TAX-FREE FUND FOR UTAH
Supplement to the Prospectuses and
Statement of Additional Information
Dated October 31, 1997
as previously supplemented
May 21, 1998 and June 4, 1998
On July 15, 1998, the shareholders of the Fund approved a new
sub-advisory agreement (the "Sub-Advisory Agreement") between
Aquila Management Corporation (the "Manager") and Zions First
National Bank (the "Sub-Adviser"). The Sub-Advisory Agreement went
into effect on July 16, 1998.
The Sub-Advisory Agreement, in general, has the same
provisions and same rate of compensation as the former sub-advisory
agreement, which terminated when the Sub-Advisory Agreement went
into effect. 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 0.23 of 1% of such net asset value.
The Sub-Advisory Agreement also has various new provisions:
1. Notwithstanding the foregoing fee arrangements, the Sub-
Adviser acknowledges that the Manager intends from time to time
to waive some or all of the fee payable under the Advisory and
Administration Agreement as the Manager deems necessary to
maintain a competitive yield for the Fund; in connection
therewith, the Sub-Adviser agrees to waive all or part of its fee
under this Agreement on the following terms and conditions: The
Manager shall from time to time determine, in its sole
discretion, how much, if any, of the fee payable by the Fund
under the Advisory and Administration Agreement shall be waived
and how much of such waiver shall be borne by the Sub-Adviser,
provided, however, that
a. In no period (each a "Cumulative Period") measured from
the effective date of the Agreement shall the waiver borne
by the Sub-Adviser constitute more than 46% of the total fee
payable under the Administration and Advisory Agreement that
is waived by the Manager during such Cumulative Period (46%
being the proportion, expressed as a percent, of the annual
fee rate payable to the Sub-Adviser to that payable to the
Manager); and
b. In no event shall the compensation actually paid to the
Sub-Adviser, net of such waivers and stated as an annual
percentage of the average net assets of the Fund during the
relevant period, be less than
(i) 0.13 of 1% for any period in which the net assets
of the Fund equal or exceed $58 million; or
(ii) 0.06 of 1% for any period during the first 365
days following the effectiveness of the Agreement in
which the minimum net compensation provision in (i)
above is inapplicable (i.e., when Fund assets equal or
exceed $58 million).
2. The Sub-Adviser further acknowledges that the Manager may
from time to time determine that, in addition to the fee waivers
discussed above, reimbursement of some of the Fund's expenses,
including expenses attributable to Sub-Advisory fees, is
necessary in order to maintain a competitive yield for the Fund.
The Sub-Adviser agrees to share the costs of such reimbursements,
as allocated in the Manager's discretion between the Manager and
the Sub-Adviser, during any period in which the minimum net
compensation provisions discussed above do not apply, provided,
however, that in no event shall the Sub-Adviser's share of such
reimbursements in any Cumulative Period exceed 46% of the total
expense reimbursements for that Cumulative Period.
The Sub-Adviser further acknowledges that in addition to the
waivers and reimbursements contemplated by the foregoing
provisions, there may be such additional and voluntary waivers
and reimbursements by the Sub-Adviser as it may, in consultation
with the Manager, determine to be appropriate from time to time.
3. For so long as the Sub-Adviser provides investment
services to the Fund, neither the Sub-Adviser nor any subsidiary,
parent or affiliated company of the Sub-Adviser (a "Sub-Advisory
Affiliate") will develop or market a proprietary or other tax-
exempt municipal bond fund which is competitive with the Fund.
However, the Sub-Adviser or a Sub-Advisory Affiliate may become a
provider of services to such a municipal bond fund upon and
solely by reason of the fact that a person, firm, or corporation
that provides such investment company services has been directly
or indirectly acquired by, or merged with, the Sub-Adviser or
Sub-Advisory Affiliate, as long as such investment company does
not operate in a manner that permits ready exchange with an
investment company, the investment adviser of which is the Sub-
Adviser or Sub-Advisory Affiliate.
4. The Sub-Adviser, under the supervision of the Manager,
shall provide at its expense portfolio management particularly
qualified to manage investments in which the Fund primarily
invests, and such portfolio management shall be located in the
state of issuers of such investments.
The following material replaces the material under the
caption "Local Portfolio Management - Fee Arrangements" in the
Highlights section of both prospectuses:
Zions First National Bank of Salt Lake City, Utah, serves as
the Fund's Investment Sub-Adviser, providing experienced local
professional management. The Sub-Adviser was founded in 1873 and
is a wholly-owned subsidiary of Zions Bancorporation, a Utah-
headquartered financial services company with consolidated assets
of $10.6 billion as of March 31, 1998. In addition to advising
the Fund, the Sub-Adviser's advisory experience includes
investment management services to affiliate banks, corporate
foundations and profit-sharing trusts, retirement funds,
charitable foundations, endowments and individual investors
throughout the United States. The Fund pays fees at a rate of up
to 0.50 of 1% of average annual net assets to its Manager which
in turn pays up to 0.23 of 1% of average annual net assets to its
Sub-Adviser (for total fees at a rate of up to 0.50 of 1% of
average annual net assets), although some or all of these fees
may be waived temporarily.
The following material replaces the first three paragraphs
under the caption "Information about the Manager, the
Sub-Adviser and the Distributor" in both prospectuses:
The Sub-Adviser was founded in 1873 and is a wholly-owned
subsidiary of Zions Bancorporation, a Utah-headquartered
financial services company with consolidated assets of $10.6
billion as of March 31, 1998. In addition to advising the Fund,
the Sub-Adviser's advisory experience includes investment
management services to affiliate banks, corporate foundations and
profit-sharing trusts, retirement funds, charitable foundations,
endowments and individual investors throughout the United States.
While the Sub-Adviser is exempt as a national bank from
registration as investment adviser under the Investment Advisers
Act of 1940, as amended, its wholly-owned subsidiary, Zions
Investment Securities, Inc. ("ZISI"), a member firm of NASD/SIPC,
is so registered. The management of the Sub-Adviser' advisory
activities and ZISI are the same. The Sub-Adviser and its parent,
Zions Bancorporation, have offices at One South Main Street, Salt
Lake City, Utah 84111.
The Sub-Adviser is the second largest bank in the state of
Utah and one of the largest banks in the intermountain region.
The Sub-Adviser will not be permitted to purchase securities of,
or enter into principal transactions with, any of its affiliates
when acting on behalf of the Fund. The above restrictions do not
apply, however, to securities issued or underwritten by banks or
other financial institutions which are not themselves affiliates
of the Sub-Adviser, although they may have a correspondent
banking or other business relationship with one or more of the
banks of Zions Bancorporation.
The Sub-Adviser has designated Christopher P. Foley to
manage the Fund's portfolio. Mr. Foley is an Assistant Vice
President of the Sub-Adviser and has been employed in the
investment management business for 13 years. He is a member of
the Association of Investment Management and Research (AIMR) and
is in the process of earning the professional designation of
Chartered Financial Analyst (CFA). He received his B.S. degree
(Finance/Economics) from the University of Cincinnati, and is in
the process of completing his M.B.A. degree from Westminster
College, Salt Lake City, Utah.
Banking laws and regulations, including the Glass-Steagall
Act as currently interpreted by the Board of Governors of the
Federal Reserve System, prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling or
distributing securities, but do not prohibit such a bank holding
company or affiliate from acting as investment adviser, transfer
agent or custodian to such an investment adviser, or from
purchasing shares of such a company as agent for and upon the
order of a customer. The Sub-Adviser believes that the Sub-
Adviser can perform the advisory services for the Fund described
in the prospectus and this supplement. However, future changes in
legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of
present requirements, could prevent it from continuing to perform
investment advisory services for the Fund. If the Sub-Adviser
were prohibited from performing investment advisory services for
the Fund, it is expected that the Manager would recommend to the
Board of Trustees of the Fund and to the Fund's shareholders that
they approve new agreements with another entity or entities
qualified to perform such services.
The following material is added under the caption "General":
The Year 2000
Like other financial and business organizations, the Fund
could be adversely affected if computer systems the Fund relies
on do not properly process date-related information and data
involving the year 2000 and after. The Manager is taking steps
that it believes are reasonable to address this problem in its
own computer systems and to obtain assurances that steps are
being taken by the other major service providers to the Fund to
achieve comparable results. The three mission critical vendors --
the shareholder servicing agent, the custodian and the fund
accounting agent -- as well as other support organizations have
advised the Manager that they are actively working on necessary
changes. Certain vendors have advised the Manager that they are
currently compliant. The target date for compliance by the
mission critical vendors is late 1998. The Manager has also
requested the Fund's portfolio manager to attempt to evaluate the
potential impact of this problem on the issuers of securities in
which the Fund invests. At this time there can be no assurance
that the target dates will be met or that these steps will be
sufficient to avoid any adverse impact on the Fund.
The date of this supplement is July 21, 1998
<PAGE>
TAX-FREE FUND FOR UTAH
Supplement to the Prospectus (Class A Shares and Class C Shares)
dated October 31, 1997
As previously supplemented May 21, 1998
The paragraph captioned "Special Dealer Arrangements:" is
changed to read as follows:
Special Dealer Arrangements: During certain periods determined by
the Distributor, the Distributor (not the Fund) will pay any
dealer effecting a purchase of Class A Shares of the Fund using
the proceeds of a Qualified Redemption 1% of such proceeds
payable over a one year period. Whenever the Special dealer
arrangements are in effect the Prospectus will be supplemented.
The foregoing special dealer arrangements will be in effect
from June 4, 1998 until December 31, 1998 unless extended or
earlier terminated by another supplement to the Prospectus.
The date of this supplement is June 4, 1998.
<PAGE> TAX-FREE FUND FOR UTAH
Supplement to the Prospectuses
dated October 31, 1997
The Board of Trustees has determined that it would be in the
best interests of the Fund and its shareholders to authorize
Aquila Management Corporation, the Fund's founder and Manager, to
change the Fund's investment sub-adviser to Zions First National
Bank, Salt Lake City, Utah, from the current sub-adviser, First
Security Investment Management, Inc. This proposed change is
subject to the approval by the shareholders of the Fund of a new
sub-advisory agreement. A special meeting of the shareholders
will be held on July 15, 1998 to act upon the proposal. It is
expected that proxy material for the special meeting will be
mailed to shareholders in early June, 1998. If the new agreement
is approved by the shareholders it is expected that the change
will be implemented by August 1, 1998.
The date of this supplement is May 21, 1998
<PAGE>
Tax-Free Fund For Utah
380 Madison Avenue
Suite 2300
New York, NY 10017
800-UTAH-YES
(800-882-4937)
212-697-6666
Prospectus
Class A Shares
Class C Shares October 31, 1997
The Fund is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Utah and
regular Federal income taxes as is consistent with preservation
of capital by investing principally in municipal obligations of
Utah issuers which pay interest exempt from Utah State and
Federal income taxes. These municipal obligations must, at the
time of purchase, either be rated within the four highest credit
ratings (considered as investment grade) assigned by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, or, if
unrated, be determined to be of comparable quality to municipal
obligations so rated by the Fund's Sub-Adviser, First Security
Investment Management, Inc.
The Fund is intended as an investment through which Utah
investors can participate in the financing of various
Utah-oriented public purpose projects which assist in the
economic development of the State and the quality of life of its
residents. While the Fund will seek to have 100% of its assets
invested in tax-free municipal obligations of Utah issuers, it
may invest up to 35% of the Fund's assets in tax-free municipal
obligations of issuers of other states.
The Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund dated October 31, 1997 (the
"Additional Statement") has been filed with the Securities and
Exchange Commission and is available without charge upon written
request to the Fund's Shareholder Servicing Agent, at the address
given below, or by calling the telephone number(s) given below.
The Additional Statement contains information about the Fund and
its management not included in the Prospectus. The Additional
Statement is incorporated by reference in its entirety in the
Prospectus. Only when you have read both the Prospectus and the
Additional Statement are all material facts about the Fund
available to you.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY FIRST SECURITY INVESTMENT MANAGEMENT,
INC., FIRST SECURITY BANK OF UTAH, N.A., OR ITS BANK OR NON-BANK
AFFILIATES OR BY ANY OTHER BANK. SHARES OF THE FUND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT
OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact the
Fund's Shareholder Servicing Agent: after November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-446-8824 toll free
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-446-8824 toll free or 732-855-5731
For General Inquiries & Yield Information,
Call 800-882-4937 toll free or 212-697-6666
The Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
[PICTURE]
St. George Water Treatment Facility
[PICTURE]
Primary Childrens Hospital in Salt Lake City
[PICTURE]
Intermountain Health Care Facility
[PICTURE]
Single Family Mortgage Bonds for Utah Housing
[LOGO]
TAX-FREE FUND FOR UTAH
[PICTURE]
St. George Regional Sewer Project
[PICTURE]
University of Utah
[PICTURE]
Salt Lake City International Airport
[PICTURE]
Jordan School District Elementary School
[PICTURE]
Davis School District Middle School
The Fund invests in tax-free municipal securities, primarily the
kinds of obligations issued by various communities and political
subdivisions within Utah. Most of these securities are used to
finance long-term municipal projects; examples are pictured
above. (See "Investment of the Fund's Assets.") The municipal
obligations which financed these particular projects were
included in the Fund's portfolio as of September 30, 1997, and
together represented 22.64% of the Fund's portfolio. Since the
portfolio is subject to change, the Fund may not necessarily own
these specific securities at the time of the delivery of this
Prospectus.
<PAGE>
HIGHLIGHTS
Tax-Free Fund For Utah (the "Fund"), founded by Aquila
Management Corporation (the "Manager") in 1992 and one of the
Aquilasm Group of Funds, is an open-end, non-diversified
management investment company (a "mutual fund") which invests in
tax-free municipal bonds, principally obligations issued by the
State of Utah, its counties and various other local authorities
to finance such long-term projects as schools, roads, hospitals
and water facilities throughout Utah or to finance short-term
needs. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the
Fund invests pay interest which is exempt from both regular
Federal income taxes and State of Utah income taxes (except Utah
income tax on corporations). Dividends paid by the Fund from this
income are likewise free of both such taxes. It is, however,
possible that in certain circumstances a small portion of the
dividends paid by the Fund will be subject to income taxes. The
Federal alternative minimum tax may apply to some investors, but
its impact will be limited since not more than 20% of the Fund's
net assets can be invested in obligations paying interest which
is subject to this tax. The receipt of exempt-interest dividends
from the Fund may result in some portion of social security
payments or railroad retirement benefits being included in
taxable income. Capital gains distributions, if any, are taxable.
(See "Dividend and Tax Information.")
Investment Grade - The Fund will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or are determined
to be of comparable quality by the Fund's Sub-Adviser, First
Security Investment Management, Inc. In general there are nine
separate credit ratings, ranging from the highest to the lowest
credit ratings for municipal obligations. Obligations within the
top four ratings are considered "investment grade," but those in
the fourth rating may have speculative characteristics as well.
(See "Investment of the Fund's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of
$50 or more, through the convenience of having your investment
electronically transferred from your financial institution
account into the Fund by Automatic Investment or Telephone
Investment. (See "How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time
of purchase, much as goods can be purchased on an installment
plan. For this purpose the Fund offers the following classes of
shares, which differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A Shares") are
offered to anyone at net asset value plus a sales charge,
paid at the time of purchase, at the maximum rate of 4.0% of
the public offering price, with lower rates for larger
purchases. (See "How to Purchase Class A Shares.") Class A
Shares are subject to an asset retention service fee under
the Fund's Distribution Plan at the rate of 0.20 of 1% of
the average annual net assets represented by the Class A
Shares. (See "Distribution Plan" and "Table of Expenses.")
* Level-Payment Class Shares ("Class C Shares") are offered
to anyone at net asset value with no sales charge payable at
the time of purchase but with a level charge for service and
distribution fees for six years after the date of purchase
at the aggregate annual rate of 1% of the average annual net
assets of the Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares are automatically
converted to Class A Shares. If you redeem Class C Shares
before you have held them for 12 months from the date of
purchase you will pay a contingent deferred sales charge
("CDSC"); this charge is 1%, calculated on the net asset
value of the Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after Class
C Shares have been held beyond the applicable period. (See
"Alternative Purchase Plans," "Computation of the Holding
Periods for Class C Shares" and "How to Purchase Class C
Shares.")
The Fund also issues Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors
and Financial Intermediary Class Shares ("Class I Shares") which
are offered and sold only through certain financial
intermediaries. Class Y Shares and Class I Shares are not offered
by this Prospectus.
