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. 15 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 16 [ X ]
TAX-FREE FUND OF COLORADO
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[_X_] on (May 1, 2000) pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[_ _] on (date) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effective
date for a previous post-effective amendment.
<PAGE>
Tax-Free Fund of Colorado
380 Madison Avenue, Suite 2300
New York, New York 10017
800-USA-COL2 * (800-872-2652)
212-697-6666
Prospectus
Class A Shares May 1, 2000
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
regular Federal income taxes as is consistent with preservation of capital.
The Fund invests in municipal obligations that pay interest exempt from
Colorado state and Federal income taxes and are of investment grade
quality.
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 regular 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. We call these
"Colorado Obligations." 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 considered
"investment grade."
The Sub-Adviser selects obligations for the Fund's portfolio to
best achieve the Fund's objectives. The Sub-Adviser evaluates specific
obligations for purchase by considering various characteristics including
quality, maturity and coupon rate.
The interest paid on certain types of 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 tax-exempt Colorado Obligations whose
interest is not subject to AMT.
"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.
The Fund's assets, being primarily or entirely Colorado issues, are
subject to economic and other conditions affecting Colorado. Adverse local
events, such as a downturn in the Colorado economy, could affect the value
of the Fund's portfolio.
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 value of Colorado Obligations will fluctuate with changes in
interest rates. Their value will normally decrease if interest rates
increase.}
An 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.
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.
<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 performance of
the Fund's Class A Shares from year to year over a 10-year period 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
1990-1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15% 13.28
10.96 11.10 XXXX
10% XXXX 9.00 XXXX XXXX 7.21
6.55 XXXX XXXX XXXX XXXX XXXX
5% XXXX XXXX XXXX XXXX XXXX XXXX 4.92
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 -0.84
- -5% XXXX XXXX XXXX XXXX -3.80 XXXX XXXX XXXX XXXX XXXX
1990 1991 1992 1993 1994 1995 1996 1997 1998 1990
Calendar Years
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.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the Period Ended 1-Year 5-Year 10-Years inception
December 31, 1999
<S> <C> <C> <C> <C>
Tax-Free Fund of Colorado
Class A Shares (1) -4.78% 4.70% 5.65% 6.02%*
Tax-Free Fund of Colorado
Class C Shares -2.68%*** N/A N/A 3.25%**
Lehman Brothers Quality Intermediate
Municipal Bond Index****
0.29% N/A N/A 6.51%
(Class A)
4.97
(Class C)
<FN>
(1) The average annual total returns do reflect the maximum 4% sales load.
</FN>
<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 average annual total return for Class C Shares for one year assumes
redemption at the end of the year and payment of 1% CDSC.
</FN>
<FN>
****The Lehman Brothers Quality Intermediate Municipal Bond Index is
nationally oriented and consists of an unmanaged mix of investment-grade
intermediate-term municipal securities of issuers throughout the United
States.</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE 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.
Class A Class C
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.....
(as a percentage of offering price) 4.00% None
Maximum Deferred Sales Charge (Load).....None(1) 1.00%(2)
(as a percentage of the lesser of
redemption value or purchase price)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
or Distributions
(as a percentage of offering price)......None None
Redemption Fees..........................None None
Exchange Fees............................None None
Annual Fund Operating Expenses (expenses that are
deducted from the Fund's assets)
Management Fees ..........................0.50% 0.50%
Distribution and/or
Service (12b-1) Fee ........ .........0.05% 0.75%
All Other Expenses:
Service Fee........................None 0.25%
Other Expenses (3).................0.21% 0.21%
Total All Other Expenses (3)...........0.21% 0.46%
Total Annual Fund
Operating Expenses (3)...................0.75% 1.71%
<FN>
(1) If you buy Class A Shares in transactions of $1 million or more there
is no sales charge but you will be subject to a contingent deferred sales
charge of up to 1% if you redeem your shares during the first two years
after purchase and 0.50 of 1% during the third and fourth years after
purchase.
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds of the shares if redeemed during the first 12 months after
purchase.
</FN>
<FN>
(3) Does not reflect a 0.01% offset in Fund expenses received in the year
ended December 31, 1999 for uninvested cash balances. Reflecting this
offset for that year, other expenses, all other expenses and total annual
Fund operating expenses were 0.20%, 0.20% and 0.75%, respectively, for
Class A Shares; for Class C Shares, these expenses were 0.20%, 0.45% and
1.70%, respectively.
</FN>
</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..........$475 $633 $805 $1,305
Class C Shares..........$274 $539 $928 $1,524(4)
You would pay the following expenses if you did not redeem your Class C shares:
Class C Shares..........$174 $539 $928 $1,524(4)
<FN>
(4) Six years after the date of purchase, Class C Shares are automatically converted
to Class A Shares. Over time long-term Class C Shareholders could pay the
economic equivalent of an amount that is more than the maximum front-end sales
charge allowed under applicable regulations because of the 12b-1 fee and service
fee. Because these fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
</FN>
</TABLE>
<PAGE>
INVESTMENT OF THE 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.
At the time of purchase, the Fund's Colorado Obligations must be of
investment grade quality. This means that they 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.
The obligations of non-Colorado issuers that the Fund can purchase
as Colorado Obligations are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands. Interest
paid on these obligations is currently exempt from regular Federal and
Colorado income taxes. The Fund purchases the obligations of these issuers
only when obligations of Colorado issuers with the appropriate
characteristics of quality, maturity and coupon rate are unavailable.
Municipal Obligations
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities to obtain funds for public
purposes.
There are two principal classifications of municipal obligations:
"notes" and "bonds." Notes generally have maturities of one year or less,
while bonds are paid back over longer periods.
The various public purposes for which municipal obligations are issued
include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions and
facilities, and
* funding the construction of highways, bridges, schools,
hospitals, housing, mass transportation, streets and water and
sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. government
guarantee,
* municipal lease/purchase agreements, which are similar to
installment purchase contracts for property or equipment, and
* floating and variable rate demand notes.
<PAGE>
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 in general
to finance construction of long-term municipal projects; examples are
pictured above. The municipal obligations which financed these particular
projects were included in the Fund's portfolio as of February 29, 2000 and
together represented 8.4% 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.
"What factors may affect the value of the Fund's investments and their
yields?"
Change in prevailing interest rates is the most common factor that
affects the value of the obligations in the Fund's portfolio. Any such
change 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 that prevailing
interest rates may rise. 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.
"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.
There are two principal classifications of municipal bonds: "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.
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.
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.
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, 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 are now being asked to approve
changes to the Fund's management agreement that if adopted will provide for
level payment rates (no reduction) in management fees regardless of asset
size of the Fund. If these proposals are approved and are implemented, or
if the previously approved changes are implemented, the Prospectus will be
supplemented.
Information about the Sub-Adviser and the Manager
The Sub-Adviser, with a local office at One Norwest Center, 1700
Lincoln Street, Denver Colorado 80203 , 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 $647
million 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. Robert Schultz is the back-up portfolio manager and research
analyst. He has 10 years' experience with fixed-income securities having
worked at John Nuveen & Company and U.S. Bancorp Piper Jaffray in Chicago.
He has an MBA from Loyola University (Chicago) and a BS in Finance from
Miami University (Ohio).
The Sub-Adviser has its primary office at 10250 Regency Circle, Omaha,
NE 68114 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 March 31, 2000, these funds had
aggregate assets of approximately $3.2 billion, of which approximately $1.8
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 portfolio market value, except that Colorado Obligations
maturing in 60 days or less are generally valued at amortized cost. The
price at which a purchase or redemption of shares is effected is based on
the net asset value next calculated after your purchase or redemption order
is received in proper form. The New York Stock Exchange annually announces
the days on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
the Exchange may close on days not included in that announcement.
PURCHASES
"Are there alternate purchase plans?"
The 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 York * Texas
* Virginia * West Virginia
If you are a resident of New Mexico, Washington or 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).
* You are not permitted to maintain both an Automatic Investment Program
and an Automatic Withdrawal Plan simultaneously.
Under either option your investment must be drawn in United States
dollars on a United States commercial bank, savings bank or credit union or
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, that has a sales agreement with the Distributor, Aquila
Distributors, Inc., in which case that institution will take action on your
behalf, and you will not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the 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 account information
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 by
telephone instructions to the Agent.
Before you can transfer funds electronically, the Fund's Agent must
have your completed application authorizing these features. Or, if you
initially decide not to choose these conveniences and then later wish to do
so, you must complete a Ready Access Features Form which is available from
the Distributor or Agent, or if your account is set up so that your broker
or dealer makes these sorts of changes, request your broker or dealer to
make them. The Fund may modify or terminate these investment methods or
charge a service fee, upon 30 days' written notice to shareholders.
REDEEMING YOUR INVESTMENT
You may redeem some or all of your shares by a request to the Agent.
Shares will be redeemed at the next net asset value determined after your
request has been received in proper form.
There is no minimum period for investment in the Fund, except for
shares recently purchased by check or by Automatic or Telephone Investment
as discussed below.
If you own both Class A and Class C Shares and do not specify which
class you wish to redeem, we will redeem your Class A Shares.
Certain shares are subject to a contingent deferred sales charge, or
CDSC. These are:
- Class C Shares held for less than 12 months (from the date
of purchase); and
- CDSC Class A Shares.
Upon redemption, enough additional shares will be redeemed to pay for
any applicable CDSC.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-872-2651
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 take instructions from anyone by
telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously specified;
or
b) by check in the amount of $50,000 or less, mailed to the same name
and address (which has been unchanged for the past 30 days) as the
account from which you are redeeming. You may only redeem by check
via telephone request once in any 7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements immediately.
The 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"), the Stock Exchanges Medallion Program ("SEMP") or the New
York Stock Exchange, Inc. Medallion Signature Program ("MSP").
A notary public is not an acceptable signature guarantor.
Non-Certificate Shares. You must use the Regular Redemption Method if
you have not chosen Expedited Redemption to a predesignated Financial
Institution account. To redeem by this method, send a letter of instruction
to the 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 receipt of your redemption request in proper form. Except as
described below, payments will normally be sent to your address of record
within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested on your
application or Ready
Access Features Form,
wired or transferred
through the Automated
Clearing House to your
Financial Institution account
Through a broker
/dealer Check or wire, to your None,
broker/dealer however, your
broker/dealer
may
charge a fee
Although the 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 payment for redemption of shares recently
purchased by check (including certified, cashier's or official bank check)
or by Automatic Investment or Telephone Investment up to 15 days after
purchase; however, payment for redemption will not be delayed after (i) the
check or transfer of funds has been honored, or (ii) the Agent receives
satisfactory assurance that your Financial Institution will honor the check
or transfer of funds. You can eliminate possible delays by paying for
purchased shares with wired funds or Federal Reserve drafts.
The 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 ("redemption in kind") in conformity
with SEC rules. This method will only be used if the Board of Trustees
determines that payments partially or wholly in cash would be detrimental
to the best interests of the remaining shareholders.
"Are there any reinvestment privileges?"
If you reinvest proceeds of redemption within 120 days of a redemption
you will not have to pay any additional sales charge on the reinvestment.
You must reinvest in the same class as the shares redeemed. You may
exercise this privilege only once a year, unless otherwise approved by the
Distributor.
The Distributor will refund to you any CDSC deducted at the time of
redemption by adding it to the amount of your reinvestment.
Reinvestment will not alter the tax consequences of your original
redemption.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class A Shares. Under an Automatic
Withdrawal Plan you can arrange to receive a monthly or quarterly check in
a stated amount, not less than $50.
ALTERNATE PURCHASE PLANS
"How do the different arrangements for Class A Shares and Class C Shares
affect the cost of buying, holding and redeeming shares, and what else
should I know about the two classes?"
In this Prospectus the 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
paid at the time of charge payable at
purchase. Thus, the time of
your investment is purchase.
reduced by the
applicable sales
charge.
Contingent None (except for A maximum CDSC of
Deferred Sales certain purchases 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 or
distributions.
Distribution and An asset retention Level charge for
Service Fees service fee of 0.05 distribution and
of 1% is imposed on service fees for 6
the average annual years after the
date
net assets of purchase at the
represented by the aggregate annual
Class A Shares. rate of 1% of the
average net assets
represented by the
Class C Shares.
Other Information The initial sales' Class C Shares,
charge is waived or together with a pro
reduced in some rata portion of all
cases. Larger Class C Shares
purchases qualify acquired through
for lower sales reinvestment of
charges. dividends and other
distributions paid
in additional Class
C Shares,
automatically
convert to Class A
Shares after 6
years.
Systematic Payroll Investments
You can make systematic investments into either Class A or Class 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 with 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.
"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, received in proper
form prior to 4:00 p.m. New York time. Dealers have the added flexibility
of transmitting orders received prior to 4:00 p.m. New York time to the
Distributor or Agent before the Distributor's close of business that day
(normally 5:00 p.m. New York time) and still receiving that day's offering
price. Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase orders
received on a non-business day, including those for Automatic Investment,
will be executed on the next succeeding business day. The sale of shares
will be suspended (1) during any period when net asset value determination
is suspended or (2) when the Distributor judges it is in the 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.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during the four
years after you purchase them, you must pay a special contingent deferred
sales charge upon redemption.
You will pay 1% of the shares' redemption or purchase value ,
whichever is less, if you redeem within the first two years after purchase,
and 0.50 of 1% of that redemption value if you redeem within the third or
fourth year.
This special charge also applies to CDSC Class A Shares purchased
without a sales charge pursuant to a Letter of Intent.
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge in
accordance with the above schedule when making subsequent purchases of
Class A Shares.
Letters of Intent
"Single purchasers" may also qualify for reduced sales charges, in
accordance with the above schedule, after a written Letter of Intent
(included in the Application) is received by the Distributor.
General
Class A Shares may be purchased without a sales charge by certain
classes of purchasers.
Certain Investment Companies
If you redeem shares of an investment company (not a member of the
Aquilasm Group of Funds) on which you have paid a sales charge, you can
invest the proceeds within 120 days in Class A Shares of the Fund without
paying a sales charge. You can get additional information from the
Distributor.
"What are the sales, service and distribution charges for Class C Shares?"
* No sales charge at time of purchase.
* Annual fees for service and distribution at a combined annual rate of
1% of average annual net assets of the 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 or distributions are not
subject to any CDSC.
Broker/Dealer Compensation - Class C Shares
The Distributor will pay 1% of the sales price to any broker/dealer
executing a Class C Share purchase.
"What about confirmations?"
A statement will be mailed to you confirming each purchase of shares
in the Fund. Additionally, your account at the Agent will be credited in
full and fractional shares (rounded to the nearest 1/1000th of a share).
"Is there a Distribution Plan or a 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 Shares and Class C Shares under agreements to certain
broker/dealers, or others who have (i) rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of the Fund's
shares or (ii) assisted in the servicing of shareholder accounts.
For any fiscal year, these payments 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 are being asked
to approve changes to the Fund's Distribution Plan that if adopted will
permit increases in the permitted rate of payments with respect to Class A
Shares up to 0.15 of 1%. There is however, no current intention to increase
that the actual rate above current levels. If the proposals are approved
the Prospectus will be supplemented when and if the rate is increased.
For any class, these payments are made only from the assets allocable
to that class.
Shareholder Services Plan for Class C Shares
The Fund's Shareholder Services Plan authorizes it to pay a service
fee under agreements to certain qualified recipients who have agreed to
provide personal services to Class C shareholders and/or maintain their
accounts. For any fiscal year, such fees may not exceed 0.25 of 1% of the
average annual net assets represented by Class C Shares. Payment is made
only out of the Fund's assets represented by Class C Shares.
Service fees with respect to Class C Shares will be paid to the
Distributor during the first year after purchase and thereafter to other
qualified recipients.
"Transfer on Death"("TOD") Registration (Both Classes)
The Fund generally permits "transfer on death" ("TOD") registration
of shares, so that on the death of the shareholder the shares are
transferred to a designated beneficiary or beneficiaries. Ask the Agent or
your broker-dealer for the Transfer on Death Registration Request Form.
With it you will receive a copy of the TOD Rules of the Aquilasm Group of
Funds, which specify how the registration becomes effective and operates.
By opening a TOD Account, you agree to be bound by the TOD Rules.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions determined?"
The 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 less expenses paid or accrued.
Net income also includes any original issue discount, which occurs if the
Fund purchases an obligation for less than its face amount. The discount
from the face amount is treated as additional income earned over the life
of the obligation. Because the Fund's 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 and
distributions 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 or the Agent or paid by the
Agent to a selected dealer; or
2. the third day the New York Stock Exchange is
open after the day the net asset value of the redeemed
shares was determined.
The Fund's present policy is to pay dividends so they will be received
or credited by approximately the first day of each month.
"How are dividends and distributions paid?"
Dividends and distributions will automatically be reinvested in
full and fractional shares of the Fund of the same class at net asset value
on the record date for the dividend or distribution, unless you elect
otherwise.
You may choose to have all or any part of the payments for
dividends or distributions paid in cash. You can elect to have the cash
portion of your dividends or distributions deposited, without charge, by
electronic funds transfers into your account at a financial institution, if
it is a member of the Automated Clearing House.
You can make any of these elections on the Application, by a Ready
Access Features Form or by a letter to the Agent. Your election to receive
some or all of your dividends and distributions in cash will be effective
as of the next payment of dividends after it has been received in proper
form by the Agent. It will continue in effect until the Agent receives
written notification of a change.
All shareholders, whether their dividends and distributions are
received in cash or reinvested, will receive a monthly statement indicating
the current status of their investment account with the Fund.
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 on capital gains distributions (if any) and any other
distributions that do not qualify as "exempt-interest dividends."
TAX INFORMATION
Net investment income includes income from Colorado Obligations in the
portfolio that 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, 1999, 97.47% of the Fund's dividends
with respect to Class A Shares and 96.16% of its dividends with respect to
Class C Shares were exempt-interest dividends. For the calendar year 1999,
1.41% of total dividends paid with respect to Class A Shares and 2.15% of
dividends with respect to Class C Shares were taxable as ordinary income
and 1.12% and 1.70%, respectively, 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
Internal Revenue 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 Internal Revenue 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 ("AMT"). Whether or not that
computation will result in a tax will depend on the entire content of your
return. The Fund will not invest more than 20% of its assets in the types
of Colorado Obligations that pay interest subject to AMT. An adjustment
required by the Internal Revenue Code will tend to make it more likely that
corporate shareholders will be subject to AMT. They should consult their
tax advisers.
