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. 13 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 14 [ 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)
[___] on (date) pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[_x_] on April 30, 1999 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. Headings in the Prospectuses:
1 Front Cover Page; Back Cover Page
2 The Fund's Objective, Investment Strategies and
Main Risks
3 Risk/Return Bar Chart; Fees and Expenses of the
Fund
4 The Fund's Objective, Investment Strategies and
Main Risks
5 Provided in the Fund's Annual Report
6 "How is the Fund Managed?"
7 Net Asset Value Per Share; Purchases and
Redemptions; Alternate Purchase Plans; Dividends
and Distributions; Tax Information
8 Alternate Purchase Plans
9 Financial Highlights
Part B of
Form N-1A Caption of Statement of Additional information
10 Cover Page
11 Fund History
12 Investment Strategies and Risks; Fund Policies
13 Management of the Fund
14 Ownership of Securities; Management Ownership
15 Investment Advisory and Other Services
16 Brokerage Allocation and Other Practices; Sub-
Advisory Agreement
17 Capital Stock
18 Purchase Redemption and Pricing of Shares
19 Taxation of the Fund
20 Underwriters
21 Performance
22 Financial Statements**
* 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, New York 10017
800-USA-COL2 * (800-872-2652)
212-697-6666
Prospectus
Class A Shares April 30, 1999
Class C Shares
Tax-Free Fund of Colorado is a mutual fund that seeks to
provide you as high a level of current income exempt from Colorado
state and Federal income taxes as is consistent with preservation
of capital.
The Fund invests primarily in municipal obligations which pay
interest exempt from Colorado state and Federal income taxes that
are 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, are determined to be
of comparable quality by the Fund's Sub-Adviser, KPM Investment
Management, Inc.
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
The Securities and Exchange Commission has not approved or
disapproved the Fund's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
THE FUND'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Fund's objective?"
The Fund's objective is to provide you as high a level of
current income exempt from Colorado state and Federal income taxes
as is consistent with preservation of capital.
"What is the Fund's investment strategy?"
The Fund invests in tax-free municipal obligations which pay
interest exempt from Colorado state and Federal income taxes. In
general, all or almost all of these obligations are issued by the
State of Colorado, its counties and various other local
authorities; at least 65% of the portfolio will always consist of
obligations of these issuers. These obligations can be of any
maturity, but the Fund's average portfolio maturity has
traditionally been between 8 and 12 years. At the time of purchase,
an obligation must be "investment grade." This means that it must
either
* be rated within the four highest credit ratings 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 Sub-Adviser, KPM Investment Management, Inc.
"What are the main risks of investing in the Fund?"
Among the risks of investing in shares of the Fund and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Fund.
There are two types of risk associated with any fixed income
debt securities such as Colorado Obligations: interest rate risk
and credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Colorado
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Colorado Obligations,
are subject to interest rate risk. Colorado Obligations with
longer maturities generally have a more pronounced reaction to
interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Colorado Obligations the Fund owns to make periodic
interest payments as scheduled and ultimately repay principal
at maturity. The Fund's assets, being primarily or entirely
Colorado issues, are subject to economic and other conditions
affecting Colorado.
Market Fluctuations. The market prices of the Fund's portfolio
securities fluctuate in relation to changes in prevailing interest
rates, and may be subject to other market, credit and economic
factors as well.
No Bank Credit Support. Investment in the Fund is not a
deposit in any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
<PAGE>
TAX-FREE FUND OF COLORADO
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Tax-Free Fund of Colorado+ by showing changes
in the Fund's performance from year to year since inception and by
showing how the Fund's average annual returns for one, five and ten
years compare to a broad measure of market performance. How the
Fund has performed in the past is not necessarily an indication of
how the Fund will perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1989-1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15% 13.28
10.96 11.10 XXXX
10% 8.59 XXXX 9.00 XXXX XXXX 7.21
XXXX 6.55 XXXX XXXX XXXX XXXX XXXX
5% XXXX XXXX XXXX XXXX XXXX XXXX XXXX 4.92
XXXX XXXX XXXX XXXX XXXX XXXX 3.78 XXXX XXXX
0% XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
- -5% XXXX XXXX XXXX XXXX XXXX -3.80 XXXX XXXX XXXX XXXX
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Calendar Years
+ Refers to Class A Shares unless otherwise indicated.
During the 10-year period shown in the bar chart, the highest
return for a quarter was 5.45% (quarter ended March 31, 1995) and
the lowest return for a quarter was -4.82% (quarter ended March 31,
1994).
Note: The Fund's Class A Shares are sold subject to a maximum 4%
sales load which is not reflected in the bar chart. If the sales
load were reflected, returns would be less than those shown above.
However, the average annual total returns shown below for Class A
shares do reflect the maximum 4% sales load.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the Period Ended 1-Year 5-Year 10-Years inception
December 31, 1998
<S> <C> <C> <C> <C>
Tax-Free Fund of Colorado
Class A Shares 0.74% 4.07% 6.62% 6.64%*
Tax-Free Fund of Colorado
Class C Shares 2.89% N/A N/A 5.16%**
Lehman Brothers Quality Intermediate
Municipal Bond Index***
Class A Shares 6.48% 6.23% 8.22% 8.16%*
Class C Shares 6.48% N/A N/A 7.79%**
<FN>
*From commencement of operations on May 21, 1987.
</FN>
<FN>
**From commencement of new class of shares on April 30, 1996.
</FN>
<FN>
***The Lehman Brothers Quality Intermediate Municipal Bond Index is
nationally oriented and consists of an unmanaged mix of investment-
grade intermediate-term municipal securities of issuers throughout
the United States. At December 31, 1998, there were approximately
28,000 securities in the Index.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND OF COLORADO
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment)
Class A Class C
Shares Shares
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases.....
(as a percentage of offering price) 4.00% None
Maximum Deferred Sales Charge (Load).....None(1) 1.00%(2)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
(as a percentage of offering price).....None None
Redemption Fees..........................None None
Exchange Fees............................None None
Annual Fund Operating Expenses (expenses that are
deducted from the Fund's assets)
Management Fees ..........................0.50% 0.50%
12b-1 Fee ................................0.05% 0.75%
All Other Expenses:
Service Fee........................None 0.25%
Other Expenses (3).................0.20% 0.20%
Total All Other Expenses (3)..............0.20% 0.45%
Total Annual Fund
Operating Expenses (3)....................0.75% 1.70%
</TABLE>
Example
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares............$474 $630 $800 $1,293
Class C Shares............$273 $536 $923 $1,523(4)
You would pay the following expenses if you did not redeem your shares:
Class A Shares............$474 $630 $800 $1,293
Class C Shares............$173 $536 $923 $1,523(4)
<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 two
years after purchase and 0.50 of 1% of the proceeds of redemption
upon redemption during the third and fourth years after purchase.
See "Redemption of CDSC Class A Shares."
</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) Does not reflect a 0.02% offset in Fund expenses received in
the year ended December 31, 1998 for uninvested cash balances.
Reflecting this offset for that year, other expenses, all other
expenses and total annual Fund operating expenses were 0.18%, 0.18%
and 0.73%, respectively, for Class A Shares; for Class C Shares,
these expenses were 0.18%, 0.43% and 1.68%, respectively.
</FN>
<FN>
(4) 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, over
time long-term Class C Shareholders could pay the economic
equivalent of an amount that is more than the maximum front-end
sales charge allowed under applicable regulations.
</FN>
</TABLE>
<PAGE>
INVESTMENT OF THE FUNDS'S ASSETS
"Is the Fund right for me?"
The shares of the Fund are designed to be a suitable
investment for individuals, corporations, institutions and
fiduciaries who seek income exempt from Colorado state and regular
Federal income taxes.
Colorado Obligations
The Fund invests in Colorado Obligations which are a type of
municipal obligation. They pay interest which bond counsel or other
appropriate counsel deems to be exempt from regular Federal and
State of Colorado income taxes. They include obligations of
Colorado issuers and certain non-Colorado issuers, of any maturity.
The interest paid on certain types of Colorado Obligations may be
subject to the Federal alternative minimum tax ("AMT"). At least
80% of the Fund's net assets must be invested in Colorado
Obligations whose interest is not subject to AMT.
Interest on non-Colorado bonds or other obligations issued by
or under the authority of Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands is currently exempt from regular
Federal and Colorado income taxes.
Municipal Obligations
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for public purposes.
There are two principal classifications of municipal obligations:
"notes" and "bonds." Notes generally have maturities of one year
or less, while bonds are paid back over longer periods.
The various public purposes for which municipal obligations are
issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions
and facilities, and
* funding the construction of highways, bridges, schools,
hospitals, housing, mass transportation, streets and
water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. government
guarantee,
* municipal lease/purchase agreements, which are similar to
installment purchase contracts for property or equipment,
and
* floating and variable rate demand notes.
"What factors may affect the value of the Fund's investments and
their yields?"
Changes in value and yield based on current interest rates may
have different effects on short-term and long-term Colorado
Obligations. Long-term obligations (which usually have higher
yields) may fluctuate in value more than short-term ones. Thus,
the Fund may shorten the average maturity of its portfolio when it
believes this desirable. While this strategy may promote one part
of the Fund's objective, preservation of capital, it may also
result in a lower level of income.
Market, credit, and other economic factors may also affect the
value of Colorado Obligations.
<PAGE>
TAX-FREE FUND OF COLORADO
[PICTURE]
Poudre Valley Hospital
[PICTURE]
E-470 Tollway
[PICTURE]
Aurora Community College
[PICTURE]
University of Colorado
[PICTURE]
Platte River Power Authority
[PICTURE]
Snowmass Village
[PICTURE]
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 January 27, 1999 and
together represented 7.8% 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>
"What are the main 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 Colorado Obligations that the Fund owns.
The Fund has derived this information from sources that are
generally available to investors and believes it to be accurate,
but it has not been independently verified and it may not be
complete.
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 communications,
services, trade, government and manufacturing. Employment growth in
Colorado has exceeded that of the United States as a whole since
1989.
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 general
economic and other factors affecting those issuers.
In addition to considerations specifically affecting Colorado,
other risk factors include the following.
Medium quality securities Rating agencies consider municipal
obligations rated in the fourth highest credit rating to be of
medium quality. Thus, they may present investment risks which do
not exist with more highly rated obligations. Such obligations
possess less attractive investment characteristics and may in fact
have speculative characteristics as well. Therefore, 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.
Year 2000 Like other financial and business organizations, the
Fund could be adversely affected if computer systems the Fund
relies on do not properly process date-related information and data
involving the year 2000 and after. The Manager is taking steps that
it believes are reasonable to address this problem in its own
computer systems and to obtain assurances that steps are being
taken by the other major service providers to the Fund to achieve
comparable results. Certain vendors have advised the Manager that
they are currently compliant. The three mission critical vendors --
the shareholder servicing agent, the custodian and the fund
accounting agent -- as well as other support organizations, advised
the Manager in 1998 that they were actively working on necessary
changes. These three vendors, having anticipated readiness by
December 1998, so informed the Manager; thereafter they advised
the Manager that they expect to be ready during the first half of
1999. The Manager has also requested the Fund's portfolio manager
to attempt to evaluate the potential impact of this problem on the
issuers of securities in which the Fund invests. At this time there
can be no assurance that the target dates will be met or that these
steps will be sufficient to avoid any adverse impact on the Fund.
Less diversification The Fund is classified as a
"non-diversified" investment company under the Investment Company
Act of 1940 (the "1940 Act"). Thus, compared with "diversified"
funds, it may invest a greater percentage of its assets in
obligations of a particular issuer and may therefore not have as
much diversification among securities, and thus diversification of
risk. In general, the more the Fund invests in the securities of
specific issuers, the more the Fund is exposed to risks associated
with investments in those issuers.
FUND MANAGEMENT
"How is the Fund managed?"
Aquila Management Corporation, 380 Madison Avenue, Suite 2300,
New York, NY 10017, the Manager, is the Fund's investment adviser
under an Advisory and Administration Agreement. It has delegated
its investment advisory duties, including portfolio management, to
KPM Investment Management, Inc., the Sub-Adviser, under a sub-
advisory agreement described below. The Manager is also responsible
for administrative services, including providing for the
maintenance of the headquarters of the Fund, overseeing
relationships between the Fund and the service providers to the
Fund, either keeping the accounting records of the Fund, or, at its
expense and responsibility, delegating such duties in whole or in
part to a company satisfactory to the Fund, maintaining the Fund's
books and records and providing other administrative services.
KPM Investment Management, Inc. ("the Sub-Adviser"), provides
the Fund with local advisory services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision, including supervising continuously the
investment program of the Fund and the composition of its
portfolio; determining what securities will be purchased or sold by
the Fund; arranging for the purchase and the sale of securities
held in the portfolio of the Fund; and, at the Sub-Adviser's
expense, for pricing of the Fund's portfolio daily.
Under the Advisory and Administration Agreement, the Fund pays
the Manager 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 0.50 of 1% of such net asset value, provided,
however, that for any day that the Fund pays or accrues a fee under
the part of the current Distribution Plan which 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), the annual management fee shall be payable at the
annual rate of 0.50 of 1% of such net asset value up to $250
million and at the annual rate of 0.40 of 1% of such net asset
value above that amount. The shareholders of the Fund and the Board
of Trustees have approved a new distribution plan which allows for
higher distribution payments accompanied by reduced management fees
so that combined management and distribution fees will remain at
current levels. Management of the Fund has determined to postpone
implementation of these changes indefinitely. When and if the
changes are implemented, the Prospectus will be supplemented.
Information about the Sub-Adviser and the Manager
The Sub-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 Sub-Adviser's Denver office. Founded in
1981, the Sub-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
Sub-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 Sub-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 Sub-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 Sub-Adviser has been wholly-owned by Mutual of Omaha Insurance
Company, whose principal office is at Mutual of Omaha Plaza, Omaha,
NE 68175.
The Fund's Manager is founder and Manager and/or administrator
to the Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and equity funds. As of December 31,
1998 these funds had aggregate assets of approximately $3.2
billion, of which approximately $2.0 billion consisted of assets of
the tax-free municipal bond funds. The Manager, which was founded
in 1984, is controlled by Mr. Lacy B. Herrmann, directly, through
a trust and through share ownership by his wife.
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 (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Fund's shares is
based on market value, except that Colorado Obligations maturing
in 60 days or less are generally valued at amortized cost. The
New York Stock Exchange annually announces the days on which it
will not be open. The most recent announcement indicates that it
will not be open on the following days: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the Exchange may close on days not included in that
announcement.
PURCHASES
"Are there alternate purchase plans?"
The Fund provides individuals with alternate ways to
purchase shares through two separate classes of shares (Class A
and Class C). Although the classes have different sales charge
structures and ongoing expenses, they both represent interests in
the same portfolio of Colorado Obligations. You should choose the
class that best suits your own circumstances and needs.
"Can I purchase shares of the Fund?"
You can purchase shares of the Fund if you live in Colorado
or in one of the other states listed below. You should not
purchase shares of the Fund if you do not reside in one of the
following states. Otherwise, the Fund can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Colorado, dividends from the
Fund may be subject to state income taxes of the state in which
you do reside. Therefore, you should consult your tax adviser
before buying shares of the Fund.
On the date of this Prospectus, Class A and C Shares are
available only in:
Colorado * Arizona * California * District of Columbia
*Florida * Georgia * Hawaii * Indiana * Maryland * Minnesota *
Missouri * Nevada * New Jersey * New Mexico * New York * Texas *
Virginia Utah * Washington * West Virginia * Wisconsin
If you are a resident of Wisconsin you may purchase Class A
Shares only.
"How much money do I need to invest?"
Option I
* Initially, $1,000.
* Subsequently, any amount (for investments in shares of the
same class).
Option II
* $50 or more if an Automatic Investment Program is
established.
* Subsequently, in any amount you specify ($50 or more).
* (See "Automatic Investment Program" in the Application.)
You are not permitted to maintain both an Automatic
Investment Program and an Automatic Withdrawal Plan
simultaneously. (See "Automatic Withdrawal Plan.")
Your investment must be drawn in United States dollars on a
United States commercial bank or savings bank, credit union or
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase the Fund's shares:
* through an investment broker or dealer, or a bank or financial
intermediary, which has a sales agreement with the Distributor,
Aquila Distributors, Inc., in which case that institution will
take action on your behalf, and you will not personally perform
the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Fund's Agent, PFPC Inc.
* the price you will pay is net asset value plus a sales charge
for Class A Shares and net asset value for Class C Shares. (See
"What price will I pay for the Fund's shares?")
In either instance, all purchases of Class A Shares are subject
to the applicable sales charge.
Opening an Account Adding to An Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
"Tax-Free Fund of "Tax-Free Fund
Colorado" of Colorado"
*Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Fund's
you wish to authorize confirmations
Or, supply the name(s)
of account owner(s),
the account number, and
the name of the
Fund
Send your check and Send your check and
completed application completed application
to your dealer or to your dealer or
to the Fund's to the Fund's
Agent, PFPC Inc. Agent, PFPC Inc.
Unless you indicate otherwise, your investment will be made
in Class A Shares.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined amount
to be regularly transferred from your account.
* Telephone Investment: You can make single investments of up to
$50,000 to be made by telephone instructions to the Agent.
Before you can transfer funds electronically, the Fund's
Agent must have your completed application authorizing these
features. If you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Fund may modify or terminate
these investment methods or charge a service fee, upon 30 day's
written notice to shareholders.
REDEEMING YOUR INVESTMENT
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been accepted.
There is no minimum period for investment in the Fund,
except for shares recently purchased by check, Automatic or
Telephone Investment as discussed below.
If you own both Class A and C Shares and do not specify
which Class you wish to redeem, we will redeem your Class A
Shares.
Certain shares are be subject to a contingent deferred sales
charge, or CDSC. These are:
- Class C Shares held for less than 12 months (from the
date of purchase). (See "Alternate Purchase Plans.")
- CDSC Class A Shares. (See "Sales Charges for Purchases
of $1 Million or More.")
Upon redemption, enough additional shares will be redeemed
to pay for any applicable CDSC.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-872-2651
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Fund offers expedited
redemption.
Expedited Redemption Methods
(Non-Certificate Shares Only)
You may request expedited redemption for any shares not issued in
certificate form in two ways:
1 By Telephone. The Agent will accept instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified, or
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification.
Note: Check the accuracy of your confirmation statements
immediately. The Fund, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at 302-791-3055
or by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter, signed by the registered shareholder(s) (no signature
guarantee is required), must indicate:
account name(s)
account number
amount to be redeemed
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution Account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the Fund's
records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
Certificate Shares. Mail to the Fund's Agent: (1) blank
(unsigned) certificates for Class A Shares to be redeemed, (2)
redemption instructions, and (3) a stock assignment form.
To be in "proper form," items (2) and (3) above must be
signed by the registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures are
necessary.
For your protection, mail certificates separately from
signed redemption instructions. We recommend that certificates
be sent by registered mail, return receipt requested.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other than
the shareholder of record. The Agent may require signature
guarantees if insufficient documentation is on file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the address
of record, except as noted above. In all other cases, signatures
must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion
Program ("STAMP") Stock Exchanges Medallion Program ("SEMP")
or the New York Stock Exchange, Inc. Medallion Signature
Program ("MSP")
A notary public is not an acceptable signature guarantor.
Non-Certificate Shares. You must use the Regular Redemption
Method if you have not chosen Expedited Redemption to a
predesignated Financial Institution account. To redeem by this
method, send a letter of instruction to the Fund's Agent, which
includes:
Account name(s)
Account number
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed
Payment instructions (we normally mail redemption proceeds
to your address as registered with the Fund)
Signature(s) of the registered shareholder(s) and
Signature guarantee(s), if required, as indicated above.
"When will I receive the proceeds of my redemption?"
Redemption proceeds are normally sent on the next business
day following acceptance of your redemption request. Except as
described below, payments will normally be sent to your address
of record within 7 days after acceptance of your redemption
request.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested on your
Application or Ready
Access Features Form,
wired or transferred
through the Automated
Clearing House to your
Financial Institution Account
Through a broker
/dealer Check or wire, to your None,
broker/dealer however, your
broker/dealer
may
charge a fee
Although the Fund does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. Upon 30
days' written notice to shareholders the 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.
