1,603.18 151.960 0.043469 6.61
APRIL 1994 1,573.32 152.601 0.046178 7.05
MAY 1994 1,566.63 153.290 0.045269 6.94
JUNE 1994 1,572.04 153.970 0.044888 6.91
JULY 1994 1,574.33 154.649 0.046224 7.15
AUGUST 1994 1,584.57 155.350 0.045455 7.06
SEPTEMBER 1994 1,588.52 156.044 0.047365 7.39
OCTOBER 1994 1,578.75 156.778 0.042822 6.71
NOVEMBER 1994 1,560.38 157.455 0.046727 7.36
DECEMBER 1994 1,522.07 158.220 0.048688 7.70
JANUARY 1995 1,561.42 159.004 0.045102 7.17
FEBRUARY 1995 1,586.08 159.726 0.043314 6.92
MARCH 1995 1,629.74 160.407 0.045424 7.29
APRIL 1995 1,649.86 161.119 0.044180 7.12
MAY 1995 1,660.20 161.813 0.043958 7.11
JUNE 1995 1,685.11 162.499 0.045676 7.42
JULY 1995 1,694.16 163.214 0.045625 7.45
AUGUST 1995 1,695.08 163.934 0.046793 7.67
SEPTEMBER 1995 1,706.03 164.674 0.043948 7.24
OCTOBER 1995 1,711.62 165.374 0.043996 7.28
NOVEMBER 1995 1,737.08 166.069 0.045150 7.50
DECEMBER 1995 1,752.88 166.783 0.044257 7.38
JANUARY 1996 1,766.94 167.482 0.044200 7.40
FEBRUARY 1996 1,776.01 168.183 0.045506 7.65
MARCH 1996 1,778.62 168.910 0.043808 7.40
APRIL 1996 1,760.69 169.623 0.043370 7.36
MAY 1996 1,759.56 170.335 0.046284 7.88
JUNE 1996 1,767.44 171.098 0.042076 7.20
JULY 1996 1,760.96 171.801 0.04393098 7.55
AUGUST 1996 1,780.53 172.532 0.04518734 7.80
SEPTEMBER 1996 1,791.78 173.286 0.04476559 7.76
OCTOBER 1996 1,797.80 174.037 0.04679117 8.14
NOVEMBER 1996 1,805.94 174.825 0.04427429 7.74
DECEMBER 1996 1,836.41 175.565 0.04319445 7.58
JANUARY 1997 1,838.73 176.292 0.04466372 7.87
FEBRUARY 1997 1,834.26 177.052 0.04175295 7.39
MARCH 1997 1,861.13 177.758 0.04336324 7.71
APRIL 1997 1,836.84 178.507 0.04674953 8.35
MAY 1997 1,838.05 179.322 0.04201399 7.53
JUNE 1997 1,859.93 180.051 0.04243560 7.64
JULY 1997 1,883.77 180.784 0.04412475 7.98
AUGUST 1997 1,917.06 181.540 0.04245164 7.71
SEPTEMBER 1997 1,906.61 182.276 0.04248726 7.74
OCTOBER 1997 1,927.11 183.012 0.04353229 7.97
NOVEMBER 1997 1,938.74 183.767 0.04501414 8.27
DECEMBER 26, 1997 1,943.34 184.553 0.03941085 7.27
DECEMBER 31, 1997 1,969.07 185.237 0.00705906 1.31
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JANUARY 1988 9.71 0.557 985.23 -1.48%
FEBRUARY 1988 9.74 0.579 993.91 -0.61%
MARCH 1988 9.54 0.595 979.18 -2.08%
APRIL 1988 9.54 0.579 984.70 -1.53%
MAY 1988 9.55 0.639 991.84 -0.82%
JUNE 1988 9.66 0.598 1,009.04 0.90%
JULY 1988 9.60 0.580 1,008.33 0.83%
AUGUST 1988 9.61 0.659 1,015.72 1.57%
SEPTEMBER 1988 9.69 0.601 1,029.99 3.00%
OCTOBER 1988 9.73 0.606 1,040.14 4.01%
NOVEMBER 1988 9.61 0.609 1,033.17 3.32%
DECEMBER 1988 9.66 0.614 1,044.47 4.45%
JANUARY 1989 9.71 0.655 1,056.23 5.62%
FEBRUARY 1989 9.63 0.597 1,053.28 5.33%
MARCH 1989 9.57 0.668 1,053.11 5.31%
APRIL 1989 9.64 0.583 1,066.43 6.64%
MAY 1989 9.71 0.681 1,080.79 8.08%
JUNE 1989 9.78 0.600 1,094.45 9.45%
JULY 1989 9.82 0.571 1,104.53 10.45%
AUGUST 1989 9.75 0.682 1,103.31 10.33%
SEPTEMBER 1989 9.65 0.614 1,097.92 9.79%
OCTOBER 1989 9.75 0.601 1,115.16 11.52%
NOVEMBER 1989 9.74 0.694 1,120.78 12.08%
DECEMBER 1989 9.80 0.601 1,133.58 13.36%
JANUARY 1990 9.74 0.640 1,132.87 13.29%
FEBRUARY 1990 9.74 0.683 1,139.52 13.95%
MARCH 1990 9.70 0.591 1,140.57 14.06%
APRIL 1990 9.65 0.647 1,140.93 14.09%
MAY 1990 9.70 0.640 1,153.05 15.31%
JUNE 1990 9.71 0.687 1,160.92 16.09%
JULY 1990 9.76 0.648 1,173.22 17.32%
AUGUST 1990 9.64 0.655 1,165.11 16.51%
SEPTEMBER 1990 9.63 0.686 1,170.50 17.05%
OCTOBER 1990 9.64 0.689 1,178.36 17.84%
NOVEMBER 1990 9.76 0.691 1,199.77 19.98%
DECEMBER 1990 9.76 0.654 1,206.15 20.62%
JANUARY 1991 9.82 0.666 1,220.11 22.01%
FEBUARY 1991 9.91 0.671 1,237.94 23.79%
MARCH 1991 9.84 0.647 1,235.56 23.56%
APRIL 1991 9.87 0.661 1,245.85 24.58%
MAY 1991 9.90 0.631 1,255.88 25.59%
JUNE 1991 9.84 0.686 1,255.01 25.50%