"What should I know about 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 Internal Revenue 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 financial highlights table is intended to help you understand the
Fund's financial performance for the designated period s of the Fund's
operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by KPMG LLP, whose report, along with the Fund's financial
statements, is included in the annual report, is incorporated by reference
into the SAI and is available upon request.
Class A(1) Class C(2)
Year ended December 31, Year Ended
December 31,
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............ $10.63 $10.62 $10.41 $10.61 $10.60 $10.41
Income from Investment
Operations:
Net investment income . .0.46 0.47 0.50 0.36 0.37 0.40
Net gain (loss) on
securities (both
realized and
unrealized) ........ .(0.55) 0.04 0.23 (0.54) 0.04 0.21
Total from Investment
Operations ......... .(0.09) 0.51 0.73 (0.18) 0.41 0.61
Less Distributions:
Dividends from net
investment income .. (0.48) (0.46) (0.52) (0.38) (0.36) (0.42)
Distributions from
capital gains ...... (0.08) (0.04) - (0.08) (0.04) -
Total Distributions ... (0.56) (0.50) (0.52) (0.46) (0.40) (0.42)
Net Asset Value, End of
Period ................$9.98 $10.63 $10.62 $9.97 $10.61 $10.60
Total Return (not reflecting
sales charge)(%) ..... .(0.84) 4.92 7.21 (1.70) 3.92 5.99
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) .....190,698 208,771 216,321 1,932 1,328 1,036
Ratio of Expenses to
Average Net
Assets (%) ........ 0.76 0.75 0.75 1.70 1.69 1.69
Ratio of Net Investment
Income to Average Net
Assets (%) ......... .4.41 4.47 4.78 3.44 3.50 3.81
Portfolio Turnover
Rate (%) .............13.08 15.20 22.66 13.08 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 1996 and 1995 were:
Ratio of Expenses
to Average Net Assets(%)
- - - - - -
Ratio of Net Investment
Income(Loss) to
Average Net Assets(%) - - - - - -
The expense ratios after giving effect to the waiver and expense offset for
uninvested cash balances were:
Ratio of Expenses to
Average Net Assets(%) 0.75 0.73 0.72 1.69 1.68 1.66
<CAPTION>
Class A(1) Class C(2)
Year Ended Year Ended Period (3)
December 31, December 31, Ended
12/31/96
1996 1995 1997
<C> <C> <C> <C>
$10.56 $9.82 $10.41 $10.31
0.52 0.54 0.40 0.28
(0.13) 0.74 0.21 0.12
0.39 1.28 0.61 0.40
(0.54) (0.54) (0.42) (0.30)
- - - - -
(0.54) (0.54) (0.42) (0.30)
$10.41 $10.56 $10.60 $10.41
3.78 13.28 5.99 3.78+
214,392 219,306 1,036 915
0.70 0.64 1.69 1.65*
5.02 5.20 3.81 4.07*
10.96 14.20 22.66 10.96
0.74 0.76 - 1.69*
4.98 5.08 - 4.03*
0.69 0.63 1.66 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>
</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
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of corporation or organization. If a trust, include the name(s) of
trustees in which account will be registered and the name and date of
the trust instrument. An account for a pension or profit sharing plan or
trust may be registered in the name of the plan or trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a non-
U.S. citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate 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
Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless otherwise
indicated below.
You can have any portion of either type reinvested, with the balance paid
in cash, by indicating a percent below:
Income dividends are to be: ___%Reinvested ___%Paid in cash*
Capital gains distributions are to be: ___%Reinvested ___%Paid in cash*
___ 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 first
actual liquidation date. (Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set forth
below. To realize the amount stated below, PFPC Inc. ("the Agent") is
authorized to redeem sufficient shares from this account at the then
current net asset value, in accordance with the terms below:
Dollar amount of each withdrawal $ ______________beginning________________
.
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
_______________________________
____________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________
____________________________________
Street Financial Institution Street
Address
_______________________________
____________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE (Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the 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, 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
Gary C. Cornia
Diana P. Herrmann
John C. Lucking
Anne J. Mills
J. William Weeks
OFFICERS
Diana P. Herrmann, President
James M. McCullough, Senior Vice President
Jerry G. McGrew, Senior Vice President
Jean M. Smith, Vice President
Jessica L. 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
757 Third Avenue
New York, New York 10017
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 (the "SAI") has
been filed with the Securities and Exchange Commission. The SAI
contains information about the Fund and its management not
included in this Prospectus. The SAI is incorporated by reference
in its entirety in this Prospectus. Only when you have read both
this Prospectus and the SAI are all material facts about the 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 SAI and the Fund's annual and
semi-annual reports without charge, upon request by calling
800-872-2651 (toll- free ).
In addition, you can review and copy information about the Fund
(including the SAI) at the Public Reference Room of the SEC in Washington,
D.C. Information on the operation of the Public Reference Room is available
by calling 1-202-942-8090. Reports and other information about the Fund are
also available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information can be obtained, for a
duplicating fee, by E-mail request to [email protected] or by writing to
the SEC's Public Reference Section, Washington, D.C. 20549-0102.
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
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 SAI, 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 May 1, 2000
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 state and regular Federal
income taxes as is consistent with preservation of capital. The Fund invests
in municipal obligations that pay interest exempt from Colorado state and
Federal income taxes and are of investment grade quality.
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 regular 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. We call these
"Colorado Obligations." 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 considered
"investment grade."
The Sub-Adviser selects obligations for the Fund's portfolio to
best achieve the Fund's objectives. The Sub-Adviser evaluates specific
obligations for purchase by considering various characteristics including
quality, maturity and coupon rate.
The interest paid on certain types of 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 tax-exempt Colorado Obligations whose
interest is not subject to AMT.
"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.
The Fund's assets, being primarily or entirely Colorado issues, are
subject to economic and other conditions affecting Colorado. Adverse local
events, such as a downturn in the Colorado economy, could affect the value
of the Fund's portfolio.
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.
An 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.
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.
<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 performance of
the Fund's Class Y Shares from year to year over a three-year period and by
showing how the Fund's average annual returns for the periods covering
one-year and since inception 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
1997-1999
<S> <C> <C> <C> <C>
8% 7.65
XXXX
6% XXXX
XXXX 4.97%
4% XXXX XXXX
XXXX XXXX
2% XXXX XXXX
XXXX XXXX
0% XXXX XXXX XXXX
-0.79
1997 1998 1999
Calendar Years
</TABLE>
During the period shown in the bar chart, the highest return for a quarter
was 2.72% (quarter ended September 30, 1998) and the lowest return for a
quarter was -1.69% (quarter ended June 30, 1999).
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the Period Ended 1-Year inception*
December 31, 1999
<S> <C> <C>
Tax-Free Fund of Colorado
Class Y Shares -0.79% 4.80%
Tax-Free Fund of Colorado
Class I Shares ** N/A N/A
Lehman Brothers Quality Intermediate
Municipal Bond Index *** 0.29% 4.97%
<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.
</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>
Class I Class Y
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.........................None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load).........None None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends or Distributions
(as a percentage of offering price)........None None
Redemption Fees..............................None None
Exchange Fee....... .........................None None
Annual Fund Operating Expenses (expenses that are
deducted from the Fund's assets)
Management Fees .............................0.50% 0.50%
Distribution and/or
Service (12b-1) Fee................. .0.10%(1) None
All Other Expenses (2).......................0.39% 0.21%
Total Annual Fund Operating Expenses (2).....0.99% 0.71%
<FN>
(1) Current rate; up to 0.25% can be authorized.
</FN>
<FN>
(2) Does not reflect a 0.01% offset in Fund expenses received in the year
ended December 31, 1999 for uninvested cash balances. Reflecting this
offset for that year, all other expenses and total annual Fund operating
expenses were 0.38% and 0.98%, respectively, for Class I Shares; for Class
Y Shares, these expenses were 0.20% and 0.70%, 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 0.14%; Class Y Shares bear only the
common charges of 0.14% and an allocation for transfer agent services of
0.07%
</FN>
</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...... 101 $315 $547 $1,213
Class Y Shares...........$ 73 $227 $395 $883
</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.
At the time of purchase, the Fund's Colorado Obligations must be of
investment grade quality. This means that they 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.
The obligations of non-Colorado issuers that the Fund can purchase
as Colorado Obligations are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands. Interest
paid on these obligations is currently exempt from regular Federal and
Colorado income taxes. The Fund purchases the obligations of these issuers
only when obligations of Colorado issuers with the appropriate
characteristics of quality, maturity and coupon rate are unavailable.
Municipal Obligations
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities to obtain funds for public
purposes.
There are two principal classifications of municipal obligations:
"notes" and "bonds." Notes generally have maturities of one year or less,
while bonds are paid back over longer periods.
The various public purposes for which municipal obligations are issued
include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions and
facilities, and
* funding the construction of highways, bridges, schools,
hospitals, housing, mass transportation, streets and water and
sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. Government
guarantee,
* municipal lease/purchase agreements, which are similar
to installment purchase contracts for property or equipment, and
* floating and variable rate demand notes.
"What factors may affect the value of the Fund's investments and their
yields?"
Change in prevailing interest rates is the most common factor that
affects the value of the obligations in the Fund's portfolio. Any such
change 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 that prevailing
interest rates may rise. 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.
"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.
There are two principal classifications of municipal bonds: "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.
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.
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.
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, 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 are now being asked to approve
changes to the Fund's management agreement that if adopted will provide for
level payment rates (no reduction) in management fees regardless of asset
size of the Fund. If these proposals are approved and are implemented, or
if the previously approved changes are implemented, the Prospectus will be
supplemented.
Information about the Sub-Adviser and the Manager
The Sub-Adviser, with a local office at One Norwest Center, 1700
Lincoln Street, Denver, Colorado 80203, 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 $647
million 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. Robert Schultz is the back-up portfolio manager and research
analyst. He has 10 years' experience with fixed-income securities having
worked at John Nuveen & Company and U.S. Bancorp Piper Jaffray in Chicago.
He has an MBA from Loyola University (Chicago) and a BS in Finance from
Miami University (Ohio).
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 March 31, 2000 these funds had
aggregate assets of approximately $3.2 billion, of which approximately $1.8
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 portfolio market value, except that Colorado Obligations
maturing in 60 days or less are generally valued at amortized cost. The
price at which a purchase or redemption of shares is effected is based on
the net asset value next calculated after your purchase or redemption order
is received in proper form. The New York Stock Exchange annually announces
the days on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
the Exchange may close on days not included in that announcement.
PURCHASES
"Are there alternate purchase plans?"
Yes. See "Alternate Purchase Plans" below. 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 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 Y Shares are available only in:
*Colorado * California * District of Columbia *Florida * Georgia *
Hawaii * Indiana * Missouri * Nevada * New Jersey * New York * Virginia
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.
For Class I Shares:
Financial intermediaries can set their own requirements for initial
and subsequent investments.
Your investment must be drawn in United States dollars on a United
States commercial bank, savings bank or credit union or 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, that has a sales agreement with the Distributor, Aquila
Distributors, Inc., in which case that institution will take action on
your behalf, and you will not personally perform the steps indicated
below; or
* directly through the Distributor, by mailing payment to the 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 account information
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 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Fund's Agent must
have your completed application authorizing these features. Or, if you
initially decide not to choose these conveniences and then later wish to do
so, you must complete a Ready Access Features Form which is available from
the Distributor or Agent, or if your account is set up so that your broker
or dealer makes these sorts of changes, request your broker or dealer to
make them. The Fund may modify or terminate these investment methods or
charge a service fee, upon 30 days' written notice to shareholders.
REDEEMING YOUR INVESTMENT
Redeeming Class Y Shares
You may redeem some or all of your shares by a request to the Agent.
Shares will be redeemed at the next net asset value determined after your
request has been received in proper form.
There is no minimum period for investment in the Fund, except for
shares recently purchased by check or by 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 take instructions from anyone by
telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously specified;
or
b) by check in the amount of $50,000 or less, mailed to the same name
and address (which has been unchanged for the past 30 days) as the
account from which you are redeeming. You may only redeem by check via
telephone request once in any 7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements immediately.
The 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"), the Stock Exchanges Medallion Program ("SEMP") or the New
York Stock Exchange, Inc. Medallion Signature Program ("MSP").
A notary public is not an acceptable signature guarantor.
Redemption of Class I Shares
You may redeem all or any part of your Class I Shares at the net
asset value next determined after receipt in proper form of your
redemption request by your financial intermediary. Redemption requests for
Class I Shares must be made through a financial intermediary and cannot be
made directly. Financial intermediaries may charge a fee for effecting
redemptions. There is no minimum period for any investment in the 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 receipt of your redemption request in proper form.
Except as described below, payments will normally be sent to your address
of record within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested
on your application
or Ready Access Features
Form, wired or
transferred through
the Automated Clearing
House to your Financial
Institution account
Through a broker/
dealer Check or wire, to your None, however
broker/dealer your
roker/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 payment for redemption of shares recently
purchased by check (including certified, cashier's or official bank check)
or by Automatic Investment or Telephone Investment up to 15 days after
purchase; however, payment for redemption will not be delayed after (i) the
check or transfer of funds has been honored, or (ii) the Agent receives
satisfactory assurance that your Financial Institution will honor the check
or transfer of funds. You can eliminate possible delays by paying for
purchased shares with wired funds or Federal Reserve drafts.
The 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 ("redemption in kind") in conformity
with SEC rules. This method will only be used if the Board of Trustees
determines that payments partially or wholly in cash would be detrimental
to the best interests of the remaining shareholders.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class Y Shares. Under an Automatic
Withdrawal Plan you can arrange to receive a monthly or quarterly check in
a stated amount, not less than $50.
ALTERNATE PURCHASE PLANS
Distribution Arrangements
In this Prospectus the 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, received in proper
form prior to 4:00 p.m. New York time. Dealers have the added flexibility
of transmitting orders received prior to 4:00 p.m. New York time to the
Distributor or Agent before the Distributor's close of business that day
(normally 5:00 p.m. New York time) and still receiving that day's offering
price. Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase orders
received on a non-business day, including those for Automatic Investment,
will be executed on the next succeeding business day.
The sale of shares will be suspended (1) during any period when net
asset value determination is suspended or (2) when the Distributor judges
it is in the Fund's best interest to do so.
The offering price for Class I Shares is the net asset value per
share. The offering price determined on any day applies to all purchases
received by each financial intermediary prior to 4:00 p.m. New York time on
any business day. Purchase orders received by financial intermediaries
after that time will be filled at the next determined offering price.
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each purchase of Class
Y Shares in the Fund. Additionally, your account at the Agent will be
credited in full and fractional shares (rounded to the nearest 1/1000th of
a share). Financial intermediaries will confirm purchases of Class I
Shares. The Fund will not issue certificates for Class Y Shares or Class I
Shares.
"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.
Under the Plan, the Fund makes payments with respect to Class I
Shares under agreements to certain broker/dealers, or others who have (i)
rendered assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's shares or (ii) assisted in the
servicing of shareholder accounts.
For any fiscal year, payments with respect to Class I Shares are
made at a rate set from time to time by the Board of Trustees (currently
0.10 of 1%) but not more than 0.25 of 1% of the average annual net assets
represented by the Class I Shares of the Fund. Such payments can be made
only out of the Fund's assets allocable to the Class I Shares. Because
these distribution fees are paid out of assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
Shareholder Services Plan for Class I Shares
The Fund's Shareholder Services Plan authorizes it to pay a service
fee under agreements to certain qualified recipients who have agreed to
provide personal services to Class I shareholders and/or maintain their
accounts. For any fiscal year, such fees may not exceed 0.25 of 1% of the
average annual net assets represented by Class I Shares. Payment is made
only out of the Fund's assets represented by Class I Shares. No payments
are made with respect to assets represented by Class Y Shares.
"Transfer on Death"("TOD") Registration (Not available for Class I
Shares)
If you own Class Y Shares, the Fund generally permits "transfer on
death" ("TOD") registration of shares, so that on the death of the
shareholder the shares are transferred to a designated beneficiary or
beneficiaries. Ask the Agent or your broker-dealer for the Transfer on
Death Registration Request Form. With it you will receive a copy of the TOD
Rules of the Aquilasm Group of Funds, which specify how the registration
becomes effective and operates. By opening a TOD Account, you agree to be
bound by the TOD Rules. This service is not available for Class I
Shares.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions determined?"
The 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 less expenses paid or accrued.
Net income also includes any original issue discount, which occurs if the
Fund purchases an obligation for less than its face amount. The discount
from the face amount is treated as additional income earned over the life
of the obligation. Because the Fund's 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 and
distributions 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 or the Agent or paid by the
Agent to a selected dealer; or
2. the third day the New York Stock Exchange is
open after the day the net asset value of the redeemed
shares was determined.
The Fund's present policy is to pay dividends so they will be received
or credited by approximately the first day of each month.
"How are dividends and distributions paid?"
Dividends and distributions on Class Y Shares 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 unless
you elect otherwise.
If you own or purchase Class Y Shares, you may choose to have all
or any part of the payments for dividends or distributions paid in cash.
You can elect to have the cash portion of dividends or distributions
deposited, without charge, by electronic funds transfers into your account
at a financial institution, if it is a member of the Automated Clearing
House.
You can make any of these elections on the Application, by a Ready
Access Features Form or by a letter to the Agent. Your election to receive
some or all of your dividends and distributions in cash will be effective
as of the next payment of dividends after it has been received in proper
form by the Agent. It will continue in effect until the Agent receives
written notification of a change.
All arrangements for the payment of dividends and distributions
with respect to Class I Shares, including reinvestment of dividends, must
be made through financial intermediaries.
All Class Y shareholders, whether their dividends or distributions
are received in cash or reinvested, will receive a monthly statement
indicating the current status of their investment account with the Fund.
Financial intermediaries provide their own statements of Class I Shares
accounts.
If you do not comply with laws requiring you to furnish taxpayer
identification numbers and report dividends, the Fund may be required to
impose backup withholding at a rate of 31% upon payment of redemptions to
shareholders and on capital gains distributions (if any) and any other
distributions that do not qualify as "exempt-interest dividends."