The Fund may delay redemption of shares recently purchased
by check (including certified, cashier's or official bank check)
or by Automatic Investment or Telephone Investment up to 15 days
after purchase; however, redemption will not be delayed after (i)
the check or transfer of funds has been honored, or (ii) the
Agent receives satisfactory assurance that your Financial
Institution will honor the check or transfer of funds. You can
eliminate possible delays by paying for purchased shares with
wired funds or Federal Reserve drafts.
The Fund has the right to postpone payment or suspend
redemption rights during certain periods. These periods may
occur (i) when the New York Stock Exchange is closed for other
than weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of thevalue of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Fund can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Fund's portfolio securities in conformity
with SEC rules. This method would only be used if Trustees
determined that partial or whole cash payments would be
detrimental to the best interests of the remaining shareholders.
"Are there any reinvestment privileges?"
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment. The Class C or CDSC Class A Shares purchased upon
reinvestment will be deemed to have been outstanding from the
date of your original purchase of the redeemed shares, less the
period from redemption to reinvestment.
Reinvestment will not alter the tax consequences of your
original redemption.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class A Shares. 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. Under the Plan:
* You will receive a monthly or quarterly check in a stated
amount of not less than $50.
* All dividends and distributions must be reinvested in your
account.
* Redemptions of shares to make payments will give rise to a
gain or loss for tax purposes. See the Automatic Withdrawal
Plan provisions on the Application included with this
Prospectus and "Dividends and Distributions" below.
Restrictions
You may not maintain an Automatic Withdrawal Plan while
simultaneously making regular purchases. Purchases of additional
shares concurrent with withdrawals are disadvantageous due to the
payment of sales charges when purchases are made. While an
occasional lump sum investment may be made, such investment
should normally equal at least the lesser of three times the
annual withdrawal or $5,000.
ALTERNATE PURCHASE PLANS
"How do the different arrangements for Class A Shares and Class C
Shares affect the cost of buying, holding and redeeming shares,
and what else should I know about the two classes?"
In this Prospectus the 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.
Class A Shares Class C Shares
"Front-Payment Shares" "Level-Payment Shares"
Initial Sales Class A Shares are None. Class C
Charge offered at net asset Shares are offered
value plus a maximum at net asset value
sales charge of 4%, with no sales charge
paid at the time of payable at the time
purchase. Thus, of purchase.
your investment is
reduced by the
applicable sales
charge.
Contingent None (except for A maximum CDSC* of
Deferred Sales certain purchase of 1% is imposed upon
Charge ("CDSC") $1 Million or more). the redemption
of
Class C Shares held
for less than 12
months. No CDSC
applies to Class C
shares acquired
through the
reinvestment of
dividends.
Distributions and An asset retention Level charge for
Service Fees service fee of 0.15 distribution and
of 1% is imposed on service fees for 6
the average annual years after the date
net assets of purchase at the
represented by the aggregate annual
Class A Shares. rate of 1% of the
average net assets
represented by the
Class C Shares
Other Information The initial sale's Class C Shares,
charge is waived or together with a pro-
reduced in some rata portion of all
cases. Larger Class C Shares
purchases qualify acquired through
for lower sales reinvestment of
charges. dividends and other
distributions paid
in additional Class
C Shares,
automatically
convert to Class A
Shares after 6
years.
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, are automatically converted
to Class A Shares. (See "Exchange Privilege" in the Additional
Statement.) If you redeem Class C Shares before you have held
them for 12 months from the date of purchase you will pay a
contingent deferred sales charge ("CDSC") at the rate of 1%,
calculated on the net asset value of the redeemed Class C Shares
at the time of purchase or of redemption, whichever is less. The
amount of any CDSC will be paid to the Distributor. The CDSC does
not apply to shares acquired through the reinvestment of
dividends on Class C Shares or to any Class C Shares held for
more than 12 months after purchase.
* This CDSC paid to the Distributor is calculated based on the
lesser of the net asset value at the time of purchase or
redemption. To determine whether a CDSC is payable on a
redemption, we assume that the redemption is made on 1) any
shares acquired as dividends or distributions, 2) any Class
C Shares you have held for more than 12 months from the date
of purchase and 3) the oldest Class C Shares on which a CDSC
is payable. You will pay the lowest possible CDSC using
this methodology.
Systematic Payroll Investments
You can make systematic investments into either Class A or C
Shares each pay period if your employer has established a
Systematic Payroll Investment Plan with the Fund. To participate
in the Payroll Plan, you must make your own arrangements with
your employer's payroll department, which may include completing
special forms. Additionally, the Fund requires that you complete
the Application included in this Prospectus. Once your
application is received by the Fund and a new account is opened,
under the Payroll Plan your employer will deduct a preauthorized
amount from each payroll check. This amount will then be sent
directly to the Fund for purchase of shares at the then current
offering price, which includes applicable sales charge. You will
receive a confirmation from the Fund for each transaction.
Should you wish to change the dollar amount or end future
systematic payroll investments, you must notify your employer
directly. Changes may take up to ten days.
Factors to Consider in Choosing Classes of Shares
Class A Shares or Class C shares are intended to be suitable
for long-term investment. Over time, the cumulative total cost of
the 1% annual service and distribution fees on the Class C Shares
will equal or exceed the total cost of the initial 4% maximum
initial sales charge and 0.15 of 1% annual fee payable for Class
A Shares. The "Table of Expenses" shows the effect of Fund
expenses for both classes if a hypothetical investment is held
for 1, 3, 5, and 10 years. You should consider the total cost of
an investment in Class A Shares as compared with a similar
investment in Class C Shares if you expect to redeem your shares
within a reasonably short time after purchase.
"What price will I pay for the Fund's shares?"
Class A Shares Offering Price Class C Shares Offering Price
$ Net asset value per share $ Net asset value per share
plus the applicable sales charge
You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
considered received prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor or Agent before its
the Distributor's close of business that day (normally 5:00 p.m.
New York time) and still receive that day's offering price.
Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase
orders received on a non-business day, including those for
Automatic Investment, will be executed on the next succeeding
business day. The sale of shares will be suspended (1) during
any period when net asset value determination is suspended, or,
(2) when the Distributor judges it is in the Fund's best interest
to do so.
"What are the sales charges for purchases of Class A Shares?"
The following table shows the amount of sales charge incurred by
a "single purchaser" of Class A Shares. A "single purchaser is:
* an individual;
* an individual, together with her or her spouse, and/or
any children under 21 years of age purchasing shares
for their account;
* a trustee or other fiduciary purchasing shares for a
single trust estate or fiduciary account; or
* a tax-exempt organization as detailed in Section
501(c)(3) or (13) of the Internal Revenue Code.
II III
Sales Charge as Sales Charge as
Percentage of Approximate
I Public Percentage of
Amount of Purchase Offering Price Amount Invested
Less than $25,000 4.00% 4.17%
$25,000 but less
than $50,000 3.75% 3.90%
$50,000 but less
than $100,000 3.50% 3.63%
$100,000 but less
than $250,000 3.25% 3.36%
$250,000 but less
than $500,000 3.00% 3.09%
$500,000 but less
than $1,000,000 2.50% 2.56%
For purchases of $1 Million or more see "Sales Charges for
Purchases of $1 Million or More."
For example:
If you pay $10,000 (Column I), your sales charge would be 4.00%
or $400 (Column II). ($10,000 x .04 = $400)
The value of your account, after deducting the sales charge from
your payment, would increase by $9,600. (This would be the
initial value of your account if you opened it with the $10,000
purchase). ($10,000 - $400 = $9,600)
The sales charge as a percentage of the increase in the value of
your account would be 4.17% (Column III). ($400 / $9,600 =
.0416666 or 4.17%)
Sales Charges for Purchases of $1 Million or More
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(i) Class A Shares issued in a single purchase of $1
million or more by a single purchaser; and
(ii) all Class A Shares issued to a single purchaser in
a single purchase when the value of the purchase,
together with the value of the purchaser's other CDSC
Class A Shares and Class A Shares on which a sales
charge has been paid, equals or exceeds $1 million:
See "Special Dealer Arrangements" for other circumstances
under which Class A Shares are considered CDSC Class A Shares.
CDSC Class A Shares do not include: (i)Class A Shares purchased
without a sales charge as described under "General" below and
(ii)Class A Shares purchased in transactions of less than $1
million when certain special dealer arrangements are not in
effect under "Certain Investment Companies" set forth under
"Reduced Sales Charges," below.
Broker/Dealer Compensation - Class A Shares
Upon notice to all selected dealers, the Distributor may
distribute up to the full amount of the applicable sales charge
to broker/dealers. Under the Securities Act of 1933,
broker/dealers may be deemed to be underwriters during periods
when they receive all, or substantially all, of the sales charge.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the Redemption Value if you redeem within
the first two years after purchase, and 0.50 of 1% of the
Redemption Value if you redeem within the third or fourth year.
This charge is based on the "Redemption Value" of your
shares which is the lesser of: (i) the net asset value when you
purchased the CDSC Class A Shares you are redeeming; or (ii) the
net asset value at the time of your redemption.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent
(see "Reduced Sales Charges for Certain Purchases of Class A
Shares"). This special charge will not apply to shares acquired
through the reinvestment of dividends on CDSC Class A Shares or
to CDSC Class A Shares held for longer than four years. When
redeeming shares, the Agent will redeem the CDSC Class A Shares
held the longest, unless otherwise instructed. If you own both
CDSC and non-CDSC Class A Shares, the latter will be redeemed
first.
The Fund will treat all CDSC Class A Shares purchases made
during a calendar month as if they were made on the first
business day of that month at the average cost of all purchases
made during that month. Therefore, the four-year holding period
will end on the first business day of the 48th calendar month
after the date of those purchases. Accordingly, the holding
period may, in fact, be one month less than the full 48 depending
on when your actual purchase was made. If you exchange your CDSC
Class A Shares for shares of an Aquila money-market fund (see
"Exchange Privilege" in the Additional Statement), running of the
48-month holding period for those exchanged shares will be
suspended.
Broker/Dealer Compensation - CDSC Class A Shares
The Distributor currently intends to pay any dealer executing a
purchase of CDSC Class A Shares as follows:
Amount of Purchase Amount Distributed
to
Broker/Dealer as a %
of Purchase Price
$1 millon but less than $2.5 million 1%
$2.5 million but less than $5 million 0.50 of 1%
$5 million or more 0.25 of 1%
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single Purchasers" may qualify for a reduced sales charge
in accordance with the above schedule when making subsequent
purchases of Class A Shares. A reduced sales charge applies if
the cumulative value (based on purchase cost or current net asset
value, whichever is higher) of Class A Shares previously
purchased with a sales charge, together with Class A Shares of
your subsequent purchase, also with a sales charge, amounts to
$25,000 or more.
Letters of Intent
"Single Purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included in the Application) is received by the
Distributor. The Letter of Intent confirms that you intend to
purchase, within a thirteen month period, Class A Shares of the
Fund through a single selected dealer or the Distributor. Class
A Shares of the Fund which you previously purchased within 90
days prior to the Distributor's receipt of your Letter of Intent
and which you still own may also be included in determining the
applicable reduction. For more information, including escrow
provisions, see Letter of Intent provisions of the Application.
General
Class A Shares may be purchased without a sales charge by:
* the Fund's Trustees and officers,
* the directors, officers and certain employees, retired
employees and representatives of the Manager, Sub-
Adviser, Distributor, and their parents and/or
affiliates,
* selected dealers and brokers and their officers and
employees,
* certain persons connected with firms providing legal,
advertising or public relations assistance,
* certain family members of, and plans for the benefit
of, the foregoing,
* and plans for the benefit of trust or similar clients
of banking institutions over which these institutions
have full investment authority, if the Distributor has
an agreement relating to such purchases.
Except for the last category, purchasers must give written
assurance that the purchase is for investment and that the Class
A Shares will not be resold except through redemption. Since
there may be tax consequences of these purchases, your tax
advisor should be consulted.
Class A Shares may also be issued without a sales charge in
a merger, acquisition or exchange offer made pursuant to a plan
of reorganization to which the 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.
A qualified group 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
(i) satisfies uniform criteria which enable the Distributor
to realize economies of scale in its costs of
distributing shares;
(ii) gives its endorsement or authorization (if it is a
group or association) to an investment program to
facilitate solicitation of its membership by a broker
or dealer; and
(iii) complies with the conditions of purchase that make up
an agreement between the Fund and the group,
representative or broker or dealer.
At the time of purchase, the Distributor must receive
information sufficient to permit verification that the purchase
qualifies for a reduced sales charge, either directly or through
a broker or dealer.
Certain Investment Companies
Class A Shares of the Fund may be purchased without sales
charge (except as stated below under "Special Dealer
Arrangements") from proceeds of a redemption, made within 120
days prior to such purchase, of shares of an investment company
(not a member of the Aquilasm Group of Funds) on which a sales
charge, including a contingent deferred sales charge, has been
paid. Additional information is available from the Distributor.
To qualify, follow these special procedures:
1. Send a completed Application (included with the
Prospectus) and payment for the shares to be purchased
directly to the Distributor, Aquila Distributors, Inc.,
380 Madison Avenue, Suite 2300, New York, NY 10017-
2513. Do not send this material to the address
indicated on the Application.
2. Your completed Application must be accompanied by
evidence satisfactory to the Distributor that you, as
the prospective shareholder, have made a 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. 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 from the proceeds of a
redemption of the shares of an investment company (not a member
of the Aquilasm Group of Funds) the lesser of (i) 1% of such
proceeds or (ii) the same amounts described under "Sales Charges
for Purchases 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, subject to a special
contingent deferred sales charge if redeemed during the four-year
period after purchase as described under "Sales Charges for
Purchases of $1 Million or More" above. Whenever Special Dealer
Arrangements are in effect the Prospectus will be supplemented.
"What are the sales, service and distribution charges for Class C
Shares?"
* No sales charge at time of purchase.
* Annual fees for service and distribution at a combined
annual rate of 1% of average annual net assets of the Fund
represented by Class C shares.
* After six years, Class C Shares automatically convert to
Class A Shares, which bear lower service and distribution
fees.
Redemption of Class C Shares
* 1% charge if redeemed within the first 12 months after
purchase. This contingent deferred sales charge, or CDSC,
is calculated based on the lesser of the net asset value at
the time of purchase or at the time of redemption.
* No CDSC applies if Class C Shares are held for 12 months
after purchase.
* Shares acquired by reinvestment of dividends are not subject
to any CDSC.
Broker/Dealer Compensation - Class C Shares
The Distributor will pay any broker/dealer executing a Class
C share purchase 1% of the sales price.
Additional Compensation for Broker/Dealers
The Distributor may compensate broker/dealers, above the
normal sales commissions, in connection with sales of any class
of shares. However, broker/dealers may receive levels of
compensation which differ as between classes of share sold.
The Distributor, not the Fund, will pay these additional
expenses. Therefore, the price you pay for shares and the amount
that the Fund receives from your payment will not be affected.
Additional compensation may include full or partial payment
for:
* advertising of the Fund's shares;
* payment of travel expenses, including lodging, for
attendance at sales seminars by qualifying registered
representatives; and/or
* other prizes or financial assistance to broker/dealers
conducting their own seminars or conferences.
Such compensation may be limited to broker/dealers whose
representatives have sold or are expected to sell significant
amounts of the Fund's shares. However, broker/dealers may not
use sales of the Fund's shares to qualify for additional
compensation to the extent such may be prohibited by the laws of
any state or self-regulatory agency, such as the National
Association of Securities Dealers, Inc.
The cost to the Distributor of such promotional activities
and such payments to participating dealers will not exceed the
amount of the sales charges in respect of sales of all classes of
shares of the Fund effected through such participating dealers,
whether retained by the Distributor or reallowed to participating
dealers. Any of the foregoing payments to be made by the
Distributor may be made instead by the Manager out of its own
funds, directly or through the Distributor.
"What about Confirmations and Share Certificates?"
A statement will be mailed to you confirming each purchase
of shares in the Fund. Additionally, your account at the Agent
will be credited in full and fractional shares (rounded to the
nearest 1/1000th of a share).
You may obtain Share certificates for full Class A Shares
only if you make a written request to the Agent. All share
certificates previously issued by the Fund represent Class A
Shares. If you lose the certificates, you may incur delay and
expense when redeeming shares or having the certificates
reissued.
Share certificates will not be issued:
* for fractional Class A Shares;
* for full or fractional Class C Shares;
* if you have selected Automatic Investment or Telephone
Investment for Class A Shares (see "PURCHASES " above);
or
* if you have selected Expedited Redemption (see
"REDEEMING YOUR INVESTMENT" above). However, if you
specifically request, Class A Share certificates will
be issued with a concurrent automatic suspension of
Expedited Redemption on your account.
General
The Fund and the Distributor may 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.
"Is there a Distribution Plan or a Service Plan?"
The Fund has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Fund to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Fund against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
Pursuant to the Plan, the Fund makes payments with respect
to both Class A and C Shares to broker/dealers, or others
selected by the Distributor, including any principal underwriter
of the Fund, who have entered into written agreements with the
Distributor or the Fund and (i) rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Fund's shares or (ii) assisted in the servicing
of shareholder accounts.
For any fiscal year, these payments, made through the
Distributor or Agent, may not exceed 0.05 of 1% for Class A
Shares and 0.75 of 1% for Class C Shares, of the average annual
net assets represented by each such class. Because these
distributions and fees are paid out of assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales
charges. The shareholders of the Fund and the Board of Trustees
have approved a new distribution plan which allows for
distribution payments for Class A Shares of 0.15 of 1%,
accompanied by reduced management fees so that combined
management and distribution fees for Class A Shares will remain
at current levels. Management of the Fund has determined to
postpone implementation of these changes indefinitely. When and
if the changes are implemented, the Prospectus will be
supplemented.
For any class, these payments are made only from the assets
allocable to that class.
Shareholder Service Plan for Class C Shares
The Fund's Shareholder Services Plan authorizes it to pay a
service fee to Qualified Recipients with respect to Class C
Shares. For any fiscal year, such fees, paid through the
Distributor or Agent, may not exceed 0.25 of 1% of the average
annual net assets represented by Class C Shares. Additionally,
payment shall be made only out of the Fund's assets represented
by Class C Shares. "Qualified Recipients" means broker/dealers
or others selected by the Distributor, including any principal
underwriter of the Fund, who have entered into written agreements
with the Fund or the Distributor and who have agreed to provide
personal services to Class C shareholders and/or maintain their
accounts.
Service Fees with respect to Class C Shares will be paid to
the Distributor during the first year after purchase and
thereafter to other Qualified Recipients.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions paid?"
The Fund pays dividends and other distributions with respect
to each class of shares. The Fund calculates its dividends and
other distributions with respect to each class at the same time
and in the same manner. Net income for dividend purposes includes
all interest income accrued by the Fund since the previous
dividend declaration, including accretion of any original issue
discount, less expenses paid or accrued. As this income varies,
so will the Fund's dividends. There is no fixed dividend rate. It
is expected that most of the Fund's dividends will be comprised
of interest income. The dividends of each class can vary due to
certain class-specific charges. The Fund will declare all of its
net income as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when redemption
proceeds are mailed, wired or transferred by
the Automated Clearing House, the Agent or
paid by the Agent to a selected dealer; or
2. the third day the New York Stock Exchange
is open after the day the net asset value of
the redeemed shares was determined.
The Fund's present policy is to pay dividends so 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 choose 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.
"How will the information I give the Fund affect payments to me?"
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Fund
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and from capital
gains distributions (if any) and any other distributions that do
not qualify as "exempt-interest 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 automatically
be reinvested in full and fractional shares of the Fund of the
same class at net asset value on the record date for the dividend
or distribution or other date fixed by the Board of Trustees.
Your election to receive cash will continue in effect until
the Agent receives written notification of a change.
All shareholders, whether their dividends are received in
cash or reinvested, will receive a monthly account summary
indicating the current status of their investment.
TAX INFORMATION
Net investment income includes income from Colorado
Obligations in the portfolio which the Fund allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Fund will allocate
"exempt-interest dividends" by applying one designated percentage
to all income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Fund will be subject to income
taxes. During the Fund's fiscal year ended December 31, 1998,
92.2% of the Fund's dividends were exempt interest dividends.