Class A Shares and Class C Shares are only offered for sale
in certain states. (See "How to Invest in the Fund.") If shares
of the Fund are sold outside those states the Fund can redeem
them. If your state of residence is not Utah, the dividends from
the Fund may be subject to income taxes of the state in which you
reside. Accordingly, you should consult your tax adviser before
acquiring shares of the Fund.
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to
you, directly deposited into your financial institution account,
or automatically reinvested without sales charge in additional
shares of the Fund at the then-current net asset value. Specific
classes of shares will have different dividend amounts due to
their particular expense levels. (See "Dividend and Tax
Information.")
Many Different Issues - You have the advantages of a
portfolio which consists of over 70 issues with different
maturities. (See "Investment of the Fund's Assets.")
Local Portfolio Management - Fee Arrangements - First
Security Investment Management, Inc. of Salt Lake City, Utah,
serves as the Fund's Investment Sub-Adviser, providing
experienced local professional management. The Sub-Adviser was
incorporated in 1984 and is a subsidiary of First Security
Investment Services, Inc., which in turn is a wholly-owned
subsidiary of First Security Corporation, a Utah-headquartered
financial services organization with consolidated assets of $13.1
billion as of August 31, 1997. In addition to advising the Fund,
First Security's advisory experience includes the management of
The Achievement Family of Funds, funds unrelated to the Fund, and
the provision of investment management services to banks and
thrift institutions, corporate and profit-sharing trusts,
Taft-Hartley, municipal and state retirement funds, charitable
foundations, endowments and individual investors throughout the
United States. First Security is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended. It
has offices at 61 South Main Street, Salt Lake City, Utah 84111,
119 North 9th Street, Boise, Idaho 83730, 219 Central Avenue,
N.W., Albuquerque, New Mexico 87102 and 530 Las Vegas Boulevard,
Las Vegas Nevada 89101. First Security Bank of Utah, N.A., an
affiliate of First Security, is the largest bank in the State of
Utah and one of the largest banks in the Rocky Mountain region.
The Fund pays fees at a rate of up to 0.50 of 1% of average
annual net assets to its Manager which in turn pays up to 0.23 of
1% of average annual net assets to its Sub-Adviser (for total
fees at a rate of up to 0.50 of 1% of average annual net assets),
although some or all of these fees may be waived temporarily.
Redemptions - Liquidity - You may redeem any amount of your
account on any business day at the next determined net asset
value by telephone, FAX or mail request, with proceeds being sent
to a predesignated financial institution if you have elected
Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or
will be mailed. For these and other redemption procedures see
"How to Redeem Your Investment." There are no penalties or
redemption fees for redemption of Class A Shares. However, there
is a contingent deferred sales charge with respect to certain
Class A Shares which have been purchased in amounts of $1 million
or more (see "Purchase of $1 Million or More"). If you redeem
Class C Shares before you have held them for 12 months from the
date of purchase you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%. (See "Alternative Purchase Plans" -
"Class C Shares.")
Certain Stabilizing Measures - The Fund will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class A or Class C Shares of
the Fund into corresponding classes of shares of other
Aquila-sponsored tax-free municipal bond mutual funds or two
Aquila-sponsored equity funds. You may also exchange them into
shares of the Aquila-sponsored money market funds. The exchange
prices will be the respective net asset values of the shares.
(See "Exchange Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Fund's portfolio securities, which fluctuate with market
conditions, including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Fund's
Investments and Their Yields.") The Fund's assets, being
primarily or entirely Utah issues, are subject to economic and
other conditions affecting Utah. (See "Risk Factors and Special
Considerations Regarding Investment in Utah Double-Exempt
Obligations.") Moreover, the Fund is classified as a
"non-diversified" investment company, because it may choose to
invest in the obligations of a relatively limited number of
issuers. (See "Investment of the Fund's Assets.")
Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual
Report and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND FOR UTAH
TABLE OF EXPENSES
Class A Class C
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases.......... 4.00% None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Maximum Deferred Sales Charge ..................... None(1) 1.00%(2)
Redemption Fees ................................... None None
Exchange Fee ...................................... None None
Annual Fund Operating Expenses(3)(4)
(as a percentage of average net assets)
Management Fee After Waiver(5).......... .......... 0.06% 0.06%
12b-1 Fee After Expense Reimbursement.............. 0.00% 0.75%
All Other Expenses After Expense
Reimbursement..................................... 0.30% 0.55%
Service Fee ..................................... None 0.25%
Other Expenses .................................. 0.30% 0.30
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waiver................... 0.36% 1.36%
Example (6)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A Shares.............. $44 $51 $59 $84
Class C Shares
With complete redemption
at end of period....... $24 $43 $74 $111(7)
With no redemption $14 $43 $74 $111(7)
<FN>
(1) Certain shares purchased in transactions of $1 million or more without
a sales charge may be subject to a contingent deferred sales charge of up
to 1% upon redemption during the first four years after purchase. See
"Purchase of $1 Million or More."
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds of the shares (or on the original price, whichever is lower) if
redeemed during the first 12 months after purchase.
</FN>
<FN>
(3) Estimated based upon amounts incurred by the Fund during its most
recent fiscal year, restated to reflect current arrangements.
</FN>
<FN>
(4) Fees are being waived by the Adviser and Administrator and it is
anticipated that once the asset size of the Fund reaches approximately $60
million these waivers will be increasingly reduced as the asset size of
the Fund increases, so that when assets exceed approximately $100 million
a substantial portion or all of these fees will be paid. Also, operating
expenses are being subsidized through reimbursement by the Administrator.
This subsidy is being phased out progressively so that the Fund will bear
its own expenses, other than advisory and administration fees, once its
asset size reaches approximately $60 million. The undertakings of the
Adviser and the Administrator as to fee waivers and the practices of the
Administrator as to expense reimbursement may operate to reduce the fees
and expenses of the Fund (see "Management Arrangements"). Other expenses
do not reflect a 0.01% expense offset in custodian fees received for
uninvested cash balances. Without fee waivers and expense reimbursement
and including the offset in custodian fees, expenses would have been
incurred at the following annual rates: for Class A Shares, management
fee, 0.50%; 12b-1 fee, 0.20%; other expenses, 0.63%, for total operating
expenses of 1.33%; for Class C Shares, management fee, 0.50%; 12b-1 fee,
0.75%; service fee, 0.25%; other expenses, 0.63%, for total operating
expenses of 2.13%.
</FN>
<FN>
(5) The Fund pays the Manager an advisory fee at the annual rate of 0.50%
of 1% of average annual net assets of which 0.44 of 1% is currently being
waived; the Manager pays the Sub-Adviser a sub-advisory fee at the annual
rate of 0.23 of 1% of average annual net assets of which 0.17 of 1% is
currently being waived. (See "Management Arrangements.")
</FN>
<FN>
(6) The expense example is based upon the above shareholder transaction
expenses (in the case of Class A Shares, this includes a sales charge of
$40 for a $1,000 investment) and estimated annual Fund operating expenses.
It is also based upon amounts at the beginning of each year which
includes the prior year's assumed results. A year's results consist of
an assumed 5% annual return less total operating expenses; the expense
ratio was applied to an assumed average balance (the year's starting
investment plus one-half the year's results). Each figure represents the
cumulative expenses so determined for the period specified.
</FN>
<FN>
(7) Six years after the date of purchase, Class C Shares are automatically
converted to Class A Shares.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL
FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE
EXAMPLE. THE ASSUMED 5% ANNUAL RETURN SHOULD NOT BE INTERPRETED AS A
PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE HIGHER OR LOWER. THE EXAMPLE
ALSO REFLECTS THE MAXIMUM SALES CHARGE. SEE "HOW TO INVEST IN THE FUND".
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will bear
directly or indirectly. The above table should not be considered as a
commitment or prediction that any fees, or that any particular portion
of fees, will be waived, or that any particular expenses will be
reimbursed. (See "Management Arrangements" for a more complete
description of the various investment advisory and administration fees.)
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND FOR UTAH
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited by KPMG
Peat Marwick LLP, independent auditors, whose report thereon is included
in the Fund's June 30, 1997 financial statements contained in its Annual
Report, which are incorporated by reference into the Additional Statement.
The information provided in the table should be read in conjunction with
the financial statements and related notes. A copy of these financial
statements can be obtained without charge by calling or writing the
Shareholder Servicing Agent at the address and telephone numbers on the
cover of the Prospectus.
Class A(1) Class C(2)
Year Year
Period(4) Ended Ended
Ended
June 30 June 30, June 30,
1997 1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year .................. $9.74 $9.59 $9.32 $10.00 $9.74 9.77
Income from Investment
Operations:
Net investment income .... 0.52 0.54 0.55 0.55 0.44 0.05
Net gain (loss) on
securities (both realized
and unrealized) ........ 0.21 0.15 0.27 (0.65) 0.21 (0.03)
Total from Investment
Operations ............. 0.73 0.69 0.82 (0.10) 0.65 0.02
Less Distributions:
Dividends from net
investment income ...... (0.53) (0.54) (0.55) (0.55) (0.45) (0.05)
Distributions from
capital gains .......... - - - (0.03) - -
Total Distributions ...... (0.53) (0.54) (0.55) (0.58) (0.45) (0.05)
Net Asset Value, End of
Year ..................... $9.94 $9.74 $9.59 $9.32 $9.94 $9.74
Total Return (not reflecting
sales load) (%).......... 7.72 7.17 9.09 (1.09) 6.80 0.20+
Ratios/Supplemental Data
Net Assets, End of Year
($ thousands) ......... 29.071 28,881 27,536 26,116 41 0.1
Ratio of Expenses to
Average Net Assets(%)... 0.27 0.19 0.08 0.03 1.07 0.14+
Ratio of Net Investment
Income to Average Net
Assets (%).............. 5.45 5.49 5.85 5.58 4.65 0.50+
Portfolio Turnover Rate(%) 5.09 11.15 22.92 27.53 5.09 11.15
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income($)... 0.42 0.43 0.43 0.40 0.35 0.04
Ratio of Expenses to
Average Net Assets(%).... 1.33 1.30 1.30 1.60 2.13 0.23+
Ratio of Net Investment
Income to Average Net
Assets(%)................ 4.39 4.37 4.63 4.00 3.59 0.42+
<CAPTION>
Class A(1)
Period (3)
ended
June 30, 1993
<C>
9.60
0.50
0.40
0.90
(0.50)
-
(0.50)
10.00
9.67+
12,938
0*
5.64*
36.52+
0.27
2.67*
2.97*
<FN>
(1) Designated as Class A Shares on May 21, 1996.
</FN>
<FN>
(2) New Class of Shares established on May 21, 1996.
</FN>
<FN>
(3) From July 24, 1992 (commencement of operations) to June 30, 1993.
</FN>
<FN>
(4) From May 21, 1996 through June 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment
for investors (other than corporations) who seek income exempt
from State of Utah and regular Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Utah Double-Exempt Obligations, as defined
below, which may include obligations of certain non-Utah issuers.
The Fund offers you the opportunity to keep assets fully invested
in a vehicle that provides a professionally managed portfolio of
Utah Double-Exempt Obligations which may, but not necessarily
will, be more diversified, higher yielding or more stable and
more liquid than you might be able to obtain on an individual
basis by direct purchase of Utah Double-Exempt Obligations.
Through the convenience of a single security consisting of
shares of the Fund, you are also relieved of the inconvenience
associated with direct investments of fixed denominations,
including the selecting, purchasing, handling, monitoring call
provisions and safekeeping of Utah Double-Exempt Obligations.
Utah Double-Exempt Obligations are a type of municipal
obligation. Municipal obligations are issued by or on behalf of
states, territories and possessions of the United States and
their political subdivisions, agencies and instrumentalities to
obtain funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes; and floating
and variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities
such as highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public
purposes for which municipal obligations may be issued include
the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the obtaining of funds to lend
to other public institutions and facilities.
INVESTMENT OF THE FUND'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both State of Utah and
regular Federal income taxes as is consistent with the
preservation of capital, the Fund will invest in Utah
Double-Exempt Obligations (as defined below). There is no
assurance that the Fund will achieve its objective, which is a
fundamental policy of the Fund. (See "Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Utah Double-Exempt Obligations" means obligations,
including those of non-Utah issuers, of any maturity which pay
interest which, in the opinion of bond counsel or other
appropriate counsel, is exempt from regular Federal income taxes
and from Utah income taxes other than taxes on corporations.
Although exempt from regular Federal income tax, interest paid on
certain types of Utah Double-Exempt Obligations, and dividends
which the Fund might pay from this interest, are preference items
as to the Federal alternative minimum tax; for further
information, see "Dividend and Tax Information." As a fundamental
policy, at least 80% of the Fund's net assets will be invested in
Utah Double-Exempt 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 the
income from which is subject to the Federal alternative minimum
tax. The Fund may refrain entirely from purchasing these types of
Utah Double-Exempt Obligations. While non-taxable to individuals
and other taxpayers, interest received from Utah and other
municipal issuers is subject to State of Utah taxes on
corporations. (See "Utah Tax Information" under "Dividend and Tax
Information" below.)
Interest on bonds or other obligations issued by or under
the authority of states other than Utah and their agencies and
instrumentalities, Puerto Rico, Guam, the Northern Mariana
Islands, and the Virgin Islands are exempt from Utah income taxes
(other than certain taxes on corporations), as well as Federal
income taxes. The Fund will not purchase obligations of non-Utah
issuers unless Utah Double-Exempt Obligations of Utah issuers of
the desired quality, maturity and interest rate are not
available. In selecting Utah Double-Exempt Obligations of
non-Utah issuers, the Fund will choose obligations which in the
judgement of First Security Investment Management, Inc., the
Fund's investment adviser (the "Sub-Adviser"), are most
appropriate to achieve the objectives of the Fund.
As a Utah-oriented fund, under normal circumstances at least
65% of the Fund's total assets will be invested in Utah
Double-Exempt Obligations of Utah issuers. The Fund invests only
in Utah Double-Exempt Obligations.
In general, there are nine separate credit ratings ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Fund will have a portfolio of
quality-oriented (investment grade) securities, the Utah
Double-Exempt Obligations which the Fund will purchase must, at
the time of purchase, either (i) be rated within the four highest
credit ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"); or (ii) if
unrated, be determined to be of comparable quality to municipal
obligations so rated by the Sub-Adviser, subject to the direction
and control of the Fund's Board of Trustees. Municipal
obligations rated in the fourth highest credit rating are
considered by such rating agencies to be of medium quality and
thus may present investment risks not present in more highly
rated obligations. Such bonds lack outstanding investment
characteristics and may in fact have speculative characteristics
as well; changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher grade bonds. If
after purchase the rating of any rated Utah Double-Exempt
Obligation is downgraded such that it could not then be purchased
by the Fund, or, in the case of an unrated Utah Double-Exempt
Obligation, if the Sub-Adviser determines that the unrated
obligation is no longer of comparable quality to those rated
obligations which the Fund may purchase, it is the current policy
of the Fund to cause any such obligation to be sold as promptly
thereafter as the Sub-Adviser in its discretion determines to be
consistent with the Fund's objectives; such obligation remains in
the Fund's portfolio until it is sold. In addition, because a
downgrade often results in a reduction in the market price of a
downgraded obligation, sale of such an obligation may result in a
loss. (See Appendix A to the Additional Statement for further
information as to these ratings.) The Fund can purchase
industrial development bonds only if they meet the definition of
Utah Double-Exempt Obligations, i.e., the interest on them is
exempt from State of Utah and regular Federal income taxes other
than Utah income taxes on corporations.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). The Fund also intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code
(the "Code"). One of the tests for such qualification under the
Code is, in general, that at the end of each fiscal quarter of
the Fund, at least 50% of its assets must consist of (i) cash;
and (ii) securities which, as to any one issuer, do not exceed 5%
of the value of the Fund's assets. If the Fund had elected to
register under the 1940 Act as a "diversified" investment
company, it would have to meet the same test as to 75% of its
assets. The Fund may therefore not have as much diversification
among securities, and thus diversification of risk, as if it had
made this election under the 1940 Act. In general, the more the
Fund invests in the securities of specific issuers, the more the
Fund is exposed to risks associated with investments in those
issuers. The Fund's assets, being primarily or entirely Utah
issues, are accordingly subject to economic and other conditions
affecting Utah. (See "Risk Factors and Special Considerations
Regarding Investment in Utah Double-Exempt Obligations.")
Certain Stabilizing Measures
The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash
and cash equivalents in attempting to protect against declines in
the value of its investments and other market risks.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30 days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.
Participation Interests
The Fund may purchase from financial institutions
participation interests in Utah Double-Exempt Obligations (such
as industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Utah Double-Exempt Obligations in the
proportion that the Fund's participation interest bears to the
total amount of the underlying Utah Double-Exempt Obligations.