TAX INFORMATION
Net investment income includes income from Colorado Obligations
in the portfolio that 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, 1999, 97.81% of the Fund's dividends
with respect to Class Y Shares were exempt-interest dividends. For the
calendar year 1999, 1.22% of total dividends paid with respect to Class Y
Shares were taxable as ordinary income and 0.97% were taxable as long-term
capital gains. No Class I Shares were outstanding during that period. The
percentage of tax-exempt income from any particular dividend may differ
from the percentage of the 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 Internal
Revenue 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 Internal Revenue 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("AMT"). Whether or not
that computation will result in a tax will depend on the entire content of
your return. The Fund will not invest more than 20% of its assets in the
types of Colorado Obligations that pay interest subject to AMT. An
adjustment required by the Internal Revenue Code will tend to make it more
likely that corporate shareholders will be subject to AMT. They should
consult their tax advisers.
"What should I know about 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, none of which were
outstanding during the periods indicated.
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand the
Fund's financial performance for the designated periods of the Fund's
operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by KPMG LLP, whose report, along with the Fund's financial
statements, is included in the annual report, is incorporated by reference
into the SAI and is available upon request.
Class A(1) Class Y(2)
Year ended December 31, Year Ended
December 31,
1999 1998 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ........... $10.63...$10.62 $10.65 $10.64 $10.41
Income from Investment
Operations:
Net investment income 0.46. 0.47 0.46 0.48 0.52
Net gain (loss) on
securities (both
realized and
unrealized) ......... (0.55). 0.04 (0.54) 0.04 0.25
Total from Investment
Operations ...........(0.09) 0.51 0.08 0.52 0.77
Less Distributions:
Dividends from net
investment income ...(0.48) (0.46) (0.49) (0.47) (0.54)
Distributions from
capital gains .......(0.08 (0.04) (0.08) (0.04) -
Total Distributions ... (0.56) (0.50) (0.57) (0.51) (0.54)
Net Asset Value, End of
Period ................ $9.98 $10.63 $10.00 $10.65 $10.64
Total Return (not reflecting
sales charge)(%) .... .(0.84) 4.92 (0.79) 4.97 7.65
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) .. .190,698.. 208,771 5,416 7,047 5,668
Ratio of Expenses to
Average Net
Assets (%) .........0.76. 0.75 0.71 0.69 0.70
Ratio of Net Investment
Income to Average Net
Assets (%) ..........4.41. 4.47 4.45 4.50 4.76
Portfolio Turnover
Rate (%) ............13.08... 15.20 13.08 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 1996 and 1995 were:
Ratio of Expenses
to Average Net Assets(%)
- - - -
Ratio of Net Investment
Income(Loss) to
Average Net Assets(%) - - - -
The actual expense ratios after giving effect to the waiver and expense
offset for uninvested cash balances were:
Ratio of Expenses to
Average Net Assets(%) 0.75 0.73 0.70 0.68 0.67
<CAPTION>
Class A(1) Class Y(3)
Year Ended December 31, Period Ended 12/31/96
1997 1996 1995
<C> <C> <C> <C>
$10.41 $10.56 $9.82 $10.31
0.50 0.52 0.54 0.38
0.23 (0.13) 0.74 0.12
0.73 0.39 1.28 0.50
0.52) (0.54) (0.54) (0.40)
- - - -
(0.52) (0.54) (0.54) (0.40)
$10.62 $10.41 $10.56 $10.41
7.21 3.78 13.28 4.87+
216,321 214,392 219,306 0.10
0.75 0.70 0.64 0.65*
4.78 5.02 5.20 5.07*
22.66 10.96 14.20 10.96
- 0.74 0.76 0.69*
- 4.98 5.08 5.03*
0.72 0.69 0.63 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>
</FN>
</TABLE>
<PAGE>
APPLICATION FOR TAX-FREE FUND OF COLORADO
FOR CLASS I and Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
Tel.# 1-800-872-2651
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint accounts will be Joint tenants with rights of survivorship
unless otherwise specified.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) exactly as account is to be registered
1._________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2._________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3._________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of corporation or organization. If a trust, include the name(s) of
trustees in which account will be registered and the name and date of the
trust instrument. An account for a pension or profit sharing plan or trust
may be registered in the name of the plan or trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Indicate class of shares)
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
Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless otherwise
indicated below.
You can have any portion of either type reinvested, with the balance paid
in cash, by indicating a percent below:
Income dividends are to be: % Reinvested % Paid in cash*
Capital Gains Distributions are to be: % Reinvested % Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you
to deposit the dividend. (A Financial Institution is a commercial
bank, savings bank or credit union.)
___ Mail check to my/our address listed in Step 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free 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
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior to 1st
actual liquidation date.(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set forth
below. To realize the amount stated below, PFPC Inc. ("the Agent") is
authorized to redeem sufficient shares from this account at the then
current net asset value, in accordance with the terms below:
Dollar amount of each withdrawal $ ______________beginning________________
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial Institution
name, address and your account number.
________________________________________ ______________________________
First Name Middle Initial Last Name Financial Institution Name
________________________________________ ______________________________
Street Financial Institution Street
Address
_______________________________ ______________________________
City State Zip City State Zip
_________________________________
Financial Institution
Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquila SM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions, 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>
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
Gary C. Cornia
Diana P. Herrmann
John C. Lucking
Anne J. Mills
J. William Weeks
OFFICERS
Diana P. Herrmann, President
James M. McCullough, Senior Vice President
Jerry G. McGrew, Senior Vice President
Jean M. Smith, Vice President
Jessica L. 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
757 Third Avenue
New York, New York 10017
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 (the "SAI") has
been filed with the Securities and Exchange Commission. The SAI
contains information about the Fund and its management not
included in this Prospectus. The SAI is incorporated by reference
in its entirety in this Prospectus. Only when you have read both
this Prospectus and the SAI are all material facts about the 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 SAI and the Fund's annual and
semi-annual reports without charge, upon request by calling
800-872-2651 (toll-free ).
In addition, you can review and copy information about the Fund
(including the SAI) at the Public Reference Room of the SEC in Washington,
D.C. Information on the operation of the Public Reference Room is available
by calling 1-202-942-8090. Reports and other information about the Fund are
also available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information can be obtained, for a
duplicating fee, by E-mail request to [email protected] or by writing to
the SEC's Public Reference Section, Washington, D.C. 20549-0102.
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
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 SAI, 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 May 1, 2000
This Statement of Additional Information (the " SAI") is not a
Prospectus. There are two Prospectuses for the Fund dated May 1, 2000: 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
SAI to "the Prospectus" refer to either of these Prospectuses. The SAI
should be read in conjunction with the Prospectus for the class of shares
in which you are considering investing. Either or both Prospectuses may be
obtained from the 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, 1999, which are contained in the Annual Report for that fiscal year,
are hereby incorporated by reference into the SAI. Those financial
statements have been audited by KPMG LLP, independent auditors, whose
report thereon is incorporated herein by reference. The Annual Report of
the Fund for the fiscal year ended December 31, 1999 can be obtained
without charge by calling any of the toll-free numbers listed above. The
Annual Report will be delivered with the SAI.
TABLE OF CONTENTS
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.
Rating agencies consider municipal obligations rated in the fourth
highest credit rating to be of medium quality. Thus, they may present
investment risks, which do not exist with more highly rated obligations.
Such obligations possess less attractive investment characteristics.
Changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is
the case for higher grade bonds.
See Appendix A to this SAI for further information about the ratings
of Moody's and S&P as to the various rated Colorado Obligations, which the
Fund may purchase.
The table below gives information as of December 31, 1999 as to the
percentage of Fund net assets invested in Colorado Obligations in the
various rating categories:
Highest rating (1) 72.9%
Second highest rating (2) 18.8%
Third highest rating (3) 6.9%
Fourth highest rating (4) 1.4%
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 the 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
that are "substantial users" of facilities financed by those bonds or for
investors who are "related persons" of such users. Generally, an individual
will not be a "related person" under the Internal Revenue Code unless such
investor or his or her immediate family (spouse, brothers, sisters and
lineal descendants) owns directly or indirectly in the aggregate more than
50 percent of the equity of a corporation or is a partner of a partnership
which is a "substantial user" of a facility financed from the proceeds of
those bonds. A "substantial user" of such facilities is defined generally
as a "non-exempt person who regularly uses a part of a facility" financed
from the proceeds of industrial development or private activity bonds.
As indicated in the Prospectus, there are certain 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 a Colorado Obligation, no
price is paid or received by the Fund upon the purchase or sale of a
Future. Initially, however, when such transactions are entered into, the
Fund will be required to deposit with the futures commission merchant
("broker") an amount of cash or Colorado Obligations equal to a varying
specified percentage of the contract amount. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from
the broker, will be made on a daily basis as the price of the underlying
index or security fluctuates making the Future more or less valuable, a
process known as marking to market. Insolvency of the broker may make it
more difficult to recover initial or variation margin. Changes in variation
margin are recorded by the Fund as unrealized gains or losses. Margin
deposits do not involve borrowing by the Fund and may not be used to
support any other transactions. At any time prior to expiration of the
Future, the Fund may elect to close the position by taking an opposite
position which will operate to terminate the Fund's position in the Future.
A final determination of variation margin is then made. Additional cash is
required to be paid by or released to the Fund and it realizes a gain or a
loss. Although Futures by their terms call for the actual delivery or
acceptance of cash, in most cases the contractual obligation is fulfilled
without having to make or take delivery. All transactions in the futures
markets are subject to commissions payable by the Fund and are made, offset
or fulfilled through a clearing house associated with the exchange on which
the contracts are traded. Although the Fund intends to buy and sell Futures
only on an exchange where there appears to be an active secondary market,
there is no assurance that a liquid secondary market will exist for any
particular Future at any particular time. In such event, or in the event of
an equipment failure at a clearing house, it may not be possible to close a
futures position.
Municipal Bond Index Futures currently are based on a long-term
municipal bond index developed by the Chicago Board of Trade ("CBT") and
The Bond Buyer (the "Municipal Bond Index"). Financial Futures contracts
based on the Municipal Bond Index began trading on June 11, 1985. The
Municipal Bond Index is comprised of 40 tax-exempt municipal revenue and
general obligation bonds. Each bond included in the Municipal Bond Index
must be rated A or higher by Moody's or S&P and must have a remaining
maturity of 19 years or more. Twice a month new issues satisfying the
eligibility requirements are added to, and an equal number of old issues
are deleted from, the Municipal Bond Index. The value of the Municipal Bond
Index is computed daily according to a formula based on the price of each
bond in the Municipal Bond Index, as evaluated by six dealer-to-dealer
brokers.
The Municipal Bond Index Futures contract is traded only on the CBT.
Like other contract markets, the CBT assures performance under futures
contracts through a clearing corporation, a nonprofit organization managed
by the exchange membership which is also responsible for handling daily
accounting of deposits or withdrawals of margin.
There are at present U.S. Government 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 securities underlying the U.S.
Government Securities Futures. The price of the Future or option may move
more than or less than the price of the 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 decides 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 and in
"Investment Strategies and Risks" in the SAI), Municipal Bond Index
Futures, U.S. Government Securities Futures and options on such Futures;
therefore the 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.
7. 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.
8. 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.
9. 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 that are subject to the Federal
alternative minimum tax.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year
and dividing it by the monthly average value of such securities during the
year, excluding certain short-term securities. Since the turnover rate of
the 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. The Board of Trustees has authority
over every aspect of the Fund's operations, including approval of the
advisory and sub-advisory agreements and their annual renewal, the
contracts with all other service providers and payments under the Fund's
Distribution Plan and Shareholder Services Plan.
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 as an officer, director and shareholder 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.
In the following material 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 are called the "Aquila Bond Funds"; 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, Capital Cash Management Trust, and Capital Cash U.S.
Government Securities Trust,(each of which is a money market fund), are
called the "Aquila Money-Market Funds"; and Aquila Cascadia Equity Fund and
Aquila Rocky Mountain Equity Fund are called the " Aquila Equity
Funds."
<TABLE>
<CAPTION>
Name, Position Business Experience
with the Fund,
Address and Age
<S> <C> <C>
Lacy B. Herrmann* Founder and Chairman of the Board of Aquila
Chairman of the Management Corporation, the sponsoring
Board of Trustees organization and Manager or Administrator
380 Madison Avenue and/or Adviser or Sub-Adviser to the
New York, New York Aquila Money-Market Funds, the Aquila Bond
10017 Funds and the Aquila Equity Funds,
Age: 70 and Founder , Chairman of the Board of Trustees
and (currently or until 1998) President of each
since its establishment, beginning in 1984;
Director of Aquila Distributors, Inc., distributor
of the above funds, since 1981 and formerly Vice
President or Secretary, 1981-1998; President and a
Director of STCM Management Company, Inc., sponsor
and sub-adviser to Capital Cash Management Trust;
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 President of The Adams Group, Inc,
Trustee an economic consulting firm, since
4822 Alteza Drive 1989; Trustee of Tax-Free Fund
Colorado Springs of Colorado (this Fund) since 1989 and
Colorado 80917 of Aquila Rocky Mountain Equity Fund
Age: 62 since 1993; Vice President of United Banks of
Colorado, 1985-1988; Chief Economist of United
Banks of Colorado, 1981-1988; director of the
Montana Power Company, of the Colorado Health
Facilities Authority and the University of
Colorado Foundation; formerly director of
University Hospital; currently or formerly an
officer or director of numerous professional and
community organizations.
Arthur K. Carlson Retired; Advisory Director of the
Trustee Renaissance Companies (design and
8702 North Via construction companies of commercial,
La Serena industrial and upscale residential
Paradise Valley, properties) since 1996; Senior Vice
Arizona 85253 President and Manager of the Trust
Age: 78 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 Northern Arizona University Foundation since 1990,
present or formerly an officer and/or director of various other
community and professional organizations.
Diana P. Herrmann, * President and Chief Operating Officer of
Trustee and the Manager/Administrator since 1997, a
President Director since 1984, Secretary since 1986
380 Madison Avenue and previously its Executive Vice
New York, New York President, Senior Vice President
10017 or Vice President, 1986-1997;
Age: 42 President of various Aquila Bond and
Money-Market Funds since 1998; Assistant Vice
President, Vice President, Senior Vice President
or Executive Vice President of Aquila Money-
Market, Bond and Equity Funds since 1986; Trustee
of a number of Aquila Money-Market, Bond and
Equity Funds since 1995; Trustee of Reserve Money-
Market Funds, 1999-2000 and of Reserve Private
Equity Series, 1998-2000; Assistant Vice President
and formerly Loan Officer of European American
Bank, 1981-1986; daughter of the 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.
Anne J. Mills Vice President for Business
Trustee Affairs of Ottawa University
167 Glengarry Place since 1992; IBM Corporation,
Castle Rock 1965-1991; Budget Review
Colorado 80104 Officer of the American
Age: 61 Baptist Churches/USA, 1994-1997;
Director of the American Baptist Foundation, 1985-
1996 and since 1998; Trustee of Brown University,
1992-1999; Trustee of Churchill Cash Reserves
Trust since 1985, of Tax-Free Trust of Arizona
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 Trustee of Narragansett Insured Tax-Free
Trustee Income Fund and of Tax-Free Fund of
210 Jamaica Lane Colorado (this Fund) since 1995;
Palm Beach, FL 33480 Senior Vice President of Tax-Free Fund
Age: 72 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 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 Retired; Executive Director
Trustee Emeritus of the Denver Museum of
1133 Race Street Natural History since 1995;
11 South Director of the Museum, 1987-1994;
Denver, Colorado Regional Administrator of Region
80206 VIII, U.S. Environmental Protection
Age: 74 Agency, 1983-1987; Vice President
for Planning and Public Affairs of the Colorado
School of Mines, 1974-1983; Member of the Board of
Directors of Intra West Mortgage Corporation, 1976-
1983; Member of the Board of Directors of the Gulf
of Maine Foundation; formerly head of the
Industrial Economics Division of the University of
Denver Research Institute, consultant to the
United Nations Conference on the Human Environment
and to Business International, and Chairman of the
Colorado Front Range Project; formerly Vice
President and member of Ethics Commission of the
American Association of Museums.
Jerry G. McGrew President of Aquila Distributors,
Senior Vice President Inc. since 1998, Registered
5331 Fayette Street Principal since 1993, Senior Vice
Houston, TX 77056 President, 1997-1998 and Vice
Age: 55 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.
James M. McCullough Senior Vice President of Aquila
Senior Vice President Distributors, and of Aquila
1750 Aspen Court Cascadia Equity Fund, Aquila
Lake Oswego, OR Rocky Mountain Equity Fund,
97034 Tax-Free Fund of Colorado (this
Age: 55 Fund) and Tax-Free Trust of
Oregon since 1999; Director of Fixed
Income Institutional Sales, CIBC
Oppenheimer & Co. Inc., Seattle, WA,
1995-1999; Sales Manager, Oregon
Municipal Bonds, Kidder, Peabody, Inc.,
(acquired in 1995 by Paine, Webber)
Portland, OR, 1994-1995.
Jean M. Smith, Assistant Treasurer of
Vice President Bradford Trust Company,
410 17th Street 1977-1978; Staff Supervisor
Suite 1715, of Wood Struthers & Winthrop,
Denver, Colorado an investment advisory firm, 1976-1977;
80208 Client Administrator of Bradford
Age: 55 Trust Company, 1972-1976.
Jessica L. Investor Representative with
Wiltshire Oppenheimer Funds, 1996-1997; Sales
Vice President Representative for Tax-Free Fund of
8 Inverness Drive East Colorado (this Fund) and Aquila Rocky
Suite 130, Englewood Mountain Equity Fund, 1993-1996 and 1997
Colorado 80112 to present.
Age: 29
Rose F. Marotta Chief Financial Officer of the Aquila
Chief Financial Officer Money-Market, Bond and Equity Funds
380 Madison Avenue since 1991 and Treasurer, 1981-1991;
New York, New York formerly Treasurer of the predecessor of
10017 Capital Cash Management Trust; Treasurer and
Age: 75 Director of STCM Management Company, Inc.,
since 1974; Treasurer of InCap Management
Corporation since 1982, of the Manager since 1984
and of the Distributor 1985-2000.