JULY 1991 9.90 0.693 1,269.53 26.95%
AUGUST 1991 9.96 0.698 1,284.17 28.42%
SEPTEMBER 1991 10.02 0.654 1,298.46 29.85%
OCTOBER 1991 10.06 0.665 1,310.34 31.03%
NOVEMBER 1991 10.03 0.698 1,313.43 31.34%
DECEMBER 1991 10.14 0.669 1,334.62 33.46%
JANUARY 1992 10.19 0.687 1,348.20 34.82%
FEBRUARY 1992 10.12 0.656 1,345.58 34.56%
MARCH 1992 10.07 0.661 1,345.58 34.56%
APRIL 1992 10.10 0.685 1,356.51 35.65%
MAY 1992 10.15 0.655 1,369.88 36.99%
JUNE 1992 10.24 0.656 1,388.74 38.87%
JULY 1992 10.48 0.657 1,428.18 42.82%
AUGUST 1992 10.31 0.651 1,411.72 41.17%
SEPTEMBER 1992 10.35 0.653 1,423.96 42.40%
OCTOBER 1992 10.16 0.698 1,404.91 40.49%
NOVEMBER 1992 10.40 0.663 1,445.00 44.50%
DECEMBER 1992 10.37 1.805 1,459.55 45.95%
JANUARY 1993 10.43 0.657 1,474.84 47.48%
FEBRUARY 1993 10.74 0.637 1,525.52 52.55%
MARCH 1993 10.57 0.665 1,508.39 50.84%
APRIL 1993 10.63 0.640 1,523.76 52.38%
MAY 1993 10.64 0.625 1,531.84 53.18%
JUNE 1993 10.74 0.658 1,553.30 55.33%
JULY 1993 10.68 0.636 1,551.42 55.14%
AUGUST 1993 10.85 0.624 1,582.88 58.29%
SEPTEMBER 1993 10.92 0.637 1,600.06 60.01%
OCTOBER 1993 10.87 0.621 1,599.48 59.95%
NOVEMBER 1993 10.77 0.627 1,591.52 59.15%
DECEMBER 1993 10.76 2.918 1,621.45 62.14%
JANUARY 1994 10.77 0.619 1,629.62 62.96%
FEBRUARY 1994 10.55 0.649 1,603.18 60.32%
MARCH 1994 10.31 0.641 1,573.32 57.33%
APRIL 1994 10.22 0.690 1,566.63 56.66%
MAY 1994 10.21 0.680 1,572.04 57.20%
JUNE 1994 10.18 0.679 1,574.33 57.43%
JULY 1994 10.20 0.701 1,584.57 58.46%
AUGUST 1994 10.18 0.694 1,588.52 58.85%
SEPTEMBER 1994 10.07 0.734 1,578.75 57.87%
OCTOBER 1994 9.91 0.677 1,560.38 56.04%
NOVEMBER 1994 9.62 0.765 1,522.07 52.21%
DECEMBER 1994 9.82 0.784 1,561.42 56.14%
JANUARY 1995 9.93 0.722 1,586.08 58.61%
FEBRUARY 1995 10.16 0.681 1,629.74 62.97%
MARCH 1995 10.24 0.712 1,649.86 64.99%
APRIL 1995 10.26 0.694 1,660.20 66.02%
MAY 1995 10.37 0.686 1,685.11 68.51%
JUNE 1995 10.38 0.715 1,694.16 69.42%
JULY 1995 10.34 0.720 1,695.08 69.51%
AUGUST 1995 10.36 0.740 1,706.03 70.60%
SEPTEMBER 1995 10.35 0.699 1,711.62 71.16%
OCTOBER 1995 10.46 0.696 1,737.08 73.71%
NOVEMBER 1995 10.51 0.713 1,752.88 75.29%
DECEMBER 1995 10.55 0.700 1,766.94 76.69%
JANUARY 1996 10.56 0.701 1,776.01 77.60%
FEBRUARY 1996 10.53 0.727 1,778.62 77.86%
MARCH 1996 10.38 0.713 1,760.69 76.07%
APRIL 1996 10.33 0.712 1,759.56 75.96%
MAY 1996 10.33 0.763 1,767.44 76.74%
JUNE 1996 10.25 0.702 1,760.96 76.10%
JULY 1996 10.32 0.731 1,780.53 78.05%
AUGUST 1996 10.34 0.754 1,791.78 79.18%
SEPTEMBER 1996 10.33 0.751 1,797.80 79.78%
OCTOBER 1996 10.33 0.788 1,805.94 80.59%
NOVEMBER 1996 10.46 0.740 1,836.41 83.64%
DECEMBER 1996 10.43 0.727 1,838.73 83.87%
JANUARY 1997 10.36 0.760 1,834.26 83.43%
FEBRUARY 1997 10.47 0.706 1,861.13 86.11%
MARCH 1997 10.29 0.749 1,836.84 83.68%
APRIL 1997 10.25 0.814 1,838.05 83.80%
MAY 1997 10.33 0.729 1,859.93 85.99%
JUNE 1997 10.42 0.733 1,883.77 88.38%
JULY 1997 10.56 0.755 1,917.06 91.71%
AUGUST 1997 10.46 0.737 1,906.61 90.66%
SEPTEMBER 1997 10.53 0.735 1,927.11 92.71%
OCTOBER 1997 10.55 0.755 1,938.74 93.87%
NOVEMBER 1997 10.53 0.786 1,943.34 94.33%
DECEMBER 26, 1997 10.63 0.684 1,969.07 96.91%
DECEMBER 31, 1997 10.62 0.123 1,968.52 96.85%
</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 (Class A Shares)
INCEPTION AVG. ANNUAL TOTAL RETURN AS OF 12/31/97 6.80%
INCEPTION CUMULATIVE TOTAL RETURN AS OF 12/31/97 101.10%
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
INVESTMENT NUMBER PERIOD PERIOD
@ BEGINNING OF DIVIDEND $
OF PERIOD SHARES FACTOR DIVIDEND
<S> <C> <C> <C> <C>
JUNE 1987 1,000.00 100.000 0.00360400 0.36
JULY 1987 964.36 100.037 0.00601500 0.60
AUGUST 1987 965.96 100.100 0.05427900 5.43
SEPTEMBER 1987 969.39 100.664 0.05321400 5.36
OCTOBER 1987 943.54 101.239 0.05520100 5.59