All such participation interests must meet the Fund's credit
requirements. (See "Limitation to 10% as to Certain
Investments.")
When-Issued and Delayed Delivery Purchases
The Fund may buy Utah Double-Exempt Obligations on a
when-issued or delayed delivery basis when it has the intention
of acquiring them. The Utah Double-Exempt Obligations so
purchased are subject to market fluctuation and no interest
accrues to the Fund until delivery and payment take place; their
value at the delivery date may be less than the purchase price.
The Fund cannot enter into when-issued commitments exceeding in
the aggregate 15% of the market value of the Fund's total assets,
less liabilities other than the obligations created by
when-issued commitments. If the Fund chooses to dispose of the
right to acquire a when-issued obligation prior to its
acquisition, it could, as with the disposition of any other
portfolio holding, incur a gain or loss due to market
fluctuation; any such gain would be a taxable short-term gain.
The Fund places an amount of assets equal in value to the amount
due on the settlement date for the when-issued or delayed
delivery securities being purchased in a segregated account with
the Custodian, which is marked to market every business day. (See
the Additional Statement for further information.)
Limitation to 10% as to Certain Investments
The Fund cannot purchase Utah Double-Exempt Obligations that
are not readily marketable if thereafter more than 10% of its net
assets would consist of such investments. However, this 10% limit
does not include any Utah Double-Exempt Obligations as to which
the Fund can exercise the right to demand payment in full within
three days and as to which there is a secondary market. Floating
and variable rate demand notes and participation interests
(including municipal lease/purchase obligations) are considered
illiquid unless determined by the Board of Trustees to be readily
marketable. (See the Additional Statement.)
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets
in (i) Utah Double-Exempt Obligations the interest on which is
paid from revenues of similar type projects or (ii) industrial
development bonds, unless the Prospectus and/or the Additional
Statement are supplemented to reflect the change and to give
additional information.
Factors Which May Affect the Value
of the Fund's Investments and Their Yields
The value of the Utah Double-Exempt Obligations in which the
Fund invests will fluctuate depending in large part on changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Fund buys Utah Double-Exempt Obligations,
the value of these obligations will normally go down; if these
rates go down, the value of these obligations will normally go
up. Changes in value and yield based on changes in prevailing
interest rates may have different effects on short-term Utah
Double-Exempt Obligations than on long-term obligations.
Long-term obligations (which often have higher yields) may
fluctuate in value more than short-term ones. The Fund's
portfolio will represent a blend of short-term and long-term
obligations designed to reduce fluctuations in the net asset
value of the shares of the Fund.
Risk Factors and Special Considerations Regarding Investment in
Utah Double-Exempt Obligations of Utah Issuers
The Fund provides Utah residents with the benefits of
investing primarily in obligations of issuers of the State of
Utah, thereby participating in the financing of various
Utah-oriented public purpose projects which assist in the
economic development of the State and the quality of life of its
residents. However, since the Fund invests primarily in
obligations of Utah issuers, there is less diversification of the
portfolio of the Fund and there may be less breadth to the market
for its portfolio securities than is available for obligations of
non-Utah issuers. In addition, the yield of obligations of Utah
issuers in which the Fund invests may not be as high as that
available from obligations of issuers of other states, for
various reasons, including favorable evaluation in credit markets
of the credit quality of Utah issuers as compared to other
issuers. The following is a discussion of various factors that
might influence the ability of Utah issuers to pay principal and
interest when due on the Utah Double-Exempt Obligations contained
in the portfolio of the Fund. Such information is derived from
sources that are generally available to investors and is believed
by the Fund to be accurate but has not been independently
verified and may not be complete.
Utah's economy is dominated by service industries, trade,
government and various manufacturing sectors. While Utah's
economy has significantly outperformed the national economy for
several years, and its overall employment growth rate in recent
years has ranked among the highest in the nation, there can be no
assurance that such conditions will continue in the future.
The population of the State has increased in recent years,
with the increase being attributable to both natural population
increase and net in-migration. From fiscal years 1984 through
1989 the State experienced out-migration because of an economy
outpaced by the growth of its labor force and a decline in the
State's energy producing industries. In fiscal year 1996, Utah's
population rose 2.2% to 2,000,100, including 13,400 in-migrants.
It is not known at the present time whether current trends will
continue. Utah has more school-age children and fewer working
adults, as a percentage of its population, than any other state;
hence, to pay the State's education costs, Utah households pay
more in state and local taxes per household than the national
average. This current relatively high level of taxation could
adversely affect the ability of Utah issuers to raise taxes
substantially or at all.
A large percentage of the land in Utah is owned by the
Federal Government or included in Indian reservations, thereby
reducing the tax base of the State and its political
subdivisions. Since 1991, defense-related employment has lost
15,000 jobs. However, the conversion of one large military
facility to manufacturing will soon be completed. Some
communities in the State contain major industries heavily
dependent on defense-related government contracts for their
revenues. The termination of such government contracts could
increase unemployment and reduce taxes paid by such industries.
The ability of Utah and its political subdivisions to borrow
money and to levy and collect taxes is limited by constitutional
and statutory restrictions such as debt limitations and
limitations on revenue increases. In recent years attempts have
been made by popular initiative to further restrict the borrowing
and taxing capacity of the State and its political subdivisions.
It is not possible to predict whether any such proposals will be
enacted in the future or their possible impact on State or local
government financing.
The State receives revenues from three principal sources;
(a) taxes and licenses; (b) Federal grants-in-aid; and (c) fees,
the State's share of mineral royalties, bonuses on Federal land
and other miscellaneous charges and receipts. In the 1996 fiscal
year, 24.8% of those revenues came from sales taxes. The State
collects an individual income tax and a corporate franchise tax,
but all net revenues from such taxes are distributed to local
school districts.
Local governments are heavily dependent on ad valorem
property tax revenues, but also can receive revenues from other
local taxes and fees. There can be no assurance that a material
downturn in the State's economy, with the resulting impact on
State and local finances, will not adversely affect the market
value of the Utah Double-Exempt Obligations held in the Fund or
the ability of the respective obligors to make debt service
payments on such Utah Double-Exempt Obligations.
The availability of water is a significant concern in Utah.
During the past decade the State has experienced periods of both
flooding and drought. Water issues will likely affect the growth
and prosperity of the State in the future.
The Utah Double-Exempt Obligations in which the Fund may
invest from time to time include general obligation bonds,
revenue bonds, industrial revenue bonds and special tax
assessment bonds, and the sensitivity of each of these types of
investments to the general and economic factors discussed above
may vary significantly. No assurance can be given as to the
effect, if any, that these factors, individually or in the
aggregate, may have on any individual Utah Double-Exempt
Obligations or on the Fund as a whole.
Obligations of non-Utah issuers are subject to the risks of
general economic and other factors affecting those issuers.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and the Additional Statement as "fundamental
policies," cannot be changed unless the holders of a "majority,"
as defined in the 1940 Act, of the Fund's outstanding shares vote
to change them. (See the Additional Statement for a definition of
such a majority.) All other policies can be changed from time to
time by the Board of Trustees without shareholder approval. Some
of the more important of the Fund's fundamental policies, not
otherwise identified in the Prospectus, are set forth below;
others are listed in the Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Utah
Double-Exempt Obligations meeting the standards stated under
"Investment of the Fund's Assets."
2. The Fund has industry investment requirements.
The Fund cannot buy the obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; the Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Fund cannot make loans.
The Fund can buy those Utah Double-Exempt Obligations which
it is permitted to buy (see "Investment of the Fund's Assets");
this is investing, not making a loan. The Fund cannot lend its
portfolio securities.
4. The Fund can borrow only in limited amounts for special
purposes.
The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage
or pledge its assets only in connection with such borrowing and
only up to the lesser of the amounts borrowed or 5% of the value
of its total assets. 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
Utah Double-Exempt Obligations while it has any outstanding
borrowings which exceed 5% of the value of its total assets.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Fund's
classes of shares and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"),by dividing
the value of the Fund's net assets (i.e., the value of the assets
less liabilities) allocable to each class by the total number of
shares of such class then outstanding. Determination of the value
of the Fund's assets is subject to the direction and control of
the Fund's Board of Trustees. In general, it is based on market
value, except that Utah Obligations maturing in 60 days or less
are generally valued at amortized cost; see the Additional
Statement for further information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus, the Fund provides individual investors
with the option of two alternative ways to invest in the Fund,
through two separate classes of shares. All classes represent
interests in the same portfolio of Utah Double-Exempt
Obligations. The primary difference between the classes of shares
offered to individuals lies in their sales charge structures and
ongoing expenses, as described below. You should choose the class
that best suits your own circumstances and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you will pay a sales charge over a
period of six years after purchase but without paying anything at
time of purchase, much as goods can be purchased on an
installment plan. You are subject to a contingent deferred sales
charge, described below, but only if you redeem your Class C
Shares before they have been held 12 months from your purchase.
(See "Computation of Holding Periods for Class C Shares.")
Class A Shares, "Front-Payment Class Shares," are offered to
anyone at net asset value plus a sales charge, paid at the
time of purchase, at the maximum rate of 4.0% of the public
offering price, with lower rates for larger purchases. When
you purchase Class A Shares, the amount of your investment
is reduced by the applicable sales charge. Class A Shares
are subject to an asset retention service fee under the
Fund's Distribution Plan at the rate of 0.20 of 1% of the
average annual net assets represented by the Class A Shares.
(See "Distribution Plan" and "Table of Expenses.") Certain
Class A Shares purchased in transactions of $1 million or
more are subject to a contingent deferred sales charge. (See
"Purchase of $1 Million or More.")
Class C Shares, "Level-Payment Class Shares," are offered to
anyone at net asset value with no sales charge payable at
purchase but with a level charge for distribution fees and
service fees for six years after the date of purchase at the
aggregate annual rate of 1% of the average annual net assets
of the Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares, including Class
C Shares acquired in exchange for other Class C Shares under
the Exchange Privilege (see "Exchange Privilege"), are
automatically converted to Class A Shares. If you redeem
Class C Shares before you have held them for 12 months from
the date of purchase, you will pay a contingent deferred
sales charge ("CDSC") at the rate of 1%, calculated on the
net asset value of the redeemed Class C Shares at the time
of purchase or of redemption, whichever is less. The amount
of any CDSC will be paid to the Distributor. The CDSC does
not apply to shares acquired through the reinvestment of
dividends on Class C Shares or to any Class C Shares held
for more than 12 months after purchase. For purposes of
applying the CDSC and determining the time of conversion,
the 12-month and six-year holding periods are considered
modified by up to one month depending upon when during a
month your purchase of such shares is made. (See
"Computation of Holding Periods for Class C Shares" and "How
to Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions,
second of any Class C Shares you have held for more than 12
months from the date of purchase and finally of those Class C
Shares as to which the CDSC is payable which you have held the
longest. This will result in your paying the lowest possible
CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that
month. The 12-month CDSC holding period will end on the first
business day of the 12th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your Class C Shares may be up to one
month less than the full 12 months depending upon when your
actual purchase was made during a month. Running of the 12-month
CDSC holding period will be suspended for one month for each
period of thirty days during which you have held shares of a
money market fund you have received in exchange for Class C
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class
C Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day
of the month following that in which the sixth anniversary of
your purchase of the Class C Shares occurred, except as noted
below. Accordingly, the holding period applicable to your Class C
Shares may be up to one month more than the six years depending
upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of
Class C Shares at the time of conversion, you may receive fewer
Class A Shares than the number of Class C Shares converted. If
you have made one or more exchanges of Class C Shares among the
Aquila-sponsored tax-free municipal bond funds or equity funds
under the Exchange Privilege, the six-year holding period is
deemed to have begun on the date you purchased your original
Class C Shares of the Fund or of another of the Aquila bond or
equity funds. The six-year holding period will be suspended by
one month for each period of thirty days during which you hold
shares of a money market fund you have received in exchange for
Class C Shares under the Exchange Privilege. (See "Exchange
Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4% of the None
Charge public offering price
Contingent None (except for Maximum CDSC of 1% if
Deferred certain purchases shares redeemed before 12
Sales Charge over $1 Million) months; 0% after 12 months
Distribution and 0.20 of 1% Distribution fee of 0.75
Service Fees of 1% and a service fee
of 0.25 of 1% for a total
of 1%, payable for six
years
Other Information Initial sales charge Shares convert to Class
waived or reduced in A Shares after six years
some cases
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Fund be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual
service and distribution fees on the Class C Shares will equal or
exceed the total cost of the initial 4% maximum initial sales
charge and 0.20 of 1% annual fee payable for Class A Shares. For
example, if equal amounts were paid at the same time for Class A
Shares (where the amount invested is reduced by the amount of the
sales charge) and for Class C Shares (which carry no sales charge
at the time of purchase) and the net asset value per share
remained constant over time, the total of such costs for Class C
Shares would equal the total of such costs for Class A Shares
after approximately four and two-thirds years. This example
assumes no redemptions and disregards the time value of money.
Purchasers of Class C Shares have all of their investment dollars
invested from the time of purchase, without having their
investment reduced at the outset by the initial sales charge
payable for Class A Shares. If you invest in Class A Shares you
will pay the entire sales charge at the time of purchase.
Accordingly, if you expect to redeem your shares within a
reasonably short time after purchase, you should consider the
total cost of such an investment in Class A Shares compared with
a similar investment in Class C Shares. The example under "Table
of Expenses" shows the effect of Fund expenses for both classes
if a hypothetical investment in each of the classes is held for
1, 3, 5 and 10 years. (See the Table of Expenses.)
Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends
of each class can vary because each class will bear certain
class-specific charges. For example, each class will bear the
costs of printing and mailing annual reports to its own
shareholders.
HOW TO INVEST IN THE FUND
The Fund's shares may be purchased through any investment
broker or dealer (a "selected dealer") which has a sales
agreement with Aquila Distributors, Inc. (the "Distributor") or
through the Distributor. There are two ways to make an initial
investment: (i) order the shares through your investment broker
or dealer, if it is a selected dealer; or (ii) mail the
Application with payment to the Fund's Shareholder Servicing
Agent (the "Agent") at the address on the Application. If you
purchase Class A Shares, the applicable sales charge will apply
in either instance. Subsequent investments are also subject to
the applicable sales charges. You are urged to complete an
Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be
made in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus
or Additional Statement. You may also make an initial investment
of at least $50 by establishing an Automatic Investment Program.
To do this you must open an account for automatic investments of
at least $50 each month and make an initial investment of at
least $50. (See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank, a credit
union or a United States branch of a foreign commercial bank
(each of which is a "Financial Institution"). You may make
subsequent investments in the same class of shares in any amount
(unless you have an Automatic Withdrawal Plan). Your subsequent
investment may be made through a selected dealer or by forwarding
payment to the Agent, with the name(s) of account owner(s), the
account number, the name of the Fund and the class of shares to
be purchased. With subsequent investments, please send the
pre-printed stub attached to the Fund's confirmations.
Subsequent investments of $50 or more in shares of the same
class as your initial investment can be made by electronic funds
transfer from your demand account at a Financial Institution. To
use electronic funds transfer for your purchases, your Financial
Institution must be a member of the Automated Clearing House and
the Agent must have received your completed Application
designating this feature, or, after your account has been opened,
a Ready Access Features form available from the Distributor or
the Agent. A pre-determined amount can be regularly transferred
for investment ("Automatic Investment"), or single investments
can be made upon receipt by the Agent of telephone instructions
from anyone ("Telephone Investment"). The maximum amount of each
Telephone Investment is $50,000. Upon 30 days' written notice to
shareholders, the Fund may modify or terminate these investment
methods at any time or charge a service fee, although no such fee
is currently contemplated.
The offering price is the net asset value per share for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent from selected dealers that day, except that orders
received by it after 4:00 p.m. New York time will receive that
day's offering price only if such orders were received by
selected dealers from customers prior to such time and
transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Fund's best interest to do
so.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Fund are available only in the following states:
Arizona, Colorado, District of Columbia, Florida, Hawaii, New
Jersey, New York and Utah.
If you do not reside in one of these states you should not
purchase shares of the Fund. If Class A Shares or Class C Shares
of the Fund are sold outside of these states the Fund can redeem
them. Such a redemption may result in a loss to you and may have
tax consequences.
In addition, if your state of residence is not Utah, the
dividends from the Fund may not be exempt from income tax of the
state in which you reside. Accordingly, you should consult your
tax adviser before acquiring shares of the Fund.