Richard F. West Treasurer of the Aquila Money-Market,
Treasurer Bond and Equity Funds and of Aquila
380 Madison Avenue Distributors, Inc. since 1992;
New York, New York Associate Director of Furman Selz
10017 Incorporated, 1991-1992; Vice
Age: 64 President of Scudder, Stevens &
Clark, Inc. and Treasurer of Scudder
Institutional Funds, 1989-1991; Vice President of
Lazard Freres Institutional Funds Group,
Treasurer of Lazard Freres Group of Investment
Companies and HT Insight Funds, Inc., 1986-1988;
Vice President of Lehman Management Co., Inc. and
Assistant Treasurer of Lehman Money Market Funds,
1981-1985; Controller of Seligman Group of
Investment Companies, 1960-1980.
Lori A Vindigni
Assistant Vice President of Aquila Management
Assistant Treasurer Corporation since 1998, formerly Fund Accountant
380 Madison Avenue for the Aquila Group of Investment Companies
New York, New York since 1995; Staff Officer and Fund Accountant of
10017 Citibank Global Asset Management Group of
Age: 33 Investment Companies, 1994-1995; Fund Accounting
Supervisor of Dean Witter Group of Investment
Companies, 1990-1994; BS Kean College of New
Jersey, 1990.
Edward M. W. Hines Partner of Hollyer Brady Smith Troxell
Secretary Barrett Rockett Hines & Mone LLP,
551 Fifth Avenue attorneys, since 1989 and counsel,
New York, New York 1987-1989; Secretary of the Aquila
10176 Money-Market, Bond and Equity Funds since 1982;
Age: 60 Secretary of Trinity Liquid Assets Trust, 1982-
1985 and Trustee of that Trust, 1985-1986;
Secretary of Oxford Cash Management Fund, 1982-
1988.
John M. Herndon Assistant Secretary of the Aquila Money-
Assistant Secretary Market, Bond and Equity Funds since 1995
380 Madison Avenue and Vice President of the Aquila Money-
New York, New York Market Funds since 1990; Vice President of
10017 the Manager since 1990; Investment Services
Age: 60 Consultant and Bank Services Executive
of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the
American Finance Association, the Western Finance
Association and the Society of Quantitative
Analysts.
</TABLE>
The 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, 1999, the Fund paid a total of $48,566 in compensation and
reimbursement of expenses to the Trustees. 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 15 funds in the Aquilasm Group of Funds, which
consist of tax-free municipal bond funds, money market funds and equity funds.
The following table lists the compensation of all Trustees who received
compensation from the 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 $9,544 $11,703 2
Arthur K.
Carlson $8,946 $61,525 7
Anne J.
Mills $8,427 $35,850 6
J. William
Weeks $8,411 $13,858 2
John G.
Welles $7,800 $7,800 1
Class A Shares may be purchased without a sales charge by certain the
Fund's Trustees and officers. (See "Reduced Sales Charges for Class A Shares,"
below.)
OWNERSHIP OF SECURITIES
On April 7, 2000 the following institutional holders held 5% or
more of the Fund's outstanding shares. On the basis of information received
from the holders, the Fund's management believes that all of the shares
indicated are held for the benefit of clients.
Name and address Number of shares Percent of class
of the holder of
record
Merrill Lynch Pierce
Fenner & Smith,
Jacksonville, FL 1,093,566 Class A 6.0%
Shares
18,448 Class C 8.5%
Shares
Paine Webber,
3312 Shore Rd, Fort
Collins, CO 17,220 Class C 7.9%
Shares
First Union
Securities
111 East Kilbourn Ave,
Milwaukee, WI 162,409 Class C 74.4%
Shares
( in four accounts)
Haws & Co (a nominee)
c/o Guaranty Bank & Trust,
Denver CO 93,235 Class Y 19%
Shares
Alpine Trust
& Asset Management,
225 N. 5th Street,
Grand Junction, CO 206,090 Class Y 42%
Shares
Linway & Co.,
1740 Broadway,
Denver, CO, 114,407 Class Y 23.4%
Shares
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 SAI, all of the Trustees and officers as a group
owned less than 1% of the Fund's 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 March 31, 2000 these funds had aggregate
assets of approximately $3.2 billion, of which approximately $1.8 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. At the date of this SAI,
the Board of Trustees have approved a new distribution plan which allows for
higher distribution payments accompanied by no reduction in management fees so
that management fees will remain at 0.50 of 1% when distribtion fees with
respect to Class A Shares increase to 0.15 of 1%. These changes are subject to
shareholder approval and there is no assurance that such approval will be
obtained. When and if the changes are approved, the Prospectus and SAI 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.
The Board of Trustees has approved similar changes for sub-advisory fees as
are described above for Management fees. These changes similarly are subject to
shareholder approval.
Management Fees
During the fiscal years ended December 31, 1999, 1998 and 1997 the Fund
incurred Management fees as follows:
<TABLE>
<CAPTION>
Manager Sub-Adviser Related Information
<S> <C> <C> <C>
1999 $1,053,534
1998 $1,087,501 Includes fees paid
to the Manager as
administrator and
to the Sub-Adviser
as adviser under
arrangements in
effect until
June, 1998
1997 $656,555 $437,704 Paid under former
($5,270 waived) advisory and
administration
agreements then
in effect
</TABLE>
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 15 funds (six 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.
The shares of the Distributor are owned 72% by Mr. Herrmann and other
members of his immediate family, 24% by Diana P. Herrmann and the balance
by an officer of the Distributor.
The Advisory and Administration Agreement
The Advisory and Administration Agreement provides that subject to the
direction and control of the Board of Trustees of the 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 contains provisions regarding brokerage
described below under "Brokerage Allocation and Other Practices."
The Sub-Advisory Agreement provides that the Sub-Adviser agrees to
maintain, and to preserve for the periods prescribed, such books and
records with respect to the portfolio transactions of the 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, 1999, 1998 and 1997 the
aggregate dollar amount of sales charges on sales of shares in the Fund was
$276,572, $376,985 and $377,482 respectively, and the amount retained by
the Distributor was $55,275, $73,271 and $68,322, 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 SAI, 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 SAI, 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 Board of Trustees of the Fund has 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 is subject to shareholder approval. When and if it is approved
the SAI 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), at a
rate fixed for time to time by the Board of Trustees, initially 0.10 of 1%
of the average annual net assets of the Fund represented by the Class I
Shares, but not more than 0.25 of 1% of such assets. Such payments shall be
made only out of the Fund's assets allocable to Class I Shares. The
Distributor shall have sole authority (i) as to the selection of any
Qualified Recipient or Recipients; (ii) not to select any Qualified
Recipient; and (iii) the amount of Class 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 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
During the fiscal years ended December 31, 1999, 1998 and 1997
payments were made only under Part I and Part II of the Plan. All payments
were to Qualified Recipients and were made were for compensation. During
those periods, no payments were made under Part III or Part IV of the
Plan.
During the fiscal years ended December 31, 1999, 1998 and 1997,
$101,231, $104,938 and $107,821, respectively, was paid under Part I of the
Plan to Qualified Recipients with respect to Class A Shares, of which
$4,616, $4,446 and $4,357,respectively, was retained by the Distributor.
During the same periods, $12,680, $8,988 and $7,193, respectively, was paid
under Part II of the Plan to Qualified Recipients with respect to Class C
Shares, of which $7,538, $6,345 and $6,724 (including amounts retained
under the Shareholder Services Plan described below), respectively, was
retained by the Distributor.
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 Conduct
Rules of the National Association of Securities Dealers, Inc. The Services
Plan applies only to the Class C Shares and Class I Shares of the 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, 1999, 1998 and 1997, $4,226, $2,996 and $2,397, respectively,
was paid to Qualified Recipients under Part I of the Plan.
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, 1999.
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.
Codes of Ethics
The Fund, the Manager the Sub-Adviser and the Distributor have
adopted codes of ethics pursuant to Rule 17j-1 under the 1940 Act. The
codes permit personnel of these organizations who are subject to the codes
to purchase securities, including the types of securities in which the Fund
invests, but only in compliance with the provisions of the codes.
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, 757 Third Avenue, New York, New
York, 10017, perform an annual audit of the Fund's financial
statements.
BROKERAGE ALLOCATION AND OTHER PRACTICES
During the fiscal years ended December 31, 1999, 1998 and 1997, all
of the Fund's transactions were principal transactions and no brokerage
commissions were paid.
Brokerage allocation and other practices relating to purchases and
sales of the Fund's securities are set forth in the description of the Sub-
Advisory Agreement. It provides that the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-Adviser's judgment,
implement the policy of the 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.
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 services 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
The following supplements the information about purchase,
redemption and pricing of shares set forth in the Prospectus.
Sales Charges for Purchases of $1 Million or More of Class A Shares
You will not pay a sales charge at the time of purchase when you
purchase "CDSC Class A Shares." CDSC Class A Shares are Class A Shares
issued under the following circumstances:
(i) Class A Shares issued in a single purchase of $1 million
or more by a single purchaser; and
(ii) all Class A Shares issued to a single purchaser in a
single purchase when the value of the purchase, together with the
value of the purchaser's other CDSC Class A Shares and Class A
Shares on which a sales charge has been paid, equals or exceeds
$1 million:
See "Special Dealer Arrangements" for other circumstances under which
Class A Shares are considered CDSC Class A Shares. CDSC Class A Shares do
not include: (i)Class A Shares purchased without a sales charge as
described under "General" below and (ii)Class A Shares purchased in
transactions of less than $1 million when certain special dealer
arrangements are not in effect under "Certain Investment Companies" set
forth under "Reduced Sales Charges," below.
Broker/Dealer Compensation - Class A Shares
Upon notice to all selected dealers, the Distributor may distribute up
to the full amount of the applicable sales charge to broker/dealers. Under
the Securities Act of 1933, broker/dealers may be deemed to be underwriters
during periods when they receive all, or substantially all, of the sales
charge.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during the four
years after you purchase them, you must pay a special contingent deferred
sales charge upon redemption.
You will pay 1% of the 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.
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 or
distributions on CDSC Class A Shares or to CDSC Class A Shares held for
longer than four years. When redeeming shares, the Agent will redeem the
CDSC Class A Shares held the longest, unless otherwise instructed. If you
own both CDSC and non-CDSC Class A Shares, the latter will be redeemed
first.
The 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 million but less than $2.5 million 1%
$2.5 million but less than $5 million 0.50 of 1%
$5 million or more 0.25 of 1%
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge in
accordance with the above schedule when making subsequent purchases of
Class A Shares. A reduced sales charge applies if the cumulative value
(based on purchase cost or current net asset value, whichever is higher) of
Class A Shares previously purchased with a sales charge, together with
Class A Shares of your subsequent purchase, also with a sales charge,
amounts to $25,000 or more.
Letters of Intent
"Single purchasers" may also qualify for reduced sales charges, in
accordance with the above schedule, after a written Letter of Intent
(included in the Application) is received by the Distributor. The Letter of
Intent confirms that you intend to purchase, within a thirteen month
period, Class A Shares of the 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, including a registered broker-dealer that is acting as a
registered investment adviser or certified financial planner for investors
participating in comprehensive fee programs (but not any other
broker-dealer), which
(i) satisfies uniform criteria which enable the Distributor to
realize economies of scale in its costs of distributing shares;
(ii) gives its endorsement or authorization (if it is a group or
association) to an investment program to facilitate solicitation
of its membership by a broker or dealer; and
(iii) complies with the conditions of purchase that make up an
agreement between the 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 from
proceeds of a redemption, made within 120 days prior to such purchase, of
shares of an investment company (not a member of the Aquilasm Group of
Funds) on which a sales charge, including a contingent deferred sales
charge, has been paid. Additional information is available from the
Distributor.
To qualify, follow these special procedures:
1. Send a completed Application (included with the Prospectus)
and payment for the shares to be purchased directly to the
Distributor, Aquila Distributors, Inc., 380 Madison Avenue, Suite
2300, New York, NY 10017-2513. Do not send this material to the
address indicated on the Application.
2. Your completed Application must be accompanied by
evidence satisfactory to the Distributor that you, as the
prospective shareholder, have made a qualifying redemption in an
amount at least equal to the net asset value of the Class A
Shares to be purchased.
Satisfactory evidence includes a confirmation of the date
and the amount of the redemption from the investment company, its
transfer agent or the investor's broker or dealer, or a copy of
the investor's account statement with the investment company
reflecting the redemption transaction.
3. Complete and return to the Distributor a Transfer Request
Form, which is available from the Distributor.
The 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
The Distributor (not the Fund) will pay to any dealer with which it
has made prior arrangements and which effects a purchase of Class A Shares
of the Fund from the proceeds of a qualifying redemption of the shares of
an investment company (not a member of the Aquilasm Group of Funds) up to
1% of the purchase. The shareholder, however, will not be subject to any
sales charge.
Dealer payments will be made in up to four payments of 0.25 of 1%
of the proceeds over a four-year period. The first payment will be made
subsequent to receipt of the proper documentation detailed above. Future
payments, over the remaining years, will be made at the end of the quarter
of the anniversary month that the purchase of Class A Shares took place,
with respect to any part of the investment that remains in the Fund during
the entire time period. No payments will be made with respect to any shares
redeemed during the four-year period.
Additional Compensation for Broker/Dealers
The Distributor may compensate broker/dealers, above the normal sales
commissions, in connection with sales of any class of shares. However,
broker/dealers may receive levels of compensation which differ as between
classes of share sold.
The Distributor, not the 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.
Automatic Withdrawal Plan
You may establish an Automatic Withdrawal Plan if you own or purchase
Class A Shares or Class Y 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 or Class I Shares.
Under an Automatic Withdrawal Plan you will receive a monthly or
quarterly check in a stated amount, not less than $50. If such a plan is
established, all dividends and distributions must be reinvested in your
shareholder account. Redemption of Class A Shares to make payments under
the Automatic Withdrawal Plan will give rise to a gain or loss for tax
purposes. (See the Automatic Withdrawal Plan provisions of the Application
included with the Prospectus.)
Purchases of additional Class A Shares concurrently with withdrawals
are undesirable because of sales charges when purchases are made.
Accordingly, you may not maintain an Automatic Withdrawal Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount at
least equal to three times the annual withdrawal or $5,000, whichever is
less.
Share Certificates
You may obtain Share certificates for full Class A Shares only if you
make a written request to the Agent. All share certificates previously
issued by the 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;
* if you have selected Automatic Investment or Telephone
Investment for Class A Shares; or
* if you have selected Expedited Redemption. However, if you
specifically request, Class A Share certificates will be issued
with a concurrent automatic suspension of Expedited Redemption on
your account.
Share certificates will not be issued for Class C Shares, Class Y
Shares or Class I Shares.
Reinvestment privilege
If you reinvest proceeds of redemption within 120 days of a redemption
you will not have to pay any additional sales charge on the reinvestment.
You must reinvest in the same class as the shares redeemed. You may
exercise this privilege only once a year, unless otherwise approved by the
Distributor.
The Distributor will refund to you any CDSC deducted at the time of
redemption by adding it to the amount of your reinvestment. The Class C or
CDSC Class A Shares purchased upon reinvestment will be deemed to have been
outstanding from the date of your original purchase of the redeemed shares,
less the period from redemption to reinvestment.
Reinvestment will not alter the tax consequences of your original
redemption.
Exchange Privilege
There is an exchange privilege as set forth below among this 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 SAI, 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,
Capital Cash U.S. Government Securities Trust, Pacific Capital Cash Assets
Trust (Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Government Securities Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.
Generally, you can exchange shares of a given class of a Bond or
Equity Fund including the 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. Such exchangeability is
available to Class I Shares to the extent that other Aquila-sponsored funds
are made available to its customers by a financial intermediary. All
exchanges of Class I Shares must be made through your financial
intermediary.
The following important information should be noted:
(1) CDSCs Upon Redemptions of Shares Acquired Through Exchanges. If
you exchange shares subject to a CDSC, no CDSC will be imposed at the time
of exchange, but the shares you receive in exchange for them will be
subject to the applicable CDSC if you redeem them before the requisite
holding period (extended, if required) has expired.
If the shares you redeem would have incurred a CDSC if you had not
made any exchanges, then the same CDSC will be imposed upon the redemption
regardless of the exchanges that have taken place since the original
purchase.
(2) Extension of Holding Periods by Owning Money-Market Funds. Any
period of 30 days or more during which Money-Market Fund shares received on
an exchange of CDSC Class A Shares or Class C Shares are held is not
counted in computing the applicable holding period for CDSC Class A Shares
or Class C Shares.
(3) Originally Purchased Money-Market Fund Shares. Shares of a
Money-Market Fund (and any shares acquired as a result of reinvestment of
dividends and/or distributions on these shares) acquired directly in a
purchase (or in exchange for Money-Market Fund shares that were themselves
directly purchased), rather than in exchange for shares of a Bond or Equity
Fund, may be exchanged for shares of any class of any Bond or Equity Fund
that the investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales charge, if
any, that they would have been subject to had they been purchased rather
than acquired in exchange for Money-Market Fund shares. If the shares
received in exchange are shares that would be subject to a CDSC if
purchased directly, the holding period governing the CDSC will run from the
date of the exchange, not from the date of the purchase of Money-Market
Fund shares.
This 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.
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.
Conversion of Class C Shares
Conversion of Class C Shares into Class A Shares will be effected at
relative net asset values on the first business day of the month following
that in which the sixth anniversary of your purchase of the Class C Shares
occurred, except as noted below. Accordingly, the holding period applicable
to your Class C Shares may be up to one month more than the six years
depending upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of Class C
Shares at the time of conversion, you may receive fewer Class A Shares than
the number of Class C Shares converted. If you have made one or more
exchanges of Class C Shares among the Aquila-sponsored Bond Funds or Equity
Funds under the Exchange Privilege, the six-year holding period is deemed
to have begun on the date you purchased your original Class C Shares of the
Fund or of another of the Aquila bond or equity funds. The six-year holding
period will be suspended by one month for each period of thirty days during
which you hold shares of a Money-Market Fund you have received in exchange
for Class C Shares under the Exchange Privilege.