For the calendar year 1998, 7.80% of total dividends paid were
taxable as long-term capital gains. The percentage of tax-exempt
income from any particular dividend may differ from the
percentage of the Fund's tax-exempt income during the dividend
period.
Net capital gains of the Fund, if any, 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 intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
"Exempt-interest dividends" 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 Fund will treat as ordinary income in the year received
certain gains on Colorado Obligations it acquired after April 30,
1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net short-
term losses which the Fund distributes and so designates) are
reportable by shareholders as gains from the sale or exchange of
a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Fund or receives it in cash, regardless of the length of time
the investment is held.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are
not distributed, but carried forward by the Fund to offset gains
in later years and reduce future capital gains dividends and
amounts taxed to shareholders.
The Fund's gains or losses on sales of Colorado Obligations
will be deemed long- or short-term, depending upon the length of
time the Fund holds these obligations.
You will receive information on the tax status of the Fund's
dividends and distributions annually.
Special Tax Matters
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.
If you or your spouse are receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Fund.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Fund.
Interest from all Colorado Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
interest from so-called private activity bonds issued after
August 7, 1986, constitutes a tax preference for both individuals
and corporations and thus will enter into a computation of the
alternative minimum tax. 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. An adjustment
required by the Code will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax. They should consult their tax advisers.
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. For redemptions made after January
1, 1998, your gain or loss will be long-term if you held the
redeemed shares for over one year and short-term if for a year or
less. Long-term capital gains are currently taxed at a maximum
rate of 20% and short-term gains are currently taxed at ordinary
income tax rates. However, if shares held for six months or less
are redeemed and you have a loss, two special rules apply: the
loss is reduced by the amount of exempt-interest dividends, if
any, which you received on the redeemed shares, and any loss over
and above the amount of such exempt-interest dividends is treated
as a long-term loss to the extent you have received capital gains
dividends on the redeemed shares.
Tax Effect of Conversion
When Class C Shares automatically convert to Class A Shares,
approximately six years after purchase, you will recognize no
gain or loss. Your adjusted tax basis in the Class A Shares you
receive upon conversion will equal your adjusted tax basis in the
Class C Shares you held immediately before conversion. Your
holding period for the Class A Shares you receive will include
the period you held the converted Class C Shares.
"What should I know about Colorado taxes?"
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.
Shareholders of the Fund should consult their tax advisers
about other state and local tax consequences of their investment
in the Fund.
<TABLE>
<CAPTION>
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited
by KPMG 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. A copy of these financial statements can be
obtained without charge by calling or writing the Shareholder
Servicing Agent at the address and telephone numbers on the cover
of the Prospectus.
Class A(1) Class C(2)
Year ended December 31, Year Ended Year Ended
December 31,
1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .............. $10.62 $10.41 $10.56 $10.60 $10.41
Income from Investment
Operations:
Net investment income ... 0.47 0.50 0.52 0.37 0.40
Net gain (loss) on
securities (both
realized and
unrealized) .......... 0.04 0.23 (0.13) 0.04 0.21
Total from Investment
Operations ........... 0.51 0.73 0.39 0.41 0.61
Less Distributions:
Dividends from net
investment income .... (0.46) (0.52) (0.54) (0.36) (0.42)
Distributions from
capital gains ........ (0.04) - - (0.04) -
Total Distributions .... (0.50) (0.52) (0.54) (0.40) (0.42)
Net Asset Value, End of
Period ................. $10.63 $10.62 $10.41 $10.61 $10.60
Total Return (not reflecting
sales charge)(%) ....... 4.92 7.21 3.78 3.92 5.99
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) ..... 208,771 216,321 214,392 1,328 1,036
Ratio of Expenses to
Average Net
Assets (%) .......... 0.75 0.75 0.70 1.69 1.69
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 4.47 4.78 5.02 3.50 3.81
Portfolio Turnover
Rate (%) ............... 15.20 22.66 10.96 15.20 22.66
The expense and net investment income ratios without the effect of the
voluntary waiver of a portion of the management fee for periods prior to
January 1, 1997 were:
Ratio of Expenses
to Average Net Assets(%)
- - 0.74 - -
Ratio of Net Investment
Income(Loss) to
Average Net Assets(%) - - 4.98 - -
The expense ratios after giving effect to the waiver and expense offset for
uninvested cash balances were:
Ratio of Expenses to
Average Net Assets(%) 0.73 0.72 0.69 1.68 1.66
<CAPTION>
Class A(1) Class C(3)
Year Ended December 31, Period Ended 12/31/96
1995 1994
<C> <C> <C>
$9.82 $10.77 $10.31
0.54 0.55 0.28
0.74 (0.95) 0.12
1.28 (0.40) 0.40
(0.54) (0.55) (0.30)
- - -
(0.54) (0.55) (0.30)
$10.56 $9.82 $10.41
13.28 (3.80) 3.78+
219,306 199,075 915
0.64 0.61 1.65*
5.20 5.32 4.07*
14.20 15.53 10.96
0.76 0.72 1.69*
5.08 5.21 4.03*
0.63 0.57 1.64*
<FN>
(1) Designated as Class A Shares on April 30, 1996.
</FN>
<FN>
(2) New Class of Shares established on April 30, 1996.
</FN>
<FN>
(3) For the period from April 30, 1996 through December 31, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
<FN>
Note: On October 1, 1992, Kirkpatrick, Pettis, Smith, Polian Inc. became
the Fund's Investment Adviser. On July 1, 1994, KPM Investment Management,
Inc., a wholly-owned subsidiary of Kirkpatrick, Pettis, Smith, Polian Inc.,
became the Fund's Investment Adviser. Pursuant to new management
arrangements which were effective on June 29, 1998, KPM Investment
Management, Inc. was appointed as the Fund's Investment Sub-Adviser.
</FN>
</TABLE>
<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 Organization. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of
the Trust Instrument. 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 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free 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 Aquila SM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each of
the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account
listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of $1,000
or more to my/our account at a Financial Institution. The Financial
Institution account must be in the same name(s) as this Fund account is
registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_________________________ _____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ _____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU MUST ALSO
COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the
Agent, 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 Trusts, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the 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 success or
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>
MANAGER AND FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
KPM Investment Management, Inc.
1700 Lincoln Street, Suite 1300
Denver, Colorado 80203
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
Diana P. Herrmann, Senior Vice 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, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
<PAGE>
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, 1999, (the "Additional
Statement") has been filed with the Securities and Exchange
Commission. The Additional Statement contains information about
the Fund and its management not included in this Prospectus. The
Additional Statement is incorporated by reference in its entirety
in this Prospectus. Only when you have read both this Prospectus
and the Additional Statement are all material facts about the
Fund available to you.
You can get additional information about the Fund's
investments in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year. You can get the Additional Statement and the
Fund's annual and semi-annual reports without charge, upon
request.
In addition, you can review and copy information about the
Fund (including the Additional Statement) at the Public Reference
Room of the SEC in Washington, D.C. You can get information on
the operation of the SEC's public reference room by calling the
SEC at 1-800-SEC-0330. You can get other information about the
Fund at the SEC's Internet site at http://www.sec.gov. You can
get copies of this information, upon payment of a duplicating
fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
The file number under which the Fund is registered
with the SEC under the
Investment Company Act of 1940 is 811-5047.
TABLE OF CONTENTS
The Fund's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Fund...................
Investment of the Fund's Assets.................
Fund Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributors......................
Tax Information..................................
Financial Highlights.............................
Application and Letter of Intent
The file number under which the Fund is registered
with the SEC under the
Investment Company Act of 1940 is 811-5047.
AQUILA
[LOGO]
Tax-Free Fund
of
Colorado
[LOGO]
One of The
Aquilasm Group Of Funds
A tax-free
income investment
PROSPECTUS
To receive a free copy of the Fund's Additional Statement, annual
or semi-annual report, or other information about the Fund, or to
make shareholder inquiries call:
the Fund's Shareholder Servicing Agent at
800-872-2651 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For General Inquiries and Yield Information, call 800-872-2652 or
212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
<PAGE>
Tax-Free Fund of Colorado
380 Madison Avenue, Suite 2300
New York, New York 10017
800-USA-COL2 * (800-872-2652)
212-697-6666
Prospectus
Class Y Shares April 30, 1999
Class I Shares
Tax-Free Fund of Colorado is a mutual fund that seeks to provide
you as high a level of current income exempt from Colorado and
Federal income taxes as is consistent with preservation of
capital. The Fund invests primarily in municipal obligations
which pay interest exempt from Colorado state and Federal income
taxes that are 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,
are determined to be of comparable quality by the Fund's Sub-
Adviser, KPM Investment Management, Inc.
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
The Securities and Exchange Commission has not approved or
disapproved the Fund's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
THE FUND'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Fund's objective?"
The Fund's objective is to provide you as high a level of
current income exempt from Colorado state and Federal income
taxes as is consistent with preservation of capital.
"What is the Fund's investment strategy?"
The Fund invests in tax-free municipal obligations which pay
interest exempt from Colorado state and Federal income taxes. In
general, all or almost all of these obligations are issued by the
State of Colorado, its counties and various other local
authorities; at least 65% of the portfolio will always consist of
obligations of these issuers. These obligations can be of any
maturity, but the Fund's average portfolio maturity has
traditionally been between 8 and 12 years. At the time of
purchase, an obligation must be "investment grade." This means
that it must either
* be rated within the four highest credit ratings 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 Sub-Adviser, KPM Investment Management, Inc.
"What are the main risks of investing in the Fund?"
Among the risks of investing in shares of the Fund and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Fund.
There are two types of risk associated with any fixed income
debt securities such as Colorado Obligations: interest rate risk
and credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Colorado
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Colorado Obligations,
are subject to interest rate risk. Colorado Obligations with
longer maturities generally have a more pronounced reaction
to interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Colorado Obligations the Fund owns to make periodic
interest payments as scheduled and ultimately repay
principal at maturity. The Fund's assets, being primarily or
entirely Colorado issues, are subject to economic and other
conditions affecting Colorado.
Market Fluctuations. The market prices of the Fund's
portfolio securities fluctuate in relation to changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well.
No Bank Credit Support. Investment in the Fund is not a
deposit in any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency.
<PAGE>
TAX-FREE FUND OF COLORADO
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Tax-Free Fund of Colorado+ by showing
changes in the Fund's performance from year to year since
inception and by showing how the Fund's average annual returns
for one, five and ten years compare to a broad measure of market
performance. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the
future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1996-1998
<S> <C> <C> <C>
8% 7.65
XXXX
6% XXXX
4.87% XXXX 4.97%
4% XXXX XXXX XXXX
XXXX XXXX XXXX
2% XXXX XXXX XXXX
XXXX XXXX XXXX
0% XXXX XXXX XXXX
1996* 1997 1998
Calendar Years
+ Refers to Class Y Shares unless otherwise indicated.
* For the period April 30, 1996-december 31, 1996.
During the period shown in the bar chart, the highest return for
a quarter was 2.79% (quarter ended September 30, 1996) and the
lowest return for a quarter was 0.29% (quarter ended March 31,
1997).
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the Period Ended 1-Year inception*
December 31, 1998
<S> <C> <C>
Tax-Free Fund of Colorado
Class Y Shares 4.97% 6.97%
Tax-Free Fund of Colorado
Class I Shares ** N/A N/A
Lehman Brothers Quality Intermediate
Municipal Bond Index *** 6.48% 7.79%
<FN>
*From commencement of class on April 30, 1996.
</FN>
<FN>
**Commencement of Class I Shares was on January 31, 1998. To date
no Class I Shares have been sold.
</FN>
<FN>
***The Lehman Brothers Quality Intermediate Municipal Bond Index
is nationally oriented and consists of an unmanaged mix of
investment-grade investment-term municipal securities of issuers
throughout the United States. At December 31, 1998, there were
approximately 28,000 securities in the Index.
</FN>
</TABLE>
<PAGE>
TAX-FREE FUND OF COLORADO
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund. No Class I Shares are
currently outstanding.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment)
Class I Class Y
Shares Shares
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases.........................None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load).........None None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends
(as a percentage of offering price)........None None
Redemption Fees..............................None None
Exchange Fees................................None None
Annual Fund Operating Expenses (expenses that are
deducted from the Fund's assets)
Management Fees .............................0.50% 0.50%
12b-1 Fee ...................................0.10%(1) None
All Other Expenses (2).......................0.38% 0.20%
Total Annual Fund Operating Expenses (2).....0.98% 0.70%
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Fund's operating expenses remain
the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class I Shares.......... $100 $312 $542 $1,201
Class Y Shares...........$72 $224 $390 $871
<FN>
(1) Current rate; up to 0.25% can be authorized. (See
"Distribution Plan.")
</FN>
<FN>
(2) Does not reflect a 0.02% offset in Fund expenses received in
the year ended December 31, 1998 for uninvested cash balances.
Reflecting this offset for that year, all other expenses and
total annual Fund operating expenses were 0.36% and 0.96%,
respectively, for Class I Shares; for Class Y Shares, these
expenses were 0.18% and 0.68%, respectively. Other expenses for
the two classes differ because Class I Shares bear program costs
for financial intermediaries of 0.25%, which includes transfer
agent services, and charges common to both classes of 0.13%;
Class Y Shares bear only the common charges of 0.13% and an
allocation for transfer agent services of 0.07%
</FN>
</TABLE>
<PAGE>
INVESTMENT OF THE FUNDS'S ASSETS
"Is the Fund right for me?"
The shares of the Fund are designed to be a suitable
investment for individuals, corporations, institutions and
fiduciaries who seek income exempt from Colorado State and
regular Federal income taxes. Institutional Class Shares ("Class
Y Shares") are offered only to institutions acting for investors
in a fiduciary, advisory, agency, custodial or similar capacity.
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with which
Aquila Distributors, Inc. (the "Distributor") has entered into
sales agreements. The Fund does not sell the shares of either
class directly to retail customers.
Colorado Obligations
The Fund invests in Colorado Obligations, which are a type
of municipal obligation. They pay interest which bond counsel or
other appropriate counsel deems to be exempt from regular Federal
and State of Colorado income taxes. They include obligations of
Colorado issuers and certain non-Colorado issuers, of any
maturity. The interest paid on certain types of Colorado
Obligations may be subject to the Federal alternative minimum tax
("AMT"). At least 80% of the Fund's net assets must be invested
in Colorado Obligations whose interest is not subject to AMT.
Interest on non-Colorado bonds or other obligations issued
by or under the authority of Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands is currently exempt from
regular Federal and Colorado income taxes.
Municipal Obligations
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations
are issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions
and facilities, and
* funding the construction of highways, bridges, schools,
hospitals, housing, mass transportation, streets and
water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. government
guarantee,
* municipal lease/purchase agreements, which are similar
to installment purchase contracts for property or
equipment, and
* floating and variable rate demand notes.
"What factors may affect the value of the Fund's investments and
their yields?"
Changes in value and yield based on current interest rates
may have different effects on short-term and long-term Colorado
Obligations. Long-term obligations (which usually have higher
yields) may fluctuate in value more than short-term ones. Thus,
the Fund may shorten the average maturity of its portfolio when
it believes this desirable. While this strategy may promote one
part of the Fund's objective, preservation of capital, it may
also result in a lower level of income.
Market, credit, and other economic factors may also affect
the value of Colorado Obligations.
"What are the main 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 Colorado Obligations that the
Fund owns. The Fund has derived this information from sources
that are generally available to investors and believes it to be
accurate, but it has not been independently verified and it may
not be complete.
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 communications,
services, trade, government and manufacturing. Employment growth
in Colorado has exceeded that of the United States as a whole
since 1989.
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 general
economic and other factors affecting those issuers.
In addition to considerations specifically affecting
Colorado, other risk factors include the following.
Medium Quality Securities. Rating agencies consider
municipal obligations rated in the fourth highest credit rating
to be of medium quality. Thus, they may present investment risks
which do not exist with more highly rated obligations. Such
obligations possess less attractive investment characteristics
and may in fact have speculative characteristics as well.
Therefore, 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.
Year 2000 Like other financial and business organizations,
the Fund could be adversely affected if computer systems the Fund
relies on do not properly process date-related information and
data involving the year 2000 and after. The Manager is taking
steps that it believes are reasonable to address this problem in
its own computer systems and to obtain assurances that steps are
being taken by the other major service providers to the Fund to
achieve comparable results. Certain vendors have advised the
Manager that they are currently compliant. The three mission
critical vendors -- the shareholder servicing agent, the
custodian and the fund accounting agent -- as well as other
support organizations, advised the Manager in 1998 that they were
actively working on necessary changes. These three vendors,
having anticipated readiness by December 1998, so informed the
Manager; thereafter they advised the Manager that they expect to
be ready during the first half of 1999. The Manager has also
requested the Fund's portfolio manager to attempt to evaluate the
potential impact of this problem on the issuers of securities in
which the Fund invests. At this time there can be no assurance
that the target dates will be met or that these steps will be
sufficient to avoid any adverse impact on the Fund.
Less Diversification. The Fund is classified as a
"non-diversified" investment company under the Investment Company
Act of 1940 (the "1940 Act"). Thus, compared with "diversified"
funds, it may invest a greater percentage of its assets in
obligations of a particular issuer and may therefore not have as
much diversification among securities, and thus diversification
of risk. In general, the more the Fund invests in the securities
of specific issuers, the more the Fund is exposed to risks
associated with investments in those issuers.
FUND MANAGEMENT
"How is the Fund managed?"
Aquila Management Corporation, 380 Madison Avenue, Suite
2300, New York, NY 10017, the Manager, is the Fund's investment
adviser under an Advisory and Administration Agreement. It has
delegated its investment advisory duties, including portfolio
management, to KPM Investment Management, Inc., the Sub-Adviser,
under a sub-advisory agreement described below. The Manager is
also responsible for administrative services, including providing
for the maintenance of the headquarters of the Fund, overseeing
relationships between the Fund and the service providers to the
Fund, either keeping the accounting records of the Fund, or, at
its expense and responsibility, delegating such duties in whole
or in part to a company satisfactory to the Fund, maintaining the
Fund's books and records and providing other administrative
services.
KPM Investment Management, Inc. ("the Sub-Adviser"),
provides the Fund with local advisory services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision, including supervising continuously
the investment program of the Fund and the composition of its
portfolio; determining what securities will be purchased or sold
by the Fund; arranging for the purchase and the sale of
securities held in the portfolio of the Fund; and, at the
Sub-Adviser's expense, for pricing of the Fund's portfolio daily.
Under the Advisory and Administration Agreement, the Fund
pays the Manager 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 0.50 of 1% of such net asset value,
provided, however, that for any day that the Fund pays or accrues
a fee under the part of the current Distribution Plan which
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), the annual management fee shall
be payable at the annual rate of 0.50 of 1% of such net asset
value up to $250 million and at the annual rate of 0.40 of 1% of
such net asset value above that amount. The shareholders of the
Fund and the Board of Trustees have approved a new distribution
plan which allows for higher distribution payments accompanied by
reduced management fees so that combined management and
distribution fees will remain at current levels. Management of
the Fund has determined to postpone implementation of these
changes indefinitely. When and if the changes are implemented,
the Prospectus will be supplemented.
Information about the Sub-Adviser and the Manager
The Sub-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 Sub-Adviser's Denver office.
Founded in 1981, the Sub-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 Sub-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 Sub-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 Sub-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 Sub-Adviser has been wholly-owned by Mutual of Omaha
Insurance Company, whose principal office is at Mutual of Omaha
Plaza, Omaha, NE 68175.
The Fund's Manager is founder and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money market funds and equity
funds. As of December 31, 1998 these funds had aggregate assets
of approximately $3.2 billion, of which approximately $2.0
billion consisted of assets of the tax-free municipal bond funds.
The Manager, which was founded in 1984, is controlled by Mr. Lacy
B. Herrmann, directly, through a trust and through share
ownership by his wife.
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 (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Fund's shares is
based on market value, except that Colorado Obligations maturing
in 60 days or less are generally valued at amortized cost. The
New York Stock Exchange annually announces the days on which it
will not be open. The most recent announcement indicates that it
will not be open on the following days: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the Exchange may close on days not included in that
announcement.
PURCHASES
"Are there alternate purchase plans?"
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of Colorado
Obligations.
"Can I purchase shares of the Fund?"