How to Purchase Class A Shares (Front-Payment Class Shares)
The following table shows the amount of the sales charge to
a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions") for Class A
Shares:
<TABLE>
<CAPTION>
Sales Sales Commissions
Charge Charge as as
as Approximate Percentage
Percentage Percentage of
Offering of Amount Offering
Price Invested Price
<S> <C> <C> <C>
Less than $25,000........ 4.00% 4.17% 3.50%
$25,000 but less
than $50,000............ 3.75% 3.90% 3.50%
$50,000 but less
than $100,000........... 3.50% 3.63% 3.25%
$100,000 but less
than $250,000........... 3.25% 3.36% 3.00%
$250,000 but less
than $500,000........... 3.00% 3.09% 2.75%
$500,000 but less
than $1,000,000......... 2.50% 2.56% 2.25%
</TABLE>
For purchases of $1 million or more see "Purchase of $1
Million or More," below.
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing Class A Shares for his,
her or their own accounts; (c) a trustee or other fiduciary
purchasing Class A Shares for a single trust estate or a single
fiduciary account; and (d) a tax-exempt organization enumerated
in Section 501(c)(3) or (13) of the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the
entire sales charge is reallowed, such selected dealers may be
deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Purchase of $1 Million or More
Class A Shares issued under the following circumstances are
called "CDSC Class A Shares": (i) Class A Shares issued in a
single purchase of $1 million or more by a single purchaser; and
(ii) all Class A Shares issued in a single purchase to a single
purchaser the value of which, when added to the value of the CDSC
Class A Shares and Class A Shares on which a sales charge has
been paid, already owned at the time of such purchase, equals or
exceeds $1 million. CDSC Class A Shares also include certain
Class A Shares issued under the program captioned "Special Dealer
Arrangements," below. CDSC Class A Shares do not include (i)
Class A Shares purchased without sales charge pursuant to the
terms described under "General," below and (ii) Class A Shares
purchased in transactions of less than $1 million and when
certain special dealer arrangements are not in effect under
"Certain Investment Companies" set forth under "Reduced Sales
Charges," below.
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will
pay to any dealer effecting such a purchase an amount equal to 1%
of the sales price of the shares purchased for purchases of $1
million but less than $2.5 million, 0.50 of 1% for purchases of
$2.5 million but less than $5 million, and 0.25 of 1% for
purchases of $5 million or more.
If you redeem all or part of your CDSC Class A Shares during
the four years after your purchase of such shares, at the time of
redemption you will be required to pay to the Distributor a
special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at
the time of purchase or (ii) the net asset value of your redeemed
CDSC Class A Shares at the time of redemption (the "Redemption
Value"). The special charge will be an amount equal to 1% of the
Redemption Value if the redemption occurs within the first two
years after purchase, and 0.50 of 1% of the Redemption Value if
the redemption occurs within the third or fourth year after
purchase. The special charge will apply to redemptions of CDSC
Class A Shares purchased without a sales charge pursuant to a
Letter of Intent, as described below under "Reduced Sales Charges
for Certain Purchases of Class A Shares." The special charge does
not apply to shares acquired through the reinvestment of
dividends on CDSC Class A Shares or to any CDSC Class A Shares
held for more than four years after purchase. In determining
whether the special charge is applicable, it will be assumed that
the CDSC Class A Shares you have held the longest are the first
CDSC Class A Shares to be redeemed, unless you instruct the Agent
otherwise. It will also be assumed that if you have both CDSC
Class A Shares and non-CDSC Class A Shares the non-CDSC Class A
Shares will be redeemed first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance
with the above schedule for subsequent purchases of Class A
Shares if the cumulative value (at cost or current net asset
value, whichever is higher) of Class A Shares you have previously
purchased with a sales charge and still own, together with Class
A Shares of your subsequent purchase with such a charge, amounts
to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
Class A Shares of the Fund through a single selected dealer or
through the Distributor. Class A Shares of the Fund which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Fund's Trustees and officers,
by the directors, officers and certain employees, retired
employees and representatives of the Sub-Adviser and its parent
and affiliates, the Administrator and the Distributor, by
selected dealers and brokers and their officers and employees, by
certain persons connected with firms providing legal, advertising
or public relations assistance, by certain family members of, and
plans for the benefit of, the foregoing, and for the benefit of
trust or similar clients of banking institutions over which these
institutions have full investment authority if the Fund or the
Distributor has entered into an agreement relating to such
purchases. Except for the last category, purchasers must give
written assurance that the purchase is for investment and that
the Class A Shares will not be resold except through redemption.
There may be tax consequences of these purchases. Such purchasers
should consult their own tax counsel. Class A Shares may also be
issued at net asset value in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund
is a party.
The Fund permits the sale of its Class A Shares at prices
that reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group is (i) a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer), which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing Class A Shares, (iii) gives its endorsement
or authorization (if it is a group or association) to an
investment program to facilitate solicitation of its membership
by a broker or dealer; and (iv) complies with the conditions of
purchase that are set forth in any agreement entered into between
the Fund and the group, representative or broker or dealer. At
the time of purchase you must furnish the Distributor with
information sufficient to permit verification that the purchase
qualifies for a reduced sales charge, either directly or through
a broker or dealer.
Certain Investment Companies: Class A Shares of the Fund may
be purchased at net asset value without sales charge (except as
set forth below under "Special Dealer Arrangements") to the
extent that the aggregate net asset value of such Class A Shares
does not exceed the proceeds from a redemption (a "Qualified
Redemption"), made within 120 days prior to such purchase, of
shares of another investment company on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.
To qualify, the following special procedures must be
followed:
1. A completed Application (included in the Prospectus) and
payment for the Class A Shares to be purchased must be sent to
the Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
Suite 2300, New York, NY 10017 and should not be sent to the
Shareholder Servicing Agent of the Fund. (This instruction
replaces the mailing address contained on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective shareholder
has made a Qualified Redemption in an amount at least equal to
the net asset value of the Class A Shares to be purchased.
Satisfactory evidence includes a confirmation of the date and the
amount of the redemption from the investment company, its
transfer agent or the investor's broker or dealer, or a copy of
the investor's account statement with the investment company
reflecting the redemption transaction.
3. You must complete and return to the Distributor a
Transfer Request Form, which is available from the Distributor.
The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Fund)
will pay to any dealer effecting a purchase of Class A Shares of
the Fund using the proceeds of a Qualified Redemption the lesser
of (i) 1% of such proceeds or (ii) the same amounts described
under "Purchase of $1 Million or More" above, on the same terms
and conditions. Class A Shares of the Fund issued in such a
transaction will be CDSC Class A Shares and if you thereafter
redeem all or part of such shares during the four-year period
from the date of purchase you will be subject to the special
contingent deferred sales charge described under "Purchase of $1
Million or More," above, on the same terms and conditions.
Whenever the Special Dealer Arrangements are in effect the
Prospectus will be supplemented.
How to Purchase Class C Shares (Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered at
net asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Fund represented by
the Class C Shares. If you redeem Class C Shares before you have
held them for 12 months from the date of purchase you will pay a
contingent deferred sales charge ("CDSC"). The CDSC is charged at
the rate of 1%, calculated on the net asset value of the redeemed
Class C Shares at the time of purchase or at redemption,
whichever is less. There is no CDSC after Class C Shares have
been held beyond the applicable period. The CDSC does not apply
to Class C Shares acquired through the reinvestment of dividends
on Class C Shares.
The Distributor will pay to any dealer effecting a purchase
of Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through a Payroll Plan.
Investments can be made in either Class A Shares or Class C
Shares. In order to participate in a Payroll Plan, you should
make arrangements with your own employer's payroll department,
and you must complete and sign any special application forms
which may be required by your employer. You must also complete
the Application included in the Prospectus. Once your application
is received and put into effect, under a Payroll Plan the
employer will make a deduction from payroll checks in an amount
you determine, and will remit the proceeds to the Fund. An
investment in the Fund will be made for you at the offering
price, which includes applicable sales charges determined as
described above, when the Fund receives the funds from your
employer. The Fund will send a confirmation of each transaction
to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you
so request in writing to the Agent. All share certificates
previously issued by the Fund represent Class A Shares. No
certificates will be issued for fractional Class A Shares or if
you have elected Automatic Investment or Telephone Investment for
Class A Shares (see "How to Invest in the Fund" above) or
Expedited Redemption (see "How to Redeem Your Investment" below).
If certificates for Class A Shares are issued at your request,
Expedited Redemption Methods described below will not be
available. In addition, you may incur delay and expense if you
lose the certificates.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended
to result in the sale of its shares except pursuant to a written
plan adopted under the Rule. The Plan has three parts.
Under one part of the Plan, the Fund is authorized to make
payments with respect to Class A Shares ("Class A Permitted
Payments") to Qualified Recipients, which payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent and may not exceed, for any fiscal year of the
Fund (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year), 0.20 of 1% of the average
annual net assets represented by the Class A Shares of the Fund.
Such payments shall be made only out of the Fund's assets
allocable to the Class A Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including
but not limited to any principal underwriter of the Fund, with
which the Fund or the Distributor has entered into written
agreements and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Fund's Class A Shares or servicing of accounts of
shareholders owning Class A Shares.
Under another part of the Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year), 0.75 of 1%
of the average annual net assets represented by the Class C
Shares of the Fund. Such payments shall be made only out of the
Fund's assets allocable to the Class C Shares. "Qualified
Recipients" means broker-dealers or others selected by the
Distributor, including but not limited to any principal
underwriter of the Fund, with which the Fund or the Distributor
has entered into written agreements and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Class C Shares or
servicing of accounts of shareholders owning Class C Shares.
Payments with respect to Class C Shares during the first year
after purchase are paid to the Distributor and thereafter to
other Qualified Recipients.
During the fiscal year ended June 30, 1997, $58,706 was paid
to Qualified Recipients under the Plan with respect to Class A
Shares, of which $1,749 was retained by the Distributor. (See the
Additional Statement for a description of the Distribution Plan.)
During the same period, $119 was paid to Qualified Recipients
with respect to Class C Shares of which the Distributor received
$119.
Another part of the Plan is designed to protect against any
claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for Permitted Payments it is not financing any such
activity and does not consider any payment enumerated in this
part of the Plan as so financing any such activity. However, it
might be claimed that some of the expenses the Fund pays come
within the purview of the Rule. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Fund shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. (See the Additional Statement.)
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Service Fees") to
Qualified Recipients. Service Fees shall be paid through the
Distributor or shareholder servicing agent as disbursing agent,
and may not exceed, for any fiscal year of the Fund (as adjusted
for any part or parts of a fiscal year during which payments
under the Plan are not accruable or for any fiscal year which is
not a full fiscal year), 0.25 of 1% of the average annual net
assets represented by the Class C Shares of the Fund. Such
payments shall be made only out of the Fund's assets represented
by the Class C Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including
but not limited to any principal underwriter of the Fund, with
which the Fund or the Distributor has entered into written
agreements and which have agreed to provide personal services to
holders of Class C Shares and/or maintenance of Class C Shares
shareholder accounts. (See the Additional Statement.) Service
Fees with respect to Class C Shares will be paid to the
Distributor. During the fiscal year ended June 30, 1997, payments
of $40 were made under this Plan to the Distributor.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net
asset value next determined after acceptance of your redemption
request at the Agent (subject to any applicable contingent
deferred sales charge for redemptions of Class C Shares and CDSC
Class A Shares). For redemptions of Class C Shares and CDSC Class
A Shares, at the time of redemption a sufficient number of
additional shares will be redeemed to pay for any applicable
contingent deferred sales charge. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Fund, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. Except for CDSC Class A Shares (see "Purchase of
$1 Million or More") there are no redemption fees or withdrawal
penalties for Class A Shares. Class C Shares are subject to a
contingent deferred sales charge if redeemed before they have
been held 12 months from the date of purchase. (See "Alternative
Purchase Plans.") A redemption may result in a transaction
taxable to you. If you own both Class A Shares and Class C Shares
and do not specify which you wish to redeem, it will be assumed
that you wish to redeem Class A Shares.
For your convenience the Fund offers expedited redemption
for all classes of shares to provide you with a high level of
liquidity for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
For your convenience the Fund offers expedited redemption
for to provide you with a high level of liquidity for your
investment. You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares not
represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have predesignated
or
b) by check in the amount of $50,000 or less, mailed to you,
if your shares are registered in your name at the Fund and
the check is sent to your address of record, provided that
there has not been a change of your address of record during
the 30 days preceding your redemption request. You can make
only one request for telephone redemption by check in any
7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-446-8824 toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
2. By FAX or Mail. You may also request redemption payments
to a predesignated Financial Institution account by a letter of
instruction sent after November 8, 1997 to: PFPC Inc., 400
Bellevue Parkway, Wilmington, DE 19809. Before November 8, 1997
send your letter of instructions to Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, by FAX at
732-855-5730 or by mail at 581 Main Street, Woodbridge, NJ
07095-1198. The letter must provide account name(s), account
number, amount to be redeemed, and any payment directions and be
signed by the registered holder(s). Signature guarantees are not
required. See "Redemption Payments", below for payment methods.
If you wish to have redemption proceeds sent directly to a
Financial Institution Account you should so elect on the
Expedited Redemption section of the Application or the Ready
Access Features form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s) of
the shareholder(s) as registered with the Fund. You may change
the designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed with payment instructions should be sent
(after November 8, 1997) in blank (unsigned) to the Fund's
Shareholder Servicing Agent: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809. Before November 8, 1997 send your
certificates to Administrative Data Management Corp., Attn:
Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ. A stock
assignment form signed by the registered shareholder(s) exactly
as the account is registered must also be sent to the Shareholder
Servicing Agent.
For your own protection, it is essential that certificates
be mailed separately from signed redemption documentation.
Because of possible mail problems, it is also recommended that
certificates be sent by registered mail, return receipt
requested.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), the Stock Exchanges
Medallion Program (SEMP) or the New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the Fund, and you have not elected
Expedited Redemption to a predesignated Financial Institution
account, you must use the Regular Redemption Method. Under this
redemption method you should send a letter of instruction (after
November 8, 1997) to the Fund's Shareholder Servicing Agent: PFPC
Inc., 400 Bellevue Parkway, Wilmington, DE 19809. Before November
8, 1997 send your letter to Administrative Data Management Corp.,
Attn: Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ
07095-1198. The letter must contain:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Fund may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
you may be charged a fee for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or determination of
the net asset value of, the portfolio securities to be
unreasonable or impracticable; or (iii) for such other periods as
the Securities and Exchange Commission may permit. Payment for
redemption of shares recently purchased by check (irrespective of
whether the check is a regular check or a certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment may be delayed up to 15 days or until (i) the purchase
check or Automatic Investment or Telephone Investment has been
honored or (ii) the Agent has received assurances by telephone or
in writing from the Financial Institution on which the purchase
check was drawn, or from which the funds for Automatic Investment
or Telephone Investment were transferred, satisfactory to the
Agent and the Fund, that the purchase check or Automatic
Investment or Telephone Investment will be honored. Possible
delays in payment of redemption proceeds can be eliminated by
using wire payments or Federal Reserve drafts to pay for
purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. (See the Additional Statement for details.)
The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of
a redemption of shares in shares of the Fund of the same class as
the shares redeemed at the net asset value next determined after
the Agent receives your reinvestment order. In the case of Class
C Shares or CDSC Class A Shares on which a contingent deferred
sales charge was deducted at the time of redemption, the
Distributor will refund to you the amount of such sales charge,
which will be added to the amount of the reinvestment. The Class
C Shares or CDSC Class A Shares issued on reinvestment will be
deemed to have been outstanding from the date of your original
purchase of the redeemed shares, less the period from redemption
to reinvestment. The reinvestment privilege for any class may be
exercised only once a year, unless otherwise approved by the
Distributor. If you have realized a gain on the redemption of
your shares, the redemption transaction is taxable, and
reinvestment will not alter any capital gains tax payable. If
there has been a loss on the redemption, some or all of the loss
may be tax deductible, depending on the amount reinvested and the
length of time between the redemption and the reinvestment. You
should consult your own tax advisor on this matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the Fund having a net asset value of
at least $5,000. The Automatic Withdrawal Plan is not available
for Class C Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
Class A Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. (See the
Automatic Withdrawal Plan provisions of the Application included
in the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.)
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, you may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases of Class A Shares. While an occasional lump sum
investment may be made, such investment should normally be an
amount at least equal to three times the annual withdrawal or
$5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
Change in Management Arrangements
On October 24, 1997, the management arrangements described
below were approved by the Fund's shareholders and went into
effect. The new arrangements are designed to change the form of
the Fund's investment advisory and administration arrangements to
a new structure involving an adviser and a sub-adviser. The
proposed arrangements do not result in any change in overall
management fees paid by the Fund, nor any change in the parties
providing these services. Marketing efforts and positioning of
the Fund will remain the same with a strong local niche
orientation.