"Transfer on Death"("TOD") Registration (Not Available for Class I
Shares)
Each of the funds in the Aquilasm Group of Funds now permits
registration of its shares in beneficiary form, subject to the funds' rules
governing Transfer on Death ("TOD") registration, if the investor resides
in a state that has adopted the Uniform Transfer on Death Security
Registration Act (a "TOD State"; for these purposes, Missouri is deemed to
be a TOD State). This form of registration allows you to provide that, on
your death, your shares are to be transferred to the one or more persons
that you specify as beneficiaries. To register shares of the Fund in TOD
form, complete the special TOD Registration Request Form and review the
Rules Governing TOD Registration; both are available from the Agent. The
Rules, which are subject to amendment upon 60 days' notice to TOD account
owners, contain important information regarding TOD accounts with the Fund;
by opening such an account you agree to be bound by them, and failure to
comply with them may result in your shares' not being transferred to your
designated beneficiaries. If you open a TOD account with the Fund that is
otherwise acceptable but, for whatever reason, neither the Fund nor the
Agent receives a properly completed TOD Registration Request Form from you
prior to your death, the Fund reserves the right not to honor your TOD
designation, in which case your account will become part of your
estate.
You are eligible for TOD registration only if, and as long as, you
reside in a TOD State. If you open a TOD account and your account address
indicates that you do not reside in a TOD State, your TOD registration will
be ineffective and the
Fund may, in its discretion, either open the account as a regular (non-TOD)
account or redeem your shares. Such a redemption may result in a loss to
you and may have tax consequences. Similarly, if you open a TOD account
while residing in a TOD State and later move to a non-TOD State, your TOD
registration will no longer be effective. In both cases, should you die
while residing in a non-TOD State the Fund reserves the right not to honor
your TOD designation. At the date of this SAI, most states are TOD
States.
Computation of Net Asset Value
The net asset value of the shares of each of the 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.
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.
Tax Status of the Fund
During its last fiscal year, the Fund qualified as a "regulated
investment company" under the Internal Revenue Code and intends to continue
such qualification. A regulated investment company is not liable for
federal income taxes on amounts paid by it as dividends and
distributions.
The Code, however, contains a number of complex qualifying tests.
Therefore, it is possible, although not likely, that the 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."
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.
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 $55,275 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 -4.78% -2.68% -0.79%
Five Years 4.70% N/A N/A
Ten Years 5.65% N/A N/A
Since
inception on
May 21, 1987 6.02% 3.25%(1) 4.80%(1)
(1) Period from April 30, 1996 (inception of class) through December 31,
1999.
These figures were calculated according to the following SEC formula:
P(1+T)n = ERV
where
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at
the beginning of the 1-, 5- and 10-year periods or the period since
inception, at the end of each such period.
The 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 -4.78% -2.68% -0.79%
Five Years 25.82% N/A N/A
Ten Years 73.24% N/A N/A
Since
inception on
May 21, 1987 109.21% 12.45%(1) 18.79%(1)
(1) Period from April 30, 1996 (inception of class) through December 31,
1999.
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, 1999 (the date of the
Fund's most recent audited financial statements):
Class A Shares Class C Shares Class Y Shares
Yield 4.18% 3.39% 4.41%
Taxable
Equivalent
Yield 6.79% 5.51% 7.17%
These figures were obtained using the Securities and Exchange
Commission formula:
Yield = 2 [(a-b + 1)6 -1]
----
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated according
to a formula prescribed by the SEC, are not indicative of the amounts which
were or will be paid to the 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.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation rating is
a current assessment of the creditworthiness of an obligor with respect to
a specific obligation. This assessment may take into consideration obligors
such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
A Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project,
makes no comment on the likelihood of, or the risk of default upon failure
of, such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
Moody's Investors Service. A brief description of the applicable
Moody's Investors Service rating symbols and their meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating categories for
short-term obligations, all of which define an investment grade situation.
These are designated Moody's Investment Grade as MIG 1 through MIG 4. In
the case of variable rate demand obligations (VRDOs), two ratings are
assigned; one representing an evaluation of the degree of risk associated
with scheduled principal and interest payments, and the other representing
an evaluation of the degree of risk associated with the demand feature. The
short-term rating assigned to the demand feature of VRDOs is designated as
VMIG. When no rating is applied to the long or short-term aspect of a VRDO,
it will be designated NR. Issues or the features associated with MIG or
VMIG ratings are identified by date of issue, date of maturity or
maturities or rating expiration date and description to distinguish each
rating from other ratings. Each rating designation is unique with no
implication as to any other similar issue of the same obligor. MIG ratings
terminate at the retirement of the obligation while VMIG rating expiration
will be a function of each issuer's specific structural or credit features.
MIG1/VMIG1 This designation denotes best quality.
There is present strong protection by established cash
flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2/VMIG2 This designation denotes high quality.
Margins of protection are ample although not so large
as in the preceding group.
MIG3/VMIG3 This designation denotes favorable
quality. All security elements are accounted for but
there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is
likely to be less well established.
MIG4/VMIG4 This designation denotes adequate
quality. Protection commonly regarded as required of an
investment security is present and although not
distinctly or predominantly speculative, there is
specific risk.
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, 1999
Statement of Assets and Liabilities
as of December 31, 1999
Statement of Operations for the year
ended December 31, 1999
Statement of Changes in Net Assets for the
years ended December 31, 1999 and 1998
Notes to Financial Statements
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) (i) Opinion of counsel (iii)
(ii) Consent of counsel (v)
(j) Consent of accountants (v)
(k) Not applicable
(l) Not Applicable
(m) (i) Distribution Plan (iii)
(ii) Shareholder Services Plan (iii)
(n) Plan pursuant to Rule 18f-3 under the 1940 Act (iii)
(o) Reserved
(p) (i) Code of Ethics of the Registrant (v)
(ii) Code of Ethics of the Manager (v)
(iii) Code of Ethics of the Sub-Adviser (v)
(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 as an exhibit to Registrant's Post-Effective
Amendment No. 14 dated April 28, 1999 and incorporated
herein by reference.
(v) 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933, and has caused this Amendment
to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 28th day of April, 2000.
TAX-FREE FUND OF COLORADO
(Registrant)
/s/Lacy B. Herrmann
By____________________________
Lacy B. Herrmann
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement or Amendment has been signed below by
the following persons in the capacities and on the date
indicated.
/s/Lacy B. Herrmann 4/28/00
______________________ Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Tucker Hart Adams 4/28/00
______________________ Trustee ___________
Tucker Hart Adams
/s/Arthur K. Carlson 4/28/00
______________________ Trustee ___________
Arthur K. Carlson
/s/Anne J. Mills 4/28/00
______________________ Trustee ___________
Anne J. Mills
/s/J. William Weeks 4/28/00
---------------------- Trustee -----------
J. William Weeks
/s/John G. Welles 4/28/00
______________________ Trustee ___________
John G. Welles
/s/Rose F. Marotta 4/28/00
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
TAX-FREE FUND OF COLORADO
Exhibit List
Number Description
(i)(ii) Consent of Fund counsel
(j) Consent of accountants
(p)(i) Code of Ethics of the Registrant
(ii) Code of Ethics of the Manager
(iii) Code of Ethics of the Sub-Adviser
Correspondence
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
April 28, 2000
To the Trustees of Tax-Free Fund of Colorado
We consent to the incorporation by reference into post-
effective amendment No. 15 under the 1933 Act and No. 16 under
the 1940 Act of our opinion dated April 23, 1998.
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
/s/ W.L.D. Barrett
by__________________________
Partner
Independent Auditors' Consent
To The Board of Trustees and Shareholders of
Tax-Free Fund of Colorado:
We consent to the use of our report dated February 18,
2000 incorporated herein by reference and to the
references to our firm under the headings "Financial
Highlights" in the Prospectus and "Transfer Agent,
Custodian and Auditors" in the Statement of Additional
Information.
KPMG LLP
/s/KPMG LLP
New York, New York
April 26, 2000
1
CODE OF ETHICS
for
The Tax-Free Fund of Colorado
January 1, 2000
<PAGE>
Effective: January 1, 2000
THE CODE OF ETHICS
OF THE TAX-FREE FUND OF COLORADO
INTRODUCTION
It is the policy of the Tax-Free Fund of Colorado (the "Fund") to
avoid any conflict of interest or even the appearance of such a
conflict in connection with the performance of general
management, investment advisory, distribution and portfolio
management services for the Fund and its shareholders. This code
of ethics (the "Code of Ethics" or the "Code") has been adopted
by the Fund's Trustees to implement this policy. The Code
applies to the Fund and each of its officers and Trustees. In the
Code, "Aquila Entity" or "Aquila Entities" shall mean (1) all
members of the Aquila Group of Companies, including Aquila
Management Corporation, Aquila Distributors, Inc. and STCM
Management Company, Inc; (2) all funds for which a member of the
Aquila Group of Companies provides administrative, distribution
or investment advisory services (the "Funds"); and (3) any other
advisory clients of the Aquila Group of Companies. A code of
ethics substantially the same as this code has been adopted by
each of the Aquila Group of Companies, and covers every officer,
director and employee of that Company who is involved in
providing services to the Fund whether by way of security
analysis or recommendation, placement of trading orders,
portfolio management, distribution or otherwise. In this Code,
provisions applicable to the Aquila Group of Companies are
present solely for convenience of administration and apply only
to those companies under their own code of ethics.
One of the practices that raises a potential conflict of interest
is that of trading in the same securities (or related securities)
that are being purchased or sold, or considered for purchase or
sale, for the Fund or other Aquila Entities by persons affiliated
with the Fund or other Aquila Entities for accounts in which the
affiliated persons have a beneficial ownership interest or which
they control. The Investment Advisers Act of 1940 ("Advisers
Act"), the Investment Company Act of 1940 ("1940 Act"), and other
federal and state securities laws and rules generally prohibit
fraudulent, deceptive or manipulative trading by persons
affiliated with investment advisers with respect to securities
held, to be acquired or under consideration for purchase or sale
by advisory clients. This prohibition extends to trading in
furtherance of personal interests to the detriment of the Fund or
other Aquila Entities as well as any attempt to benefit from the
market impact of their anticipated or actual transactions. The
Securities and Exchange Commission ("SEC") regulations require
the adoption of procedures designed to prevent such fraudulent
conduct.
Please read the specifics of this Code of Ethics carefully. If
you have any questions, discuss them with the Fund Counsel, that
is, regular independent counsel to the fund, if you are an
Independent Trustee, or with Robert Anderson, the Compliance
Officer ("C.O.") for the Aquila Group of Companies or his
successor. Be sure that you understand the Code. Then sign and
date the attached certification and return it to the C.O., who
will maintain it as part of the Fund's records. Keep a copy of
the Code for your reference. The C.O. is responsible for
enforcing and interpreting this Code, and is always available to
answer any questions you may have. As an officer, trustee,
director, employee, or control person of the Fund or any other
Aquila Entity, you are subject to all applicable provisions of
this Code.
ADOPTION OF THIS CODE
This Code has been adopted in compliance with Section 17(j) of
the 1940 Act and Rule 17j-1 (the "Rule"), Sections 204 and 204A
of the Advisers Act and the rules thereunder, and Section 15(f)
of the Securities and Exchange Act of 1934.
PURPOSE OF THIS CODE
This Code seeks to maintain the highest standards of ethical
conduct for the Fund, other Aquila Entities and their personnel.
In so doing, this Code addresses three areas of concern:
1. Observance of the general anti-fraud provisions of the
Federal securities laws.
2. Avoidance of conflicts with the interests of the Fund
and other Aquila Entities or the appearance of such
conflicts.
3. Avoidance of trading securities on the basis of
material non-public information or
information about securities transactions made or
being considered for the Fund or other clients of the
Aquila Entities.
1. GENERAL DEFINITIONS
Listed below are definitions for some of the terms used in this
Code, many of which are defined by law.
"Access Person" shall mean any director, trustee, officer or
Advisory Person of any Aquila Entity.
"Advisory Person" shall mean any employee of an Aquila Entity (or
of any company in a "Control" relationship to an Aquila Entity)
who, in connection with his or her regular functions or duties,
makes, participates in, or obtains any information regarding the
purchase or sale of securities by the Fund or other advisory
clients, including other Funds, or whose functions relate to the
making of any recommendations with respect to such purchases or
sales of securities. Also included within the definition of
"Advisory Person" is any natural person in a "Control"
relationship to the Fund or any other Aquila Entity that is a
registered investment company or an investment adviser who
obtains information concerning recommendations made to advisory
clients, including the Fund and other Funds, with respect to the
purchase or sale of securities.
"Beneficial Ownership/Beneficial Owner" shall mean any person who
has or shares, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise, a direct
or indirect pecuniary interest in a security, within the meaning
of the Securities Exchange Act Rule 16a-1(a)(2). "Pecuniary
interest" means the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the
security. "Indirect pecuniary interest" includes, but is not
limited to, securities held by members of your immediate family
who share your household, including your spouse, children and
stepchildren, parents, grandparents, brothers and sisters, and
any of your in-laws.
If you need help in determining whether you have beneficial
ownership of any security for purposes of this Code, you should
consult the C.O., or the Fund Counsel if you are an Independent
Trustee.
"Chairman" shall mean the current Chairman of the Fund.
"Control" shall mean the power to exercise a controlling interest
over the management or policies of a company, unless such power
is solely the result of an official position. Any person is
presumed to "Control" a company if that person owns, directly or
indirectly through one or more controlled companies, more than
25% of the voting securities of a company. Despite this
presumption, a person may not be a Control Person if facts, other
than security ownership, demonstrate that such person does not
have a controlling interest. Similarly, persons owning less than
25% of the voting securities of a company may be deemed to have
"Control" depending upon the facts and circumstances.
"Independent Trustee" shall mean, with respect to the Fund or any
other Fund, a trustee who is not an interested person of such
fund.
"Personal Trading" shall mean the purchase or sale of securities
by an individual for his or her own account, any other account in
which he or she has a "Beneficial Ownership" interest, or any
account (other than an account of an advisory client of an Aquila
Entity) for which the Aquila employee decides what securities
transactions will be effected for the account, either by making
recommendations to the account owner or by entering orders
directly with the broker handling the account.
"President" shall mean the current President of Aquila Management
Corporation.
"Purchase or Sale of a Security" includes, among other things,
the writing of an option to purchase or sell a security.
"Security" shall mean any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or subscription,
transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put,
call, straddle, option, or privilege on any security or on any
group or index of securities (including any interest therein
based on the value thereof), or any put, call, straddle, option,
or privilege entered into on a national securities exchange
relating to foreign currency, or generally any interest or
instrument commonly known as a "security" or any certificate of
interest or participation in, temporary or interim certificate
for, receipt for guarantee of, or warrant or right to subscribe
to or purchase any of the foregoing.
For purposes of the provisions of this Code governing personal
securities trading and pre-clearance, and reporting of
transactions and holdings, "Security" does not include direct
obligations of the U.S. Government, shares of registered open-end
investment companies (mutual funds), bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-
term debt instruments, including repurchase agreements (i.e., any
instrument that has a maturity at issuance of less than 366 days
and that is rated in one of the two highest rating categories by
a NRSRO).
"Security Held or to be Acquired" means (A) any Security that
within the most recent 15 days is being or has been: (i) held by
the Fund or other Aquila Entity or (ii) "considered for purchase
or sale" by or on behalf of the Fund or other Aquila Entity and
(B) any option to purchase or sell, and any security convertible
into or exchangeable for, a Security described in (A) above. A
Security is "being considered" for purchase or sale if:
(a) there is an outstanding order (this includes orders that are
in the process of being
executed) to purchase or sell that Security for the Fund or
another Aquila Entity's account or portfolio;
(b) there is an outstanding oral or written recommendation
with respect to that Security that has not been acted upon
or rejected; or
(c) the person responsible for a portfolio intends to
purchase or sell (e.g., has decided to but has not yet
purchased or sold) that Security for an Aquila Entity's
account or portfolio.
2. PROHIBITED TRANSACTIONS AND ACTIVITIES
As a general matter, it is a violation of the policies of the
Fund and all other Aquila Entities for any of their personnel to
engage in any act, practice, or course of business in connection
with the purchase or sale of any security in violation of any
provision of the Federal securities laws or the SEC's rules
designed to prevent fraudulent, deceptive, or manipulative acts,
practices or business conduct.
A. General Prohibition Against "Front-Running"
The practice of trading on the basis of the anticipated market
effect of trades for the Fund or another Aquila Entity, which is
known as "front-running" or "scalping," constitutes a violation
of the Federal securities laws.
Therefore, it is absolutely prohibited for any Access Person to
engage in Personal Trading in a Security that the Access Person
knows or should know is a "Security Held or to be Acquired" by
the Fund or other advisory client of an Aquila Entity.
B. Prohibited Personal Trading by Advisory Persons
In addition to the above general prohibitions, Advisory Persons
are prohibited from engaging in Personal Trading in any Security,
except as specifically permitted in Section 3 of this Code. In
no event are Advisory Persons permitted to
1) acquire Beneficial Ownership in any securities in an
initial public offering, unless there is prior approval
in writing by the President or C.O.;
2) acquire Beneficial Ownership in securities in a private
placement, unless there is prior approval in writing by
the President or C.O.; or
3) effect short sales or acquire short positions in any
"Security Held" by the Fund or other advisory client of an
Aquila Entity.
A record of all written approvals of, and rationale supporting,
any direct or indirect acquisition by Advisory Persons of an
investment in an initial public offering or private placement
will be made and retained by the C.O. in accordance with Section
15 herein.
Advisory Persons who have acquired private placement securities
pursuant to prior written approval from the President or the C.O.
must immediately disclose that investment to the C.O. before they
participate at any level in any subsequent consideration of an
investment in the issuer for the Fund or any other Aquila Entity.
In such circumstance, the decision to purchase securities of the
issuer for the Fund or other Aquila Entity will be subject to
independent review by other Aquila investment personnel with no
personal interest in the issuer.
Access Persons who are not Advisory Persons are not subject to
the above restrictions on personal trading or the pre-clearance
requirements of this Code provided that, in the ordinary course
of performing their duties or otherwise, they do not have access
to or have information concerning the Securities trades that are
being executed, under consideration, or recommended for the Fund
or other Aquila Entities.
C. Dealings with Persons Who Do Business With the Fund or Other
Aquila Entities
No Advisory Person may seek or accept from any person that does
business with the Fund or any other Aquila Entity any item of
material value or preferential treatment that is or appears to be
connected with the Fund or another Aquila Entity directing
business to that person.