You can purchase shares of the Fund if you reside in
Colorado or in one of the other states listed below. You should
not purchase shares of the Fund if you do not reside in one of
the following states. Otherwise, the Fund can redeem the shares
you purchased. This may cause you to suffer a loss and may have
tax consequences.
Also, if you do not reside in Colorado, dividends from the
Fund may be subject to state income taxes of the state in which
you do reside. Therefore, you should consult your tax adviser
before buying shares of the Fund.
On the date of this Prospectus, Class Y Shares are available
only in:
*Colorado * California * District of Columbia *Florida * Georgia
* Hawaii * Indiana * Missouri * Nevada * New Jersey * New York *
Washington
Class I Shares are available only in:
* Colorado * District of Columbia * Florida * Missouri * New
Jersey * New York
"How Much Money Do I Need to Invest?"
For Class Y Shares:
$1,000. Subsequent investments can be in any amount.
Class I Shares:
Financial intermediaries can set their own requirements for
initial and subsequent investments.
Your investment must be drawn in United States dollars on a
United States commercial bank or savings bank, credit union or
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase Class Y Shares:
* through an investment broker or dealer, or a bank or
financial intermediary, which has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will
not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Fund's Agent, PFPC Inc.
* the price you will pay is net asset value for both Class Y
Shares and Class I Shares. (See "What price will I pay for
the Fund's shares?")
You may purchase Class I Shares only through a financial
intermediary.
Opening a Class Y Shares Account Adding to a Class Y Shares
Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
"Tax-Free Fund of "Tax-Free Fund
Colorado" of Colorado"
* Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Fund's
you wish to authorize confirmations
Or, supply the name(s)
of account owner(s),
the account number, and
the name of the Fund
* Send your check and * Send your check and
completed application completed application
to your dealer or to your dealer or
to the Fund's to the Fund's
Agent, PFPC Inc. Agent, PFPC Inc.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined amount
to be regularly transferred from your account.
* Telephone Investment: You can make single investments of up to
$50,000 to be made by telephone instructions to the Agent.
Before you can transfer funds electronically, the Fund's
Agent must have your completed Application authorizing these
features. If you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Fund may modify or terminate
these investment methods or charge a service fee, upon 30 day's
written notice to shareholders.
REDEEMING YOUR INVESTMENT
Redeeming Class Y Shares
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been accepted.
There is no minimum period for investment in the Fund,
except for shares recently purchased by check, Automatic or
Telephone Investment as discussed below.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-872-2651
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Fund offers expedited
redemption for Class Y Shares.
Expedited Redemption Methods
You may request expedited redemption in two ways:
1. By Telephone. The Agent will accept instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified or
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Fund, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at
302-791-3055 or by mail to 400 Bellevue Parkway, Wilmington,
DE 19809. The letter, signed by the registered
shareholder(s) (no signature guarantee is required), must
indicate:
account name(s)
account number
amount to be redeemed
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution Account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the Fund's
records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
To redeem by the regular redemption method, send a letter of
instruction to the Fund's Agent, which includes:
Account name(s)
Account number
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed
Payment instructions (we normally mail redemption proceeds
to your address as registered with the Fund)
Signature(s) of the registered shareholder(s) and
Signature guarantee(s), if required, as indicated below.
To be in "proper form," your letter must be signed by the
registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures
are necessary.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other
than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on
file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the
address of record, except as noted above. In all other
cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion
Program ("STAMP") 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 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.
"When will I receive the proceeds of my redemption?"
Redemption proceeds for Class Y Shares are normally sent on
the next business day following acceptance of your redemption
request. Except as described below, payments will normally be
sent to your address of record within 7 days after acceptance of
your redemption request.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested
on your Application
or Ready Access Features
Form, wired or
transferred through
the Automated Clearing
House to your Financial
Institution Account.
Through a broker/
dealer Check or wire, to your None, however
broker/dealer. your
broker/dealer
may charge a
fee.
Although the Fund does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. Upon 30
days' written notice to shareholders the 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.
Redemption payments for Class I Shares are made to financial
intermediaries.
The Fund may delay redemption of shares recently purchased
by check (including certified, cashier's or official bank check)
or by Automatic Investment or Telephone Investment up to 15 days
after purchase; however, redemption will not be delayed after (i)
the check or transfer of funds has been honored, or (ii) the
Agent receives satisfactory assurance that your Financial
Institution will honor the check or transfer of funds. You can
eliminate possible delays by paying for purchased shares with
wired funds or Federal Reserve drafts.
The Fund has the right to postpone payment or suspend
redemption rights during certain periods. These periods may occur
(i) when the New York Stock Exchange is closed for other than
weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Fund can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Fund's portfolio securities in conformity
with SEC rules. This method would only be used if Trustees
determined that partial or whole cash payments would be
detrimental to the best interests of the remaining shareholders.
ALTERNATE PURCHASE PLANS
Distribution Arrangements
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.
Class Y Shares Class I Shares
"Institutional Class" "Financial Intermediary
Class"
Initial Sales None None. Financial
Charge Intermediaries may
charge a fee for
purchase of shares.
Contingent None None
Deferred Sales
Charge ("CDSC")
Distributions and None Distribution fee of
Service Fees up to 0.25 of 1% of
average annual net
assets allocable to
Class I Shares,
currently 0.10 of 1%
of such net assets,
and a service fee
of 0.25 of 1% of
such assets.
"What price will I pay for the Fund's shares?"
The offering price for Class Y Shares is the net asset value
per share. You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
considered received prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor before its close of
business that day (normally 5:00 p.m. New York time) and still
receive that day's offering price. Otherwise, orders will be
filled at the next determined offering price. Dealers are
required to submit orders promptly. Purchase orders received on a
non-business day, including those for Automatic Investment, will
be executed on the next succeeding business day.
The 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.
The sale of shares will be suspended (1) during any period
when net asset value determination is suspended, or, (2) when the
Distributor judges it is in the Fund's best interest to do so.
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each purchase
of Class Y Shares in the Fund. Additionally, your account at the
Agent will be credited in full and fractional shares (rounded to
the nearest 1/1000th of a share). Purchases of Class I Shares
will be confirmed by financial intermediaries. The Fund will not
issue certificates for Class Y Shares or Class I Shares.
General
The Fund and the Distributor may 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.
"Is there a Distribution Plan or a Service Plan?"
The Fund has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Fund to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Fund against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
No payments are made with respect to assets represented by
Class Y Shares.
Pursuant to the Plan, the Fund makes payments with respect
to Class I Shares to broker/dealers, or others selected by the
Distributor, including any principal underwriter of the Fund, who
have entered into written agreements with the Distributor or the
Fund and (i) rendered assistance (whether direct, administrative,
or both) in the distribution and/or retention of the Fund's
shares or (ii) assisted in the servicing of shareholder accounts.
For any fiscal year, payments with respect to Class I
Shares, made through the Distributor or Agent, are made at a rate
set from time to time by the Board of Trustees (currently 0.10 of
1%) but not more than 0.25 of 1% of the average annual net assets
represented by the Class I Shares of the Fund. Because these
distributions and fees are paid out of assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales
charges. Such payments can be made only out of the Fund's assets
allocable to the Class I Shares.
Shareholder Service's Plan for Class I Shares
The Fund's Shareholder Services Plan authorizes it to pay a
service fee to Qualified Recipients with respect to Class I
Shares. For any fiscal year, such fees, paid through the
Distributor or Agent, may not exceed 0.25 of 1% of the average
annual net assets represented by Class I Shares. Additionally,
payment shall be made only out of the Fund's assets represented
by Class I Shares. "Qualified Recipients" means broker/dealers or
others selected by the Distributor, including any principal
underwriter of the Fund, who have entered into written agreements
with the Fund or the Distributor and who have agreed to provide
personal services to Class I shareholders and/or maintain their
accounts. No payments are made with respect to assets represented
by Class Y Shares.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions paid?"
The Fund pays dividends and other distributions with respect
to each class of shares. The Fund calculates its dividends and
other distributions with respect to each class at the same time
and in the same manner. Net income for dividend purposes includes
all interest income accrued by the Fund since the previous
dividend declaration, including accretion of any original issue
discount, less expenses paid or accrued. As this income varies,
so will the Fund's dividends. There is no fixed dividend rate. It
is expected that most of the Fund's dividends will be comprised
of interest income. The dividends of each class can vary due to
certain class-specific charges. The Fund will declare all of its
net income as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when redemption
proceeds are mailed, wired or transferred by
the Automated Clearing House, the Agent or
paid by the Agent to a selected dealer; or
2. the third day the New York Stock Exchange
is open after the day the net asset value of
the redeemed shares was determined.
The Fund's present policy is to pay dividends so 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, holders of Class Y Shares may choose 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. All arrangements for
the payment of dividends with respect to Class I Shares,
including reinvestment of dividends, must be made through
financial intermediaries.
"How will the information I give the Fund affect payments to me?"
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Fund
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and from capital
gains distributions (if any) and any other distributions that do
not qualify as "exempt-interest 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 automatically
be reinvested in full and fractional shares of the Fund of the
same class at net asset value on the record date for the dividend
or distribution or other date fixed by the Board of Trustees.
Your election to receive cash will continue in effect until
the Agent receives written notification of a change.
All shareholders, whether their dividends are received in
cash or reinvested, will receive a monthly account summary
indicating the current status of their investment.
TAX INFORMATION
Net investment income includes income from Colorado
Obligations in the portfolio which the Fund allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Fund will allocate
"exempt-interest dividends" by applying one designated percentage
to all income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Fund will be subject to income
taxes. During the Fund's fiscal year ended December 31, 1998,
92.2% of the Fund's dividends were exempt interest dividends.
For the calendar year 1998, 7.80% of total dividends paid were
taxable as long-term capital gains. The percentage of tax-exempt
income from any particular dividend may differ from the
percentage of the Fund's tax-exempt income during the dividend
period.
Net capital gains of the Fund, if any, 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 intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
"Exempt-interest dividends" 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 Fund will treat as ordinary income in the year received
certain gains on Colorado Obligations it acquired after April 30,
1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net short-
term losses which the Fund distributes and so designates) are
reportable by shareholders as gains from the sale or exchange of
a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Fund or receives it in cash, regardless of the length of time
the investment is held.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are
not distributed, but carried forward by the Fund to offset gains
in later years and reduce future capital gains dividends and
amounts taxed to shareholders.
The Fund's gains or losses on sales of Colorado Obligations
will be deemed long- or short-term, depending upon the length of
time the Fund holds these obligations.
You will receive information on the tax status of the Fund's
dividends and distributions annually.
Special Tax Matters
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.
If you or your spouse is receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Fund.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Fund.
Interest from all Colorado Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
interest from so-called private activity bonds issued after
August 7, 1986, constitutes a tax preference for both individuals
and corporations and thus will enter into a computation of the
alternative minimum tax. 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. An adjustment required
by the Code will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax. They
should consult their tax advisers.
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. For redemptions made after January 1, 1998, your
gain or loss will be long-term if you held the redeemed shares
for over one year and short-term if for a year or less. Long-term
capital gains are currently taxed at a maximum rate of 20% and
short-term gains are currently taxed at ordinary income tax
rates. However, if shares held for six months or less are
redeemed and you have a loss, two special rules apply: the loss
is reduced by the amount of exempt-interest dividends, if any,
which you received on the redeemed shares, and any loss over and
above the amount of such exempt-interest dividends is treated as
a long-term loss to the extent you have received capital gains
dividends on the redeemed shares.
"What should I know about Colorado taxes?"
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.
Shareholders of the Fund should consult their tax advisers
about other state and local tax consequences of their investment
in the Fund.
<TABLE>
<CAPTION>
The table shown below for Class A Shares is for information
purposes only. Class A Shares are not offered by this Prospectus.
No historical information exists for Class I Shares, which were
established on April 30, 1998.
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited
by KPMG 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. A copy of these financial statements can be
obtained without charge by calling or writing the Shareholder
Servicing Agent at the address and telephone numbers on the cover
of the Prospectus.
Class A(1) Class Y(2)
Year ended December 31, Year Ended Year Ended
December 31,
1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .............. $10.62 $10.41 $10.56 $10.64 $10.41
Income from Investment
Operations:
Net investment income ... 0.47 0.50 0.52 0.48 0.52
Net gain (loss) on
securities (both
realized and
unrealized) .......... 0.04 0.23 (0.13) 0.04 0.25
Total from Investment
Operations ........... 0.51 0.73 0.39 0.52 0.77
Less Distributions:
Dividends from net
investment income .... (0.46) (0.52) (0.54) (0.47) (0.54)
Distributions from
capital gains ........ (0.04) - - (0.04) -
Total Distributions .... (0.50) (0.52) (0.54) (0.51) (0.54)
Net Asset Value, End of
Period ................. $10.63 $10.62 $10.41 $10.65 $10.64
Total Return (not reflecting
sales charge)(%) ....... 4.92 7.21 3.78 4.97 7.65
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) ..... 208,771 216,321 214,392 7,047 5,668
Ratio of Expenses to
Average Net
Assets (%) .......... 0.75 0.75 0.70 0.69 0.70
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 4.47 4.78 5.02 4.50 4.76
Portfolio Turnover
Rate (%) ............... 15.20 22.66 10.96 15.20 22.66
The expense and net investment income ratios without the effect of the
voluntary waiver of a portion of the management fee for periods prior to
January 1, 1997 were:
Ratio of Expenses
to Average Net Assets(%)
- - 0.74 - -
Ratio of Net Investment
Income(Loss) to
Average Net Assets(%) - - 4.98 - -
The expense ratios after giving effect to the waiver and expense offset for
uninvested cash balances were:
Ratio of Expenses to
Average Net Assets(%) 0.73 0.72 0.69 0.68 0.67
<CAPTION>
Class A(1) Class Y(3)
Year Ended December 31, Period Ended 12/31/96
1995 1994
<C> <C> <C>
$9.82 $10.77 $10.31
0.54 0.55 0.38
0.74 (0.95) 0.12
1.28 (0.40) 0.50
(0.54) (0.55) (0.40)
- - -
(0.54) (0.55) (0.40)
$10.56 $9.82 $10.41
13.28 (3.80) 4.87+
219,306 199,075 0.10
0.64 0.61 0.65*
5.20 5.32 5.07*
14.20 15.53 10.96
0.76 0.72 0.69*
5.08 5.21 5.03*
0.63 0.57 0.64*
<FN>
(1) Designated as Class A Shares on April 30, 1996.
</FN>
<FN>
(2) New Class of Shares established on April 30, 1996.
</FN>
<FN>
(3) For the period from April 30, 1996 through December 31, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
<FN>
Note: On October 1, 1992, Kirkpatrick, Pettis, Smith, Polian Inc. became
the Fund's Investment Adviser. On July 1, 1994, KPM Investment Management,
Inc., a wholly-owned subsidiary of Kirkpatrick, Pettis, Smith, Polian Inc.,
became the Fund's Investment Adviser. Pursuant to new management
arrangements which were effective on June 29, 1998, KPM Investment
Management, Inc. was appointed as the Fund's Investment Sub-Adviser.
</FN>
</TABLE>
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 Organization. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Indicate Class of Shares)
Make check payment to TAX-FREE FUND OF COLORADO
__ Initial Investment $______________ (Minimum $1,000)
(Indicate Class of Shares)
__ Class I Shares
__ Class Y Shares
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 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free 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
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 Trusts, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are effective
15 days after this form is received in good order by the 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>
<PAGE>
MANAGER AND FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
KPM Investment Management, Inc.
1700 Lincoln Street, Suite 1300
Denver, Colorado 80203
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
Diana P. Herrmann, Senior Vice 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, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
<PAGE>
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, 1999, (the "Additional
Statement") has been filed with the Securities and Exchange
Commission. The Additional Statement contains information about
the Fund and its management not included in this Prospectus. The
Additional Statement is incorporated by reference in its entirety
in this Prospectus. Only when you have read both this Prospectus
and the Additional Statement are all material facts about the
Fund available to you.
You can get additional information about the Fund's
investments in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year. You can get the Additional Statement and the
Fund's annual and semi-annual reports without charge, upon
request.
In addition, you can review and copy information about the
Fund (including the Additional Statement) at the Public Reference
Room of the SEC in Washington, D.C. You can get information on
the operation of the SEC's public reference room by calling the
SEC at 1-800-SEC-0330. You can get other information about the
Fund at the SEC's Internet site at http://www.sec.gov. You can
get copies of this information, upon payment of a duplicating
fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
TABLE OF CONTENTS
The Fund's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Fund...................
Investment of the Fund's Assets.................
Fund Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributors......................
Tax Information..................................
Financial Highlights.............................
Application
The file number under which the Fund is registered
with the SEC under the
Investment Company Act of 1940 is 811-5047.
<PAGE>
AQUILA
[LOGO]
Tax-Free Fund
of
Colorado
[LOGO]
One of The
Aquilasm Group Of Funds
A tax-free
income investment
PROSPECTUS
To receive a free copy of the Fund's Additional Statement, annual
or semi-annual report, or other information about the Fund, or to
make shareholder inquiries call:
the Fund's Shareholder Servicing Agent at
800-872-2651 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For General Inquiries and Yield Information, call 800-872-2652 or
212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
<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, 1999
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for
the Fund dated April 30, 1999: 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") and Financial
Intermediary Class Shares ("Class I Shares") of the Fund.
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 it at: 400 Bellevue
Parkway, Wilmington, DE 19809 or by calling at the following
number:
800-872-2651 toll free
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to it at
380 Madison Avenue, Suite 2300, New York, New York 10017;
or by calling: 800-872-2651 toll free
or 212-697-6666
Financial Statements
The financial statements for the Fund for the year ended
December 31, 1998, 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 LLP, independent auditors, whose report thereon
is incorporated herein by reference. The Annual Report of the
Fund for the fiscal year ended can be obtained without charge by
calling any of the toll-free numbers listed above. The Annual
Report will be delivered with the Additional Statement.
TABLE OF CONTENTS
Fund History
Investment Strategies and Risks
Fund Policies
Management of the Fund
Ownership of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock
Purchase, Redemption, and Pricing of Shares
Additional Tax Information
Underwriters
Performance
Appendix A
<PAGE>
TAX-FREE FUND OF COLORADO
Statement of Additional Information
FUND HISTORY
The Fund is an open-end, non-diversified management
investment company organized in 1987 as a Massachusetts business
trust.
INVESTMENT STRATEGIES AND RISKS
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, 1998, in Colorado
Obligations in the various rating categories:
Highest rating (1) . . . . . . . . . . . . . . . . . . . . .70.1%
Second highest rating (2). . . . . . . . . . . . . . . . . .20.8%
Third highest rating (3) . . . . . . . . . . . . . . . . . . 7.8%
Fourth highest rating (4). . . . . . . . . . . . . . . . . . 1.3%
Not rated: . . . . . . . . . . . . . . . . . . . . . . . . . 0.0%
100.0%
(1) Aaa of Moody's or AAA of S&P.
(2) Aa of Moody's or AA of S&P.
(3) A of Moody's or A of S&P.
(4) Baa of Moody's or BBB of S&P.
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) owns directly or indirectly in
the aggregate more than 50 percent of the equity of a corporation
or is a partner of a partnership which is a "substantial user" of
a facility financed from the proceeds of those bonds. A
"substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses a part of [a] facility"
financed from the proceeds of industrial development or private
activity bonds.
As indicated in the Prospectus, there are certain 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.
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, which is marked to market every business
day. On delivery dates for such transactions, the Fund will meet
its commitments by selling the assets held in the separate
account and/or from cash flow.
Determination of the Marketability of Certain Securities
In determining marketability of floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) the Board of Trustees will consider
the following factors, not all of which may be applicable to any
particular issue: the quality, maturity and coupon rate of the
issue, ratings received from the nationally recognized
statistical rating organizations and any changes or prospective
changes in such ratings, the likelihood that the issuer will
continue to appropriate the required payments for the issue,
recent purchases and sales of the same or similar issues, the
general market for municipal securities of the same or similar
quality, the Sub-Adviser's opinion as to marketability of the
issue and other factors that may be applicable to any particular
issue.