Under the new arrangements, Aquila Management Corporation
("Aquila"), which since inception of the Fund has served as the
Fund's administrator, in addition became investment adviser under
a new agreement (the "Advisory and Administration Agreement")
under which it also continues to provide the Fund with all
administrative services. Also, by adoption of a Sub-Advisory
Agreement between Aquila and First Security Investment
Management, Inc. (the "Sub-Adviser"), the former investment
advisory agreement was replaced by one under which Aquila
appointed the Sub-Adviser as Sub-Adviser to the Fund. Under the
Sub-Advisory Agreement, the Sub-Adviser will continue to provide
the Fund with advisory services of the kind which it formerly
provided as adviser. The duties of the administrator, previously
performed under an administration agreement, are now performed by
Aquila under the Advisory and Administration Agreement where
Aquila is referred to as the "Manager." The former administration
agreement terminated upon approval of the new agreements.
The Advisory and Administration Agreement
The Advisory and Administration Agreement between the Fund
and Aquila Management Corporation (the "Manager") has several
parts, most of which are substantially identical to corresponding
provisions in the Fund's former advisory agreements and
administration agreement. The Advisory and Administration
Agreement contains provisions relating to investment advice for
the Fund and management of its portfolio that are substantially
identical to prior advisory agreements, except that the Manager
has the power to delegate its advisory functions to a
sub-adviser, which it will employ at its own expense. It has
delegated these duties to the Sub-Adviser. The Advisory and
Administration Agreement contains provisions relating to
administrative services that are substantially identical to those
contained in the Fund's current 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 (the "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 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. (See the Additional Statement.)
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 this sub-section 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 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 the
Fund agrees to pay the Manager, and the Manager agrees to accept
as full compensation for all services rendered by the Manager as
such, an annual fee payable monthly and computed on the net asset
value of the Fund as of the close of business each business day
at the annual rate of 0.50 of 1% of such net asset value.
The Advisory and Administration Agreement provides that the
Sub-Advisory Agreement may provide for its termination by the
Manager upon reasonable notice, provided, however, that the
Manager agrees not to terminate the Sub-Advisory Agreement except
in accordance with such authorization and direction of the Board
of Trustees, if any, as may be in effect from time to time. 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 Act) of the
voting securities of the Fund outstanding and entitled to vote.
The specific portions of the Advisory Agreement which relate to
providing investment advisory services will automatically
terminate in the event of the assignment (as defined in the Act)
of the Advisory 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 0.27 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.
Under the Sub-Advisory Agreement, the Sub-Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Sub-Adviser.
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 rates of 0.23 of 1% of such net asset value.
The Sub-Adviser and/or the Manager may, in order to attempt to
achieve a competitive yield on the shares of the Fund, each waive
all or part of their respective fees.
The Sub-Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Sub-Adviser is
authorized to consider sales of shares of the Fund or of any
other investment company or companies having the same investment
adviser, sub-adviser, administrator or principal underwriter as
the Fund.
Information about the Manager, the Sub-Adviser
and the Distributor
The Sub-Adviser, First Security Investment Management, Inc.,
was incorporated in August 1984 and is a subsidiary of First
Security Investment Services, Inc., which in turn is a
wholly-owned subsidiary of First Security Corporation, a
Utah-headquartered financial services organization with
consolidated assets of $13.1 billion as of August 31, 1997. In
addition to advising the Fund, the Sub-Adviser's advisory
experience includes the management of The Achievement Family of
Funds, funds unrelated to the Fund and the provision of
investment management services to banks and thrift institutions,
corporate and profit-sharing trusts, Taft-Hartley, municipal and
state retirement funds, charitable foundations, endowments and
individual investors throughout the United States. The
Sub-Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. The Sub-Adviser has
offices at 61 South Main Street, Salt Lake City, Utah 84111, 119
North 9th Street, Boise, Idaho 83730, 219 Central Avenue, N.W.,
Albuquerque, New Mexico 87102 and 530 Las Vegas Boulevard, Las
Vegas Nevada 89101.
First Security Bank of Utah, N.A., an affiliate of the Sub-
Adviser, is the largest bank in the State of Utah and one of the
largest banks in the Rocky Mountain region. The Sub-Adviser is
not permitted to purchase the securities of or enter into
principal transactions with any of its affiliates, including
First Security Bank of Utah, when acting on behalf of the Fund.
The above restriction does not apply, however, to securities
issued or underwritten by banks or other financial institutions
which are not themselves affiliates of the Sub-Adviser, although
they may have a correspondent banking or other business
relationship with one or more of the First Security banks. (See
below and in the Additional Statement as to the legality, under
the Glass-Steagall Act, of the Sub-Adviser's acting as the Fund's
investment adviser.) In general, under that Act, the Sub-Adviser
will not, among other things, be involved in the promotion or
distribution of shares of the Fund.
Sterling K. Jenson has managed the Fund's portfolio since
commencement of the Fund's operations in July, 1992. Mr. Jenson
is President, Chief Executive Officer and Senior Portfolio
Manager with the Sub-Adviser and has been employed in the
investment management business for over 19 years. He is a member
of the Association for Investment Management and Research (AIMR)
and has earned the professional designations Chartered Financial
Analyst (CFA) and Chartered Investment Counselor (CIC). He
received his B.S. degree (Economics) and M.B.A. degree from
Brigham Young University.
The Fund's Manager is founder of and administrator to the
Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and two equity funds. As of June
30, 1997, these funds had aggregate assets of approximately $2.8
billion, of which approximately $1.9 billion consisted of assets
of the tax-free municipal bond funds. The Manager, which was
founded in 1984, is controlled by Mr. Lacy B. Herrmann (directly,
through a trust and through share ownership by his wife). (See
the Additional Statement for information on Mr. Herrmann.)
During the fiscal year ended June 30, 1997, fees of $67,588
and $79,323, respectively, were accrued to the Sub-Adviser and
Manager under the former advisory and administration agreements
then in effect. Of these amounts, the Sub-Adviser and Manager
waived $55,749 and $72,207, respectively. In addition, during
that period the Manager agreed to reimburse the Fund for other
expenses during this period in the amount of $199,119 of which
$66,512 was paid prior to June 30, 1997 and the balance of
$132,607 was paid in July and early August of 1997.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds,
five money market funds and two equity funds), including the
Fund. Under the Distribution Agreement, the Distributor is
responsible for the payment of certain printing and distribution
costs relating to prospectuses and reports as well as the costs
of supplemental sales literature, advertising and other
promotional activities.
At the date of the Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Manager and/or the Distributor, including Mr. Herrmann and
Ms. Herrmann.
Authority to Act as Investment Sub-Adviser
Banking laws and regulations, including the Glass-Steagall
Act as currently interpreted by the Board of Governors of the
Federal Reserve System, prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling or
distributing securities, but do not prohibit such a bank holding
company or affiliate from acting as investment adviser, transfer
agent or custodian to such an investment adviser, or from
purchasing shares of such a company as agent for and upon the
order of a customer. The Sub-Adviser and the Fund believe that
the Sub-Adviser may perform the advisory services for the Fund
described in the Prospectus. However, future changes in legal
requirements relating to the permissible activities of banks and
their affiliates, as well as future interpretations of present
requirements, could prevent the Sub-Adviser from continuing to
perform investment advisory services for the Fund.
If the Sub-Adviser were prohibited from performing
investment advisory services for the Fund, it is expected that
the Board of Trustees of the Fund would recommend to the Fund's
shareholders that they approve new agreements with another entity
or entities qualified to perform such services and selected by
the Board.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Fund since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Fund's
dividends will also vary. The per-share dividends of Class C
Shares will be lower than the per share dividends on the Class A
Shares as a result of the higher service and distribution fees
applicable to those shares. In addition, the dividends of each
class can vary because each class will bear certain
class-specific charges. Dividends and other distributions paid by
the Fund with respect to each class of its shares are calculated
at the same time and in the same manner.
It is the Fund's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. On the Application or by completing a Ready Access
Features form, you may elect to have dividends deposited without
charge by electronic funds transfers into your account at a
Financial Institution if it is a member of the Automated Clearing
House.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid
by the Agent to a selected dealer; or (ii) the third day on which
the New York Stock Exchange is open after the day on which the
net asset value of the redeemed shares has been determined (see
"How To Redeem Your Investment").
Net investment income includes amounts of income from the
Utah Double-Exempt Obligations in the Fund's portfolio which are
allocated as "exempt-interest dividends." "Exempt-interest
dividends" are exempt from regular Federal income tax. The
allocation of "exempt-interest dividends" will be made by the use
of one designated percentage applied uniformly to all income
dividends declared during the Fund's tax year. Such designation
will normally be made in the first month after the end of each of
the Fund's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small
portion of the dividends paid by the Fund will be subject to
income taxes. During the Fund's fiscal year ended June 30, 1997,
97.89% of the Fund's dividends were "exempt-interest dividends."
For the calendar year 1996, 1.88% of the total dividends paid
were taxable as ordinary income. The percentage of income
designated as tax-exempt for any particular dividend may be
different from the percentage of the Fund's income that was
tax-exempt during the period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be
paid out after that date; the Fund may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions
to shareholders, and from short- and long-term gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends," if shareholders do not
comply with provisions of the law relating to the furnishing of
taxpayer identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Fund at net asset value on the record date for the dividend or
distribution or other date fixed by the Board of Trustees. An
election to receive cash will continue in effect until written
notification of a change is received by the Agent. All
shareholders, whether their dividends are received in cash or are
being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Fund are not
entitled to any deduction for dividends received from the Fund.
Tax Information
The Fund has qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as
dividends and distributions. However, the Code contains a number
of complex tests relating to such qualification and it is
possible although not likely that the Fund might not meet one or
more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary
corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends," as discussed below.
The Fund intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income
earned by the Fund on Utah Double-Exempt Obligations will be
excludable from gross income of the shareholders for regular
Federal income tax purposes. Capital gains dividends are not
included in exempt-interest dividends. Although "exempt-interest
dividends" are not taxed, each taxpayer must report the total
amount of tax-exempt interest (including exempt-interest
dividends from the Fund) received or acquired during the year.
The Code requires that either gains realized by the Fund on
the sale of municipal obligations acquired after April 30, 1993
at a price which is less than face or redemption value be
included as ordinary income to the extent such gains do not
exceed such discount or that the discount be amortized and
included ratably in taxable income. There is an exception to the
foregoing treatment if the amount of the discount is less than
0.25% of face or redemption value multiplied by the number of
years from acquisition to maturity. The Fund will report such
ordinary income in the years of sale or redemption rather than
amortize the discount and report it ratably. To the extent the
resultant ordinary taxable income is distributed to shareholders,
it will be taxable to them as ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates)
are reportable by shareholders as gain from the sale or exchange
of a capital asset held for more than one year. This is the case
whether the shareholder takes the distribution in cash or elects
to have the distribution reinvested in Fund shares and regardless
of the length of time the shareholder has held his or her shares.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are
not distributed but carried forward by the Fund to offset gains
in later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Fund's gains or losses on sales of Utah Double-Exempt
Obligations will be long-term or short-term depending upon the
length of time the Fund has held such obligations.
Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Fund may not be
deducted for regular Federal tax purposes. In addition, under
rules used by the Internal Revenue Service for determining when
borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Fund
may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the
purchase of shares. The receipt of exempt-interest dividends from
the Fund by an individual shareholder may result in some portion
of any social security payments or railroad retirement benefits
received by the shareholder or the shareholder's spouse being
included in taxable income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
or private activity bonds should consult their own tax advisers
before purchasing shares.
While interest from all Utah Double-Exempt Obligations is
tax-exempt for purposes of computing the shareholder's regular
tax, interest from so-called private activity bonds issued after
August 7, 1986, constitutes a tax preference for both individuals
and corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the
taxpayer's return. The Fund will not invest in the types of Utah
Double-Exempt Obligations which would give rise to interest that
would be subject to alternative minimum taxation if more than 20%
of its net assets would be so invested, and may refrain from
investing in that type of bond completely. The 20% limit is a
fundamental policy of the Fund.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current
earnings, this adjustment will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. If you are required to pay a contingent deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. Your gain or loss will be long-term
if you held the redeemed shares for over 18 months, mid-term if
you held the redeemed shares for over one year but not more than
18 months and short-term, if for a year or less. Long term
capital gains are currently taxed at a maximum rate of 20%,
mid-term capital gains are currently taxed at a maximum rate of
28%, and short-term gains are currently taxed at ordinary income
tax rates. However, if shares held for six months or less are
redeemed and you have a loss, two special rules apply: the loss
is reduced by the amount of exempt-interest dividends, if any,
which you received on the redeemed shares, and any loss over and
above the amount of such exempt-interest dividends is treated as
a long-term loss to the extent you have received capital gains
dividends on the redeemed shares.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Fund or its shareholders upon such conversions;
each shareholder's adjusted tax basis in the Class A Shares
received upon conversion will equal the shareholder's adjusted
tax basis in the Class C Shares held immediately before the
conversion; and each shareholder's holding period for the Class A
Shares received upon conversion will include the period for which
the shareholder held as capital assets the converted Class C
Shares immediately before conversion.
Utah Tax Information
Distributions of interest income made by the Fund from Utah
Double-Exempt Obligations will generally be treated for purposes
of the Utah Individual Income Tax Act in the same manner as they
are treated under the Internal Revenue Code for Federal income
tax purposes. (See the prior discussion under "Dividend and Tax
Information.") Individual shareholders of the Fund generally will
not be subject to Utah income tax on distributions received from
the Fund to the extent such distributions are attributable to
interest income on Utah Double-Exempt Obligations. Certain
subtractions relating to retirement income received by
shareholders under the age of 65 and the exemption allowed to
individuals over the age of 65 may be reduced because the receipt
of exempt-interest dividends from the Fund will be added to
federal adjusted gross income for purposes of calculating the
income of individuals for Utah income tax purposes. Other
distributions from the Fund, including capital gains dividends,
will generally not be exempt from Utah income tax.
For corporate investors, distributions of interest income
from Utah Double-Exempt Obligations are not exempt from the Utah
corporate franchise and income tax, although a credit against the
corporate franchise and income tax is available with respect to a
portion of the interest income from obligations issued by the
State of Utah, its agencies and instrumentalities and its
political subdivisions. Prior to January 1, 1993 the credit is
generally equal to 2.5% of the gross interest income from such
Utah obligations. From and after January 1, 1993, the credit is
generally equal to 1% of the gross interest income from such Utah
obligations. The Utah corporate franchise or income tax applies
to every state or national bank or corporation, with certain
exceptions specifically enumerated by Utah law.
Shares of the Fund will not be subject to the Utah property
tax.
You should consult your tax advisor concerning the specific
state and local tax consequences from your investment in the
Fund.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and equity funds
(the "Bond or Equity Funds") and certain money market funds (the
"Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have
the same Administrator and Distributor as the Fund. All exchanges
are subject to certain conditions described below. As of the date
of the Prospectus, the Aquila-sponsored Bond and 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, Tax-Free Fund of Colorado, Churchill
Tax-Free Fund of Kentucky, and Narragansett Insured Tax-Free
Income Fund; the Aquila Money-Market Funds are Capital Cash
Management Trust, Pacific Capital Cash Assets Trust (Original
Shares), Pacific Capital Tax-Free Cash Assets Trust (Original
Shares), Pacific Capital U.S. Treasuries Cash Assets Trust
(Original Shares) and Churchill Cash Reserves Trust.
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. However, the following important
information should be noted:
(1) CDSCs upon redemptions of shares acquired through
exchanges. If you exchange shares of the following categories, 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:
- CDSC Class A Shares (See "Purchase of $1 Million or
More");
- Class C Shares: and
- Shares of a Money Market Fund that were received in
exchange for CDSC Class A Shares or Class C Shares.
If the shares you redeem would have incurred a CDSC if you
had not made any exchanges, then the same CDSC will be imposed
upon the redemption regardless the exchanges that have taken
place since the original purchase.
(2) Extension of Holding Periods by owning Money-Market
Funds Any period of 30 days or more during which Money-Market
shares received on an exchange of CDSC Class A Shares or Class C
Shares are held is not counted in computing the applicable
holding period for CDSC Class A Shares or Class C Shares.
(3) Originally purchased Money Market Fund shares. Shares
of a Money Market Fund (and any shares acquired as a result of
reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money Market
Fund Shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they
been purchased rather than acquired in exchange for Money Market
Fund shares. If the shares received in exchange are shares that
would be subject to a CDSC if purchased directly, the holding
period governing the CDSC will run from the date of the exchange,
not from the date of the purchase of Money Market Shares.