For purposes of this prohibition, "items of material value"
include but are not limited to:
(a) gifts amounting in value to more than $100 per person
per year; and
(b) payment or reimbursement of travel expenses, including
overnight lodging, in excess of $100 per person per year.
"Items of material value" do not include:
(a) an occasional meal, a ticket to a sporting event or the
theater or comparable entertainment, which is not
conditioned on directing business to the firm that provided
such meal or entertainment and is neither so frequent nor so
extensive as to raise any question of propriety; or
(b) an unconditional gift of a typical item of reminder
advertising such as a ball-point pen with the name of the
advertiser inscribed, a calendar pad, or other gifts amounting in
value to not more than $100 per person per year.
Any invitations involving travel for more than one day must have
advance approval from the C.O.
3. EXEMPTED TRANSACTIONS
The following types of Personal Trading are exempted from the
restrictions in Section 2.B above:
(a) trading in Securities in an account over which a person
does not have direct or indirect Control or influence (e.g., a
blind trust);
(b) purchases of Securities pursuant to an automatic
dividend reinvestment plan;
(c) purchases of Securities effected upon the exercise of
rights issued by an issuer pro rata to all holders of a
class of its securities, to the extent such rights were
acquired from such issuer;
(d) transactions which have been pre-cleared in writing by
the President or the C.O., by use of the Personal Trading
Authorization Form based on the information and
representations set forth in the Form and such other information
as the President or the C.O. determines is appropriate to
consider. In the case of requests for pre-clearance of
Personal Trading in a Security Held or to be Acquired for the
Fund or another Aquila Entity which is advised by an investment
adviser that is not subject to this Code ("external
investment adviser"), the President or the C.O. generally shall
grant authorization to trade if the person seeking pre-
clearance does not have access to or knowledge of current
investment decisions or recommendations of such external
investment adviser; and
(e) transactions in circumstances where the President or
the C.O. finds that permitting the transaction is
necessary or appropriate to alleviate hardship or to deal with
unforeseen circumstances, and is otherwise appropriate, is
consistent with the purposes and policies of this Code, is not
in conflict with the interests of the Aquila Entities, and is in
compliance with applicable law. Any such finding will be
documented in writing and maintained in accordance with
Section 14 herein.
4. CONFIDENTIALITY OF SECURITIES RECOMMENDATIONS AND INVESTMENT
DECISIONS
From the time that an Advisory Person anticipates making a
recommendation to purchase or sell a Security or the time that he
or she decides to purchase or sell a Security for the Fund or
another Aquila Entity or learns of such recommendation or
decision, through the time that all trades based on that
recommendation or decision have been consummated, the subject and
content of that recommendation or investment decision are
considered to be proprietary information that may only be used
for the benefit of the Fund or other applicable Aquila Entity.
Such information also may be considered to constitute "material
non-public information" by the SEC and other regulatory
authorities. Accordingly, Advisory Persons must maintain the
utmost confidentiality with respect to their recommendations and
investment decisions during this period and may not discuss a
contemplated recommendation with anyone -- inside or outside of
the Fund or other Aquila Entities -- other than the President,
the Chairman of Aquila Management Corporation, the C.O., the
portfolio manager for the Fund or other applicable Aquila Entity,
or the broker-dealer or issuer executing the order. In addition,
this confidentiality obligation extends to all Access Persons and
other Fund or Aquila Entities personnel who may obtain access to
such information.
This prohibition is not intended to inhibit exchanges of
information among Advisory Persons concerning the Securities in
their respective areas of coverage. Rather, this policy is a
recognition of general fiduciary principles, including but not
limited to the duty to place the interest of the Fund and other
Aquila Entities, including their shareholders, first at all
times. Any questions concerning the distinction between an
appropriate informational exchange and a prohibited communication
should be discussed with the C.O.
5. APPROVALS OF TRANSACTIONS OR REQUESTS FOR WAIVERS OF
RESTRICTIONS BY THE C.O., THE CHAIRMAN OR THE PRESIDENT
In the event that the C.O., the Chairman or the President seeks
to engage in a transaction for which approval is required under
this Code or seeks a waiver pursuant to Section 3 of this Code,
the approval or waiver shall, in the case of the C.O., be granted
or denied by the Chairman or the President and, in the case of
the Chairman or the President, the approval or waiver shall be
granted or denied by Fund Counsel. A written record of the
action taken and the reasons for it shall be made by the person
making the determination and the original record retained in
accordance with Section 14 hereof.
6. RECORD OF SECURITIES RECOMMENDATIONS
Every recommendation for the Purchase or Sale of a Security for
the Fund or another Aquila Entity, including a recommendation to
increase or decrease an existing position in a Security shall be
memorialized in writing or in a computer database either prior to
or immediately after the recommendation is made.
7. REPORTING OF PERSONAL SECURITIES HOLDINGS AND TRADING
ACCOUNTS
A. Initial Reports
All Access Persons of the Fund and other Aquila Entities (other
than Independent Trustees) must, upon commencement of employment
(but in any case no later than 10 days after the person becomes
an Access Person), disclose all personal securities holdings in
writing to the C.O. This report must include the title, number
of shares and principal amount of each Security in which the
Access Person had any Beneficial Ownership when the person became
an Access Person.
Each Access Person (other than Independent Trustees) also must,
upon commencement of employment but in any case no later than 10
days after the person becomes an Access Person, notify the C.O.
in writing of any securities or commodities account in which he
or she has a Beneficial Ownership interest or over which he or
she exercises Control as of the date the person became an Access
Person. Such notification must identify the brokerage firm or
other financial institution at which the account is maintained,
the account executive, the title of the account, the account
number, and the names and addresses of all individuals with a
Beneficial Ownership interest in the account. Subsequent to
employment, each such Access Person shall notify the C.O.
immediately and in writing of any new securities or commodities
accounts.
B. Quarterly Reports
Each Access Person (other than Independent Trustees) must report
to the C.O. the information described below with respect to
transactions in any Securities in which such Access Person had,
or by reason of such transaction acquires, any direct or indirect
Beneficial Ownership in a Security. Such reports must be made no
later than ten days after the end of the calendar quarter in
which the transaction(s) were effected.
C. Annual Reports
Annually, each Access Person (other than Independent Trustees)
must submit a report that includes the following information:
title, number of shares and principal amount of each Security in
which the Access Person had any Beneficial Ownership; the name of
any broker, dealer or bank with whom the Access Person maintains
an account in which any securities are held for the direct or
indirect benefit of the Access Person; and the date that the
report is submitted by the Access Person. The report must be
current as of a date no more than 30 days before the report is
submitted.
D. General Reporting Information.
Access Persons are not required to report Securities trades in
accounts over which they do not have influence or Control over
investment decisions (e.g., a blind trust). No report required
by this Section shall be construed as an admission by the Access
Person that he or she has any Beneficial Ownership of any
Security on the report, nor shall the making of a report be
construed as an admission of a violation of this Code by the
Access Person.
The C.O. will identify all Access Persons who are required to
submit these reports and will inform those Access Persons of
these reporting requirements. In addition to the reports
required under this section, each Advisory Person is responsible
for "pre-clearing" before a securities transaction is executed,
through the Personal Trading Authorization Form (Exhibit A).
8. INFORMATION REQUIRED IN PERSONAL TRADING REPORTS
Quarterly reports required under Section 7.B must include the
following information:
(a) the date of the transaction, the title, the interest
rate and maturity (if applicable), and number of shares, and
the principal amount of each Security involved;
(b) the nature of the transaction (e.g., purchase, sale, or
any other type of acquisition or disposition);
(c) the price at which the transaction was effected;
(d) the name of the broker, dealer, or bank with or through
which the transaction was effected; and
(e) the date that the report is submitted by the Access
Person.
These quarterly reports also must include the following
information with respect to any account established by an Access
Person in which he or she has a Beneficial Ownership interest or
over which he or she exercises control:
(a) the name of the broker, dealer or bank with whom the
Access Person established the account;
(b) the date the account was established; and
(c) the date that the report is submitted by the Access
Person.
One way to achieve this is for you to instruct the brokerage firm
or bank, at which you maintain accounts in which you have a
Beneficial Ownership interest or over which you have Control, to
automatically send copies of broker trade confirmations or
monthly or quarterly account statements to the C.O. no later than
ten days after the end of each calendar quarter. To use
confirmations or account statements to satisfy the quarterly
reporting requirement, the confirmations and statements must
include all of the information listed above. The C.O. will be
responsible for reviewing such records.
Such reports must be made with respect to all Personal Trading,
including transactions exempted by Section 3. However, Access
Persons are not required to report Securities trades in accounts
over which they do not have influence or Control over investment
decisions (e.g., a blind trust).
9. REPORTING OF PERSONAL TRADING BY INDEPENDENT TRUSTEES OF THE
AQUILA FUNDS
If your only relationship to the Aquila Entities is that of an
Independent Trustee of the Fund, you are not required to submit
reports of your Personal Trading, unless you knew or, in the
ordinary course of fulfilling your duties as an Independent
Trustee, should have known, that during the 15-day period before
or after your transaction in a Security, the Security was
purchased or sold, or considered for purchase or sale, by or on
behalf of one of the Funds. If you are required to submit a
report under this section, your report must be submitted no later
than ten days after the end of the calendar quarter in which the
transaction(s) were effected. Your report must include the
information described under Section 8 above.
Independent Trustees are not required to report Securities trades
in accounts for which they do not have influence or Control over
investment decisions (e.g., a blind trust). No report required
by this Section shall be construed as an admission by an
Independent Trustee that he or she has any Beneficial Ownership
of any Security on the report, nor shall the making of a report
be construed as an admission of a violation of this Code by the
Independent Trustee. The C.O. will inform the Independent
Trustees of these reporting requirements. Copies of all such
reports to the C.O. shall be referred to Fund Counsel and the
originals shall be maintained by the C.O. as part of the Fund's
records.
10. ADVISING NON-AQUILA ENTITIES
Advisory Persons may not render investment advice to persons
other than Aquila Entities, unless the advisory relationship,
including the identity of those involved and any fee
arrangements, has been disclosed to and approved by the
President. Once cleared with the President, all transactions for
such outside advisory clients are subject to the reporting
requirements of Section 7 above. This prohibition precludes
Advisory Persons from providing investment advice to members of
such person's immediate family without the prior approval of the
President.
11. EXTERNAL INVESTMENT ADVISERS
This Code does not extend to investment advisers to the Fund that
are not members of the Aquila Group of Companies, except as
provided in Section 16 below.
12. TRADING WITH MATERIAL NON-PUBLIC INFORMATION
THIS PROVISION OF THE CODE APPLIES TO ALL PERSONNEL
No officer, trustee, director, employee, or control person of the
Fund or any other Aquila Entity may purchase or sell any
security, or be involved in any way in the purchase or sale of a
security, while in possession of material non-public information
about the security or its issuer, regardless of the manner in
which such information was obtained. Furthermore, no person
possessing material non-public information may disclose such
information to any person other than the C.O. or Fund Counsel,
except to the extent authorized by the C.O. or, in the case of
Independent Trustees, Fund Counsel. This prohibition covers
transactions for the Fund and all other Aquila Entities made in
the course of your employment with an Aquila Entity, as well as
transactions for your personal accounts and accounts of persons
in privity with you.
Material non-public information includes corporate information,
such as undisclosed financial information about a corporation,
and market information, such as a soon-to-be-published article
about a corporation. Material information is defined as
information which an investor would consider important in making
an investment decision, or which would substantially affect the
market price of a security if generally disclosed. Non-public
information is defined as information which has not been
effectively made available to the marketplace. Any questions as
to whether certain information is material non-public information
should be directed to the C.O. or, in the case of Independent
Trustees, Fund Counsel.
13. ADVISORY PERSONS SERVING AS DIRECTORS OF PUBLICLY-TRADED
COMPANIES
Advisory Persons who serve as directors of publicly-traded
companies may be seen as having an inherent conflict of interest
between the fiduciary duty owed to the Aquila Entities and that
owed to the shareholders of such publicly-traded companies. To
avoid such potential conflicts of interest, all Advisory Persons
must receive the prior written approval of the President before
serving as director of any publicly-traded company, which
approval may be withheld in the President's sole discretion. If
you are an Advisory Person and currently serve as a director of a
publicly-traded company, you should notify the C.O. immediately.
Prior to commencement of employment with any Aquila Entity and
annually thereafter, each Advisory Person shall provide the C.O.
with a written list of all positions held by the Advisory Person
with any publicly-traded company.
Advisory Persons who receive permission to serve as directors of
publicly-traded companies will be isolated through "Chinese
Walls" or other procedures from making decisions regarding the
securities of those companies for which they serve as directors.
An especially sensitive situation involves representation on a
creditors' committee. Particular care will be taken to create a
"Chinese Wall" between portfolio management and creditors'
committee representation.
14. RECORD KEEPING
The C.O. shall maintain the following records in the manner and
for the time periods described under the Advisers Act and Rule
17j-1(f) under the 1940 Act.
(a) a copy of this Code and any other Code which is, or at
any time within the past five years has been in effect;
(b) records of any violations of this Code and any actions
taken as a result of such violations;
(c) each report, record or finding made under this Code
(i.e., those required by Sections 2, 3, 5, 6, 7, 9, and 10),
including any information provided in lieu of these reports
(e.g., confirmations, account statements);
(d) a list of all persons who currently are or within the
past 5 years have been required to make reports pursuant to
the Code;
(e) a list of all persons who currently are or within the
past 5 years have been responsible for reviewing reports
submitted pursuant to the Code; and
(f) a copy of each report submitted to the Fund Board of
Trustees in connection
with the Board's approval of a code of ethics or material
changes to such a Code.
15. VIOLATIONS OF THIS CODE
Violations of this Code may result in the imposition of
criminal penalties or sanctions by the SEC, other regulatory
authorities, or the Aquila Entities, including forfeiture of any
profit from a transaction, and forfeiture of future
discretionary salary increases or bonuses and suspension or
termination of employment. Determinations as to whether a
violation has occurred, and the appropriate sanctions, if any,
shall be made by the directors or trustees or the President;
provided however, that no person believed to have violated this
Code shall participate in such determinations made with respect
to his or her own conduct.
16. BOARD APPROVAL AND REPORTS TO BOARD
A. Initial Approval of Codes of Ethics
The Board of the Fund, including a majority of Independent Trustees,
shall approve any code of ethics required by the Rule of any new
investment adviser or principal underwriter for the Fund that is
not subject to this Code of Ethics before retaining the services
of that entity. Before the Board meeting at which a code is
scheduled for approval, the affected adviser or principal
underwriter shall provide the Board with a copy of the code, a
written certification that the adviser has adopted procedures
reasonably necessary to prevent its Access Persons from violating
the code and any other information requested by the Board.
B. Material Changes to Codes of Ethics
The Board of the Fund, including a majority of Independent
Trustees, will approve any material changes to this Code, as well
as to the code of ethics adopted pursuant to Rule 17j-1 of any
member of the Aquila Group of Companies that provides services to
the Fund and of any external investment adviser to the Fund,
within six months following the adoption of the change. The
appropriate Fund officers or personnel of the Aquila Group of
Companies or external investment adviser will, on a timely basis,
provide notice to the Board of the changes and provide the Board
with the following information regarding the changes for which
Board approval is sought: (a) a written description of the
change and the reasons therefor; (b) a copy of the revised code
of ethics, marked to show the changes; (c) a written
certification that the adviser has adopted procedures reasonably
necessary to prevent the adviser's Access Persons from violating
the code; and (d) any other information requested by the Board.
C. Annual Reports to Board
At least annually, the appropriate officers of the Fund, other
Aquila Entities and each external investment adviser shall
provide the Board with (i) a written certification that the Fund
or such other entity has adopted procedures reasonably necessary
to prevent its Access Persons from violating its code of ethics;
a written report that describes any issues arising under its code
of ethics or related procedures since the last report to the
Board; and (ii) any other information requested by the Board. The
report shall include, but not be limited to, information about:
material violations of the code or related procedures;
immaterial, individual violations (such as late filings of
quarterly transactions reports) if such violations are material
in the aggregate; and sanctions imposed in response to such
violations; significant conflicts of interest that arose
involving personal trading, even if the conflicts did not result
in a code violation (e.g., where an Advisory Person is a director
of a company whose securities are held by the Fund. See Section
13 herein.). Further, the Board will be provided with more
frequent reports when there have been significant violations of a
code or related procedures, or significant conflicts of interest
arising under the code or procedures.
Certification
I have read the Code of Ethics of the Tax-Free Fund of Colorado
in its entirety, and I understand it. I agree to comply fully
with all of its provisions. Further, I agree to certify, in
writing and each year, that I have complied with the terms of
this Code, as amended from time to time.
Dated: Signed:
EXHIBIT A
AQUILA ENTITIES
PERSONAL TRADING AUTHORIZATION FORM
In connection with the contemplated
(purchase or sale)*
by of
(name of employee) (number of shares)
of on
:
(name of security) (date)
I confirm that to my knowledge (a) there presently is no outstanding
order to purchase or sell the above-listed security for an Aquila Entity's
account or portfolio; (b) there is no outstanding oral or written
communication with respect to that security that has not been acted upon
or rejected; (c) I have no present intention to purchase or sell that
security for an Aquila Entity and am not aware that such security is
"being considered" by anyone with discretionary authority over trading of
behalf of an Aquila Entity and (d) I am not in possession of material non-
public information with respect to the security described above nor am I
making the transaction described above on the basis of material non-public
information. I further confirm that the above conditions have existed
during this entire business day. Finally, I confirm that I have no access
to or knowledge of current recommendations or investment decisions
relating to this security that may be being made or considered for any
Aquila Entity by an investment adviser not subject to the Aquila Code of
Ethics.
Dated: Signed:
Approved: Dated:
Compliance Officer
* If other than market order, described proposed limits.