Futures Contracts and Options
Although the Fund does not presently do so and may in fact
never do so, it is permitted to buy and sell futures contracts
relating to municipal bond indices ("Municipal Bond Index
Futures") and to U.S. Government securities ("U.S. Government
Securities Futures," together referred to as "Futures"), and
exchange-traded options based on Futures as a possible means to
protect the asset value of the Fund during periods of changing
interest rates. The following discussion is intended to explain
briefly the workings of Futures and options on them which would
be applicable if the Fund were to use them.
Unlike when the Fund purchases or sells an Colorado
Obligation, no price is paid or received by the Fund upon the
purchase or sale of a Future. Initially, however, when such
transactions are entered into, the Fund will be required to
deposit with the futures commission merchant ("broker") an amount
of cash or Colorado Obligations equal to a varying specified
percentage of the contract amount. This amount is known as
initial margin. Subsequent payments, called variation margin, to
and from the broker, will be made on a daily basis as the price
of the underlying index or security fluctuates making the Future
more or less valuable, a process known as marking to market.
Insolvency of the broker may make it more difficult to recover
initial or variation margin. Changes in variation margin are
recorded by the Fund as unrealized gains or losses. Margin
deposits do not involve borrowing by the Fund and may not be used
to support any other transactions. At any time prior to
expiration of the Future, the Fund may elect to close the
position by taking an opposite position which will operate to
terminate the Fund's position in the Future. A final
determination of variation margin is then made. Additional cash
is required to be paid by or released to the Fund and it realizes
a gain or a loss. Although Futures by their terms call for the
actual delivery or acceptance of cash, in most cases the
contractual obligation is fulfilled without having to make or
take delivery. All transactions in the futures markets are
subject to commissions payable by the Fund and are made, offset
or fulfilled through a clearing house associated with the
exchange on which the contracts are traded. Although the Fund
intends to buy and sell Futures only on an exchange where there
appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular
Future at any particular time. In such event, or in the event of
an equipment failure at a clearing house, it may not be possible
to close a futures position.
Municipal Bond Index Futures currently are based on a
long-term municipal bond index developed by the Chicago Board of
Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index").
Financial Futures contracts based on the Municipal Bond Index
began trading on June 11, 1985. The Municipal Bond Index is
comprised of 40 tax-exempt municipal revenue and general
obligation bonds. Each bond included in the Municipal Bond Index
must be rated A or higher by Moody's or S&P and must have a
remaining maturity of 19 years or more. Twice a month new issues
satisfying the eligibility requirements are added to, and an
equal number of old issues are deleted from, the Municipal Bond
Index. The value of the Municipal Bond Index is computed daily
according to a formula based on the price of each bond in the
Municipal Bond Index, as evaluated by six dealer-to-dealer
brokers.
The Municipal Bond Index Futures contract is traded only on
the CBT. Like other contract markets, the CBT assures performance
under futures contracts through a clearing corporation, a
nonprofit organization managed by the exchange membership which
is also responsible for handling daily accounting of deposits or
withdrawals of margin.
There are at present U.S. Government 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-traded call and put options on
Futures. The purchase of a call option on a Future is analogous
to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the
Future upon which it is based, or upon the price of the
underlying debt securities, it may or may not be less risky than
ownership of the futures contract or underlying debt securities.
Like the purchase of a futures contract, the 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 Futures to
attempt to protect against the price volatility of the Fund's
Colorado Obligations is that the Sub-Adviser could be incorrect
in its expectations as to the extent of various interest rate
movements or the time span within which the movements take place.
For example, if the 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 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 in conformity with restrictions it has committed to
pursuant to a rule (the "CFTC Rule") adopted by the Commodity
Futures Trading Commission ("CFTC") under the Commodity Exchange
Act (the "CEA") to be eligible for the exclusion provided by the
CFTC Rule from qualifications as a "commodity pool operator" (as
defined under the CEA). Under these restrictions the Fund will
not, as to any positions, whether long, short or a combination
thereof, enter into Futures or options for which the aggregate
initial margins and premiums paid for options exceed 5% of the
fair market value of its assets. Under the restrictions, the Fund
also must, as to its short positions, use Futures and options
solely for bona-fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA. As to the
Fund's long positions which are used as part of its portfolio
strategy and are incidental to its activities in the underlying
cash market, the "underlying commodity value" (see below) of its
Futures must not exceed the sum of (i) cash set aside in an
identifiable manner, or short-term U.S. debt obligations or other
U.S. dollar-denominated high quality short-term money market
instruments so set aside, plus any funds deposited as margin;
(ii) cash proceeds from existing investments due in 30 days and
(iii) accrued profits held at the futures commission merchant.
(There is described above the segregated account which the Fund
must maintain as to its Futures and options activities due to
requirements other than those described in this paragraph; the
Fund will, as to long positions, be required to abide by the more
restrictive of the two requirements.) The "underlying commodity
value" of a Future or option is computed by multiplying the size
of the Future by the daily settlement price of the Future or
option.
The "sale" of a Future means the acquisition by the 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.
FUND POLICIES
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 such 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.
5. 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" in the Prospectus; the Fund can also purchase and
sell Futures and options on them within the limits discussed
above.
6. 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.
7. 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.
8. 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.
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.
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.
MANAGEMENT OF THE FUND
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees.
Trustees and Officers
The Trustees and officers of the Fund, their ages, their
affiliations, if any, with the Manager or the Distributor and
their principal occupations during at least the past five years
are set forth below. None of the Trustees or officers of the Fund
is affiliated with the Sub-Adviser. Mr. Herrmann is an interested
person of the Fund as that term is defined in the Investment
Company Act of 1940 (the "1940 Act") as an officer of the Fund
and a director, officer and shareholder of the Manager and the
Distributor. Ms. Herrmann is an interested person of the Fund as
an officer of the Fund and of the Manager and as a shareholder of
the Distributor. Each is also an interested person as a member of
the immediate family of the other. They are so designated by an
asterisk.
Lacy B. Herrmann*, 69, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder and Chairman of the Board of Aquila Management
Corporation, the sponsoring organization and Manager or
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees and (currently or until 1998) President of each since
its establishment, beginning in 1984: Pacific Capital Cash
Assets Trust, Churchill Cash Reserves Trust, Pacific Capital U.S.
Government Securities Cash Asset Trust, Pacific Capital Tax-Free
Cash Assets Trust, each of which is a money market fund, and
together with Capital Cash Management Trust ("CCMT") are called
the Aquila Money-Market Funds; Hawaiian Tax-Free Trust, Tax-Free
Trust of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund of
Colorado (this Fund), Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For
Utah, each of which is a tax-free municipal bond fund and which
together are called Aquila Bond Funds; and Aquila Cascadia Equity
Fund and Aquila Rocky Mountain Equity Fund, which together are
called Aquila Equity Funds; currently President of Aquila
Cascadia Equity Fund, Aquila Rocky Mountain Equity Fund,
Churchill Cash Reserves Trust, Churchill Tax-Free Fund of
Kentucky and Tax-Free Fund of Colorado (this Fund); 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; Vice President and Director, and
formerly Secretary, of Aquila Distributors, Inc. since 1981,
distributor of the above funds; 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. and Quest For
Value Accumulation Trust, and Director or Trustee of Oppenheimer
Quest Value Fund, Inc., Oppenheimer Quest Global Value Fund, Inc.
and Oppenheimer Rochester Group of Funds, each of which is an
open-end investment company; Trustee of Brown University, 1990-
1996 and currently Trustee Emeritus; actively involved for many
years in leadership roles with university, school and charitable
organizations.
Tucker Hart Adams, 61, Trustee, 4822 Alteza Drive, Colorado
Springs, Colorado 80917
President of The Adams Group,Inc., an economic consulting firm,
since 1989; Trustee of Tax-Free Fund of Colorado (this Fund)
since 1989 and 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; Director of the University of Colorado
Foundation; currently or formerly an officer or director of
numerous professional and community organizations.
Arthur K. Carlson, 77, Trustee, 8702 North Via La Serena,
Paradise Valley, Arizona 85253
Retired; Advisory Director of the Renaissance Companies (design
and construction companies of commercial, industrial and upscale
residential properties) since 1996; Senior Vice President and
Manager of the Trust Division of The Valley National Bank of
Arizona, 1977-1987; Trustee of Tax-Free Fund of Colorado (this
Fund), 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; past Chairman of the Board and
past Director of Mercy Healthcare of Arizona, Phoenix, Arizona;
Director of St. Joseph's Hospital Foundation since 1996 and
Director of Northern Arizona University Foundation since 1990,
present or formerly an officer and/or director of various other
community and professional organizations.
William M. Cole, 67, 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, of Tax-Free Fund of Colorado (this Fund) since 1987
and of Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Government Securities Cash Assets Trust since 1988;
Chairman of Cole Group, a financial consulting and real estate
firm, since 1985.
Anne J. Mills, 60, 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 1985-1986 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, Tax-Free Fund of Colorado (this Fund) and
Capital Cash Management Trust since 1987 and of Tax-Free Fund For
Utah since 1994.
J. William Weeks, 71, Trustee, 380 Madison Avenue, New York, New
York 10017
Trustee of Narragansett Insured Tax-Free Income Fund and of Tax-
Free Fund of Colorado (this Fund) since 1995; Senior Vice
President of Tax-Free Fund of Colorado and Narragansett Insured
Tax-Free Income Fund, 1992-1995; Vice President of Hawaiian Tax-
Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of Oregon
and Churchill Tax-Free Fund of Kentucky, 1990-1995; Senior Vice
President or Vice President of the Bond and Equity Funds and Vice
President of Short Term Asset Reserves and Pacific Capital Cash
Assets Trust, 1984-1988; President and Director of Weeks & Co.,
Inc., financial consultants, 1978-1988; 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, 73, 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.
Diana P. Herrmann,* 41, Senior Vice President 380 Madison
Avenue, New York, New York 10017
President and Chief Operating Officer of the
Manager/Administrator since 1997, a Director since 1984,
Secretary since 1986 and previously its Executive Vice President,
Senior Vice President or Vice President, 1986-1997; President of
various Aquila Bond Funds since 1998; Assistant Vice President,
Vice President, Senior Vice President or Executive Vice President
of Aquila Money-Market, Bond and Equity Funds since 1986; Trustee
of a number of Aquila Money-Market, Bond and Equity Funds since
1995; Trustee of Reserve Money-Market Funds since 1999 and
Reserve Private Equity Series since 1998; Assistant Vice
President and formerly Loan Officer of European American Bank,
1981-1986; daughter of the Fund's Chairman; Trustee of the
Leopold Schepp Foundation (academic scholarships) since 1995;
actively involved in mutual fund and trade associations and in
college and other volunteer organizations.
Sue McCarthy-Jones, 53, Senior Vice President, 2019 Lloyd Center,
Portland Oregon 97232
Senior Vice President of Tax-Free Fund of Colorado (this Fund)
since 1998; of Aquila Cascadia Equity Fund, Aquila Rocky Mountain
Equity Fund and Tax-Free Trust of Oregon since 1997; Investment
Executive, US Bancorp Securities, 1996-1997; Training and sales
supervision, Marketing One, Inc., 1991-1996; Account Executive,
Security Pacific Bank, 1990-1991; various investment related
positions, 1985-1990; serves on the Board of Directors of a non-
profit charitable foundation.
Jerry G. McGrew, 54, Senior Vice President, 5331 Fayette Street,
Houston, TX 77056
President of Aquila Distributors, Inc. since 1998, Registered
Principal since 1993, Senior Vice President, 1997-1998 and Vice
President, 1993-1997; Senior Vice President of Aquila Rocky
Mountain Equity Fund since 1996; Senior Vice President of
Churchill Tax-Free Fund of Kentucky since 1994, and of Tax-Free
Fund of Colorado (this Fund) and Tax-Free Fund For Utah since
1997; Vice President of Churchill Cash Reserves Trust since 1995;
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,
1993-1997; 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; Director-at Large, Houston Alliance for
the Mentally Ill (AMI), since 1998.
Jean M. Smith, 54, 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, 28, 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 (this Fund) and
Aquila Rocky Mountain Equity Fund, 1993-1996.
Rose F. Marotta, 74, Chief Financial Officer, 380 Madison Avenue,
New York, New York 10017
Chief Financial Officer of the Aquila Money-Market, 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 Manager since 1984 and of the Distributor since
1985.
Richard F. West, 63, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market, 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, 59, 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, 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, 59, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market, 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.
The Fund does not currently pay fees to any of the Fund's
officers or to Trustees affiliated with the Manager or the Sub-
Adviser. For its fiscal year ended December 31, 1998, the Fund
paid a total of $74,368 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 is one of the 14 funds in the Aquilasm Group of
Funds, which consist of tax-free municipal bond funds, money
market funds and equity funds. The following table lists the
compensation of all Trustees who received compensation from the
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.
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Fund Group serves
Tucker H.
Adams $8,103 $9,729 2
Arthur K.
Carlson $8,760 $53,558 7
William M.
Cole $6,352 $43,840 5
Anne J..
Mills $7,330 $33,522 6
J. William
Weeks $8,793 $14,426 2
John G.
Welles $8,677 $8,677 1
OWNERSHIP OF SECURITIES
Of the shares of the Fund outstanding on February 22, 1999,
Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561, New
Brunswick, NJ held of record 1,234,362 Class A Shares (6.29% of
the class and 14,737 Class C Shares (10.8% of the class); Everen
Securities Inc., Kilbourne Avenue, Milwaukee, WI held of record
in two accounts 52,061 Class C Shares and 18,429 Class C Shares
(38.2% and 13,5%, respectively, of the class); PaineWebber, Shore
Rd, Fort Collins, CO held of record 20,388 Class C Shares (15% of
the class); Dean Witter, New York, NY held of record 8,571 Class
C Shares (6.3% of the class); Alpine Trust & Asset Management,
5th Street, Grand Junction, CO held of record 241,023 Class Y
Shares (36.9% of the class); Linway & Co., Broadway, Denver, CO,
held of record 171,233 Class Y Shares (26.2% of the class) Haws &
Co (a nominee) c/o Guaranty Bank & Trust, Denver CO held of
record 143,786 Class Y Shares (22% of the class) and SEI Trust
Company, c/o/ Colorado Business Bank, Freedom Valley Drive, Oaks,
PA held of record 44,533 Class Y Shares (6.8% 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.
Management Ownership
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.
INVESTMENT ADVISORY AND OTHER SERVICES
Information about the Sub-Adviser, the Manager and the
Distributor
The Sub-Adviser services Colorado clients at offices in
Denver. As in the past, since the beginning of the Fund's
operations in 1987, the Fund's investments will continue to be
managed so that it will have a portfolio of quality-oriented
(investment grade) securities.
The Fund's Manager is founder and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money market funds and equity
funds. As of December 31, 1998, these funds had aggregate assets
of approximately $3.2 billion, of which approximately $2.0
billion consisted of assets of the tax-free municipal bond funds.
The Manager, which was founded in 1984, is controlled by Mr. Lacy
B. Herrmann, directly, through a trust and through share
ownership by his wife.
Mr. Herrmann and Ms. Herrmann are affiliated with the Fund
as officers and Trustees. Mr. Herrmann controls the Manager, as
described above, and Ms. Herrmann is an officer and a director of
the Manager.
Under the Advisory and Administration Agreement, the Fund
will pay to the Manager 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 0.50 of 1% of such net asset
value, provided, however, that for any day that the Fund pays or
accrues a fee under the part of the current Distribution Plan
which 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), the annual
management fee shall be payable at the annual rate of 0.50 of 1%
of such net asset value up to $250 million and at the annual rate
of 0.40 of 1% of such net asset value above that amount. The
shareholders of the Fund and the Board of Trustees have approved
a new distribution plan which allows for higher distribution
payments accompanied by reduced management fees so that combined
management and distribution fees will remain at current levels.
Management of the Fund has determined to postpone implementation
of these changes indefinitely. When and if the changes are
implemented, the Prospectus will be supplemented.
The Sub-Advisory Agreement provides that the Manager agrees
to pay the Sub-Adviser, and the Sub-Adviser agrees to accept as
full compensation for all services rendered by the Sub-Adviser as
such, a management 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 such net asset value,
provided, however, that for any day that the Fund pays or accrues
a fee under the part of the Distribution Plan of the Fund which
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), the annual management fee shall
be payable as follows:
(a) on any day that such fee under the Current Distribution
Plan is paid or accrued then the management fee shall be
payable at the annual rate of 0.20 of 1% of such net asset
value up to $250 million and at the annual rate of 0.16 of
1% of such net asset value above that amount; and
(b) on any day that such fee under the Distribution Plan is
paid or accrued under the New Distribution Plan, then the
management fee shall be payable at the annual rate of 0.16
of 1% of such net asset value.
During the year ended December 31, 1998, the Fund incurred
fees for advisory and administration services of $1,087,501.
During the year ended December 31, 1997, administration fees of
$656,555 were paid or accrued to the Manager under an
administration agreement of which $5,270 was voluntarily waived.
During the years ended December 31, 1996 administration fees of
$644,125 were paid or accrued to the Manager, of which $99,853
was voluntarily waived. For he year ended December 31, 1997,
advisory fees of $437,704 were paid or accrued to the Sub-Adviser
under the advisory agreement then in effect. For the year ended
December 31, 1996, advisory fees of $429,661 were paid or accrued
to the Sub-Adviser, of which $7,388 was voluntarily waived.
Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300,
New York, NY 10017 is the Fund's Distributer. 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 Additional Statement, there is a
proposed transaction whereby the shares of the Distributor, which
are currently owned 75% by Mr. Herrmann and other members of his
immediate family and 25% by Diana P. Herrmann, will be owned by
those persons and certain officers of the Manager, including Mr.
Herrmann and Ms. Herrmann.
The Advisory and Administration Agreement
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Fund;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Fund; and
(iv) at its expense provide for pricing of the Fund's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Fund and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund.
The Advisory and Administration Agreement provides that,
subject to the termination provisions described below, the
Manager may at its own expense delegate to a qualified
organization ("Sub-Adviser"), affiliated or not affiliated with
the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a
written agreement (the "Sub-Advisory Agreement") approved as
provided in Section 15 of the Investment Company Act of 1940. The
Manager has delegated all of such functions to the Sub-Adviser in
the Sub-Advisory Agreement.
The Advisory and Administration Agreement also provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall provide all administrative services
to the Fund other than those relating to its investment portfolio
which have been delegated to a Sub-Adviser of the Fund under the
Sub-Advisory Agreement; as part of such administrative duties,
the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Fund;
(ii) oversee all relationships between the Fund and any
sub-adviser, transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the
negotiation of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters
which are necessary or desirable for the effective operation
of the Fund and for the sale, servicing or redemption of the
Fund's shares;
(iii) either keep the accounting records of the Fund,
including the computation of net asset value per share and
the dividends (provided that if there is a Sub-Adviser,
daily pricing of the Fund's portfolio shall be the
responsibility of the Sub-Adviser under the Sub-Advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory to
the Fund;
(iv) maintain the Fund's books and records, and prepare (or
assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Fund's
shareholders and Trustees, reports to and other filings with
the Securities and Exchange Commission and any other
governmental agencies, and tax returns, and oversee the
insurance relationships of the Fund;
(v) prepare, on behalf of the Fund and at the Fund's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Fund and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund and broker-dealers, or if any such
inquiry or communication is more properly to be responded to
by the Fund's shareholder servicing and transfer agent or
distributor, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
The Advisory and Administration Agreement contains
provisions relating to compliance of the investment program,
responsibility of the Manager for any investment program managed
by it, allocation of brokerage, and responsibility for errors
that are substantially the same as the corresponding provisions
in the Sub-Advisory Agreement.
The Advisory and Administration Agreement provides that the
Manager shall, at its own expense, pay all compensation of
Trustees, officers, and employees of the Fund who are affiliated
persons of the Manager.
The Fund bears the costs of preparing and setting in type
its prospectuses, statements of additional information and
reports to its shareholders, and the costs of printing or
otherwise producing and distributing those copies of such
prospectuses, statements of additional information and reports as
are sent to its shareholders. All costs and expenses not
expressly assumed by the Manager under the agreement or otherwise
by the Manager, administrator or principal underwriter or by any
Sub-Adviser shall be paid by the Fund, including, but not limited
to (i) interest and taxes; (ii) brokerage commissions; (iii)
insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Manager or such
sub-adviser, administrator or principal underwriter; (v) legal
and audit expenses; (vi) custodian and transfer agent, or
shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; and
(xi) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations for which
the Fund may have to indemnify its officers and Trustees.