NOVEMBER 1987 927.87 101.852 0.05760600 5.87
DECEMBER 1987 966.33 102.474 0.05693800 5.83
JANUARY 1988 980.37 103.088 0.05363700 5.53
FEBRUARY 1988 1,006.51 103.657 0.05554300 5.76
MARCH 1988 1,015.38 104.248 0.05564500 5.80
APRIL 1988 1,000.33 104.856 0.05380100 5.64
MAY 1988 1,005.97 105.448 0.05914700 6.24
JUNE 1988 1,013.26 106.101 0.05558500 5.90
JULY 1988 1,030.83 106.711 0.05327400 5.68
AUGUST 1988 1,030.11 107.304 0.06030200 6.47
SEPTEMBER 1988 1,037.66 107.977 0.05507000 5.95
OCTOBER 1988 1,052.24 108.591 0.05547000 6.02
NOVEMBER 1988 1,062.61 109.210 0.05474100 5.98
DECEMBER 1988 1,055.48 109.832 0.05513200 6.06
JANUARY 1989 1,067.03 110.459 0.05879100 6.49
FEBRUARY 1989 1,079.05 111.127 0.05286300 5.87
MARCH 1989 1,076.03 111.737 0.05841800 6.53
APRIL 1989 1,075.85 112.419 0.05110700 5.75
MAY 1989 1,089.47 113.015 0.05981100 6.76
JUNE 1989 1,104.14 113.712 0.05273400 6.00
JULY 1989 1,118.10 114.325 0.05006900 5.72
AUGUST 1989 1,128.39 114.908 0.05913100 6.79
SEPTEMBER 1989 1,127.14 115.605 0.05236700 6.05
OCTOBER 1989 1,121.64 116.232 0.05151500 5.99
NOVEMBER 1989 1,139.25 116.846 0.05913600 6.91
DECEMBER 1989 1,144.99 117.555 0.05121700 6.02
JANUARY 1990 1,158.06 118.170 0.05385300 6.36
FEBRUARY 1990 1,157.34 118.823 0.05717800 6.79
MARCH 1990 1,164.13 119.521 0.04903700 5.86
APRIL 1990 1,165.21 120.125 0.05305800 6.37
MAY 1990 1,165.58 120.785 0.05250300 6.34
JUNE 1990 1,177.96 121.439 0.05614300 6.82
JULY 1990 1,185.99 122.141 0.05289800 6.46
AUGUST 1990 1,198.56 122.803 0.05253300 6.45
SEPTEMBER 1990 1,190.28 123.473 0.05462600 6.74
OCTOBER 1990 1,195.79 124.173 0.05465000 6.79
NOVEMBER 1990 1,203.81 124.877 0.05517500 6.89
DECEMBER 1990 1,225.69 125.583 0.05190200 6.52
JANUARY 1991 1,232.21 126.251 0.05293500 6.68
FEBRUARY 1991 1,246.46 126.931 0.05351700 6.79
MARCH 1991 1,264.68 127.617 0.05092800 6.50
APRIL 1991 1,262.25 128.277 0.05193200 6.66
MAY 1991 1,272.76 128.952 0.04945500 6.38
JUNE 1991 1,283.00 129.596 0.05321400 6.90
JULY 1991 1,282.12 130.297 0.05380600 7.01
AUGUST 1991 1,296.95 131.005 0.05420600 7.10
SEPTEMBER 1991 1,311.91 131.718 0.05083100 6.70
OCTOBER 1991 1,326.51 132.386 0.05163800 6.84
NOVEMBER 1991 1,338.64 133.066 0.05373400 7.15
DECEMBER 1991 1,341.80 133.779 0.05178000 6.93
JANUARY 1992 1,363.45 134.462 0.05319500 7.15
FEBRUARY 1992 1,377.32 135.164 0.05018300 6.78
MARCH 1992 1,374.64 135.834 0.05005500 6.80
APRIL 1992 1,374.65 136.509 0.05178400 7.07
MAY 1992 1,385.81 137.209 0.04949600 6.79
JUNE 1992 1,399.47 137.878 0.04978300 6.86
JULY 1992 1,418.74 138.549 0.05078500 7.04
AUGUST 1992 1,459.03 139.220 0.04922900 6.85
SEPTEMBER 1992 1,442.21 139.885 0.04936600 6.91
OCTOBER 1992 1,454.71 140.552 0.05156500 7.25
NOVEMBER 1992 1,435.26 141.265 0.04989300 7.05
DECEMBER 1992 1,476.21 141.943 0.13474100 19.13
JANUARY 1993 1,491.08 143.787 0.04866700 7.00
FEBRUARY 1993 1,506.70 144.458 0.04835400 6.99
MARCH 1993 1,558.47 145.109 0.04945400 7.18
APRIL 1993 1,540.98 145.788 0.04770700 6.96
MAY 1993 1,556.68 146.442 0.04635900 6.79
JUNE 1993 1,564.93 147.080 0.04906000 7.22
JULY 1993 1,586.86 147.752 0.04698200 6.94
AUGUST 1993 1,584.93 148.402 0.04660500 6.92
SEPTEMBER 1993 1,617.08 149.039 0.04771200 7.11
OCTOBER 1993 1,634.62 149.690 0.04608200 6.90
NOVEMBER 1993 1,634.03 150.325 0.04591400 6.90
DECEMBER 1993 1,625.90 150.966 0.21250400 32.08
JANUARY 1994 1,656.47 153.947 0.04422200 6.81
FEBRUARY 1994 1,664.82 154.580 0.04526300 7.00
MARCH 1994 1,637.81 155.243 0.04346900 6.75
APRIL 1994 1,607.30 155.897 0.04617800 7.20
MAY 1994 1,600.47 156.602 0.04526900 7.09
JUNE 1994 1,605.99 157.296 0.04488800 7.06
JULY 1994 1,608.33 157.990 0.04622400 7.30
AUGUST 1994 1,618.80 158.706 0.04545500 7.21