This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence. The Fund
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange is at least equal to
the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-446-8824 toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
Exchanges will be effected at the relative exchange prices
of the shares being exchanged next determined after receipt by
the Agent of your exchange request. The exchange prices will be
the respective net asset values of the shares, unless a sales
charge is to be deducted in connection with an exchange of
shares, in which case the exchange price of shares of a Bond or
Equity Fund will be their public offering price. Prices for
exchanges are determined in the same manner as for purchases of
the Fund's shares. (See "How to Invest in the Fund.")
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see "Tax Effects of Redemptions" and the Additional Statement);
no representation is made as to the deductibility of any such
loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
money-market fund) are exempt from regular Federal income tax,
and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Treasuries Cash Assets Trust (which invests
in U.S. Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund and Aquila
Cascadia Equity Fund are taxable. If your state of residence is
not the same as that of the issuers of obligations in which a
tax-free municipal bond fund or a tax-free money-market fund
invests, the dividends from that fund may be subject to income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of such a bond
fund or a tax-free money-market fund under the exchange privilege
arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1- and 5-year periods and for a
period since the inception of the Fund, to the extent applicable,
through the end of such periods, assuming reinvestment (without
sales charge) of all distributions. The Fund may also furnish
total return quotations for other periods or based on investments
at various applicable sales charge levels or at net asset value.
For such purposes total return equals the total of all income and
capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price. (See the Additional Statement.)
Current yield reflects the income per share earned by each
of the Fund's portfolio investments; it is calculated by (i)
dividing the Fund's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable
investment that would be required to produce an after-tax yield
equivalent to that of the Fund, which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
the Fund's yield (calculated as indicated) by one minus a stated
income tax rate and by adding the product to the taxable portion
(if any) of the Fund's yield. (See the Additional Statement.)
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities
and Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will
be paid to the Fund's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted
to shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Fund's distribution rate (calculated as
indicated above). The current distribution rate differs from the
current yield computation because it could include distributions
to shareholders from sources, if any, other than dividends and
interest, such as short-term capital gains or return of capital.
If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge ,if any, on the purchase of shares, but not on
reinvestment of income dividends. The investment results of the
Fund, like all other investment companies, will fluctuate over
time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the
Fund's yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any future
period. The annual report of the Fund contains additional
performance information that will be made available upon request
and without charge.
Description of the Fund and Its Shares
The Fund is an open-end, non-diversified management
investment company organized in December, 1990 as a Massachusetts
business trust. (See the sixth paragraph under "Investment of the
Fund's Assets" for further information about the Fund's status as
"non-diversified.") The Fund began operations in July, 1992.
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide or
combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests
in the Fund. Each share represents an equal proportionate
interest in the Fund with each other share of its class; shares
of the respective classes represent proportionate interests in
the Fund in accordance with their respective net asset values.
Income, direct liabilities and direct operating expenses of each
series will be allocated directly to each series, and general
liabilities and expenses, if any, of the Fund will be allocated
among the series in a manner acceptable to the Board of Trustees.
Upon liquidation of a series, shareholders of the series are
entitled to share pro-rata in the net assets of that series
available for distribution to shareholders and upon liquidation
of the Fund, the respective series are entitled to share
proportionately in the assets available to the Fund after
allocation to the various series. Shareholders of each series or
class are entitled to share pro-rata in the net assets of the
Fund available for distribution to shareholders, in accordance
with the respective net asset values of the shares of that series
or class at that time. The Fund currently has only one series of
shares. 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.
In addition to Class A Shares and Class C Shares, which are
offered by this Prospectus, the Fund also has (i) Institutional
Class Shares ("Class Y Shares"), which are offered only to
institutions acting for investors in a fiduciary, advisory,
agency, custodial or similar capacity and are not offered
directly to retail customers and (ii) Financial Intermediary
Class Shares ("Class I Shares"), which are offered and sold only
through certain financial intermediaries. Class Y Shares and
Class I Shares are offered by a separate prospectus, which can be
obtained by calling the Fund at 800-882-4937.
The primary distinction among the Fund's classes of shares
lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields
and other measures of investment performance. All three classes
represent interests in the same portfolio of Utah 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.
See the notes to the Statement of Assets and Liabilities in
the annual report for information as to the amortization of the
Fund's organizational and start-up expenses. A copy of the
financial statements contained in the annual report is
incorporated by reference into the Additional Statement.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan. No
amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding
shares of the Fund, except that the Fund's Board of Trustees may
change the name of the Fund. The Fund may be terminated (i) upon
the sale of its assets to another issuer, or (ii) upon
liquidation and distribution of the assets of the Fund, in either
case if such action is approved by the vote of the holders of a
majority of the outstanding shares of the Fund. If not so
terminated, the Fund will continue indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE FUND FOR UTAH
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
After November 8, 1997: PFPC Inc., ATTN: Aquilasm Group of Funds
400 Bellevue Parkway, Wilmington, DE 19809
Before November 8, 1997: ADM, ATTN: Aquilasm Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198 Tel.# 1-800-446-8824
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** ___________________________________________
Name of State Minor's Social Security Number
4. _____________________________________________________________________
_____________________________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust
may be registered in the name of the Plan or Trust itself.)
________________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
________________________________________________________________________
Street or PO Box City
_________________________________ (______)_______________________
State Zip Daytime Phone Number
Occupation:________________________Employer:____________________________
Employer's Address:_____________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
______________________________ ____________________________________
Dealer Name Branch Number
______________________________ ____________________________________
Street Address Rep. Number/Name
______________________________ (_________)_________________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Indicate Class of Shares)
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
Indicate Method of Payment (For either method, make check payment to
TAX-FREE FUND FOR UTAH)
__ Initial Investment $______________ (Minimum $1,000)
__ Automatic Investment $______________ (Minimum $50)
For Automatic Investments of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and attached a PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE IN
CLASS A SHARES.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be: ___ Reinvested ___ Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend. (A Financial Institution is a commercial bank,
savings bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free Fund For Utah Account. To establish this program, please
complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Fund toll-free at 1-800-446-8824. 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 ___ $1,000,000 ___ $2,500,000 ___ $5,000,000
D. AUTOMATIC WITHDRAWAL PLAN
APPLICABLE TO CLASS A SHARES ONLY.
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior to
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, the Fund's Shareholder
Servicing Agent (the "Agent") is authorized to redeem sufficient shares
from this account at the then current Net Asset Value, in accordance
with the terms below:
Dollar Amount of each withdrawal $ ______________beginning______________
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
________________________________________ ___________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ____________________________________
Street Financial Institution Street Address
_______________________________ ____________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
person's telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorney's fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of
$1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this 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
DEPOSITOR'S AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the
Agent, and to pay such sums in accordance therewith, provided my/our account
has sufficient funds to cover such drafts or debits. I/We further agree that
your treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number __________________________________
Name and Address where my/our account is maintained
Name of Financial Institution__________________________________________
Street Address_________________________________________________________
City_______________________________State _________________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account
is registered
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit
in the normal course of business initiated by the Agent (except any
loss due to your payment of any amount drawn against insufficient or
uncollected funds), provided that you promptly notify us in writing
of any claim against you with respect to the same, and further
provided that you will not settle or pay or agree to settle or pay
any such claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any
such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Fund and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Fund account to make up any
deficiency resulting from any decline in the net asset value of shares
so purchased and any dividends paid on those shares. I/We authorize the
Fund and its agents to correct any transfer error by a debit or credit
to my/our Financial Institution account and/or Fund account and to
charge the account for any related charges. I/We acknowledge that
shares purchased either through Automatic Investment or Telephone
Investment are subject to applicable sales charges.
- - The Fund, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for
any losses resulting from unauthorized telephone transactions if the
Agent follows reasonable procedures designed to verify the identity of
the caller. The Agent will request some or all of the following
information: account name and number; name(s) and social security
number registered to the account and personal identification; the
Agent may also record calls. Shareholders should verify the accuracy
of confirmation statements immediately upon receipt. Under penalties
of perjury, the undersigned whose Social Security (Tax I.D.) Number is
shown above certifies (i) that Number is my correct taxpayer
identification number and (ii) currently I am not under IRS
notification that I am subject to backup withholding (line out (ii) if
under notification). If no such Number is shown, the undersigned
further certifies, under penalties of perjury, that either (a) no such
Number has been issued, and a Number has been or will soon be applied
for; if a Number is not provided to you within sixty days, the
undersigned understands that all payments (including liquidations) are
subject to 31% withholding under federal tax law, until a Number is
provided and the undersigned may be subject to a $50 I.R.S. penalty; or
(b) that the undersigned is not a citizen or resident of the U.S.; and
either does not expect to be in the U.S. for 183 days during each
calendar year and does not conduct a business in the U.S. which would
receive any gain from the Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST,
ALL TRUSTEES MUST SIGN.*
__________________________ __________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ __________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Fund or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Fund reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-882-4937 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 3c and signing the Application, the investor is
entitled to make each purchase at the public offering price applicable
to a single transaction of the dollar amount checked above, and agrees
to be bound by the terms and conditions applicable to Letters of Intent
appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such purchases
added to the investor's present holdings do not aggregate the minimum
amount specified above, the investor will pay the increased amount of
sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be
at the rate applicable to the minimum amount of the investor's specified
intended purchases checked above. If the investor's actual purchases do
not reach this minimum amount, the commissions previously paid to the
dealer will be adjusted to the rate applicable to the investor's total
purchases. If the investor's purchases exceed the dollar amount of the
investor's intended purchases and pass the next commission break-point,
the investor shall receive the lower sales charge, provided that the
dealer returns to the Distributor the excess of commissions previously
allowed or paid to him over that which would be applicable to the amount
of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent
in placing any future purchase orders for the investor while this Letter
is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3%
of the dollar amount specified in the Letter of Intent (computed to the
nearest full share) shall be held in escrow in shares of the Fund by
the Agent. All dividends and any capital distributions on the escrowed
shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to
completion of the purchase requirement under the Letter will be
deducted from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchases, the
investor must remit to the Distributor an amount equal to the difference
between the dollar amount of sales charges actually paid and the amount
of sales charges which would have been paid if the total amount
purchased had been made at a single time. If such difference in sales
charges is not paid within twenty days after receipt of a request from
the Distributor or the dealer, the Distributor will, within sixty days
after the expiration of the Letter, redeem the number of escrowed
shares necessary to realize such difference in sales charges. Full
shares and any cash proceeds for a fractional share remaining after
such redemption will be released to the investor. The escrow of shares
will not be released until any additional sales charge due has been
paid as stated in this section.
4. By checking Box 3c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor as
his attorney to surrender for redemption any or all escrowed shares
on the books of the Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Agent will credit all such shares to
the Planholder on the records of the Fund. Any share certificates now
held by the Planholder may be surrendered unendorsed to the Agent with
the application so that the shares represented by the certificate may
be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund
at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and until
proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may
be made, such investment should normally be an amount equivalent to
three times the annual withdrawal or $5,000, whichever is less.
<PAGE>
INVESTMENT SUB-ADVISER
First Security Investment Management, Inc.
61 South Main Street
Salt Lake City, Utah 84111
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Gary C. Cornia
William L. Ensign
D. George Harris
Diana P. Herrmann
Anne J. Mills
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Vice President
Kimball L. Young, 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
After November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................5
Financial Highlights.............................7
Introduction.....................................8
Investment Of The Fund's Assets..................8
Investment Restrictions.........................13
Net Asset Value Per Share.......................13
Alternative Purchase Plans......................14
How To Invest In The Fund.......................16
How To Redeem Your Investment...................23
Automatic Withdrawal Plan.......................27
Management Arrangements.........................27
Dividend And Tax Information....................30
Exchange Privilege..............................34
General Information.............................37
Application and Letter of Intent
AQUILA
TAX-FREE FUND FOR
[LOGO]
UTAH
PROSPECTUS
A tax-free
income investment
One Of The
Aquilasm Group Of Funds
<PAGE>
TAX-FREE FUND FOR UTAH
380 Madison Avenue
Suite 2300
New York, NY 10017
800-UTAH-YES
(800-882-4937)
212-697-6666
Prospectus
Class Y Shares
Class I Shares
October 31, 1997
The Fund is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Utah and
regular Federal income taxes as is consistent with preservation
of capital by investing principally in municipal obligations of
Utah issuers which pay interest exempt from Utah State and
Federal income taxes. These municipal obligations must, at the
time of purchase, either be rated within the four highest credit
ratings (considered as investment grade) assigned by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, or, if
unrated, be determined to be of comparable quality to municipal
obligations so rated by the Fund's Sub-Adviser, First Security
Investment Management, Inc.
The Fund is intended as an investment through which Utah
investors can participate in the financing of various
Utah-oriented public purpose projects which assist in the
economic development of the State and the quality of life of its
residents. While the Fund will seek to have 100% of its assets
invested in tax-free municipal obligations of Utah issuers, it
may invest up to 35% of the Fund's assets in tax-free municipal
obligations of issuers of other states.
The Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund dated October 31, 1997 (the
"Additional Statement") has been filed with the Securities and
Exchange Commission and is available without charge upon written
request to the Fund's Shareholder Servicing Agent, at the address
given below, or by calling the telephone number(s) given below.
The Additional Statement contains information about the Fund and
its management not included in the Prospectus. The Additional
Statement is incorporated by reference in its entirety in the
Prospectus. Only when you have read both the Prospectus and the
Additional Statement are all material facts about the Fund
available to you.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY FIRST SECURITY INVESTMENT MANAGEMENT,
INC., FIRST SECURITY BANK OF UTAH, N.A., OR ITS BANK OR NON-BANK
AFFILIATES OR BY ANY OTHER BANK. SHARES OF THE FUND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT
OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact the
Fund's Shareholder Servicing Agent: after November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-446-8824 toll free
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-446-8824 toll free or 732-855-5731
For General Inquiries & Yield Information,
Call 800-882-4937 toll free or 212-697-6666
The Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
Tax-Free Fund For Utah (the "Fund"), founded by Aquila
Management Corporation (the "Manager") in 1992 and one of the
Aquilasm Group of Funds, is an open-end, non-diversified
management investment company (a "mutual fund") which invests in
tax-free municipal bonds, principally obligations issued by the
State of Utah, its counties and various other local authorities
to finance such long-term projects as schools, roads, hospitals
and water facilities throughout Utah or to finance short-term
needs. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the
Fund invests pay interest which is exempt from both regular
Federal income taxes and State of Utah income taxes (except Utah
income tax on corporations). Dividends paid by the Fund from this
income are likewise free of both such taxes. It is, however,
possible that in certain circumstances a small portion of the
dividends paid by the Fund will be subject to income taxes. The
Federal alternative minimum tax may apply to some investors, but
its impact will be limited since not more than 20% of the Fund's
net assets can be invested in obligations paying interest which
is subject to this tax. The receipt of exempt-interest dividends
from the Fund may result in some portion of social security
payments or railroad retirement benefits being included in
taxable income. Capital gains distributions, if any, are taxable.
(See "Dividend and Tax Information.")
Investment Grade - The Fund will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or are determined
to be of comparable quality by the Fund's Sub-Adviser, First
Security Investment Management, Inc. In general, there are nine
separate credit ratings, ranging from the highest to the lowest
credit ratings for municipal obligations. Obligations within the
top four ratings are considered "investment grade," but those in
the fourth rating may have speculative characteristics as well.
(See "Investment of the Fund's Assets.")
Alternative Purchase Plans - The Fund provides alternative
ways to invest. (See "Description of the Fund and Its Shares.")
For this purpose the Fund offers classes of shares, which differ
in their expense levels and sales charges. This Prospectus
offers:
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are not
offered directly to retail customers. Class Y Shares are
offered at net asset value with no sales charge, no
redemption fee, no contingent deferred sales charge and no
distribution fee. (See "How to Purchase Class Y Shares.")
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. (the "Distributor") has
entered into sales agreements, and are not offered directly
to retail customers. Class I Shares are offered at net asset
value with no sales charge and no redemption fee or
contingent deferred sales charge, although a financial
intermediary may charge a fee for effecting a purchase or
other transaction on behalf of its customers. Class I Shares
may carry a distribution fee of up to 0.25 of 1% of average
annual net assets allocable to Class I Shares, currently
0.10 of 1% of such net assets, and a services fee of 0.25 of
1% of such assets. (See "How to Purchase Class I Shares.")
The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares") are
not offered by this Prospectus. (See "Description of the Fund and
Its Shares.")