The Advisory and Administration Agreement provides that it
may be terminated by the Manager at any time without penalty upon
giving the Fund sixty days' written notice (which notice may be
waived by the Fund) and may be terminated by the Fund at any time
without penalty upon giving the Manager sixty days' written
notice (which notice may be waived by the Manager), provided that
such termination by the Fund shall be directed or approved by a
vote of a majority of its Trustees in office at the time or by a
vote of the holders of a majority (as defined in the 1940 Act) of
the voting securities of the Fund outstanding and entitled to
vote. The specific portions of the Advisory and Administration
Agreement which relate to providing investment advisory services
will automatically terminate in the event of the assignment (as
defined in the 1940 Act) of the Advisory and Administration
Agreement, but all other provisions relating to providing
services other than investment advisory services will not
terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Fund as of the close of business each business day shall be
reduced to the annual rate of 0.26 of 1% of such net asset value.
The Sub-Advisory Agreement
The services of the Sub-Adviser are rendered under the
Sub-Advisory Agreement between the Manager and the Sub-Adviser,
which provides, subject to the control of the Board of Trustees,
for investment supervision and at the Sub-Adviser's expense for
pricing of the Fund's portfolio daily using a pricing service or
other source of pricing information satisfactory to the Fund and,
unless otherwise directed by the Board of Trustees, for pricing
of the Fund's portfolio at least quarterly using another such
source satisfactory to the Fund. The Sub-Advisory Agreement
states that the Sub-Adviser shall, at its expense, provide to the
Fund all office space and facilities, equipment and clerical
personnel necessary for the carrying out of the Sub-Adviser's
duties under the Sub-Advisory Agreement.
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser shall at all times conform
to, and be in accordance with, any requirements imposed by: (1)
the Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Fund as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Fund; and (5) the
fundamental policies of the Fund, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Fund.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall give to the Manager, as defined therein, and to the Fund
the benefit of its best judgment and effort in rendering services
hereunder, but the Sub-Adviser shall not be liable for any loss
sustained by reason of the adoption of any investment policy or
the purchase, sale or retention of any security, whether or not
such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and
research made by any other individual, firm or corporation, if
such purchase, sale or retention shall have been made and such
other individual, firm or corporation shall have been selected in
good faith by the Sub-Adviser. Nothing therein contained shall,
however, be construed to protect the Sub-Adviser against any
liability to the Fund or its security holders by reason of
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard
of its obligations and duties under the Agreement.
The Sub-Advisory Agreement provides that nothing in it shall
prevent the Sub-Adviser or any affiliated person (as defined in
the Act) of the Sub-Adviser from acting as investment adviser or
manager for any other person, firm or corporation and shall not
in any way limit or restrict the Sub-Adviser or any such
affiliated person from buying, selling or trading any securities
for its own or their own accounts or for the accounts of others
for whom it or they may be acting, provided, however, that the
Sub-Adviser expressly represents that, while acting as
Sub-Adviser, it will undertake no activities which, in its
judgment, will adversely affect the performance of its
obligations to the Fund under the Agreement. It is agreed that
the Sub-Adviser shall have no responsibility or liability for the
accuracy or completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933, except for
information supplied by the Sub-Adviser for inclusion therein.
The Sub-Adviser shall promptly inform the Fund as to any
information concerning the Sub-Adviser appropriate for inclusion
in such Registration Statement, or as to any transaction or
proposed transaction which might result in an assignment (as
defined in the Act) of the Agreement. To the extent that the
Manager is indemnified under the Fund's Declaration of Trust with
respect to the services provided by the Sub-Adviser, the Manager
agrees to provide the Sub-Adviser the benefits of such
indemnification.
The Sub-Advisory Agreement provides that in connection with
its duties to arrange for the purchase and sale of the Fund's
portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-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 Sub-Adviser shall
cause the Fund to deal directly with the selling or purchasing
principal or market maker without incurring brokerage commissions
unless the Sub-Adviser determines that better price or execution
may be obtained by paying such commissions; the 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 prices. In allocating
transactions to dealers, the Sub-Adviser is authorized to
consider, in determining whether a particular dealer will provide
best execution, the dealer's reliability, integrity, financial
condition and risk in positioning the securities involved, as
well as the difficulty of the transaction in question, and thus
need not pay the lowest spread or commission available if the
Sub-Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the
brokerage and research services provided by the dealer, viewed
either in terms of the particular transaction or the
Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Sub-Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the 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 and that such research services may or may not
be useful to the Fund and may be used for the benefit of the
Sub-Adviser or its other clients.
During the fiscal years ended December 30, 1998, 1997 and
1996, all of the Fund's transactions were principal transactions
and no brokerage commissions were paid.
The Sub-Advisory Agreement provides that the Sub-Adviser
agrees to maintain, and to preserve for the periods prescribed,
such books and records with respect to the portfolio transactions
of the Fund as are required by applicable law and regulation, and
agrees that all records which it maintains for the Fund on behalf
of the Manager shall be the property of the Fund and shall be
surrendered promptly to the Fund or the Manager upon request. The
Sub-Adviser agrees to furnish to the Manager and to the Board of
Trustees of the Fund such periodic and special reports as each
may reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall bear all of the expenses it incurs in fulfilling its
obligations under the Agreement. In particular, but without
limiting the generality of the foregoing: the Sub-Adviser shall
furnish the Fund, at the Sub-Adviser's expense, all office space,
facilities, equipment and clerical personnel necessary for
carrying out its duties under the Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Fund all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Fund. The Sub-Adviser will also pay all
compensation of the Fund's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement became effective on May 1, 1998
and provides that it shall, unless terminated as therein
provided, continue in effect until the June 30 next preceding the
first anniversary of the effective date of the Agreement, and
from year to year thereafter, but only so long as such
continuance is specifically approved at least annually (1) by a
vote of the Fund's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to the Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Fund and by such a vote of the Trustees.
The Sub-Advisory Agreement provides that it may be
terminated by the Sub-Adviser at any time without penalty upon
giving the Manager and the Fund sixty days' written notice (which
notice may be waived). It may be terminated by the Manager or the
Fund at any time without penalty upon giving the Sub-Adviser
sixty days' written notice (which notice may be waived by the
Sub-Adviser), provided that such termination by the Fund shall be
directed or approved by a vote of a majority of its Trustees in
office at the time or by a vote of the holders of a majority (as
defined in the Act) of the voting securities of the Fund
outstanding and entitled to vote. The Sub-Advisory Agreement will
automatically terminate in the event of its assignment (as
defined in the Act) or the termination of the Investment Advisory
Agreement. The Sub-Adviser agrees that it will not exercise its
termination rights for at least three years from the effective
date of the Agreement, except for regulatory reasons.
Underwriting Commissions
During the fiscal years ended December 31, 1998, 1997 and
1996, the aggregate dollar amount of sales charges on sales of
shares in the Fund was $376,985, $377,482 and $490,837
respectively, and the amount retained by the Distributor was
$73,271, $68,322 and $83,492, respectively.
In connection with sales of Class A Shares, the Distributor
pays a portion of the sales charge on such shares to dealers in
the form of discounts and to brokers in the form of agency
commissions (together, "Commissions"), in amounts that vary with
the size of the sales charge as follows:
Sales Charge as
Percentage Commissions
of Public as Percentage
Offering of Offering
Price Price
4.00% 3.00%
3.75% 3.00%
3.50% 2.75%
3.25% 2.75%
3.00% 2.50%
2.50% 2.25%
Distribution Plan
The 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 Manager,
Sub-Adviser or 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 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.
The Distributor shall have sole authority (i) as to the
selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) as to the amount of
Class A Permitted Payments, if any, to each Qualified Recipient
provided that the total Class A Permitted Payments to all
Qualified Recipients do not exceed the amount set forth above.
The Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the 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 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 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 Manager, Sub-
Adviser or Distributor paid or accrued during such quarter. In
addition, if any such Qualified Recipient is an affiliated
person, as that term is defined in the 1940 Act, of the Fund,
Manager, Sub-Adviser or 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 hereinafter
provided, continue in effect, until the April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Fund's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part 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 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.
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 Manager, Sub-
Adviser or Distributor paid or accrued during such quarter. In
addition, if any such Qualified Recipient is an affiliated
person, as that term is defined in the 1940 Act, of the Fund,
Manager, Sub-Adviser or 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 1, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the 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), 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 I Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class I Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Class I Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the 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
Manager, Sub-Adviser or Distributor paid or accrued during such
quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, Manager, Sub-Adviser or 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 thereinafter
provided, continue in effect, until the April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the 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 III may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the 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 I Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
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 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 therein
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 IV shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Fund.
Payments Under the Plan
Generally, payments under Parts I - III of the Plan are not
based on the recipients expenses. During the fiscal years ended
December 31, 1998 and 1997, $104,938 and $107,821, respectively,
was paid to Qualified Recipients with respect to Class A Shares,
of which $4,446 and $4,357,respectively, was retained by the
Distributor. During the same periods, $8,988 and $7,193,
respectively, was paid to Qualified Recipients with respect to
Class C Shares, of which $6,345 and $6,724 (including amounts
retained under the Shareholder Services Plan described below),
respectively, 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.
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. "Manager" 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 years ended
December 31, 1998 and 1997, $2,996 and $2,397, respectively, 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.
"Manager" 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. No Class I Shares
were outstanding during the year ended December 31, 1998.
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, Manager, Sub-Adviser or
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 therein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
Transfer Agent, Custodian and Auditors
The Fund's Shareholder Servicing Agent (transfer agent) is
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
The Fund's Custodian, Bank One Fund Company, N.A., 100 East
Broad Street, Columbus, Ohio 43271, is responsible for holding
the Fund's assets.
The Fund's auditors, KPMG LLP, 345 Park Avenue, New York,
New York, 10154, perform an annual audit of the Fund's financial
statements.
BROKERAGE ALLOCATION AND OTHER PRACTICES
During the fiscal years ended December 31, 1998, 1997 and
1996, all of the Fund's transactions were principal transactions
and no brokerage commissions were paid. Brokerage allocation and
other practices relating to brokerage are set forth in the
description of the Sub-Advisory Agreement, above.
CAPITAL STOCK
The Fund has four classes of shares.
* Front-Payment Class Shares ("Class A Shares") are offered
to anyone at net asset value plus a sales charge, paid at
the time of purchase, at the maximum rate of 4.0% of the
public offering price, with lower rates for larger
purchases. Class A Shares are subject to an asset retention
service fee under the Fund's Distribution Plan at the rate
of 0.05 of 1% of the average annual net assets represented
by the Class A Shares.
* Level-Payment Class Shares ("Class C Shares") are offered
to anyone at net asset value with no sales charge payable at
the time of purchase but with a level charge for service and
distribution fees for six years after the date of purchase
at the aggregate annual rate of 1% of the average annual net
assets of the Class C Shares. Six years after the date of
purchase, Class C Shares are automatically converted to
Class A Shares. If you redeem Class C Shares before you have
held them for 12 months from the date of purchase you will
pay a contingent deferred sales charge ("CDSC"); this charge
is 1%, calculated on the net asset value of the Class C
Shares at the time of purchase or at redemption, whichever
is less. There is no CDSC after Class C Shares have been
held beyond the applicable period. For purposes of applying
the CDSC and determining the time of conversion, the
12-month and six-year holding periods are considered
modified by up to one month depending upon when during a
month your purchase of such shares is made.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are not
offered directly to retail customers. Class Y Shares are
offered at net asset value with no sales charge, no
redemption fee, no contingent deferred sales charge and no
distribution fee.
Financial Intermediary Class Shares ("Class I
Shares") are offered and sold only through financial
intermediaries with which Aquila Distributors, Inc. has
entered into sales agreements, and are not offered directly
to retail customers. Class I Shares are offered at net asset
value with no sales charge and no redemption fee or
contingent deferred sales charge, although a financial
intermediary may charge a fee for effecting a purchase or
other transaction on behalf of its customers. Class I Shares
may carry a distribution fee of up to 0.25 of 1% of average
annual net assets allocable to Class I Shares, currently
0.10 of 1% of such net assets, and a service fee of 0.25 of
1% of such assets.
The Fund's four classes of shares differ in their different
sales charge structures and ongoing expenses, which are likely to
be reflected in differing yields and other measures of investment
performance. All four classes represent interests in the same
portfolio of 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.
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan. No
amendment, whether or not affecting the rights of the
shareholders, may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding
shares of the Fund, except that the Fund's Board of Trustees may
change the name of the Fund.
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").
Shares are fully paid and non-assessable, except as set forth in
the next paragraph; the holders of shares have no pre-emptive or
conversion rights, except that Class C Shares automatically
convert to Class A Shares after being held for six years.
The Fund is an entity of the type commonly known as a
"Massachusetts business trust." 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 trust. 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 does, however,
contain an express disclaimer of shareholder liability for acts
or obligations of the Fund. 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. In the event the Fund
had two or more Series, and if any such Series were to be unable
to meet the obligations attributable to it (which, as is the case
with the Fund, is relatively remote), the other Series would be
subject to such obligations, with a corresponding increase in the
risk of the shareholder liability mentioned in the prior
sentence.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
In addition to information about purchase, redemption and
pricing of shares set forth in the Prospectus, the Fund provides
additional services.
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 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.
Exchange Privilege
There is an exchange privilege as set forth below among this
Fund, certain tax-free municipal bond funds and equity funds
(together with the 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 Manager or Administrator
and Distributor as the Fund. All exchanges are subject to certain
conditions described below. As of the date of the Additional
Statement, the Aquila-sponsored 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 Fund, or for shares of any
Money-Market Fund, without the payment of a sales charge or any
other fee, and there is no limit on the number of exchanges you
can make from fund to fund. 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 of the exchanges that have taken
place since the original purchase.
(2) Extension of Holding Periods by Owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
Fund shares received on an exchange of CDSC Class A Shares or
Class C Shares are held is not counted in computing the
applicable holding period for CDSC Class A Shares or Class C
Shares.
(3) Originally Purchased Money-Market Fund Shares. Shares
of a Money-Market Fund (and any shares acquired as a result of
reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money-Market
Fund shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they
been purchased rather than acquired in exchange for Money-Market
Fund shares. If the shares received in exchange are shares that
would be subject to a CDSC if purchased directly, the holding
period governing the CDSC will run from the date of the exchange,
not from the date of the purchase of Money-Market Fund shares.
This 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;
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.
Computation of Net Asset Value
The net asset value of the shares of each of the Fund's
classes is determined as of 4:00 p.m., New York time, on each day
that the New York Stock Exchange is open, by dividing the value
of the 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, the 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.
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.
ADDITIONAL TAX INFORMATION
Certain Exchanges
If you incur a sales commission on a purchase of shares of
one mutual fund (the original fund) and then sell such shares or
exchange them for shares of a different mutual fund without
having held them at least 91 days, you must reduce the tax basis
for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or
later acquiring shares of the original fund or another fund is
reduced because of the shareholder's having owned the original
fund shares. The effect of the rule is to increase your gain or
reduce your loss on the original fund shares. The amount of the
basis reduction on the original fund shares, however, is added on
the investor's basis for the fund shares acquired in the exchange
or later acquired. The provision applies to commissions charged
after October 3, 1989.
Tax Status of the Fund
During its last fiscal year, the Fund qualified as a
"regulated investment company" under the Code and intends to
continue such qualification. A regulated investment company is
not liable for federal income taxes on amounts paid by it as
dividends and distributions.
The Code, however, contains a number of complex qualifying
tests. Therefore, it is possible, although not likely, that the
Fund might not meet one or more of these tests in any particular
year. If the Fund fails to qualify, it would be treated for tax
purposes as an ordinary corporation. As a consequence, it would
receive no tax deduction for payments made to shareholders and
would be unable to pay dividends and distributions which would
qualify as "exempt-interest dividends" or "capital gains
dividends."
UNDERWRITERS
Aquila Distributors, Inc. acts as the Fund's principal
underwriter in the continuous public offering of all of the
Fund's classes of shares. The Distributor is not obligated to
sell a specific number of shares. Under the Distribution
Agreement, the Distributor is responsible for the payment of
certain printing and distribution costs relating to prospectuses
and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
(1) (2) (3) (4) (5)
Name of Net Under- Compensation Brokerage Other
Principal writing on Redemptions Commissions Compen-
Underwriter Discounts and sation
and Repurchases
Commissions
Aquila $376,985 None None None(1)
Distributors
Inc.
(1) Amounts paid to the Distributor under the Fund's Distribution
Plan described in the Prospectus are for compensation.
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 classes of shares.
Each of these and other methods that may be used by the Fund are
described in the following material. 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.
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
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:
Class A Shares Class C Shares Class Y Shares
One Year 0.74% 2.89% 4.97%
Five Years 4.07% N/A N/A
Ten Years 6.62% N/A N/A
Since
inception on
May 21, 1987 6.64% 5.16%(1) 6.97%(1)
(1) Period from April 30, 1996 (inception of class) through
December 31, 1998.
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-, 5- and
10-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
Class A Shares Class C Shares Class Y Shares
One Year 0.74% 2.89% 4.97%
Five Years 22.08% N/A N/A
Ten Years 89.87% N/A N/A
Since
inception on
May 21, 1987 110.99% 14.40%(1) 19.73%(1)
(1) Period from April 30, 1996 (inception of class) through
December 31, 1998.
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 classes of shares during a 30-day base period by the
maximum offering price per share on the last day of the period
and annualizing the result. Expenses accrued for the period
include any fees charged to all shareholders of each class during
the base period net of fee waivers and reimbursements of
expenses, if any.
The Fund may also quote a taxable equivalent yield for each
of its classes of shares which shows the taxable yield that would
be required to produce an after-tax yield equivalent to that of a
fund which invests in tax-exempt obligations. Such yield is
computed by dividing that portion of the yield of the 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, 1998 (the date of
the Fund's most recent audited financial statements):
Class A Shares Class C Shares Class Y Shares
Yield 3.24% 2.43% 3.43%
Taxable
Equivalent
Yield 5.46% 4.09% 5.78%
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.
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and
other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt
being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and
risk.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's
Investment Grade as MIG 1 through MIG 4. In the case of variable
rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other
representing an evaluation of the degree of risk associated with
the demand feature. The short-term rating assigned to the demand
feature of VRDOs is designated as VMIG. When no rating is applied
to the long or short-term aspect of a VRDO, it will be designated
NR. Issues or the features associated with MIG or VMIG ratings
are identified by date of issue, date of maturity or maturities
or rating expiration date and description to distinguish each
rating from other ratings. Each rating designation is unique with
no implication as to any other similar issue of the same obligor.
MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issuer's
specific structural or credit features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality.
Margins of protection are ample although not
so large as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access
for refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of
an investment security is present and
although not distinctly or predominantly
speculative, there is specific risk.
<PAGE>
TAX-FREE FUND OF COLORADO
PART C: OTHER INFORMATION
(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, 1998
Statement of Assets and Liabilities
as of December 31, 1998
Statement of Operations for the year
ended December 31, 1998
Statement of Changes in Net Assets for the
years ended December 31, 1998 and 1997
Notes to Financial Statements
Included in Part C:
Consent of Independent Certified Public
Accountants
ITEM 23. Exhibits
(a) Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust (i)
(b) By-laws (iv)
(c) Instruments defining rights of shareholders
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.
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.
(d) (i) Advisory and Administration Agreement (iv)
(ii) Sub-Advisory Agreement (iv)
(e) (i) Distribution Agreement (ii)
(iii) Sales Agreement (for brokerage firms) (ii)
(iv) Sales Agreement (for financial institutions) (ii)
(v) Shareholder Services Agreement (i)
(f) Not applicable
(g) Custody Agreement (i)
(h) (a) Transfer Agency Agreement (iii)
(i) Opinion and consent of counsel (iii)
(j) Not applicable
(k) Not applicable
(l) Not Applicable
(m) (i) Distribution Plan (iii)
(ii) Shareholder Services Plan (iii)
(n) Financial Data Schedules (iv)
(o) 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 as an exhibit to Registrant's Post-Effective
Amendment No. 12 dated April 28, 1998 and incorporated
herein by reference.
(iv) Filed herewith.
ITEM 24. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 25. 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 26. Business & Other Connections of Investment Adviser
The business and other connections of Aquila Management
Corporation, the Fund's Investment Adviser and
Administrator is set forth in the prospectus (Part A);
the business and other connections of Mr. Lacy B.