SEPTEMBER 1994 1,622.84 159.414 0.04736500 7.55
OCTOBER 1994 1,612.85 160.164 0.04282200 6.86
NOVEMBER 1994 1,594.08 160.856 0.04672700 7.52
DECEMBER 1994 1,554.95 161.637 0.04868800 7.87
JANUARY 1995 1,595.15 162.439 0.04510200 7.33
FEBRUARY 1995 1,620.34 163.177 0.04331400 7.07
MARCH 1995 1,664.94 163.872 0.04542400 7.44
APRIL 1995 1,685.50 164.599 0.04418000 7.27
MAY 1995 1,696.06 165.308 0.04395800 7.27
JUNE 1995 1,721.51 166.009 0.04567600 7.58
JULY 1995 1,730.75 166.739 0.04562500 7.61
AUGUST 1995 1,731.69 167.475 0.04679300 7.84
SEPTEMBER 1995 1,742.88 168.231 0.04394800 7.39
OCTOBER 1995 1,748.59 168.946 0.04399600 7.43
NOVEMBER 1995 1,774.61 169.656 0.04515000 7.66
DECEMBER 1995 1,790.75 170.385 0.04425700 7.54
JANUARY 1996 1,805.10 171.100 0.04420000 7.56
FEBRUARY 1996 1,814.38 171.816 0.04550600 7.82
MARCH 1996 1,817.04 172.559 0.04380800 7.56
APRIL 1996 1,798.72 173.287 0.04337000 7.52
MAY 1996 1,797.57 174.014 0.04628400 8.05
JUNE 1996 1,805.62 174.794 0.04207600 7.35
JULY 1996 1,798.99 175.512 0.04393098 7.71
AUGUST 1996 1,818.99 176.259 0.04518734 7.96
SEPTEMBER 1996 1,830.48 177.029 0.04476559 7.92
OCTOBER 1996 1,836.63 177.796 0.04679117 8.32
NOVEMBER 1996 1,844.95 178.602 0.04427429 7.91
DECEMBER 1996 1,876.08 179.358 0.04319445 7.75
JANUARY 1997 1,878.45 180.100 0.04466372 8.04
FEBRUARY 1997 1,873.88 180.877 0.04175295 7.55
MARCH 1997 1,901.33 181.598 0.04336324 7.87
APRIL 1997 1,876.52 182.363 0.04674953 8.53
MAY 1997 1,877.75 183.195 0.04201399 7.70
JUNE 1997 1,900.10 183.940 0.04243560 7.81
JULY 1997 1,924.46 184.689 0.04412475 8.15
AUGUST 1997 1,958.47 185.461 0.04245164 7.87
SEPTEMBER 1997 1,947.80 186.214 0.04248726 7.91
OCTOBER 1997 1,968.74 186.965 0.04353229 8.14
NOVEMBER 1997 1,980.62 187.736 0.04501414 8.45
DECEMBER 26, 1997 1,985.32 188.539 0.03941085 7.43
DECEMBER 31, 1997 2,011.60 189.238 0.00705906 1.34
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
JUNE 1987 9.64 0.037 964.36 -3.56%
JULY 1987 9.65 0.062 965.96 -3.40%
AUGUST 1987 9.63 0.564 969.39 -3.06%
SEPTEMBER 1987 9.32 0.575 943.54 -5.65%
OCTOBER 1987 9.11 0.613 927.87 -7.21%
NOVEMBER 1987 9.43 0.622 966.33 -3.37%
DECEMBER 1987 9.51 0.614 980.37 -1.96%
JANUARY 1988 9.71 0.569 1,006.51 0.65%
FEBRUARY 1988 9.74 0.591 1,015.38 1.54%
MARCH 1988 9.54 0.608 1,000.33 0.03%
APRIL 1988 9.54 0.591 1,005.97 0.60%
MAY 1988 9.55 0.653 1,013.26 1.33%
JUNE 1988 9.66 0.611 1,030.83 3.08%
JULY 1988 9.60 0.592 1,030.11 3.01%
AUGUST 1988 9.61 0.673 1,037.66 3.77%
SEPTEMBER 1988 9.69 0.614 1,052.24 5.22%
OCTOBER 1988 9.73 0.619 1,062.61 6.26%
NOVEMBER 1988 9.61 0.622 1,055.48 5.55%
DECEMBER 1988 9.66 0.627 1,067.03 6.70%
JANUARY 1989 9.71 0.669 1,079.05 7.90%
FEBRUARY 1989 9.63 0.610 1,076.03 7.60%
MARCH 1989 9.57 0.682 1,075.85 7.59%
APRIL 1989 9.64 0.596 1,089.47 8.95%
MAY 1989 9.71 0.696 1,104.14 10.41%
JUNE 1989 9.78 0.613 1,118.10 11.81%
JULY 1989 9.82 0.583 1,128.39 12.84%
AUGUST 1989 9.75 0.697 1,127.14 12.71%
SEPTEMBER 1989 9.65 0.627 1,121.64 12.16%
OCTOBER 1989 9.75 0.614 1,139.25 13.92%
NOVEMBER 1989 9.74 0.709 1,144.99 14.50%
DECEMBER 1989 9.80 0.614 1,158.06 15.81%
JANUARY 1990 9.74 0.653 1,157.34 15.73%
FEBRUARY 1990 9.74 0.698 1,164.13 16.41%
MARCH 1990 9.70 0.604 1,165.21 16.52%
APRIL 1990 9.65 0.660 1,165.58 16.56%
MAY 1990 9.70 0.654 1,177.96 17.80%
JUNE 1990 9.71 0.702 1,185.99 18.60%
JULY 1990 9.76 0.662 1,198.56 19.86%
AUGUST 1990 9.64 0.669 1,190.28 19.03%
SEPTEMBER 1990 9.63 0.700 1,195.79 19.58%
OCTOBER 1990 9.64 0.704 1,203.81 20.38%
NOVEMBER 1990 9.76 0.706 1,225.69 22.57%
DECEMBER 1990 9.76 0.668 1,232.21 23.22%
JANUARY 1991 9.82 0.681 1,246.46 24.65%
FEBRUARY 1991 9.91 0.685 1,264.68 26.47%
MARCH 1991 9.84 0.660 1,262.25 26.22%
APRIL 1991 9.87 0.675 1,272.76 27.28%