At the date of the Prospectus, Class Y Shares and Class I
Shares are registered for sale only in certain states. (See "How
to Invest in the Fund.") If Class Y Shares or Class I Shares of
the Fund are sold outside those states, except to certain
institutional investors, the Fund can redeem them. If your state
of residence is not Utah, dividends from the Fund may be subject
to income taxes of the state in which you reside. Accordingly,
you should consult your tax adviser before acquiring shares of
the Fund.
Initial Investment - - You may open your account for Class Y
Shares with any purchase of $100,000 or more for fiduciary
accounts and $250,000 for all other eligible purchasers. These
minimums do not apply to shareholders with accounts open on
October 31, 1997. (See the Application, which is in the back of
the Prospectus.) Class I Shares are sold only through financial
intermediaries, which may have their own minimum investment
requirement. (See "How to Invest in the Fund.")
Additional Investments - - You may make additional
investments in Class Y Shares at any time and in any amount,
directly or, if in an amount of $50 or more, through the
convenience of having your investment electronically transferred
from your financial institution account into the Fund by
Automatic Investment or Telephone Investment. Additional
investments in Class I Shares can be made only through financial
intermediaries, which may have their own requirements for
subsequent investments. (See "How to Invest in the Fund.")
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends on Class Y Shares are paid by
check mailed to you, directly deposited into your financial
institution account or automatically reinvested without sales
charge in additional Class Y Shares at the then-current net asset
value. All arrangements for the payment of dividends with respect
to Class I Shares, including reinvestment of dividends, must be
made through financial intermediaries. (See "Dividend and Tax
Information.")
Many Different Issues - You have the advantages of a
portfolio which consists of over 70 issues with different
maturities. (See "Investment of the Fund's Assets.")
Local Portfolio Management - Fee Arrangements - First
Security Investment Management, Inc. of Salt Lake City, Utah,
serves as the Fund's Investment Sub-Adviser, providing
experienced local professional management. The Sub-Adviser was
incorporated in 1984 and is a subsidiary of First Security
Investment Services, Inc., which in turn is a wholly-owned
subsidiary of First Security Corporation, a Utah-headquartered
financial services organization with consolidated assets of $13.1
billion as of August 31, 1997. In addition to advising the Fund,
First Security's advisory experience includes the management of
The Achievement Family of Funds, funds unrelated to the Fund, and
the provision of investment management services to banks and
thrift institutions, corporate and profit-sharing trusts,
Taft-Hartley, municipal and state retirement funds, charitable
foundations, endowments and individual investors throughout the
United States. First Security is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended. It
has offices at 61 South Main Street, Salt Lake City, Utah 84111,
119 North 9th Street, Boise, Idaho 83730, 219 Central Avenue,
N.W., Albuquerque, New Mexico 87102 and 530 Las Vegas Boulevard,
Las Vegas Nevada 89101. First Security Bank of Utah, N.A., an
affiliate of First Security, is the largest bank in the State of
Utah and one of the largest banks in the Rocky Mountain region.
The Fund pays fees at a rate of up to 0.50 of 1% of average
annual net assets to its Manager which in turn pays and up to
0.23 of 1% of average annual net assets to its Sub-Adviser (for
total fees at a rate of up to 0.50 of 1% of average annual net
assets), although some or all of these fees may be waived
temporarily.
Redemptions - Liquidity - You may redeem any amount of your
Class Y Shares account on any business day at the next determined
net asset value by telephone, FAX or mail request, with proceeds
being sent to a predesignated financial institution, if you have
elected Expedited Redemption. Proceeds will be wired or
transferred through the facilities of the Automated Clearing
House, wherever possible, upon request, if in an amount of $1,000
or more, or will be mailed. For these and other redemption
procedures see "How to Redeem Your Investment." All arrangements
for redemptions of Class I Shares must be made through financial
intermediaries. The Fund does not impose redemption fees for
redemption of Class Y Shares or Class I Shares. However,
financial intermediaries may charge a fee for effecting
redemptions.
Certain Stabilizing Measures - The Fund will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class Y Shares of the Fund into
Class Y Shares of other Aquila-sponsored tax-free municipal bond
mutual funds, or two Aquila sponsored equity funds. You may also
exchange them into shares of the Aquila-sponsored money market
funds. Similar exchangability is available to Class I Shares to
the extent that other Aquila-sponsored funds are made available
to its customers by a financial intermediary. The exchange prices
will be the respective net asset values of the shares. (See
"Exchange Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Fund's portfolio securities, which fluctuate with market
conditions, including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Fund's
Investments and Their Yields.") The Fund's assets, being
primarily or entirely Utah issues, are subject to economic and
other conditions affecting Utah. (See "Risk Factors and Special
Considerations Regarding Investment in Utah Double-Exempt
Obligations.") Moreover, the Fund is classified as a
"non-diversified" investment company, because it may choose to
invest in the obligations of a relatively limited number of
issuers. (See "Investment of the Fund's Assets.")
Statements and Reports - You will receive statements of your
Class Y Shares account monthly as well as each time you add to
your account or take money out. Financial intermediaries provide
their own statements of Class I Shares accounts. Additionally,
you will receive a Semi-Annual Report and an audited Annual
Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND FOR UTAH
TABLE OF EXPENSES
Class I Class Y
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases.............. None None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends .. None None
Maximum Deferred Sales Charge ......................... None None
Redemption Fees ....................................... None None
Exchange Fee .......................................... None None
Annual Fund Operating Expenses (1)(2)
(as a percentage of average net assets)
Management Fee After Waiver (3)........................ 0.06% 0.06%
12b-1 Fee ............................................. 0.10% None
All Other Expenses After Expense Reimbursement ........ 0.55% 0.30%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waivers .................... 0.71% 0.36%
Example (4)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
Class I Shares..... $7 $23 $40 $88
Class Y Shares..... $4 $12 $20 $46
<FN>
(1) Estimated based upon amounts incurred by the Fund's Class Y Shares
during its most recent fiscal year; restated to reflect current arrangements.
</FN>
<FN>
(2) Fees are being waived by the Manager and Sub-Adviser and it is
anticipated that once the asset size of the Fund reaches approximately $60
million these waivers will be increasingly reduced as the asset size of
the Fund increases, so that when assets exceed approximately $100 million
a substantial portion or all of these fees will be paid. Also, operating
expenses are being subsidized through reimbursement by the Administrator.
This subsidy is being phased out progressively so that the Fund will bear
its own expenses, other than advisory and administration fees, once its
asset size reaches approximately $60 million. The undertakings of the
Adviser and the Administrator as to fee waivers and practices of the
Administrator as to expense reimbursement may operate to reduce the fees
and expenses of the Fund during the development stage of the Fund (see
"Management Arrangements"). Other expenses do not reflect a 0.01% expense
offset in custodian fees received for uninvested cash balances. Without
fee waivers and expense reimbursement and including the offset in
custodian fees, expenses would have been incurred at the following annual
rates; for Class I Shares, management fee, 0.50%; 12b-1 fee, 0.10% (up to
0.25% can be authorized. See "Distribution Plan"); other expenses, 0.88%,
for total operating expenses of 1.48%; for Class Y Shares, management fee,
0.50%; other expenses 0.63%, for total operating expenses of 1.13%.
</FN>
<FN>
(3) The Fund pays the Manager an advisory fee at the annual rate of 0.50
of 1% of average annual net assets of which 0.44 of 1% is currently being
waived; the Manager pays the Sub-Advisor a sub-advisory fee at the annual
rate of 0.23 of 1% of average annual net assets of which 0.17 of 1% is
currently being waived. (See "Management Arrangements.")
</FN>
<FN>
(4) The expense example is based upon the annual Fund operating expenses.
It is also based upon amounts at the beginning of each year which includes
the prior year's assumed results. A year's results consist of an assumed
5% annual return less total annual operating expenses; the expense ratio
was applied to an assumed average balance (the year's starting investment
plus one-half the year's results). Each figure represents the cumulative
expenses so determined for the period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT
ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF
PREPARING THE ABOVE EXAMPLE. THE ASSUMED 5% ANNUAL RETURN SHOULD
NOT BE INTERPRETED AS A PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE
HIGHER OR LOWER.
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will bear
directly or indirectly. The above table should not be considered as a
commitment or prediction that any fees, or that any particular portion
of fees, will be waived, or that any particular expenses will be
reimbursed. (See "Management Arrangements" for a more complete
description of the various investment advisory and administration fees.)
<PAGE>
<TABLE>
<CAPTION>
The Table shown below for Class A Shares is for information purposes only.
Class A Shares are not offered by this Prospectus. No historical information
exists for Class I Shares which were established on October 31, 1997.
TAX-FREE FUND FOR UTAH
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited by KPMG
Peat Marwick LLP, independent auditors, whose report thereon is included
in the Fund's June 30, 1997 financial statements contained in its Annual
Report, which are incorporated by reference into the Additional Statement.
The information provided in the table should be read in conjunction with
the financial statements and related notes. A copy of these financial
statements can be obtained without charge by calling or writing the
Shareholder Servicing Agent at the address and telephone numbers on the
cover of the Prospectus.
Class A(1) Class Y Shares(2)
Year ended Year Period(4)
June 30, Ended Ended
June 30, June 30,
1997 1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year... ................ $9.74 $9.59 $9.32 $10.00 $9.74 $9.77
Income from Investment
Operations:
Net investment income .... 0.52 0.54 0.55 0.55 0.61 0.06
Net gain (loss) on
securities (both realized
and unrealized) ........ 0.21 0.15 0.27 (0.65) 0.21 (0.03)
Total from Investment
Operations ............. 0.73 0.69 0.82 (0.10) 0.82 0.03
Less Distributions:
Dividends from net
investment income ...... (0.53) (0.54) (0.55) (0.58) (0.62) (0.06)
Distributions from
capital gains .......... - - - (0.03) - -
Total Distributions ...... (0.53) (0.54) (0.55) (0.58) (0.62) (0.06)
Net Asset Value, End of
Year...................... $9.94 $9.74 $9.59 $9.32 $9.94 $9.74
Total Return (not reflecting
sales charge) (%) ......... 7.72 7.17 9.09 (1.09) 9.67+ 0.29+
Ratios/Supplemental Data
Net Assets, End of Year
($ in thousands) ........ 29.071 28,881 27,536 26,116 41 0.1
Ratio of Expenses to
Average Net Assets (%)... 0.27 0.19 0.08 0.03 0.07 0.03+
Ratio of Net Investment
Income to Average Net
Assets (%)............... 5.45 5.49 5.85 5.58 5.65 0.61+
Portfolio Turnover Rate(%). 5.09 11.15 22.92 27.53 5.09 11.15
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income($)... 0.42 0.43 0.43 0.40 0.50 0.05
Ratio of Expenses to
Average Net Assets(%).... 1.33 1.30 1.30 1.60 1.13 0.11+
Ratio of Net Investment
Income to Average Net
Assets(%)................ 4.39 4.37 4.63 2.97 4.59 0.53+
<CAPTION>
Class A(1)
Period (3)
ended
June 30, 1993
<C>
9.60
0.50
0.40
0.90
(0.50)
-
(0.50)
10.00
9.67+
12,938
0*
5.64*
36.52+
0.27
2.67*
2.97*
<FN>
(1) Designated as Class A Shares on May 21, 1996.
</FN>
<FN>
(2) New Class of Shares established on May 21, 1996.
</FN>
<FN>
(3) From July 24, 1992 (commencement of operations) to June 30, 1993.
</FN>
<FN>
(4) From May 21, 1996 through June 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment
for investors (other than corporations) who seek income exempt
from State of Utah and regular Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Utah Double-Exempt Obligations, as defined
below, which may include obligations of certain non-Utah issuers.
The Fund offers you the opportunity to keep assets fully invested
in a vehicle that provides a professionally managed portfolio of
Utah Double-Exempt Obligations which may, but not necessarily
will, be more diversified, higher yielding or more stable and
more liquid than you might be able to obtain on an individual
basis by direct purchase of Utah Double-Exempt Obligations.
Through the convenience of a single security consisting of
shares of the Fund, you are also relieved of the inconvenience
associated with direct investments of fixed denominations,
including the selecting, purchasing, handling, monitoring call
provisions and safekeeping of Utah Double-Exempt Obligations.
Utah Double-Exempt Obligations are a type of municipal
obligation. Municipal obligations are issued by or on behalf of
states, territories and possessions of the United States and
their political subdivisions, agencies and instrumentalities to
obtain funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes; and floating
and variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities
such as highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public
purposes for which municipal obligations may be issued include
the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the obtaining of funds to lend
to other public institutions and facilities.
INVESTMENT OF THE FUND'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both State of Utah and
regular Federal income taxes as is consistent with the
preservation of capital, the Fund will invest in Utah
Double-Exempt Obligations (as defined below). There is no
assurance that the Fund will achieve its objective, which is a
fundamental policy of the Fund. (See "Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Utah Double-Exempt Obligations" means obligations,
including those of non-Utah issuers, of any maturity which pay
interest which, in the opinion of bond counsel or other
appropriate counsel, is exempt from regular Federal income taxes
and from Utah income taxes other than taxes on corporations.
Although exempt from regular Federal income tax, interest paid on
certain types of Utah Double-Exempt Obligations, and dividends
which the Fund might pay from this interest, are preference items
as to the Federal alternative minimum tax; for further
information, see "Dividend and Tax Information." As a fundamental
policy, at least 80% of the Fund's net assets will be invested in
Utah Double-Exempt Obligations the income from which will not be
subject to the alternative minimum tax; accordingly, the Fund can
invest up to 20% of its net assets in obligations the income paid
upon which is subject to the Federal alternative minimum tax. The
Fund may refrain entirely from purchasing these types of Utah
Double-Exempt Obligations. While non-taxable to individuals and
other taxpayers, interest received from Utah and other municipal
issuers is subject to State of Utah taxes on corporations. (See
"Utah Tax Information" under "Dividend and Tax Information"
below.)
Interest on bonds or other obligations issued by or under
the authority of states other than Utah and their agencies and
instrumentalities, Puerto Rico, Guam, the Northern Mariana
Islands, and the Virgin Islands are exempt from Utah income taxes
(other than certain taxes on corporations), as well as Federal
income taxes. The Fund will not purchase obligations of non-Utah
issuers unless Utah Double-Exempt Obligations of Utah issuers of
the desired quality, maturity and interest rate are not
available. In selecting Utah Double-Exempt Obligations of
non-Utah issuers, the Fund will choose obligations which in the
judgement of First Security Investment Management, Inc., the
Fund's investment adviser (the "Sub-Adviser"), are most
appropriate to achieve the objectives of the Fund.
As a Utah-oriented fund, under normal circumstances at least
65% of the Fund's total assets will be invested in Utah
Double-Exempt Obligations of Utah issuers. The Fund invests only
in Utah Double-Exempt Obligations.
In general, there are nine separate credit ratings ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Fund will have a portfolio of
quality-oriented (investment grade) securities, the Utah
Double-Exempt Obligations which the Fund will purchase must, at
the time of purchase, either (i) be rated within the four highest
credit ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"); or (ii) if
unrated, be determined to be of comparable quality to municipal
obligations so rated by the Sub-Adviser, subject to the direction
and control of the Fund's Board of Trustees. Municipal
obligations rated in the fourth highest credit rating are
considered by such rating agencies to be of medium quality and
thus may present investment risks not present in more highly
rated obligations. Such bonds lack outstanding investment
characteristics and may in fact have speculative characteristics
as well; changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher grade bonds. If
after purchase the rating of any rated Utah Double-Exempt
Obligation is downgraded such that it could not then be purchased
by the Fund, or, in the case of an unrated Utah Double-Exempt
Obligation, if the Sub-Adviser determines that the unrated
obligation is no longer of comparable quality to those rated
obligations which the Fund may purchase, it is the current policy
of the Fund to cause any such obligation to be sold as promptly
thereafter as the Sub-Adviser in its discretion determines to be
consistent with the Fund's objectives; such obligation remains in
the Fund's portfolio until it is sold. In addition, because a
downgrade often results in a reduction in the market price of a
downgraded obligation, sale of such an obligation may result in a
loss. (See Appendix A to the Additional Statement for further
information as to these ratings.) The Fund can purchase
industrial development bonds only if they meet the definition of
Utah Double-Exempt Obligations, i.e., the interest on them is
exempt from State of Utah and regular Federal income taxes other
than Utah income taxes on corporations.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). The Fund also intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code
(the "Code"). One of the tests for such qualification under the
Code is, in general, that at the end of each fiscal quarter of
the Fund, at least 50% of its assets must consist of (i) cash;
and (ii) securities which, as to any one issuer, do not exceed 5%
of the value of the Fund's assets. If the Fund had elected to
register under the 1940 Act as a "diversified" investment
company, it would have to meet the same test as to 75% of its
assets. The Fund may therefore not have as much diversification
among securities, and thus diversification of risk, as if it had
made this election under the 1940 Act. In general, the more the
Fund invests in the securities of specific issuers, the more the
Fund is exposed to risks associated with investments in those
issuers. The Fund's assets, being primarily or entirely Utah
issues, are accordingly subject to economic and other conditions
affecting Utah. (See "Risk Factors and Special Considerations
Regarding Investment in Utah Double-Exempt Obligations.")