1
CODE OF ETHICS
for
The Aquila Group of Companies
January 1, 2000
<PAGE>
Effective: January 1, 2000
CODE OF ETHICS
FOR
THE AQUILA GROUP OF COMPANIES
INTRODUCTION
It is one of the fundamental policies of the investment company
business to avoid any conflict of interest or even the appearance
of such a conflict in connection with the performance of general
management, investment advisory, distribution and portfolio
management services for those we serve. This code of ethics (the
"Code of Ethics"or the "Code"), has been adopted by each member
of the Aquila Group of Companies to implement this policy. In
the Code, "Aquila Entity" or "Aquila Entities" shall mean (1)
all members of the Aquila Group of Companies, including Aquila
Management Corporation, Aquila Distributors, Inc. and STCM
Management Company, Inc.; (2) all funds for which a member of
the Aquila Group of Companies provides administrative,
distribution or investment advisory services (the "Funds"); and
(3) any other advisory clients of the Aquila Group of Companies.
A code of ethics substantially identical to this Code except for
the entity covered has been adopted by each Fund. This code
covers every officer, director and employee of each of the Aquila
Group of Companies who is involved in providing such services to
any Aquila Entity whether by way of security analysis or
recommendation, placement of trading orders, portfolio
management, distribution or otherwise. In this Code, provisions
that apply only to the Funds or Fund Trustees are present solely
for convenience of administration.
One of the practices that raises a potential conflict of interest
is that of trading in the same securities (or related securities)
that are being purchased or sold, or considered for purchase or
sale, for our clients' portfolios by persons affiliated with the
Aquila Entities for accounts in which the affiliated persons have
a beneficial ownership interest or which they control. The
Investment Advisers Act of 1940 ("Advisers Act"), the Investment
Company Act of 1940 ("1940 Act"), and other federal and state
securities laws and rules generally prohibit fraudulent,
deceptive or manipulative trading by persons affiliated with
investment advisers with respect to securities held, to be
acquired or under consideration for purchase or sale by fund or
other advisory clients. This prohibition extends to trading in
furtherance of personal interests to the detriment of the Aquila
Entities as well as any attempt to benefit from the market impact
of their anticipated or actual transactions. The Securities and
Exchange Commission ("SEC") regulations require the adoption of
procedures designed to prevent such fraudulent conduct.
Please read the specifics of this Code of Ethics carefully. If
you have any questions, discuss them with Robert Anderson, the
Compliance Officer ("C.O.") for the Aquila Group of Companies,
or his successor. Be sure that you understand the Code. Then
sign and date the attached certification and return it to the
C.O. Keep a copy of the Code for your reference. The C.O. is
responsible for enforcing and interpreting this Code, and is
always available to answer any questions you may have. As an
officer, trustee, director, employee, or control person of any
Aquila Entity, you are subject to all applicable provisions of
this Code.
ADOPTION OF THIS CODE
This Code has been adopted by each company in the Aquila Group of
Companies, in compliance with Section 17(j) of the 1940 Act and
Rule 17j-1 (the "Rule"), Sections 204 and 204A of the Advisers
Act and the rules thereunder, and Section 15(f) of the Securities
Exchange Act of 1934.
PURPOSE OF THIS CODE
This Code seeks to maintain the highest standards of ethical
conduct for the Aquila Entities and their personnel. In so
doing, this Code addresses three areas of concern:
1. Observance of the general anti-fraud provisions of the
Federal securities laws.
2. Avoidance of conflicts with the interests of our
clients or the appearance of such conflicts.
3. Avoidance of trading securities on the basis of
material non-public information or
information about securities transactions made or
being considered for clients of the Aquila Entities.
1. GENERAL DEFINITIONS
Listed below are definitions for some of the terms used in this
Code, many of which are defined by law.
"Access Person"shall mean any director, trustee, officer or
Advisory Person of any Aquila Entity.
"Advisory Person"shall mean any employee of an Aquila Entity (or
of any company in a "Control" relationship to an Aquila Entity)
who, in connection with his or her regular functions or duties,
makes, participates in, or obtains any information regarding the
purchase or sale of securities by advisory clients, including
mutual funds, or whose functions relate to the making of any
recommendations with respect to such purchases or sales of
securities. Also included within the definition of "Advisory
Person" is any natural person in a "Control" relationship to any
Aquila Entity that is a registered investment company or an
investment adviser who obtains information concerning
recommendations made to advisory clients, including mutual funds,
with respect to the purchase or sale of securities.
"Beneficial Ownership/Beneficial Owner" shall mean any person who
has or shares, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise, a direct
or indirect pecuniary interest in a security, within the meaning
of the Securities Exchange Act Rule 16a-1(a)(2). "Pecuniary
interest" means the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the
security. "Indirect pecuniary interest" includes, but is not
limited to, securities held by members of your immediate family
who share your household, including your spouse, children and
stepchildren, parents, grandparents, brothers and sisters, and
any of your in-laws.
If you need help in determining whether you have beneficial
ownership of any security for purposes of this Code, you should
consult the C.O.
"Chairman" shall mean the current Chairman of Aquila Management
Corporation.
"Control" shall mean the power to exercise a controlling interest
over the management or policies of a company, unless such power
is solely the result of an official position. Any person is
presumed to "Control" a company if that person owns, directly or
indirectly through one or more controlled companies, more than
25% of the voting securities of a company. Despite this
presumption, a person may not be a Control Person if facts, other
than security ownership, demonstrate that such person does not
have a controlling interest. Similarly, persons owning less than
25% of the voting securities of a company may be deemed to have
"Control" depending upon the facts and circumstances.
"Independent Trustee" shall mean, with respect to any Fund, a
Trustee who is not an interested person of the Fund.
"Personal Trading" shall mean the purchase or sale of securities
by an individual for his or her own account, any other account in
which he or she has a "Beneficial Ownership" interest, or any
account (other than an account of an advisory client of an Aquila
Entity) for which the Aquila employee decides what securities
transactions will be effected for the account, either by making
recommendations to the account owner or by entering orders
directly with the broker handling the account.
"President" shall mean the current President of Aquila Management
Corporation.
"Purchase or Sale of a Security" includes, among other things,
the writing of an option to purchase or sell a security.
"Security" shall mean any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or subscription,
transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put,
call, straddle, option, or privilege on any security or on any
group or index of securities (including any interest therein
based on the value thereof), or any put, call, straddle, option,
or privilege entered into on a national securities exchange
relating to foreign currency, or generally any interest or
instrument commonly known as a "security" or any certificate of
interest or participation in, temporary or interim certificate
for, receipt for guarantee of, or warrant or right to subscribe
to or purchase any of the foregoing.
For purposes of the provisions of this Code governing personal
securities trading and pre-clearance, and reporting of
transactions and holdings, "Security" does not include direct
obligations of the U.S. Government, shares of registered open-end
investment companies (mutual funds), bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-
term debt instruments, including repurchase agreements (i.e., any
instrument that has a maturity at issuance of less than 366 days
and that is rated in one of the two highest rating categories by
a NRSRO).
"Security Held or to be Acquired" means (A) any Security that
within the most recent 15 days is being or has been: (i) held by
a Fund or other advisory client or (ii) "considered for purchase
or sale" by or on behalf of a Fund or other advisory client and
(B) any option to purchase or sell, and any Security convertible
into or exchangeable for, a Security described in (A) above. A
Security is "being considered" for purchase or sale if:
(a) there is an outstanding order (this includes orders that are
in the process of being
executed) to purchase or sell that Security for the Aquila
Entity's account or portfolio;
(b) there is an outstanding oral or written recommendation
with respect to that Security that has not been acted upon
or rejected; or
(c) the person responsible for a portfolio intends to
purchase or sell (i.e., has decided to but has not yet
purchased or sold) that Security for an Aquila Entity's
account or portfolio.
2. PROHIBITED TRANSACTIONS AND ACTIVITIES
As a general matter, it is a violation of the policies of the
Aquila Entities for any personnel to engage in any act, practice,
or course of business in connection with the purchase or sale of
any security in violation of any provision of the Federal
securities laws or the SEC's rules designed to prevent
fraudulent, deceptive, or manipulative acts, practices or
business conduct.
A. General Prohibition Against "Front-Running"
The practice of trading on the basis of the anticipated market
effect of trades for Aquila Entity accounts, which is known as
"front-running" or "scalping," constitutes a violation of the
Federal securities laws.
Therefore, it is absolutely prohibited for any Access Person to
engage in Personal Trading in a Security that the Access Person
knows or should know is a "Security Held or to be Acquired" by
any Fund or any other Aquila Entity.
B. Prohibited Personal Trading by Advisory Persons
In addition to the above general prohibitions, Advisory Persons
are prohibited from engaging in Personal Trading in any Security,
except as specifically permitted in Section 3 of this Code. In
no event are Advisory Persons permitted to
(a) acquire Beneficial Ownership in any Securities in an
initial public offering, unless there is prior approval
in writing by the President or C.O.;
(b) acquire Beneficial Ownership in Securities in a private
placement, unless there is prior approval in writing by the
President or C.O.; or
(c) effect short sales or acquire short positions in any
"Security Held" by a Fund or other Aquila Entity.
A record of all written approvals of, and rationale supporting,
any direct or indirect acquisition by Advisory Persons of an
investment in an initial public offering or private placement
will be made and retained by the C.O. in accordance with Section
15 herein.
Aquila Advisory Persons who have acquired private placement
Securities pursuant to prior written approval from the President
or the C.O. must immediately disclose that investment to the C.O.
before they participate at any level in any Aquila Entity's
subsequent consideration of an investment in the issuer. In such
circumstance, the Aquila Entity's decision to purchase Securities
of the issuer will be subject to independent review by other
Aquila investment personnel with no personal interest in the
issuer.
Access Persons who are not Advisory Persons of an Aquila Entity
are not subject to the above restrictions on personal trading or
the pre-clearance requirements of this Code provided that, in the
ordinary course of performing their duties or otherwise, they do
not have access to or have information concerning the Securities
trades that are being executed, under consideration, or
recommended for Aquila Entities.
C. Dealings with Persons Who Do Business With Aquila Entities
No Advisory Person may seek or accept from any person that does
business with any Aquila Entity any item of material value or
preferential treatment that is or appears to be connected with an
Aquila Entity directing business to that person.
For purposes of this prohibition, "items of material value"
include but are not limited to:
(a) gifts amounting in value to more than $100 per person
per year; and
(b) payment or reimbursement of travel expenses, including
overnight lodging, in excess of $100 per person per year.
"Items of material value" do not include:
(a) an occasional meal, a ticket to a sporting event or the
theater or comparable entertainment, which is not
conditioned on directing business to the firm that provided
such meal or entertainment and is neither so frequent nor so
extensive as to raise any question of propriety; or
(b) an unconditional gift of a typical item of reminder
advertising such as a ball-point pen with the name of the
advertiser inscribed, a calendar pad, or other gifts amounting in
value to not more than $100 per person per year.
Any invitations involving travel for more than one day must have
advance approval from the C.O.
3. EXEMPTED TRANSACTIONS
The following types of Personal Trading are exempted from the
restrictions in Section 2.B above:
(a) trading in Securities in an account over which a person
does not have direct or indirect Control or influence (e.g., a
blind trust);
(b) purchases of Securities pursuant to an automatic
dividend reinvestment plan;
(c) purchases of Securities effected upon the exercise of
rights issued by an issuer pro rata to all holders of a
class of its securities, to the extent such rights were
acquired from such issuer;
(d) transactions which have been pre-cleared in writing by
the President or the C.O., by use of the Personal Trading
Authorization Form based on the information and
representations set forth in the Form and such other
information as the President or the C.O. determines is
appropriate to consider. In the case of requests for pre-
clearance of Personal Trading in a Security Held or to be
Acquired for any Fund or other advisory client which is
advised by an investment adviser that is not subject to this
Code ("external investment adviser"), the President or C.O.
generally shall grant authorization to trade if the person
seeking pre-clearance does not have access to or knowledge
of current investment decisions or recommendations of such
external investment adviser; and
(e) transactions in circumstances where the President or
the C.O. finds that permitting the transaction is necessary
or appropriate to alleviate hardship or to deal with
unforeseen circumstances, and is otherwise appropriate, is
consistent with the purposes and policies of this Code, is
not in conflict with the interests of the Aquila Entities,
and is in compliance with applicable law. Any such finding
will be documented in writing and maintained in accordance
with Section 14 herein.
4. CONFIDENTIALITY OF SECURITIES RECOMMENDATIONS AND INVESTMENT
DECISIONS
From the time that an Advisory Person anticipates making a
recommendation to purchase or sell a Security for an Aquila
Entity or the time that he or she decides to purchase or sell a
Security for an Aquila Entity or learns of such a recommendation
or decision, through the time that all trades based on that
recommendation have been consummated, the subject and content of
that recommendation or investment decision are considered to be
proprietary information that may only be used for the benefit of
the Aquila Entities and their clients. Such information also may
be considered to constitute "material non-public information" by
the SEC and other regulatory authorities. Accordingly, Advisory
Persons must maintain the utmost confidentiality with respect to
their recommendations and investment decisions during this period
and may not discuss a contemplated recommendation with anyone --
inside or outside of the Aquila Entities -- other than the
Chairman, the President, the C.O., the portfolio manager for the
Aquila Entity, or the broker-dealer or issuer executing the
order. In addition, this confidentiality obligation extends to
all Access Persons and other Aquila personnel who may obtain
access to such information.
This prohibition is not intended to inhibit exchanges of
information among Advisory Persons concerning the Securities in
their respective areas of coverage. Rather, this policy is a
recognition of general fiduciary principles, including but not
limited to the duty to place the interest of our clients,
including their shareholders, first at all times. Any questions
concerning the distinction between an appropriate informational
exchange and a prohibited communication should be discussed with
the C.O.
5. APPROVALS OF TRANSACTIONS OR REQUESTS FOR WAIVERS OF
RESTRICTIONS BY THE C.O., THE CHAIRMAN OR THE PRESIDENT
In the event that the C.O., the Chairman or the President seeks
to engage in a transaction for which approval is required under
this Code or seeks a waiver pursuant to Section 3 of this Code,
the approval or waiver shall, in the case of the C.O., be granted
or denied by the Chairman or the President and, in the case of
the Chairman or the President, the approval or waiver shall be
granted or denied by Fund Counsel. A written record of the
action taken and the reasons for it shall be made by the person
making the determination and the original record retained in
accordance with Section 14 hereof.
6. RECORD OF SECURITIES RECOMMENDATIONS
Every recommendation for the Purchase or Sale of a Security for a
Fund or other advisory client, including a recommendation to
increase or decrease an existing position in a Security shall be
memorialized in writing or in a computer database either prior to
or immediately after the recommendation is made.
7. REPORTING OF PERSONAL SECURITIES HOLDINGS AND TRADING
ACCOUNTS
A. Initial Reports
All Access Persons of Aquila Entities (other than Independent
Trustees) must, upon commencement of employment (but in any case
no later than 10 days after the person becomes an Access Person),
disclose all personal securities holdings in writing to the C.O.
This report must include the title, number of shares and
principal amount of each Security in which the Access Person had
any Beneficial Ownership when the person became an Access Person.
Each Access Person (other than Independent Trustees) also must,
upon commencement of employment but in any case no later than 10
days after the person becomes an Access Person, notify the C.O.
in writing of any securities or commodities account in which he
or she has a Beneficial Ownership interest or over which he or
she exercises Control as of the date the person became an Access
Person. Such notification must identify the brokerage firm or
other financial institution at which the account is maintained,
the account executive, the title of the account, the account
number, and the names and addresses of all individuals with a
Beneficial Ownership interest in the account. Subsequent to
employment, each such Access Person shall notify the C.O.
immediately and in writing of any new securities or commodities
accounts.
B. Quarterly Reports
Each Access Person (other than Independent Trustees) must report
to the C.O. the information described below with respect to
transactions in any Securities in which such Access Person had,
or by reason of such transaction acquires, any direct or indirect
Beneficial Ownership in a Security. Such reports must be made no
later than 10 days after the end of the calendar quarter in which
the transaction(s) were effected.
C. Annual Reports
Annually, each Access Person (other than Independent Trustees)
must submit a report that includes the following information:
title, number of shares and principal amount of each Security in
which the Access Person had any Beneficial Ownership; the name of
any broker, dealer or bank with whom the Access Person maintains
an account in which any securities are held for the direct or
indirect benefit of the Access Person; and the date that the
report is submitted by the Access Person. The report must be
current as of a date no more than 30 days before the report is
submitted.
D. General Reporting Information.
Access Persons are not required to report Securities trades in
accounts over which they do not have influence or Control over
investment decisions (e.g., a blind trust). No report required
by this Section shall be construed as an admission by the Access
Person that he or she has any Beneficial Ownership of any
Security on the report, nor shall the making of a report be
construed as an admission of a violation of this Code by the
Access Person.
The C.O. will identify all Access Persons who are required to
submit these reports and will inform those Access Persons of
these reporting requirements. In addition to the reports
required under this section, each Advisory Person is responsible
for "pre-clearing" before a securities transaction is executed,
through the Personal Trading Authorization Form (Exhibit A).
8. INFORMATION REQUIRED IN PERSONAL TRADING REPORTS
Quarterly reports required under Section 7.B must include the
following information:
(a) the date of the transaction, the title, the interest
rate and maturity (if applicable), and number of shares, and
the principal amount of each Security involved;
(b) the nature of the transaction (e.g., purchase, sale, or
any other type of acquisition or disposition);
(c) the price at which the transaction was effected;
(d) the name of the broker, dealer, or bank with or through
which the transaction was effected; and
(e) the date that the report is submitted by the Access
Person.
These quarterly reports also must include the following
information with respect to any account established by an Access
Person in which he or she has a Beneficial Ownership interest or
over which he or she exercises control:
(a) the name of the broker, dealer or bank with whom the
Access Person established the account;
(b) the date the account was established; and
(c) the date that the report is submitted by the Access
Person.
One way to achieve this is for you to instruct the brokerage firm
or bank, at which you maintain accounts in which you have a
Beneficial Ownership interest or over which you have Control, to
automatically send copies of broker trade confirmations or
monthly or quarterly account statements to the C.O. no later than
10 days after the end of each calendar quarter. To use
confirmations or account statements to satisfy the quarterly
reporting requirement, the confirmations and statements must
include all of the information listed above. The C.O. will be
responsible for reviewing such records.
Such reports must be made with respect to all Personal Trading,
including transactions exempted by Section 3. However, Access
Persons are not required to report Securities trades in accounts
over which they do not have influence or Control over investment
decisions (e.g., a blind trust).