MAY 1991 9.90 0.644 1,283.00 28.30%
JUNE 1991 9.84 0.701 1,282.12 28.21%
JULY 1991 9.90 0.708 1,296.95 29.70%
AUGUST 1991 9.96 0.713 1,311.91 31.19%
SEPTEMBER 1991 10.02 0.668 1,326.51 32.65%
OCTOBER 1991 10.06 0.680 1,338.64 33.86%
NOVEMBER 1991 10.03 0.713 1,341.80 34.18%
DECEMBER 1991 10.14 0.683 1,363.45 36.34%
JANUARY 1992 10.19 0.702 1,377.32 37.73%
FEBRUARY 1992 10.12 0.670 1,374.64 37.46%
MARCH 1992 10.07 0.675 1,374.65 37.46%
APRIL 1992 10.10 0.700 1,385.81 38.58%
MAY 1992 10.15 0.669 1,399.47 39.95%
JUNE 1992 10.24 0.670 1,418.74 41.87%
JULY 1992 10.48 0.671 1,459.03 45.90%
AUGUST 1992 10.31 0.665 1,442.21 44.22%
SEPTEMBER 1992 10.35 0.667 1,454.71 45.47%
OCTOBER 1992 10.16 0.713 1,435.26 43.53%
NOVEMBER 1992 10.40 0.678 1,476.21 47.62%
DECEMBER 1992 10.37 1.844 1,491.08 49.11%
JANUARY 1993 10.43 0.671 1,506.70 50.67%
FEBRUARY 1993 10.74 0.650 1,558.47 55.85%
MARCH 1993 10.57 0.679 1,540.98 54.10%
APRIL 1993 10.63 0.654 1,556.68 55.67%
MAY 1993 10.64 0.638 1,564.93 56.49%
JUNE 1993 10.74 0.672 1,586.86 58.69%
JULY 1993 10.68 0.650 1,584.93 58.49%
AUGUST 1993 10.85 0.637 1,617.08 61.71%
SEPTEMBER 1993 10.92 0.651 1,634.62 63.46%
OCTOBER 1993 10.87 0.635 1,634.03 63.40%
NOVEMBER 1993 10.77 0.641 1,625.90 62.59%
DECEMBER 1993 10.76 2.981 1,656.47 65.65%
JANUARY 1994 10.77 0.632 1,664.82 66.48%
FEBRUARY 1994 10.55 0.663 1,637.81 63.78%
MARCH 1994 10.31 0.655 1,607.30 60.73%
APRIL 1994 10.22 0.704 1,600.47 60.05%
MAY 1994 10.21 0.694 1,605.99 60.60%
JUNE 1994 10.18 0.694 1,608.33 60.83%
JULY 1994 10.20 0.716 1,618.80 61.88%
AUGUST 1994 10.18 0.709 1,622.84 62.28%
SEPTEMBER 1994 10.07 0.750 1,612.85 61.29%
OCTOBER 1994 9.91 0.692 1,594.08 59.41%
NOVEMBER 1994 9.62 0.781 1,554.95 55.50%
DECEMBER 1994 9.82 0.801 1,595.15 59.51%
JANUARY 1995 9.93 0.738 1,620.34 62.03%
FEBRUARY 1995 10.16 0.696 1,664.94 66.49%
MARCH 1995 10.24 0.727 1,685.50 68.55%
APRIL 1995 10.26 0.709 1,696.06 69.61%
MAY 1995 10.37 0.701 1,721.51 72.15%
JUNE 1995 10.38 0.731 1,730.75 73.08%
JULY 1995 10.34 0.736 1,731.69 73.17%
AUGUST 1995 10.36 0.756 1,742.88 74.29%
SEPTEMBER 1995 10.35 0.714 1,748.59 74.86%
OCTOBER 1995 10.46 0.711 1,774.61 77.46%
NOVEMBER 1995 10.51 0.729 1,790.75 79.07%
DECEMBER 1995 10.55 0.715 1,805.10 80.51%
JANUARY 1996 10.56 0.716 1,814.38 81.44%
FEBRUARY 1996 10.53 0.743 1,817.04 81.70%
MARCH 1996 10.38 0.728 1,798.72 79.87%
APRIL 1996 10.33 0.728 1,797.57 79.76%
MAY 1996 10.33 0.780 1,805.62 80.56%
JUNE 1996 10.25 0.718 1,798.99 79.90%
JULY 1996 10.32 0.747 1,818.99 81.90%
AUGUST 1996 10.34 0.770 1,830.48 83.05%
SEPTEMBER 1996 10.33 0.767 1,836.63 83.66%
OCTOBER 1996 10.33 0.805 1,844.95 84.50%
NOVEMBER 1996 10.46 0.756 1,876.08 87.61%
DECEMBER 1996 10.43 0.743 1,878.45 87.84%
JANUARY 1997 10.36 0.776 1,873.88 87.39%
FEBRUARY 1997 10.47 0.721 1,901.33 90.13%
MARCH 1997 10.29 0.765 1,876.52 87.65%
APRIL 1997 10.25 0.832 1,877.75 87.77%
MAY 1997 10.33 0.745 1,900.10 90.01%
JUNE 1997 10.42 0.749 1,924.46 92.45%
JULY 1997 10.56 0.772 1,958.47 95.85%
AUGUST 1997 10.46 0.753 1,947.80 94.78%
SEPTEMBER 1997 10.53 0.751 1,968.74 96.87%
OCTOBER 1997 10.55 0.771 1,980.62 98.06%
NOVEMBER 1997 10.53 0.803 1,985.32 98.53%
DECEMBER 26, 1997 10.63 0.699 2,011.60 101.16%
DECEMBER 31, 1997 10.62 0.126 2,011.04 101.10%
</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 (Class C Shares)
INCEPTION AVG. ANNUAL TOTAL RETURN AS OF 12/31/97 5.91%
INCEPTION CUMULATIVE TOTAL RETURN AS OF 12/31/97 10.08%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.31 As of 4/30/96
(Commencement of Class)
Number of Shares Purchased 96.993 Based on NAV
INVESTMENT NUMBER PERIOD PERIOD
@ BEGINNING OF DIVIDEND $
OF PERIOD SHARES FACTOR DIVIDEND
<S> <C> <C> <C> <C>
MAY 1996 1,000.00 96.993 0.03931900 3.81