Herrmann, its controlling shareholder are set forth in
the Statement of Additional Information (Part B). For
information as to the business, profession, vocation,
or employment of a substantial nature of its Directors
and officers, reference is made to the Form ADV filed
by it under the Investment Advisers Act of 1940.
KPM Investment Management Inc., Registrant's investment Sub-
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 27. 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. Government Securities 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 28. Location of Accounts and Records
All such accounts, books, and other documents are
maintained by the Manager, the Sub-Adviser the
custodian, and the transfer agent, whose addresses
appear in or on the back cover pages of the Prospectus
and the Statement of Additional Information.
ITEM 29. Management Services
Not applicable.
ITEM 30. Undertakings
(a) Not applicable.
(b) Not applicable.
<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 1, 1999,
incorporated herein by reference, and to the reference to our
firm under the headings "Financial Highlights" in the Prospectus
and "Transfer Agent, Custodian and Auditors" in the Statement of
Additional Information.
New York, New York KPMG LLP
February 26, 1999 /s/KPMG LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement or Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York, on the 24th day of
February, 1999.
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 2/24/99
______________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Tucker Hart Adams 2/24/99
______________________ Trustee ___________
Tucker Hart Adams
/s/Arthur K. Carlson 2/24/99
______________________ Trustee ___________
Arthur K. Carlson
/s/William M. Cole 2/24/99
______________________ Trustee ___________
William M. Cole
/s/Anne J. Mills 2/24/99
______________________ Trustee ___________
Anne J. Mills
/s/J. William Weeks 2/24/99
- ---------------------- Trustee -----------
J. William Weeks
/s/John G. Welles 2/24/99
______________________ Trustee ___________
John G. Welles
/s/Rose F. Marotta 2/24/99
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
TAX-FREE FUND OF COLORADO
Exhibit List
Number Description
(b) (i) By-laws
(d) (i) Advisory and Administration Agreement
(ii) Sub-Advisory Agreement
(n) Financial Data Schedules
Correspondence
Dated: September 19, 1998
TAX-FREE FUND OF COLORADO
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the
Shareholders (which term as used herein shall, together with all
other terms defined in the Declaration of Trust, have the same
meaning as in the Declaration of Trust) shall be held at the
principal office of the Fund or at such other place as may from
time to time be designated by the Board of Trustees and stated in
the notice of meeting.
Section 1A. Shareholder Voting. At any meeting of
Shareholders, Shareholders are entitled to one (1) vote for each
dollar of net asset value (determined as of the record date for
the meeting) per Share held (and fractional votes for fractional
dollar amounts.)
Section 2. Annual Meeting. In any year in which the
Trustees determine that a meeting of the Shareholders of the Fund
shall be held for the purpose of electing Trustees, that meeting
shall be held on such date and at such time as may be determined
by the Board of Trustees and as shall be designated in the notice
of meeting for the purpose of electing Trustees until the next
meeting for such purpose and for the transaction of such other
business as may properly be brought before the meeting.
Section 3. Special or Extraordinary Meetings. Special or
extraordinary meetings of Shareholders for any purpose or
purposes may be called by the Chairman of the Board of Trustees,
if any, or by the President or by the Board of Trustees and shall
be called by the Secretary upon receipt of the request in writing
signed by holders of Shares representing not less than one third
of the votes eligible to be cast thereat. Such request shall
state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Shareholders. Not less
than ten days' and not more than ninety days' written or printed
notice of every meeting of Shareholders, stating the time and
place thereof (and the general nature of the business proposed to
be transacted at any special or extraordinary meeting), shall be
given to each Shareholder entitled to vote thereat by leaving the
same with him or at his residence or usual place of business or
by mailing it, postage prepaid and addressed to him at his
address as it appears upon the books of the Fund.
No notice of the time, place or purpose of any meeting of
Shareholders need be given to any Shareholder who attends in
person or by proxy or to any Shareholder who, in writing executed
and filed with the records of the meeting, either before or after
the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Trustees may fix,
in advance, a date, not exceeding ninety days and not less than
ten days preceding the date of any meeting of Shareholders, and
not exceeding ninety days preceding any dividend payment date or
any date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to receive such
dividends or rights, as the case may be; and only Shareholders of
record on such date shall be entitled to notice of and to vote at
such meeting or to receive such dividends or rights, as the case
may be.
Section 6. Quorum, Adjournment of Meetings. The presence
in person or by proxy of the holders of record of outstanding
Shares of the Fund representing at least one-third of the votes
eligible to be cast thereat shall constitute a quorum at all
meetings of Shareholders. If at any meeting of the Shareholders
there shall be less than a quorum present, the Shareholders
present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall attend, but no
business shall be transacted at any such adjourned meeting except
such as might have been lawfully transacted had the meeting not
been adjourned.
Section 7. Voting and Inspectors. At all meetings of
Shareholders every Shareholder of record entitled to vote thereat
shall be entitled to vote at such meeting either in person or by
proxy appointed by such Shareholder or his duly authorized
attorney-in-fact.
All elections of Trustees shall be had by a plurality of the
votes cast and all questions shall be decided by a majority of
the votes cast, in each case at a duly constituted meeting,
except as otherwise provided in the Declaration of Trust or in
these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of
Trust or in these By-Laws.
At any election of Trustees, the Board of Trustees prior
thereto may, or, if they have not so acted, the Chairman of the
meeting may, and upon the request of the holders of the
outstanding Shares of the Fund representing 10% of its net asset
value entitled to vote at such election shall, appoint two
inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at
such election with strict impartiality and according to the best
of their ability, and shall after the election make a certificate
of the result of the vote taken. No candidate for the office of
Trustee shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter, and such vote shall be taken
upon the request of the holders of the outstanding Shares of the
Fund representing 10% of its net asset value entitled to vote on
such election or matter.
Section 8. Conduct of Shareholders' Meetings. The meetings
of the Shareholders shall be presided over by the Chairman of
the Board of Trustees, if any, or if he shall not be present, by
the President, or if he shall not be present, by a Vice-
President, or if neither the Chairman of the Board of Trustees,
the President nor any Vice-President is present, by a chairman to
be elected at the meeting. A person who relinguishes the Chair
shall not be considered present for purposes of this Section
until such time as he or she resumes the Chair. The Secretary of
the Fund, if present, shall act as Secretary of such meetings, or
if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor an Assistant Secretary is present, then
the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At
every meeting of the Shareholders, all proxies shall be received
and taken in charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all
questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in
Section 7, in which event such inspectors of election shall
decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number and Tenure of Office. The business and
property of the Fund shall be conducted and managed by a Board of
Trustees consisting of the number of initial Trustees, which
number may be increased or decreased as provided in Section 2 of
this Article. Each Trustee shall, except as otherwise provided
herein, hold office until the annual meeting of Shareholders of
the Fund next succeeding his election or until his successor is
duly elected and qualifies. Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees;
Removal. The Board of Trustees, by the vote of a majority of the
entire Board, may increase the number of Trustees to a number not
exceeding fifteen, and may elect Trustees to fill the vacancies
created by any such increase in the number of Trustees until the
next annual meeting or until their successors are duly elected
and qualify; the Board of Trustees, by the vote of a majority of
the entire Board, may likewise decrease the number of Trustees to
a number not less than two but the tenure of office of any
Trustee shall not be affected by any such decrease. Vacancies
occurring other than by reason of any such increase shall be
filled as provided for a Massachusetts business corporation. In
the event that after proxy material has been printed for a
meeting of Shareholders at which Trustees are to be elected any
one or more management nominees dies or becomes incapacitated,
the authorized number of Trustees shall be automatically reduced
by the number of such nominees, unless the Board of Trustees
prior to the meeting shall otherwise determine. Any Trustee at
any time may be removed either with or without cause by
resolution duly adopted by the affirmative votes of the holders
of the majority of the Shares of the Fund present in person or by
proxy at any meeting of Shareholders at which such vote may be
taken, provided that a quorum is present, or by such larger vote
as may be required by Massachusetts law. Any Trustee at any time
may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is
contained in the notice of such meeting and that such resolution
is adopted by the vote of at least two thirds of the Trustees
whose removal is not proposed. As used herein, "for cause" shall
mean any cause which under Massachusetts law would permit the
removal of a Trustee of a business trust.
Section 3. Place of Meeting. The Trustees may hold their
meetings, have one or more offices, and keep the books of the
Fund outside Massachusetts, at any office or offices of the Fund
or at any other place as they may from time to time by resolution
determine, or, in the case of meetings, as they may from time to
time by resolution determine or as shall be specified or fixed
in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board
of Trustees shall be held at such time and on such notice, if
any, as the Trustees may from time to time determine.
The annual meeting of the Board of Trustees shall be held as
soon as practicable after the annual meeting of the Shareholders
for the election of Trustees.
Section 5. Special Meetings. Special meetings of the Board
of Trustees may be held from time to time upon call of the
Chairman of the Board of Trustees, if any, the President or two
or more of the Trustees, by oral or telegraphic or written notice
duly served on or sent or mailed to each Trustee not less than
one day before such meeting. No notice need be given to any
Trustee who attends in person or to any Trustee who, in writing
executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Such notice or
waiver of notice need not state the purpose or purposes of such
meeting.
Section 6. Quorum. One-third of the Trustees then in
office shall constitute a quorum for the transaction of business,
provided that a quorum shall in no case be less than two
Trustees. If at any meeting of the Board there shall be less
than a quorum present (in person or by open telephone line, to
the extent permitted by the 1940 Act), a majority of those
present may adjourn the meeting from time to time until a quorum
shall have been obtained. The act of the majority of the
Trustees present at any meeting at which there is a quorum shall
be the act of the Board, except as may be otherwise specifically
provided by statute, by the Declaration of Trust or by these By-
Laws.
Section 7. Executive Committee. The Board of Trustees may,
by the affirmative vote of a majority of the entire Board, elect
from the Trustees an Executive Committee to consist of such
number of Trustees as the Board may from time to time determine.
The Board of Trustees by such affirmative vote shall have power
at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When
the Board of Trustees is not in session, the Executive Committee
shall have and may exercise any or all of the powers of the Board
of Trustees in the management of the business and affairs of the
Fund (including the power to authorize the seal of the Fund to be
affixed to all papers which may require it) except as provided by
law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its
own rules of procedure, and may meet, when and as provided by
such rules or by resolution of the Board of Trustees, but in
every case the presence of a majority shall be necessary to
constitute a quorum. In the absence of any member of the
Executive Committee the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a member of
the Board of Trustees to act in the place of such absent member.
Section 8. Other Committees. The Board of Trustees, by the
affirmative vote of a majority of the entire Board, may appoint
other committees which shall in each case consist of such number
of members (not less than two) and shall have and may exercise
such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee
may determine its action, and fix the time and place of its
meetings, unless the Board of Trustees shall otherwise provide.
The Board of Trustees shall have power at any time to change the
members and powers of any such committee, to fill vacancies, and
to discharge any such committee.
Section 9. Informal Action by and Telephone Meetings of
Trustees and Committees. Any action required or permitted to be
taken at any meeting of the Board of Trustees or any committee
thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of a
committee of the Board of Trustees may participate in a meeting
by means of a conference telephone or similar communications
equipment; such participation shall, except as otherwise required
by the 1940 Act, have the same effect as presence in person.
Section 10. Compensation of Trustees. Trustees shall be
entitled to receive such compensation from the Fund for their
services as may from time to time be voted by the Board of
Trustees.
Section 11. Dividends. Dividends or distributions payable
on the Shares may, but need not be, declared by specific
resolution of the Board as to each dividend or distribution; in
lieu of such specific resolutions, the Board may, by general
resolution, determine the method of computation thereof, the
method of determining the Shareholders to which they are payable
and the methods of determining whether and to which Shareholders
they are to be paid in cash or in additional Shares.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of
the Fund shall be chosen by the Board of Trustees as soon as may
be practicable after the annual meeting of the Shareholders.
These may include a Chairman of the Board of Trustees, and shall
include a President, one or more Vice-Presidents (the number
thereof to be determined by the Board of Trustees), a Secretary
and a Treasurer. The Chairman of the Board of Trustees, if any,
and the President may, but need not be, selected from among the
Trustees. The Board of Trustees may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and
perform such duties as the Board or the Executive Committee may
determine. The Board of Trustees may fill any vacancy which may
occur in any office. Any two offices, except those of President
and Vice-President, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law or
these By-Laws to be executed, acknowledged or verified by two or
more officers.
Section 2. Term of Office. The term of office of all
officers shall be one year and until their respective successors
are chosen and qualify; however, any officer may be removed from
office at any time with or without cause by the vote of a
majority of the entire Board of Trustees.
Section 3. Powers and Duties. The officers of the Fund
shall have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as may from
time to time be conferred by the Board of Trustees or the
Executive Committee.
ARTICLE IV
SHARES
Section 1. Certificates of Shares. Each Shareholder of
the Fund may be issued a certificate or certificates for his
Shares in such form as the Board of Trustees may from time to
time prescribe, but only if and to the extent and on the
conditions prescribed by the Board.
Section 2. Transfer of Shares. Shares shall be
transferable on the books of the Fund by the holder thereof in
person or by his duly authorized attorney or legal
representative, upon surrender and cancellation of certificates,
if any, for the same number of Shares, duly endorsed or
accompanied by proper instruments of assignment and transfer,
with such proof of the authenticity of the signature as the Fund
or its agent may reasonably require; in the case of Shares not
represented by certificates, the same or similar requirements may
be imposed by the Board of Trustees.
Section 3. Stock Ledgers. The stock ledgers of the Fund,
containing the name and address of the Shareholders and the
number of Shares held by them respectively, shall be kept at the
principal offices of the Fund or, if the Fund employs a transfer
agent, at the offices of the transfer agent of the Fund.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Trustees may determine the conditions upon which a new
certificate may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their
discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety to the Fund
and the transfer agent, if any, to indemnify it and such
transfer agent against any and all loss or claims which may arise
by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.
ARTICLE V
SEAL
The Board of Trustees shall provide a suitable seal of the
Fund, in such form and bearing such inscriptions as it may
determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Fund shall be fixed by the Board of
Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
The By-Laws of the Fund may be altered, amended, added to or
repealed by the Shareholders or by majority vote of the entire
Board of Trustees, but any such alteration, amendment, addition
or repeal of the By-Laws by action of the Board of Trustees may
be altered or repealed by the Shareholders.
<PAGE>
TAX-FREE FUND OF COLORADO
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of June 29, 1998 by and between TAX-
FREE FUND OF COLORADO (the "Fund"), 380 Madison Avenue, Suite
2300, New York, New York 10017 and AQUILA MANAGEMENT CORPORATION
(the "Manager"), a New York corporation, 380 Madison Avenue,
Suite 2300, New York, New York 10017
W I T N E S S E T H:
WHEREAS, the Fund is a Massachusetts business trust which is
registered under the Investment Company Act of 1940 (the "Act")
as an open-end, non-diversified management investment company;
WHEREAS, the Fund and the Manager wish to enter into an
Advisory and Administration Agreement referred to hereafter as
"this Agreement," with respect to the Fund;
WHEREAS, on the date of this Agreement, payments are being
made as contemplated by the Distribution Plan (the "Current
Distribution Plan") in effect on that date, which plan has been
approved by shareholders of the Fund on June 8, 1994 and has been
amended by the Board of the Trustees from time to time in a
manner consistent with the requirements of the Investment Company
Act of 1940 and rules thereunder;
WHEREAS, on June 7, 1995 shareholders of the Fund have also
approved, but the Fund has not implemented, another Distribution
Plan (the "New Distribution Plan") which has been amended by the
Board of the Trustees from time to time in a manner consistent
with the requirements of the Investment Company Act of 1940 and
rules thereunder; and
WHEREAS, the fee payable to the Sub-Adviser is to be reduced
at such time as the New Distribution Plan is implemented, which
implementation requires approval of the Board of Trustees of the
Fund;
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consider-
ation, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. In General
The Manager shall perform (at its own expense) the functions
set forth more fully herein for the Fund.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services Subject to the succeeding
provisions of this section and subject to the direction and
control of the Board of Trustees of the Fund, the Manager shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Fund;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Fund;
(iv) at its expense provide for pricing of the Fund's port-
folio daily using a pricing service or other source of
pricing information satisfactory to the Fund and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund; and
Subject to the provisions of Section 5 hereof, the Manager may at
its own expense delegate to a qualified organization ("Sub-
Adviser"), affiliated or not affiliated with the Manager, any or
all of the above duties. Any such delegation of the duties set
forth in (i), (ii) or (iii) above shall be by a written agreement
(the "Sub-Advisory Agreement") approved as provided in Section 15
of the Investment Company Act of 1940.
(b) Administration. Subject to the succeeding provisions of
this section and subject to the direction and control of the
Board of Trustees of the Fund, the Manager shall provide all
administrative services to the Fund other than those relating to
its investment portfolio delegated to a Sub-Adviser of the Fund
under a Sub-Advisory Agreement; as part of such administrative
duties, the Manager shall:
(i) provide office space, personnel, facilities and equip-
ment for the performance of the following functions and for
the maintenance of the headquarters of the Fund;
(ii) oversee all relationships between the Fund and any
sub-adviser, transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the negotia-
tion of agreements in relation thereto, the supervision and
coordination of the performance of such agreements, and the
overseeing of all administrative matters which are necessary
or desirable for the effective operation of the Fund and for
the sale, servicing or redemption of the Fund's shares;
(iii) either keep the accounting records of the Fund, in-
cluding the computation of net asset value per share and the
dividends (provided that if there is a Sub-Adviser, daily
pricing of the Fund's portfolio shall be the responsibility
of the Sub-Adviser under the Sub-Advisory Agreement) or, at
its expense and responsibility, delegate such duties in
whole or in part to a company satisfactory to the Fund;
(iv) maintain the Fund's books and records, and prepare (or
assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Fund's sharehold-
ers and Trustees, reports to and other filings with the
Securities and Exchange Commission and any other governmen-
tal agencies, and tax returns, and oversee the insurance
relationships of the Fund;
(v) prepare, on behalf of the Fund and at the Fund's ex-
pense, such applications and reports as may be necessary to
register or maintain the registration of the Fund and/or its
shares under the securities or "Blue-Sky" laws of all such
jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund and broker-dealers, or if any such
inquiry or communication is more properly to be responded to
by the Fund's shareholder servicing and transfer agent or
distributor, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
(c) Compliance with Requirements. Any investment program
furnished, and any activities performed, by the Manager or by a
Sub-Adviser under this section shall at all times conform to, and
be in accordance with, any requirements imposed by: (1) the
Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Fund as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Fund; and (5) the
fundamental policies of the Fund, as reflected in its registra-
tion statement under the Act or as amended by the shareholders of
the Fund.
(d) Best Efforts; Responsibility. The Manager shall give
the Fund the benefit of its best judgment and effort in rendering
services hereunder, but the Manager shall not be liable for any
loss sustained by reason of the adoption of any investment policy
or the purchase, sale or retention of any security, whether or
not such purchase, sale or retention shall have been based upon
(i) its own investigation and research or (ii) investigation and
research made by any other individual, firm or corporation, if
such purchase, sale or retention shall have been made and such
other individual, firm or corporation shall have been selected in
good faith by the Manager or a Sub-Adviser.
(e) Other Customers. Nothing in this Agreement shall
prevent the Manager or any officer thereof from acting as invest-
ment adviser, sub-adviser, administrator or manager for any other
person, firm, or corporation, and shall not in any way limit or
restrict the Manager or any of its officers, stockholders or
employees from buying, selling or trading any securities for its
own or their own accounts or for the accounts of others for whom
it or they may be acting, provided, however, that the Manager
expressly represents that it will undertake no activities which,
in its judgment, will adversely affect the performance of its
obligations under this Agreement.
(f) Order Allocation. In connection with any duties for
which it may become responsible to arrange for the purchase and
sale of the Fund's portfolio securities, the Manager shall
select, and shall cause any Sub-Adviser to select, such broker-
dealers ("dealers") as shall, in the Manager's judgment, imple-
ment 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 Manager shall cause the Fund to deal
directly with the selling or purchasing principal or market maker
without incurring brokerage commissions unless the Manager
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 conces-
sion paid by the issuer to the underwriter and that principal
transactions placed through dealers include a spread between the
bid and asked prices. In allocating transactions to dealers, the
Manager is authorized and shall authorize any Sub-Adviser, 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
Manager 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 Manager's overall responsibilities.