9. REPORTING OF PERSONAL TRADING BY INDEPENDENT TRUSTEES OF THE
FUNDS
Under the Code of Ethics of each Fund, persons whose only
relationship to the Aquila Entities is that of an Independent
Trustee of one or more Funds, are not required to submit reports
of their Personal Trading, unless the person knew or, in the
ordinary course of fulfilling his or her duties as an Independent
Trustee, should have known, that during the 15-day period before
or after his or her transaction in a Security, the Security was
purchased or sold, or considered for purchase or sale, by or on
behalf of any Fund. Required reports must be submitted no later
than 10 days after the end of the calendar quarter in which the
transaction(s) were effected and must include the information
described under Section 8 above.
Independent Trustees also are not required to report Securities
trades in accounts for which they do not have influence or
Control over investment decisions (e.g., a blind trust). No such
report shall be construed as an admission by an Independent
Trustee that he or she has any Beneficial Ownership of any
Security on the report, nor shall the making of a report be
construed as an admission of a violation of this Code by the
Independent Trustee.
The C.O. will inform the Independent Trustees of each Fund of the
applicable reporting requirements under each Fund's Code of
Ethics. Copies of any Personal Trading reports received by the
C.O. from an Independent Trustee of a Fund will be referred to
that Fund's counsel and the originals maintained by the C.O. as
part of the Fund's records.
10. ADVISING NON-AQUILA ENTITIES
Advisory Persons may not render investment advice to persons
other than Aquila Entities, unless the advisory relationship,
including the identity of those involved and any fee
arrangements, has been disclosed to and approved by the
President. Once cleared with the President, all transactions for
such outside advisory clients are subject to the reporting
requirements of Section 7 above. This prohibition precludes
Advisory Persons from providing investment advice to members of
such person's immediate family without the prior approval of the
President.
11. EXTERNAL INVESTMENT ADVISERS
Because certain investment advisers of the Aquila Entities
maintain their own codes of ethics, this Code does not extend to
such investment advisers.
12. TRADING WITH MATERIAL NON-PUBLIC INFORMATION
THIS PROVISION OF THE CODE APPLIES TO ALL PERSONNEL
No officer, trustee, director, employee, or control person of any
Aquila Entity may purchase or sell any security, or be involved
in any way in the purchase or sale of a security, while in
possession of material non-public information about the security
or its issuer, regardless of the manner in which such information
was obtained. Furthermore, no person possessing material non-
public information may disclose such information to any person
other than the C.O. or Fund Counsel, in the case of an
Independent Trustee, except to the extent authorized by the C.O.
or Fund Counsel. This prohibition covers transactions for the
Funds and other advisory clients made in the course of your
employment with an Aquila Entity, as well as transactions for
your personal accounts and accounts of persons in privity with
you.
Material non-public information includes corporate information,
such as undisclosed financial information about a corporation,
and market information, such as a soon-to-be-published article
about a corporation. Material information is defined as
information which an investor would consider important in making
an investment decision, or which would substantially affect the
market price of a security if generally disclosed. Non-public
information is defined as information which has not been
effectively made available to the marketplace. Any questions as
to whether certain information is material non-public information
should be directed to the C.O. or, in the case of an Independent
Trustee, Fund Counsel.
13. ADVISORY PERSONS SERVING AS DIRECTORS OF PUBLICLY-TRADED
COMPANIES
Advisory Persons who serve as directors of publicly-traded
companies may be seen as having an inherent conflict of interest
between the fiduciary duty owed to the Aquila Entities' clients
and that owed to the shareholders of such publicly-traded
companies. To avoid such potential conflicts of interest, all
Advisory Persons must receive the prior written approval of the
President before serving as director of any publicly-traded
company, which approval may be withheld in the President's sole
discretion. If you are an Advisory Person and currently serve as
a director of a publicly-traded company, you should notify the
C.O. immediately. Prior to commencement of employment with any
Aquila Entity and annually thereafter, each Advisory Person shall
provide the C.O. with a written list of all positions held by the
Advisory Person with any publicly-traded company.
Advisory Persons who receive permission to serve as directors of
publicly-traded companies will be isolated through "Chinese
Walls" or other procedures from making decisions regarding the
securities of those companies for which they serve as directors.
An especially sensitive situation involves representation on a
creditors' committee. Particular care will be taken to create a
"Chinese Wall" between portfolio management and creditors'
committee representation.
14. RECORD KEEPING
The C.O. shall maintain the following records in the manner and
for the time periods described under the Advisers Act and Rule
17j-1(f) under the 1940 Act:
(a) a copy of this Code and any other Code which is, or at
any time within the past five years has been in effect;
(b) records of any violations of this Code and any actions
taken as a result of such violations;
(c) each report, record or finding made under this Code
(i.e., those required by Sections 2, 3, 5, 6, 7, 9, and 10),
including any information provided in lieu of these reports
(e.g., confirmations, account statements);
(d) a list of all persons who currently are or within the
past 5 years have been required to make reports pursuant to
the Code;
(e) a list of all persons who currently are or within the
past 5 years have been responsible for reviewing reports
submitted pursuant to the Code; and
(f) a copy of each report submitted to the Fund's Board of
Trustees in connection
with the Board's approval of a code of ethics or material
changes to such a code.
15. VIOLATIONS OF THIS CODE
Violations of this Code may result in the imposition of criminal penalties
or sanctions by the SEC, other regulatory authorities, or the Aquila
Entities, including forfeiture of any profit from a transaction, and
forfeiture of future discretionary salary increases or bonuses and
suspension or termination of employment. Determinations as to whether
a violation has occurred, and the appropriate sanctions, if any, shall
be made by the directors, Trustees or the President of the relevant
Aquila Entity or Entities; provided however, that no person believed
to have violated this Code shall participate in such determinations
made with respect to his or her own conduct.
16. BOARD APPROVAL
A. Initial Approval of Codes of Ethics
The Board of each Fund, including a majority of Independent
Trustees, shall approve any code of ethics required by the Rule
of any new adviser or principal underwriter to such Fund before
retaining its services. Before the Board meeting at which a
code is scheduled for approval, the affected adviser or
principal underwriter shall provide the Board with a copy of the
code, a written certification that it has adopted procedures
reasonably necessary to prevent its Access Persons from
violating the code and any other information requested by the
Board.
B. Material Changes to Codes of Ethics
The Board of each Fund, including a majority of Independent
Trustees, will approve any material changes to this Code, as well
as to the codes of ethics of each such fund and any external
adviser to such fund within six months following the adoption of
the change. The appropriate officers of the Fund or other Aquila
Entities or external adviser will, on a timely basis, provide
notice to the Board of the changes and provide the Board with the
following information regarding the changes for which Board
approval is sought: (a) a written description of the change and
the reasons therefor; (b) a copy of the revised code of ethics,
marked to show the changes; (c) a written certification that the
entity has adopted procedures reasonably necessary to prevent the
adviser's Access Persons from violating the code; and (d) any
other information requested by the Board.
C. Annual Reports to Fund Boards
At least annually, the appropriate officers of the Aquila
Entities and any external investment adviser to a Fund shall
provide each Fund's Board with (i) a written certification that
the Aquila Entities or external adviser have adopted procedures
reasonably necessary to prevent their respective Access Persons
from violating their codes of ethics; (ii) a written report that
describes any issues arising under such codes of ethics or
related procedures since the last report to the Board; and (iii)
any other information requested by the Board. The report referred
to in (ii) above shall include, but not be limited to,
information about: material violations of the code or related
procedures; immaterial, individual violations (such as late
filings of quarterly transactions reports) if such violations are
material in the aggregate; and sanctions imposed in response to
such violations; significant conflicts of interest that arose
involving personal trading, even if the conflicts did not result
in a code violation (e.g., where an Advisory Person is a director
of a company whose securities are held by a Fund. See Section
13 herein.). Further, each Fund's Board will be provided with
more frequent reports when there have been significant violations
of a code or related procedures, or significant conflicts of
interest arising under the code or procedures.
Certification
I have read the Code of Ethics of the Aquila Group of
Companies in its entirety, and I understand it. I agree to
comply fully with all of its provisions. Further, I agree to
certify, in writing and each year, that I have complied with the
terms of this Code, as amended from time to time.
Dated: Signed:
EXHIBIT A
AQUILA GROUP OF COMPANIES
PERSONAL TRADING AUTHORIZATION FORM
In connection with the contemplated
(purchase or sale)*
by of
(name of employee) (number of shares)
of on
:
(name of security) (date)
I confirm that to my knowledge (a) there presently is no
outstanding order to purchase or sell the above-listed security for
an Aquila Entity's account or portfolio; (b) there is no outstanding
oral or written communication with respect to that security that has
not been acted upon or rejected; (c) I have no present intention to
purchase or sell that security for an Aquila Entity and am not aware
that such security is "being considered" by anyone with
discretionary authority over trading on behalf of an Aquila Entity
and (d) I am not in possession of material non-public information
with respect to the security described above nor am I making the
transaction described above on the basis of material non-public
information. I further confirm that the above conditions have
existed during this entire business day. Finally, I confirm that I
have no access to or knowledge of current recommendations or
investment decisions relating to this security that may be being
made or considered for any Aquila Entity by an investment adviser
not subject to the Aquila Code of Ethics.
Dated: Signed:
Approved: Dated:
Compliance
* If other than market order, described proposed limits.
1
e:\rrh\comply\ethics.doc
4/99
KPM INVESTMENT MANAGEMENT, INC.
CODE OF ETHICS
SECTION 1: DEFINITIONS
For the purposes of this Code of Ethics, as required by Rule
204-2(a) (12) and (13) under the Investment Advisers Act of 1940
and Section 17(j) of the Investment Company Act of 1940, the
following general definitions shall apply:
1. Advisory Representative shall include:
a) Any officer or director of the Adviser;
b) Any employee of the Adviser;
c) Any person in a control relationship to the Adviser; and
d) Any affiliated person of such controlling person, and any
affiliated person of such affiliated person.
An advisory representative shall not include a person who
receives no information about current recommendations or trading,
or an employee who obtains information in a single instance, in
frequently and inadvertently.
Control shall have the same meaning as that set forth in
Section 2(a) (9) of the Investment Company Act of 1940.
SECTION 2: GENERAL POLICY
Advisory representatives are specifically reminded that it is
unlawful for any of them, in connection with the purchase or sale,
directly or indirectly, of a security held or to be acquired by the
Adviser, or the private client accounts or any other accounts of
the Adviser:
1. To employ any device, scheme or artifice to defraud the
Adviser;
2. To make untrue statement of a material fact to the Adviser, or
omit to state to the Adviser a material fact necessary in order to
make the statements made, in light of the circumstances under which
they are made, not misleading;
3. To engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon the Adviser; or
4. To engage in any manipulative practice with respect to the
Adviser.
The provisions of this Code of Ethics have been
instituted, in part, in an effort to ensure that advisory
representatives do not, inadvertently or otherwise, violate the
proscriptions outlined above.
SECTION 3: PROHIBITED PURCHASES AND SALES
All advisory representatives shall obtain clearance from
either the President, Executive Vice President or Compliance
Officer prior to effecting any securities transactions in which
they, their families (including the spouse, minor children and
adults living in the same household as the advisory
representative), or trusts of which they are trustees or in which
they have a beneficial interest, are parties. Requests for
approval shall be submitted on the Preclearance Form attached to
these procedures. The above-named shall promptly notify the
advisory representative of clearance or denial of clearance to
trade. Notification of approval or denial to trade will be
evidenced on such forms. Approval will be valid for a period not
to exceed fourteen (14) calendar days.
All advisory representatives are prohibited from:
1. Acquiring securities in an initial public offering.
2. Acquiring securities in a private placement unless the
advisory representative can provide persuasive evidence that the
purchase of the private placement would not create any conflict of
interest between the firm and any client accounts.
3. Executing a securities transaction on a day during which any
client account under KPM management has a pending "buy" or "sell"
order in that same security until that order is executed or
withdrawn, except as allowed in Section 8 of this policy.
SECTION 4: ADVISER - FIDUCIARY OBLIGATIONS
The advisory representatives are cognizant of and committed to
the performance of their fiduciary duties under general corporate
law and as more specifically articulated in the Investment Advisers
Act, including, with limitation, the proscriptions against
overreaching, self-dealing and conflicts of interest. Moreover,
with respect to certain legal matters and ethical questions arising
in the course of their deliberations and actions, such advisory
representatives should regularly seek the advice of counsel. These
general principles and procedures shall not be affected by the Code
of Ethics, which is directed to the particular objective of
compliance with the provisions of Rule 204-2(a) (12) and (13) under
the Investment Advisers Act of 1940, such provisions are applicable
to advisory representatives and to the prevention of engagement in
any personal securities transactions by advisory representatives
which might conflict with or adversely affect the interests and
welfare of the Adviser.
SECTION 5: REPORTING REQUIREMENTS
1. Every advisory representative shall cause to be delivered to
the Adviser's President (or in his absence, the Chief Investment
Officer) within ten (10) days following any personal securities
transaction, a broker's confirmation of such transaction showing
the amount of each security purchased or sold, the date of the
transaction, the price at which it was executed, and the name and
address of the executing broker or dealer. Such confirmations
shall be retained by the Compliance Officer or the Adviser for a
period of at least five (5) years. The Compliance Officer shall
deliver all required documentation to the President of the Adviser.
2. Every advisory representative shall file a quarterly report.
Such report shall be made not later than ten (10) days after the
end of the calendar quarter in which the transaction to which the
report relates was effected, and shall contain the following
information.
a) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
b) The nature of the transaction (i.e., purchase, sale, or any
other type of acquisition or disposition);
c) The price at which the transaction was effected; and,
d) The name of the broker, dealer, or bank with or through whom
the transaction was effected.
Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report
that he has any direct or indirect beneficial ownership in the
security to which the report relates.
All such reports shall be reviewed by the President (or in his
absence, the Chief Investment Officer) promptly after their
submission. Any violation of the Code of Ethics shall be
reported promptly to the President of the Adviser.
A copy of the report form is attached hereto.
SECTION 6: GIFTS
All advisory representatives are prohibited from accepting a
gift, gratuity, favor or preferential treatment that could pose a
potential conflict of interest to the business of KPM Investment
Management, Inc. Therefore, no gift shall be accepted in excess of
$100 where such payment is from a person or entity in which the KPM
associate has a business relationship.
SECTION 7: SERVICE AS A DIRECTOR
All advisory representatives are prohibited from serving on
the Board of Directors of a publicly traded company without prior
written approval of both the President and Executive Vice
President. This approval would only be granted in cases where it
is clearly demonstrated that such Board service would be consistent
with the interest of client accounts and the investment companies
and their shareholders under KPM management.
SECTION 8: EXEMPTED TRANSACTIONS
The prohibitions of Section 3 of this Code of Ethics shall not
apply to:
1. Purchases or sales effected in any account over which an
advisory representative has no direct or indirect influence or
control;
2. Purchases or sales of securities which are not eligible for
purchase or sale by the Adviser, the private client accounts or any
other accounts of the Adviser;
3. Purchases or sales which are non-volitional on the part of an
advisory representative;
4. Purchases which are part of an automatic dividend reinvestment
plan;
5. Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to the
extent such rights were acquired for such issuer, and sales of such
rights so acquired;
6. Transactions in government securities or mutual funds;
7. Purchases or sales of securities with a market capitalization
in excess of $500 million; or
8. Purchases or sales of securities in an amount considered to be
de minimis. As applied, de minimis shall mean the purchase or sale
of securities in an amount which does not exceed 2% of the average
weekly volume of all trading on all securities exchanges and/or
NASDAQ during the preceding four calendar weeks.
SECTION 9: DISSEMINATION AND CORPORATE RECORD RETENTION
The adviser shall provide a copy of the Code of Ethics to all
advisory representatives of the Adviser.
The Adviser shall maintain for a five-year period the
following records:
1. A copy of the Code of Ethics;
2. A record of any violation of the Code of Ethics and of any
action taken as a result of such a violation;
3. A copy of each report made by an advisory representative
pursuant to this Code of Ethics; and
4. A list of all persons who are required to make reports
pursuant to this Code of Ethics, which shall be attached to this
Code.
SECTION 10: VIOLATIONS
Any advisory representative who becomes aware of a violation
or apparent violation of this Code of Ethics shall advise the
President (or in his absence, the Chief Investment Officer) of the
Adviser or the Compliance Officer of the matter. The person to
whom the violation or apparent violation is made known shall
thereupon report the matter to the Adviser's Board of Directors.
The Board shall determine whether a violation has occurred and, if
so, will impose such sanctions, if any, as it deems appropriate,
including a letter of censure, suspension, termination of
employment, or other sanctions.
APPENDIX A
ADVISORY REPRESENTATIVES
The names and titles of "advisory representatives" subject to the
Code of Ethics as of May 15, 1998 were:
ALL PORTFOLIOS EXCEPT TAX FREE FUND OF COLORADO
(Trade preapproval is not required on Colorado tax exempt trades)
Randall D. Greer, Chairman, President & Chief Executive
Officer
Rodney D. Cerny, Executive Vice President & Chief Investment
Officer
Bruce H. Van Kooten, First Vice President
Barry W. Dunaway, Assistant Vice President
Diana M. Whitman, Director - Sales & Marketing
Judith K. Mohr, Senior Investment Management Assistant
Barbara Donelson, Investment Management Assistant
Rita R. Hood, Secretary
Alisha W. Horton, Secretary
ALL FIXED INCOME PORTFOLIOS EXCEPT TAX FREE FUND OF COLORADO
(Trade preapproval is not required on equity and Colorado tax
exempt trades)
Patrick M. Miner, Vice President
TAX FREE FUND OF COLORADO PORTFOLIO
(Trade preapproval is required only on Colorado tax exempt)
Christopher B. Johns, First Vice President
John R. Wyszynski, First Vice President
ROCKY MOUNTAIN EQUITY FUND
Randall D. Greer, Chairman, President and Chief Executive
Officer
APPENDIX B
INVESTMENT ADVISERS ACT OF 1940
RULES AND REGULATIONS
275.204-2(A) (12) (13)
Text of rule ommited
APPENDIX C
APPLICABLE FORMS
Preclearance Form for Personal Investing
Report of Securities Transactions