JUNE 1996 1,010.60 97.361 0.03453900 3.36
JULY 1996 1,001.31 97.689 0.03593031 3.51
AUGUST 1996 1,011.66 98.029 0.03683541 3.61
SEPTEMBER 1996 1,017.23 98.378 0.03648467 3.59
OCTOBER 1996 1,019.83 98.725 0.03818968 3.77
NOVEMBER 1996 1,023.60 99.090 0.03194520 3.17
DECEMBER 1996 1,038.66 99.393 0.03381704 3.36
JANUARY 1997 1,040.03 99.716 0.03625077 3.61
FEBRUARY 1997 1,034.67 100.065 0.03381673 3.38
MARCH 1997 1,050.07 100.389 0.03520897 3.53
APRIL 1997 1,035.53 100.733 0.03815703 3.84
MAY 1997 1,035.35 101.108 0.03384819 3.42
JUNE 1997 1,046.86 101.440 0.03425012 3.47
JULY 1997 1,059.46 101.773 0.03561314 3.62
AUGUST 1997 1,076.32 102.117 0.03417735 3.49
SEPTEMBER 1997 1,069.59 102.451 0.03423231 3.51
OCTOBER 1997 1,080.27 102.785 0.03498171 3.60
NOVEMBER 1997 1,085.92 103.127 0.03618290 3.73
DECEMBER 26, 1997 1,088.62 103.481 0.03163209 3.27
DECEMBER 31, 1997 1,101.21 103.790 0.00566605 0.59
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
MAY 1996 10.38 0.367 1,010.60 1.06%
JUNE 1996 10.25 0.328 1,001.31 0.13%
JULY 1996 10.32 0.340 1,011.66 1.17%
AUGUST 1996 10.34 0.349 1,017.23 1.72%
SEPTEMBER 1996 10.33 0.347 1,019.83 1.98%
OCTOBER 1996 10.33 0.365 1,023.60 2.36%
NOVEMBER 1996 10.45 0.303 1,038.66 3.87%
DECEMBER 1996 10.43 0.322 1,040.03 4.00%
JANUARY 1997 10.34 0.350 1,034.67 3.47%
FEBRUARY 1997 10.46 0.324 1,050.07 5.01%
MARCH 1997 10.28 0.344 1,035.53 3.55%
APRIL 1997 10.24 0.375 1,035.35 3.53%
MAY 1997 10.32 0.332 1,046.86 4.69%
JUNE 1997 10.41 0.334 1,059.46 5.95%
JULY 1997 10.54 0.344 1,076.32 7.63%
AUGUST 1997 10.44 0.334 1,069.59 6.96%
SEPTEMBER 1997 10.51 0.334 1,080.27 8.03%
OCTOBER 1997 10.53 0.341 1,085.92 8.59%
NOVEMBER 1997 10.52 0.355 1,088.62 8.86%
DECEMBER 26, 1997 10.61 0.309 1,101.21 10.12%
DECEMBER 31, 1997 10.60 0.055 1,100.76 10.08%
</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 (Class Y Shares)
INCEPTION AVG. ANNUAL TOTAL RETURN AS OF 12/31/97 8.19%
INCEPTION CUMULATIVE TOTAL RETURN AS OF 12/31/97 14.07%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.31 As of 4/30/96
(Commencement of Class)
Number of Shares Purchased 96.993 Based on NAV
INVESTMENT NUMBER PERIOD PERIOD
@ BEGINNING OF DIVIDEND $
OF PERIOD SHARES FACTOR DIVIDEND
<S> <C> <C> <C> <C>
MAY 1996 1,000.00 96.993 0.06598800 6.40
JUNE 1996 1,008.34 97.613 0.05942300 5.80
JULY 1996 1,005.36 98.179 0.06108745 6.00
AUGUST 1996 1,019.21 98.760 0.07085015 7.00
SEPTEMBER 1996 1,023.24 99.440 0.06232401 6.20
OCTOBER 1996 1,033.42 100.040 0.06195040 6.20
NOVEMBER 1996 1,044.62 100.637 0.05959475 6.00
DECEMBER 1996 1,060.68 101.210 0.05944353 6.02
JANUARY 1997 1,060.62 101.787 0.05677912 5.78
FEBRUARY 1997 1,065.38 102.342 0.04830150 4.94
MARCH 1997 1,074.42 102.815 0.04540676 4.67
APRIL 1997 1,063.67 103.269 0.04413918 4.56
MAY 1997 1,069.26 103.711 0.04397036 4.56
JUNE 1997 1,080.04 104.150 0.04296079 4.47
JULY 1997 1,089.72 104.580 0.04458887 4.66
AUGUST 1997 1,113.21 105.020 0.04432220 4.65
SEPTEMBER 1997 1,106.31 105.463 0.04311184 4.55
OCTOBER 1997 1,117.19 105.894 0.04384991 4.64
NOVEMBER 1997 1,121.83 106.335 0.04258758 4.53
DECEMBER 1997 1,126.36 106.764 0.04418353 4.72
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DIVIDEND @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
MAY 1996 10.33 0.620 1,008.34 0.83%
JUNE 1996 10.24 0.566 1,005.36 0.54%
JULY 1996 10.32 0.581 1,019.21 1.92%
AUGUST 1996 10.29 0.680 1,023.24 2.32%
SEPTEMBER 1996 10.33 0.600 1,033.42 3.34%
OCTOBER 1996 10.38 0.597 1,044.62 4.46%
NOVEMBER 1996 10.48 0.572 1,060.68 6.07%
DECEMBER 1996 10.42 0.577 1,060.62 6.06%
JANUARY 1997 10.41 0.555 1,065.38 6.54%
FEBRUARY 1997 10.45 0.473 1,074.42 7.44%
MARCH 1997 10.30 0.453 1,063.67 6.37%
APRIL 1997 10.31 0.442 1,069.26 6.93%