If, on the foregoing basis, the transaction in question could be
allocated to two or more dealers, the Manager 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. 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, econom-
ic, or institutional activities. The Fund recognizes that no
dollar value can be placed on such research services or on
execution services and that such research services may or may not
be useful to the Fund and may be used for the benefit of the
Manager or its other clients. The Manager shall cause the forego-
ing provisions, in substantially the same form, to be included in
any Sub-Advisory Agreement.
(g) Registration Statement; Information. It is agreed that
the Manager shall have no responsibility or liability for the
accuracy or completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933, except for informa-
tion supplied by the Manager for inclusion therein. The Manager
shall promptly inform the Fund as to any information concerning
the Manager appropriate for inclusion in such Registration
Statement, or as to any transaction or proposed transaction which
might result in an assignment of the Agreement.
(h) Liability for Error. The Manager shall not be liable
for any error in judgment or for any loss suffered by the Fund or
its security holders in connection with the matters to which this
Agreement relates, except a loss resulting from wilful misfea-
sance, bad faith or gross negligence on its part in the perfor-
mance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Nothing in this
Agreement shall, or shall be construed to, waive or limit any
rights which the Fund may have under federal and state securities
laws which may impose liability under certain circumstances on
persons who act in good faith.
(i) Indemnification. The Fund shall indemnify the Manager
to the full extent permitted by the Fund's Declaration of Trust.
3. Allocation of Expenses
The Manager shall, at its own expense, provide office space,
facilities, equipment, and personnel for the performance of its
functions hereunder and shall pay all compensation of Trustees,
officers, and employees of the Fund who are affiliated persons of
the Manager.
The Fund agrees to bear the costs of preparing and setting
in type its prospectuses, statements of additional information
and reports to its shareholders, and the costs of printing or
otherwise producing and distributing those copies of such pro-
spectuses, statements of additional information and reports as
are sent to its shareholders. All costs and expenses not ex-
pressly assumed by the Manager under this sub-section or other-
wise by the Manager, administrator or principal underwriter or by
any Sub-Adviser shall be paid by the Fund, including, but not
limited to (i) interest and taxes; (ii) brokerage commissions;
(iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Manager or such
adviser, administrator or principal underwriter; (v) legal and
audit expenses; (vi) custodian and transfer agent, or shareholder
servicing agent, fees and expenses; (vii) expenses incident to
the issuance of its shares (including issuance on the payment of,
or reinvestment of, dividends); (viii) fees and expenses incident
to the registration under Federal or State securities laws of the
Fund or its shares; (ix) expenses of preparing, printing and
mailing reports and notices and proxy material to shareholders of
the Fund; (x) all other expenses incidental to holding meetings
of the Fund's shareholders; and (xi) such non-recurring expenses
as may arise, including litigation affecting the Fund and the
legal obligations for which the Fund may have to indemnify its
officers and Trustees.
4. Compensation of the Manager
The Fund agrees to pay the Manager, and the Manager agrees
to accept as full compensation for all services rendered by the
Manager as such, an annual 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 0.50 of 1% of such net asset
value; provided, however, that for any day that the Fund pays or
accrues a fee under the part of the Distribution Plan which
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), the annual management fee shall
be payable as follows:
(a) on any day that such fee under the Current Distribution
Plan is paid or accrued then the Manager's fee shall be
payable at the annual rate of 0.50 of 1% of such net asset
value up to $250 million and at the annual rate of 0.40 of
1% of such net asset value above that amount; and
(b) on any day that such fee under the Distribution Plan is
paid or accrued under the New Distribution Plan, then the
Manager's fee shall be payable at the annual rate of 0.40 of
1% of such net asset value.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its termination
by the Manager upon reasonable notice, provided, however, that
the Manager agrees not to terminate the Sub-Advisory Agreement
except in accordance with such authorization and direction of the
Board of Trustees, if any, as may be in effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become effective as of
the date first written above following approval by the sharehold-
ers of the Fund and shall, unless terminated as hereinafter
provided, continue in effect until the April 30 next preceding
the first anniversary of the effective date of this Agreement,
and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually (1) by a
vote of the Fund's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Fund and by such a vote of the Trustees.
(b) Termination. This Agreement may be terminated by the
Manager at any time without penalty upon giving the Fund sixty
days' written notice (which notice may be waived by the Fund) and
may be terminated by the Fund at any time without penalty upon
giving the Manager sixty days' written notice (which notice may
be waived by the Manager), provided that such termination by the
Fund shall be directed or approved by a vote of a majority of its
Trustees in office at the time or by a vote of the holders of a
majority (as defined in the Act) of the voting securities of the
Fund outstanding and entitled to vote. The portions of this
Agreement which relate to providing investment advisory services
(Sections 2(a), (c), (d) and (e)) shall automatically terminate
in the event of the assignment (as defined in the Act) of this
Agreement, but all other provisions relating to providing servic-
es other than investment advisory services shall not terminate,
provided however, that upon such an assignment the annual fee
payable monthly and computed on the net asset value of the Fund
as of the close of business each business day shall be reduced to
the annual rate of .30 of 1% of such net asset value, and provid-
ed further that for any day that the Fund pays or accrues a fee
under the part of the Distribution Plan which 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), the annual management fee shall be payable at the
annual rate of 0.30 of 1% of such net asset value up to $250
million and at the annual rate of 0.24 of 1% of such net asset
value above that amount.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this Agree-
ment are not binding upon any shareholder of the Fund personally,
but bind only the Fund's property; the Manager represents that it
has notice of the provisions of the Fund's Declaration of Trust
disclaiming shareholder liability for acts or obligations of the
Fund.
8. Notices of Meetings
The Fund agrees that notice of each meeting of the
Board of Trustees of the Fund will be sent to the Manager and
that the Fund will make appropriate arrangements for the atten-
dance (as persons present by invitation) of such person or
persons as the Manager may designate.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized officers and
their seals to be hereunto affixed, all as of the day and year
first above written.
ATTEST: TAX-FREE FUND OF COLORADO
By
ATTEST: AQUILA MANAGEMENT CORPORATION
___________________ By:___________________________________
<PAGE>
TAX-FREE FUND OF COLORADO
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of June 29, 1998 by and between
AQUILA MANAGEMENT CORPORATION (the "Manager"), 380 Madison
Avenue, Suite 2300, New York, New York 10017, and KPM INVESTMENT
MANAGEMENT, INC. (the "Sub-Adviser"), One Norwest Center, 1700
Lincoln Street, Suite 1300, Denver, CO 80203.
W I T N E S S E T H :
WHEREAS, Tax-Free Fund of Colorado (the "Fund") is a
Massachusetts business trust which is registered under the
Investment Company Act of 1940 (the "Act") as an open-end, non-
diversified management investment company;
WHEREAS, the Manager has entered into an Advisory and
Administration Agreement as of the date hereof with the Fund (the
"Advisory and Administration Agreement") pursuant to which the
Manager shall act as investment adviser with respect to the Fund;
WHEREAS, pursuant to paragraph 2 of the Advisory and
Administration Agreement, the Manager wishes to retain the Sub-
Adviser for purposes of rendering investment advisory services to
the Manager in connection with the Fund upon the terms and
conditions hereinafter set forth;
WHEREAS, on the date of this Agreement, payments are being
made as contemplated by the Distribution Plan (the "Current
Distribution Plan") in effect on that date, which plan has been
approved by shareholders of the Fund on June 8, 1994 and has been
amended by the Board of the Trustees from time to time in a
manner consistent with the requirements of the Investment Company
Act of 1940 (the "1940 Act") and rules thereunder;
WHEREAS, on June 7, 1995 shareholders of the Fund have also
approved, but the Fund has not implemented, another Distribution
Plan (the "New Distribution Plan") which has been amended by the
Board of the Trustees from time to time in a manner consistent
with the requirements of the 1940 Act and rules thereunder; and
WHEREAS, the fee payable to the Sub-Adviser is to be reduced
at such time as the New Distribution Plan is implemented, which
implementation requires approval of the Board of Trustees of the
Fund;
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. In General
The Manager hereby appoints the Sub-Adviser to render, to
the Manager and to the Fund, investment research and advisory
services as set forth below under the supervision of the Manager
and subject to the approval and direction of the Board of
Trustees of the Fund. The Sub-Adviser shall, all as more fully
set forth herein, act as managerial investment adviser to the
Fund with respect to the investment of the Fund's assets, and
supervise and arrange the purchase of securities for and the sale
of securities held in the portfolio of the Fund.
2. Duties and Obligations of the Sub-Adviser With Respect To
Investment of the Assets of the Fund
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Manager and the Board
of Trustees of the Fund, the Sub-Adviser shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Fund;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Fund;
(iv) at its expense provide for pricing of the Fund's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Fund and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund; and
(v) consult with the Manager in connection with its duties
hereunder.
(b) Any investment program furnished by the Sub-Adviser
under this section shall at all times conform to, and be in
accordance with, any requirements imposed by: (1) the Investment
Company Act of 1940 (the "Act") and any rules or regulations in
force thereunder; (2) any other applicable laws, rules and
regulations; (3) the Declaration of Trust and By-Laws of the Fund
as amended from time to time; (4) any policies and determinations
of the Board of Trustees of the Fund; and (5) the fundamental
policies of the Fund, as reflected in its registration statement
under the Act or as amended by the shareholders of the Fund.
(c) The Sub-Adviser shall give to the Manager and to the
Fund the benefit of its best judgment and effort in rendering
services hereunder, but the Sub-Adviser shall not be liable for
any loss sustained by reason of the adoption of any investment
policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been
based upon (i) its own investigation and research or (ii)
investigation and research made by any other individual, firm or
corporation, if such purchase, sale or retention shall have been
made and such other individual, firm or corporation shall have
been selected in good faith by the Sub-Adviser.
(d) Nothing in this Agreement shall prevent the Sub-Adviser
or any affiliated person (as defined in the Act) of the Sub-
Adviser from acting as investment adviser or manager for any
other person, firm or corporation and shall not in any way limit
or restrict the Sub-Adviser or any such affiliated person from
buying, selling or trading any securities for its own or their
own accounts or for the accounts of others for whom it or they
may be acting, provided, however, that the Sub-Adviser expressly
represents that, while acting as Sub-Adviser, it will undertake
no activities which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this Agreement.
(e) In connection with its duties to arrange for the
purchase and sale of the Fund's portfolio securities, the Sub-
Adviser shall select such broker-dealers ("dealers") as shall, in
the Sub-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 Sub-
Adviser shall cause the Fund to deal directly with the selling or
purchasing principal or market maker without incurring brokerage
commissions unless the Sub-Adviser determines that better price
or execution may be obtained by paying such commissions; the 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 prices. In
allocating transactions to dealers, the Sub-Adviser is authorized
to consider, in determining whether a particular dealer will
provide best execution, the dealer's reliability, integrity,
financial condition and risk in positioning the securities
involved, as well as the difficulty of the transaction in
question, and thus need not pay the lowest spread or commission
available if the Sub-Adviser determines in good faith that the
amount of commission is reasonable in relation to the value of
the brokerage and research services provided by the dealer,
viewed either in terms of the particular transaction or the Sub-
Adviser's overall responsibilities. If, on the foregoing basis,
the transaction in question could be allocated to two or more
dealers, the Sub-Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the 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 and that such research services may or may not
be useful to the Fund and may be used for the benefit of the Sub-
Adviser or its other clients.
(f) The Sub-Adviser agrees to maintain, and to preserve for
the periods prescribed, such books and records with respect to
the portfolio transactions of the Fund as are required by
applicable law and regulation, and agrees that all records which
it maintains for the Fund on behalf of the Manager shall be the
property of the Fund and shall be surrendered promptly to the
Fund or the Manager upon request.
(g) The Sub-Adviser agrees to furnish to the Manager and to
the Board of Trustees of the Fund such periodic and special
reports as each may reasonably request.
(h) It is agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or completeness of
the Fund's Registration Statement under the Act and the
Securities Act of 1933, except for information supplied by the
Sub-Adviser for inclusion therein. The Sub-Adviser shall
promptly inform the Fund as to any information concerning the
Sub-Adviser appropriate for inclusion in such Registration
Statement, or as to any transaction or proposed transaction which
might result in an assignment (as defined in the Act) of this
Agreement.
(i) The Sub-Adviser shall not be liable for any error in
judgment or for any loss suffered by the Fund or its security
holders in connection with the matters to which this Agreement
relates, except a loss resulting from wilful misfeasance, bad
faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and
duties under this Agreement. Nothing in this Agreement shall, or
shall be construed to, waive or limit any rights which the Fund
may have under federal and state securities laws which may impose
liability under certain circumstances on persons who act in good
faith.
(j) To the extent that the Manager is indemnified under the
Fund's Declaration of Trust with respect to the services provided
hereunder by the Sub-Adviser, the Manager agrees to provide the
Sub-Adviser the benefits of such indemnification.
3. Allocation of Expenses
The Sub-Adviser shall bear all of the expenses it incurs in
fulfilling its obligations under this Agreement. In particular,
but without limiting the generality of the foregoing: the Sub-
Adviser shall furnish, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for
carrying out its duties under this Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Fund all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Fund. The Sub-Adviser will also pay all
compensation of the Fund's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
4. Compensation of the Sub-Adviser
The Manager agrees to pay the Sub-Adviser, and the Sub-
Adviser agrees to accept as full compensation for all services
rendered by the Sub-Adviser as such, a management 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 such net asset value; provided, however, that for any day
that the Fund pays or accrues a fee under the part of the
Distribution Plan which 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),
the annual management fee shall be payable as follows:
(a) on any day that such fee under the Current Distribution
Plan is paid or accrued then the management fee shall be
payable at the annual rate of 0.20 of 1% of such net asset
value up to $250 million and at the annual rate of 0.16 of
1% of such net asset value above that amount; and
(b) on any day that such fee under the Distribution Plan is
paid or accrued under the New Distribution Plan, then the
management fee shall be payable at the annual rate of 0.16
of 1% of such net asset value.
5. Duration and Termination
(a) This Agreement shall become effective on the day it is
approved by the shareholders of the Fund and shall, unless
terminated as hereinafter provided, continue in effect until the
April 30 next preceding the first anniversary of the effective
date of this Agreement, and from year to year thereafter, but
only so long as such continuance is specifically approved at
least annually (1) by a vote of the Fund's Board of Trustees,
including a vote of a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in
the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the
outstanding voting securities of the Fund and by such a vote of
the Trustees.
(b) This Agreement may be terminated by the Sub-Adviser at
any time without penalty upon giving the Manager and the Fund
sixty days' written notice (which notice may be waived). This
Agreement may be terminated by the Manager or the Fund at any
time without penalty upon giving the Sub-Adviser sixty days'
written notice (which notice may be waived by the Sub-Adviser),
provided that such termination by the Fund shall be directed or
approved by a vote of a majority of its Trustees in office at the
time or by a vote of the holders of a majority (as defined in the
Act) of the voting securities of the Fund outstanding and
entitled to vote. This Agreement shall automatically terminate in
the event of its assignment (as defined in the Act) or the
termination of the Advisory and Administration Agreement.
6. Notices of Meetings
The Manager agrees that notice of each meeting of the Board
of Trustees of the Fund will be sent to the Sub-Adviser and that
Sub-Adviser will make appropriate arrangements for the attendance
(as persons present by invitation) of such person or persons as
the Sub-Adviser may designate.
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized
officers and their seals to be hereunto affixed, all as of the
day and year first above written.
ATTEST: AQUILA MANAGEMENT CORPORATION
By:
ATTEST: KPM INVESTMENT MANAGEMENT INC.
By
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial infomation extracted
from the Registrant's Annual Report dated December 31, 1998 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 204,818,428
<INVESTMENTS-AT-VALUE> 215,653,401
<RECEIVABLES> 1,984,878
<ASSETS-OTHER> 7,267
<OTHER-ITEMS-ASSETS> 132,039
<TOTAL-ASSETS> 217,777,585
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 630,489
<TOTAL-LIABILITIES> 630,489
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,559,120
<SHARES-COMMON-STOCK> 19,639,683
<SHARES-COMMON-PRIOR> 20,365,542
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,753,003
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,834,973
<NET-ASSETS> 9,894,123
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,332,773
<OTHER-INCOME> 0
<EXPENSES-NET> 1,587,910
<NET-INVESTMENT-INCOME> 9,744,863
<REALIZED-GAINS-CURRENT> 1,753,003
<APPREC-INCREASE-CURRENT> <1,140,899>
<NET-CHANGE-FROM-OPS> 10,356,967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,122,237
<DISTRIBUTIONS-OF-GAINS> 771,886
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,425,794
<NUMBER-OF-SHARES-REDEEMED> 2,717,744
<SHARES-REINVESTED> 566,091
<NET-CHANGE-IN-ASSETS> <5,876,995>
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,138,599
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,087,501
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,628,761
<AVERAGE-NET-ASSETS> 209,873,823
<PER-SHARE-NAV-BEGIN> 10.62
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .04
<PER-SHARE-DIVIDEND> .46
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.63
<EXPENSE-RATIO> .75
<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 infomation extracted
from the Registrant's Annual Report dated December 31, 1998 and
is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<CIK> 0000811239
<NAME> TAX-FREE FUND OF COLORADO, CLASS C SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 204,818,428
<INVESTMENTS-AT-VALUE> 215,653,401
<RECEIVABLES> 1,984,878
<ASSETS-OTHER> 7,267
<OTHER-ITEMS-ASSETS> 132,039
<TOTAL-ASSETS> 217,777,585
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 630,489
<TOTAL-LIABILITIES> 630,489
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,559,120
<SHARES-COMMON-STOCK> 125,196
<SHARES-COMMON-PRIOR> 97,669
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,753,003
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,834,973
<NET-ASSETS> 1,328,416
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,332,773
<OTHER-INCOME> 0
<EXPENSES-NET> 1,587,910
<NET-INVESTMENT-INCOME> 9,744,863
<REALIZED-GAINS-CURRENT> 1,753,003
<APPREC-INCREASE-CURRENT> <1,140,899>
<NET-CHANGE-FROM-OPS> 10,356,967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 41,352
<DISTRIBUTIONS-OF-GAINS> 3,498
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,561
<NUMBER-OF-SHARES-REDEEMED> 13,267
<SHARES-REINVESTED> 3,233
<NET-CHANGE-IN-ASSETS> <5,876,995>
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,138,599
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,087,501
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,628,761
<AVERAGE-NET-ASSETS> 1,198,355
<PER-SHARE-NAV-BEGIN> 10.60
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> .04
<PER-SHARE-DIVIDEND> .36
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> 1.69
<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 infomation extracted
fromthe Registrant's Annual Report dated December 31, 1998 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 204,818,428
<INVESTMENTS-AT-VALUE> 215,653,401
<RECEIVABLES> 1,984,878
<ASSETS-OTHER> 7,267
<OTHER-ITEMS-ASSETS> 132,039
<TOTAL-ASSETS> 217,777,585
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 630,489
<TOTAL-LIABILITIES> 630,489
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,559,120
<SHARES-COMMON-STOCK> 661,698
<SHARES-COMMON-PRIOR> 532,755
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,753,003
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,834,973
<NET-ASSETS> 7,047,453
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,332,773
<OTHER-INCOME> 0
<EXPENSES-NET> 1,587,910
<NET-INVESTMENT-INCOME> 9,744,863
<REALIZED-GAINS-CURRENT> 1,753,003
<APPREC-INCREASE-CURRENT> <1,140,899>
<NET-CHANGE-FROM-OPS> 10,356,967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 280,993
<DISTRIBUTIONS-OF-GAINS> 23,772
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 591,639
<NUMBER-OF-SHARES-REDEEMED> 463,517
<SHARES-REINVESTED> 822
<NET-CHANGE-IN-ASSETS> <5,876,995>
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,138,599
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,087,501
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,628,761
<AVERAGE-NET-ASSETS> 6,423,969
<PER-SHARE-NAV-BEGIN> 10.64
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .04
<PER-SHARE-DIVIDEND> .47
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.65
<EXPENSE-RATIO> .69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