MAY 1997 10.37 0.440 1,080.04 8.00%
JUNE 1997 10.42 0.429 1,089.72 8.97%
JULY 1997 10.60 0.440 1,113.21 11.32%
AUGUST 1997 10.49 0.444 1,106.31 10.63%
SEPTEMBER 1997 10.55 0.431 1,117.19 11.72%
OCTOBER 1997 10.55 0.440 1,121.83 12.18%
NOVEMBER 1997 10.55 0.429 1,126.36 12.64%
DECEMBER 1997 10.64 0.443 1,140.68 14.07%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Tax-Free Fund of Colorado
Class A
<S> <C>
y Yield (Pre-tax) 0.0356
Fe Percent Exempt From Federal Tax 0.9687
F Federal Tax Rate 0.396
S State Tax Rate 0.05
Y Taxable Equivalent Yield 0.0612
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
</TABLE>
----------------------------------------------
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Tax-Free Fund of Colorado
Class C
<S> <C>
y Yield (Pre-tax) 0.0276
Fe Percent Exempt From Federal Tax 0.9687
F Federal Tax Rate 0.396
S State Tax Rate 0.05
Y Taxable Equivalent Yield 0.0475
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
</TABLE>
----------------------------------------------
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Tax-Free Fund of Colorado
Class Y
<S> <C>
y Yield (Pre-tax) 0.0375
Fe Percent Exempt From Federal Tax 0.9687
F Federal Tax Rate 0.396
S State Tax Rate 0.05
Y Taxable Equivalent Yield 0.0645
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Fund of Colorado
Class A
SEC Yield
12/31/97
<S> <C>
Dividend and Interest Income 789,505.37
Expenses Accrued for Period 127,540.83
Avg. Daily Shares Outstanding 20,352,204.462
Maximum Offering Price 11.06
Yield 3.56
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Fund of Colorado
Class C
SEC Yield
12/31/97
<S> <C>
Dividend and Interest Income 3,768.44
Expenses Accrued for Period 1,413.21
Avg. Daily Shares Outstanding 97,324.807
Maximum Offering Price 10.60
Yield 2.76
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Fund of Colorado
Class Y
SEC Yield
12/31/97
<S> <C>
Dividend and Interest Income 20,017.84
Expenses Accrued for Period 3,009.62
Avg. Daily Shares Outstanding 515,263.255
Maximum Offering Price 10.64
Yield 3.75
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted form the
registrant's Annual report dated December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000811239
<NAME> TAX-FREE FUND OF COLORADO, CLASS A SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 208,639,809
<INVESTMENTS-AT-VALUE> 220,615,681
<RECEIVABLES> 2,078,445
<ASSETS-OTHER> 7,871
<OTHER-ITEMS-ASSETS> 780,161
<TOTAL-ASSETS> 223,482,158
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 458,067
<TOTAL-LIABILITIES> 458,067
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 209,909,620
<SHARES-COMMON-STOCK> 20,365,542
<SHARES-COMMON-PRIOR> 20,594,503
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,138,599
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,975,872
<NET-ASSETS> 216,320,615
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,105,096
<OTHER-INCOME> 0
<EXPENSES-NET> 1,578,280
<NET-INVESTMENT-INCOME> 10,526,816
<REALIZED-GAINS-CURRENT> 1,694,628
<APPREC-INCREASE-CURRENT> 3,107,464
<NET-CHANGE-FROM-OPS> 15,238,908
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,699,436
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,718,765
<NUMBER-OF-SHARES-REDEEMED> 2,568,761
<SHARES-REINVESTED> 621,035
<NET-CHANGE-IN-ASSETS> 7,716,267
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 437,704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,641,379
<AVERAGE-NET-ASSETS> 215,284,095
<PER-SHARE-NAV-BEGIN> 10.41
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> .23
<PER-SHARE-DIVIDEND> .52
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Annual report dated December 31, 1997 and is qualified in its
entirety by referenced to such financial statements.
</LEGEND>
<CIK> 0000811239
<NAME> TAX-FREE FUND OF COLORADO, CLASS C SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 208,639,809
<INVESTMENTS-AT-VALUE> 220,615,681
<RECEIVABLES> 2,078,445
<ASSETS-OTHER> 7,871
<OTHER-ITEMS-ASSETS> 780,161
<TOTAL-ASSETS> 223,482,158
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 458,067
<TOTAL-LIABILITIES> 458,067
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 209,909,620
<SHARES-COMMON-STOCK> 97,669
<SHARES-COMMON-PRIOR> 87,960
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,138,599
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,975,872
<NET-ASSETS> 1,035,516
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,105,096
<OTHER-INCOME> 0
<EXPENSES-NET> 1,578,280
<NET-INVESTMENT-INCOME> 10,526,816
<REALIZED-GAINS-CURRENT> 1,694,628
<APPREC-INCREASE-CURRENT> 3,107,464
<NET-CHANGE-FROM-OPS> 15,238,908
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 39,263
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,536
<NUMBER-OF-SHARES-REDEEMED> 4,876
<SHARES-REINVESTED> 3,049
<NET-CHANGE-IN-ASSETS> 7,716,267
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 437,704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,641,379
<AVERAGE-NET-ASSETS> 983,096
<PER-SHARE-NAV-BEGIN> 10.41
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Annual report dated December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000811239
<NAME> TAX-FREE FUND OF COLORADO, CLASS Y SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 208,639,809
<INVESTMENTS-AT-VALUE> 220,615,681
<RECEIVABLES> 2,078,445
<ASSETS-OTHER> 7,871
<OTHER-ITEMS-ASSETS> 780,161
<TOTAL-ASSETS> 223,482,158
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 458,067
<TOTAL-LIABILITIES> 458,067
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 209,909,620
<SHARES-COMMON-STOCK> 532,755
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,138,599
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,975,872
<NET-ASSETS> 5,667,960
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,105,096
<OTHER-INCOME> 0
<EXPENSES-NET> 1,578,280
<NET-INVESTMENT-INCOME> 10,526,816
<REALIZED-GAINS-CURRENT> 1,694,628
<APPREC-INCREASE-CURRENT> 3,107,464
<NET-CHANGE-FROM-OPS> 15,238,908
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 128,794
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 691,207
<NUMBER-OF-SHARES-REDEEMED> 159,960
<SHARES-REINVESTED> 1,497
<NET-CHANGE-IN-ASSETS> 7,716,267
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 437,704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,641,379
<AVERAGE-NET-ASSETS> 2,593,908
<PER-SHARE-NAV-BEGIN> 10.41
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> .54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.64
<EXPENSE-RATIO> .67
<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 Class Shares are subject
to a front-end sales charge ("FESC"); (c) only the Level-Payment
and certain Front-Payment Class Shares are subject to a
contingent deferred sales charge ("CDSC"); (d) only the Front-
Payment Class Shares, Level-Payment Class Shares and Financial
Intermediary 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 fees
for the Level-Payment Class and Financial Intermediary Class
being higher than that for the Front-Payment Class; (e) only the
Level-Payment Class Shares and Financial Intermediary 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 and conversion features 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 Class Shares
Front-Payment Class Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Front-Payment Class
Shares under the exchange privileges of the Fund. Shares of the
Fund outstanding on the date that the different classes of shares
were first made available were be redesignated Front-Payment
Shares. Front-Payment Class Shares will also be issued upon
automatic conversion of Level-Payment Class Shares, as described
below.
1. Sales Loads. Front-Payment Class Shares are sold
subject to the current maximum FESC (with scheduled
variations or eliminations of the sales charge, as permitted
by the 1940 Act). Certain Front-Payment Class Shares sold
without a FESC are subject to a CDSC.
2. Distribution and Service Fees. Front-Payment Class
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 Class Shares are exchangeable for Front-Payment
Class 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
Class Shares have no conversion features.
B. Level-Payment Class Shares
Level-Payment Class Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Level-Payment Class
Shares under the exchange privileges of the Fund.
1. Sales Loads. Level-Payment Class 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 Class
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 Class Shares are exchangeable for Level-Payment
Class 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 Class Shares
automatically convert to Front-Payment Class 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 Class Shares are not
higher than the expenses, including distribution fees, for
Level-Payment Class 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
Class Shares automatically convert.
C. Institutional Class Shares
Institutional Class 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 Class Shares under the exchange privileges of
the Fund.
1. Sales Loads. Institutional Class Shares are sold
without the imposition of any FESC, CDSC or any other sales
charge.
2. Distribution and Service Fees. Institutional Class
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 Class Shares are exchangeable for
Institutional Class 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 Class Shares have no conversion features.
D. Financial Intermediary Class Shares
Financial Intermediary Class Shares are sold (1) only
through financial intermediaries with which Aquila Distributors,
Inc. has entered into sales agreements, and are not offered
directly to retail customers and (2) persons entitled to exchange
into Financial Intermediary Class Shares under the exchange
privileges of the Fund.
1. Sales Loads. Financial Intermediary Class Shares are
sold without the imposition of any FESC, CDSC or any other
sales charge.
2. Distribution and Service Fees. Financial Intermediary
Class Shares are subject to a distribution fee pursuant to
Part III of the Fund's Rule 12b-1 Plan and to a shareholder
servicing fee under a Shareholder Services Plan not to
exceed 0.25% of the average daily net assets of the
Financial Intermediary Class.
3. Class Expenses. Class Expenses that are attributable
to the Financial Intermediary Class are allocated to that
particular class.
4. Exchange Privileges. Financial Intermediary Shares are
exchangeable for Financial Intermediary Class Shares issued
by other funds sponsored by Aquila Management Corporation to
the extent that shares of such funds are sold by the
respective financial intermediaries, and as may additionally
be set forth in the then current prospectus of the Fund.
E. 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 above.
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 one or more
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, revised September 1, 1997 and
entitled "Methodologies Used In Accounting For Multiple Class
Shares."
Dated October 31, 1997