Certain Stabilizing Measures
The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash
and cash equivalents in attempting to protect against declines in
the value of its investments and other market risks. There can,
however, be no assurance that these will be successful.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30 days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.
Participation Interests
The Fund may purchase from financial institutions
participation interests in Utah Double-Exempt Obligations (such
as industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Utah Double-Exempt Obligations in the
proportion that the Fund's participation interest bears to the
total amount of the underlying Utah Double-Exempt Obligations.
All such participation interests must meet the Fund's credit
requirements. (See "Limitation to 10% as to Certain
Investments.")
When-Issued and Delayed Delivery Purchases
The Fund may buy Utah Double-Exempt Obligations on a
when-issued or delayed delivery basis when it has the intention
of acquiring them. The Utah Double-Exempt Obligations so
purchased are subject to market fluctuation and no interest
accrues to the Fund until delivery and payment take place; their
value at the delivery date may be less than the purchase price.
The Fund cannot enter into when-issued commitments exceeding in
the aggregate 15% of the market value of the Fund's total assets,
less liabilities other than the obligations created by
when-issued commitments. If the Fund chooses to dispose of the
right to acquire a when-issued obligation prior to its
acquisition, it could, as with the disposition of any other
portfolio holding, incur a gain or loss due to market
fluctuation; any such gain would be a taxable short-term gain.
The Fund places an amount of assets equal in value to the amount
due on the settlement date for the when-issued or delayed
delivery securities being purchased in a segregated account with
the Custodian, which is marked to market every business day. (See
the Additional Statement for further information.)
Limitation to 10% as to Certain Investments
The Fund cannot purchase Utah Double-Exempt Obligations that
are not readily marketable if thereafter more than 10% of its net
assets would consist of such investments. However, this 10% limit
does not include any Utah Double-Exempt Obligations as to which
the Fund can exercise the right to demand payment in full within
three days and as to which there is a secondary market. Floating
and variable rate demand notes and participation interests
(including municipal lease/purchase obligations) are considered
illiquid unless determined by the Board of Trustees to be readily
marketable. (See the Additional Statement.)
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets
in (i) Utah Double-Exempt Obligations the interest on which is
paid from revenues of similar type projects or (ii) industrial
development bonds, unless the Prospectus and/or the Additional
Statement are supplemented to reflect the change and to give
additional information.
Factors Which May Affect the Value
of the Fund's Investments and Their Yields
The value of the Utah Double-Exempt Obligations in which the
Fund invests will fluctuate depending in large part on changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Fund buys Utah Double-Exempt Obligations,
the value of these obligations will normally go down; if these
rates go down, the value of these obligations will normally go
up. Changes in value and yield based on changes in prevailing
interest rates may have different effects on short-term Utah
Double-Exempt Obligations than on long-term obligations.
Long-term obligations (which often have higher yields) may
fluctuate in value more than short-term ones. The Fund's
portfolio will represent a blend of short-term and long-term
obligations designed to reduce fluctuations in the net asset
value of the shares of the Fund.
Risk Factors and Special Considerations as to Investment in Utah
Double-Exempt Obligations of Utah Issuers
The Fund provides Utah residents with the benefits of
investing primarily in obligations of issuers of the State of
Utah, thereby participating in the financing of various
Utah-oriented public purpose projects which assist in the
economic development of the State and the quality of life of its
residents. However, since the Fund invests primarily in
obligations of Utah issuers, there is less diversification of the
portfolio of the Fund and there may be less breadth to the market
for its portfolio securities than is available for obligations of
non-Utah issuers. In addition, the yield of obligations of Utah
issuers in which the Fund invests may not be as high as that
available from obligations of issuers of other states, for
various reasons, including favorable evaluation in credit markets
of the credit quality of Utah issuers as compared to other
issuers. The following is a discussion of various factors that
might influence the ability of Utah issuers to pay principal and
interest when due on the Utah Double-Exempt Obligations contained
in the portfolio of the Fund. Such information is derived from
sources that are generally available to investors and is believed
by the Fund to be accurate but has not been independently
verified and may not be complete.
Utah's economy is dominated by service industries, trade,
government and various manufacturing sectors. While Utah's
economy has significantly outperformed the national economy for
several years, and its overall employment growth rate in recent
years has ranked among the highest in the nation, there can be no
assurance that such conditions will continue in the future.
The population of the State has increased in recent years,
with the increase being attributable to both natural population
increase and net in-migration. From fiscal years 1984 through
1989 the State experienced out-migration because of an economy
outpaced by the growth of its labor force and a decline in the
State's energy producing industries. In fiscal year 1996, Utah's
population rose 2.2% to 2,000,100, including 13,400 in-migrants.
It is not known at the present time whether current trends will
continue. Utah has more school-age children and fewer working
adults, as a percentage of its population, than any other state;
hence, to pay the State's education costs, Utah households pay
more in state and local taxes per household than the national
average. This current relatively high level of taxation could
adversely affect the ability of Utah issuers to raise taxes
substantially or at all.
A large percentage of the land in Utah is owned by the
Federal Government or included in Indian reservations, thereby
reducing the tax base of the State and its political
subdivisions. Since 1991, defense-related employment has lost
15,000 jobs. However, the conversion of one large military
facility to manufacturing will soon be completed. Some
communities in the State contain major industries heavily
dependent on defense-related government contracts for their
revenues. The termination of such government contracts could
increase unemployment and reduce taxes paid by such industries.
The ability of Utah and its political subdivisions to borrow
money and to levy and collect taxes is limited by constitutional
and statutory restrictions such as debt limitations and
limitations on revenue increases. In recent years attempts have
been made by popular initiative to further restrict the borrowing
and taxing capacity of the State and its political subdivisions.
It is not possible to predict whether any such proposals will be
enacted in the future or their possible impact on State or local
government financing.
The State receives revenues from three principal sources;
(a) taxes and licenses; (b) Federal grants-in-aid; and (c) fees,
the State's share of mineral royalties, bonuses on Federal land
and other miscellaneous charges and receipts. In the 1996 fiscal
year, 24.8% of those revenues came from sales taxes. The State
collects an individual income tax and a corporate franchise tax,
but all net revenues from such taxes are distributed to local
school districts.
Local governments are heavily dependent on ad valorem
property tax revenues, but also can receive revenues from other
local taxes and fees. There can be no assurance that a material
downturn in the State's economy, with the resulting impact on
State and local finances, will not adversely affect the market
value of the Utah Double-Exempt Obligations held in the Fund or
the ability of the respective obligors to make debt service
payments on such Utah Double-Exempt Obligations.
The availability of water is a significant concern in Utah.
During the past decade the State has experienced periods of both
flooding and drought. Water issues will likely affect the growth
and prosperity of the State in the future.
The Utah Double-Exempt Obligations in which the Fund may
invest from time to time include general obligation bonds,
revenue bonds, industrial revenue bonds and special tax
assessment bonds, and the sensitivity of each of these types of
investments to the general and economic factors discussed above
may vary significantly. No assurance can be given as to the
effect, if any, that these factors, individually or in the
aggregate, may have on any individual Utah Double-Exempt
Obligations or on the Fund as a whole.
Obligations of non-Utah issuers are subject to the risks of
general economic and other factors affecting those issuers.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and the Additional Statement as "fundamental
policies," cannot be changed unless the holders of a "majority,"
as defined in the 1940 Act, of the Fund's outstanding shares vote
to change them. (See the Additional Statement for a definition of
such a majority.) All other policies can be changed from time to
time by the Board of Trustees without shareholder approval. Some
of the more important of the Fund's fundamental policies, not
otherwise identified in the Prospectus, are set forth below;
others are listed in the Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Utah
Double-Exempt Obligations meeting the standards stated under
"Investment of the Fund's Assets."
2. The Fund has industry investment requirements.
The Fund cannot buy the obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; the Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Fund cannot make loans.
The Fund can buy those Utah Double-Exempt Obligations which
it is permitted to buy (see "Investment of the Fund's Assets");
this is investing, not making a loan. The Fund cannot lend its
portfolio securities.
4. The Fund can borrow only in limited amounts for special
purposes.
The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage
or pledge its assets only in connection with such borrowing and
only up to the lesser of the amounts borrowed or 5% of the value
of its total assets. 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
Utah Double-Exempt Obligations while it has any outstanding
borrowings which exceed 5% of the value of its total assets.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Fund's
classes of shares and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"), by dividing
the value of the Fund's net assets (i.e., the value of the assets
less liabilities) allocable to each class by the total number of
shares of such class then outstanding. Determination of the value
of the Fund's assets is subject to the direction and control of
the Fund's Board of Trustees. In general, it is based on market
value, except that Utah Obligations maturing in 60 days or less
are generally valued at amortized cost; see the Additional
Statement for further information.
HOW TO INVEST IN THE FUND
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of Utah
Double-Exempt Obligations.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are not
offered directly to retail customers. Class Y Shares are
offered at net asset value with no sales charge, no
redemption fee, no contingent deferred sales charge and no
distribution fee.
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. (the "Distributor") has
entered into sales agreements, and are not offered directly
to retail customers. Class I Shares are offered at net asset
value with no sales charge and no redemption fee or
contingent deferred sales charge, although a financial
intermediary may charge a fee for effecting a purchase or
other transaction on behalf of its customers. Class I Shares
may carry a distribution fee of up to 0.25 of 1% of average
annual net assets allocable to Class I Shares, currently
0.10 of 1% of such net assets, and a services fee of 0.25 of
1% of such assets. (See "Distribution Plan" and Shareholder
Services Plan.")
The Fund's other classes of shares, Front-Payment Class
Shares ("Class A Shares") and Level-Payment Class Shares, ("Class
C Shares"), are not offered by this Prospectus. (See "General
Information - Description of the Fund and Its Shares.")
At the date of the Prospectus, Class Y Shares of the Fund
are registered for sale only in Colorado, District of Columbia,
Florida, Hawaii, New Jersey, New York and Utah.
At the date of the Prospectus, Class I Shares of the Fund
are registered for sale only in Utah and New York.
If you do not reside in one of those states you should not
purchase shares of the Fund. If shares are sold outside of those
states except to certain institutional investors, the Fund can
redeem them. Such a redemption may result in a loss to you and
may have tax consequences. In addition, if your state of
residence is not Utah, the dividends from the Fund may not be
exempt from income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of the Fund.
How to Purchase Class Y Shares
Institutional Class Shares ("Class Y Shares") are offered
only to institutional investors for investments held in a
fiduciary, advisory, agency, custodial or similar capacity, or
through them to their clients, and are not offered directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee.
Class Y Shares of the Fund may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to the Fund's Shareholder
Servicing Agent (the "Agent") at the address on the Application.
There is no sales charge on initial or subsequent investments.
You are urged to complete an Application and send it to the Agent
so that expedited shareholder services can be established at the
time of your investment.
The minimum initial investment for Class Y Shares is
$100,000 for fiduciaries and $250,000 for all other eligible
purchasers, except that this limitation does not apply to
shareholders with accounts open on October 31, 1997, or as
otherwise stated in the Prospectus or the Additional Statement.
Such investment must be drawn in United States dollars on a
United States commercial or savings bank, credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution"). You may make subsequent
investments in Class Y Shares in any amount (unless you have an
Automatic Withdrawal Plan). Your subsequent investment may be
made through a selected dealer or by forwarding payment to the
Agent, with the name(s) of account owner(s), the account number,
the name of the Fund. With subsequent investments, please send
the pre-printed stub attached to the Fund's confirmations.
Subsequent investments of $50 or more in Class Y Shares can
be made by electronic funds transfer from your demand account at
a Financial Institution. To use electronic funds transfer for
your purchases, your Financial Institution must be a member of
the Automated Clearing House and the Agent must have received
your completed Application designating this feature, or, after
your account has been opened, a Ready Access Features form
available from the Distributor or the Agent. A pre-determined
amount can be regularly transferred for investment ("Automatic
Investment"), or single investments can be made upon receipt by
the Agent of telephone instructions from anyone ("Telephone
Investment"). The maximum amount of each Telephone Investment is
$50,000. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate these investment methods at any time or
charge a service fee, although no such fee is currently
contemplated.
The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to
all purchase orders received by the Agent from selected dealers
that day, except that orders received by it after 4:00 p.m. New
York time will receive that day's offering price only if such
orders were received by selected dealers from customers prior to
such time and transmitted to the Distributor prior to its close
of business that day (normally 5:00 p.m. New York time); if not
so transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Fund's best interest to do
so.
How to Purchase Class I Shares
Initial and subsequent investments in Class I Shares must be
made through financial intermediaries and cannot be made
directly. Financial intermediaries may set minimum amounts for
initial purchase and subsequent investments in Class I Shares and
may charge a fee for effecting a purchase or other transaction on
behalf of customers. Financial intermediaries that make Class I
Shares of the Fund and other mutual funds available to their
customers may offer distinct services, may have their own charges
for services and may impose their own minimum requirements for
initial and subsequent investments. Customers of financial
intermediaries should read the Prospectus in light of the terms
of their accounts with financial intermediaries. Financial
intermediaries that have entered into specific agreements with
the Fund may enter confirmed purchase orders on behalf of clients
and customers, with payment to follow not later than the Fund's
pricing of Class I Shares on the following business day. If
payment is not received by that time the financial intermediary
could be held liable for resulting fees or losses.
Offering Price
The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to
all purchase orders received by the Agent from selected dealers
that day, except that orders received by it after 4:00 p.m. New
York time will receive that day's offering price only if such
orders were received by selected dealers from customers prior to
such time and transmitted to the Distributor prior to its close
of business that day (normally 5:00 p.m. New York time); if not
so transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day, it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Fund's best interest to do
so.
The offering price for Class I Shares is the net asset value
per share. The offering price determined on any day applies to
all purchases received by each financial intermediary prior to
4:00 p.m. New York time on any business day. Purchase orders
received by financial intermediaries after that time will be
filled at the next determined offering price.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of Class Y Shares will be confirmed and
credited to you in an account maintained for you at the Agent in
full and fractional shares of the Fund (rounded to the nearest
1/1000th of a share). Purchases of Class I Shares will be
confirmed by financial intermediaries. No share certificates will
be issued for Class Y Shares or Class I Shares.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended
to result in the sale of its shares except pursuant to a written
plan adopted under the Rule. No payments under the Plan from
assets represented by Class Y Shares are authorized.
Under a part of the Plan, the Fund is authorized to make
payments with respect to Class I Shares ("Class I Permitted
Payments") to Qualified Recipients. Class I Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year), at a rate
set from time to time by the Board of Trustees (currently 0.10 of
1%) but not more than 0.25 of 1% of the average annual net assets
represented by the Class I Shares of the Fund. Such payments
shall be made only out of the Fund's assets allocable to the
Class I Shares. "Qualified Recipients" means financial
intermediaries selected by the Distributor with which the Fund or
the Distributor has entered into written agreements to act in
such capacity.
The Plan contains provisions designed to protect against any
claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for payments made with respect to Class A Shares and
Class C Shares it is not financing any such activity and does not
consider any payment enumerated in such provisions as so
financing any such activity. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Fund shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. (See the Additional Statement.)
Shareholder Services Plan for Class I Shares
Under a Shareholder Services Plan, (the "Plan") the Fund is
authorized to make payments with respect to Class I Shares
("Service Payments") to Qualified Recipients. Fees paid under the
Plan are subject to such limits as may be necessary for Class I
Shares to qualify as a "no-load" class for purposes of the
Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"). The current limitation is as follows: fees paid
under the Plan that satisfy the definition of "service fees" in
Rule 2830(d) of the Conduct Rules of the National Association of
Securities Dealers, Inc. may not exceed an amount equal to the
difference between (i) 0.25 of 1% of the average annual net
assets of the Fund represented by Class I Shares and (ii) the
amount paid under the Fund's Distribution Plan with respect to
the assets represented by the Class I Shares. That is, the total
payments under both plans will be less than 0.25 of 1% of such
net assets. Where necessary or appropriate, the Independent
Trustees, or such appropriate officer or officers of the Fund as
they may designate, shall, with the advice of counsel, determine
what fees paid under this Plan are to be deemed "service fees."
The Fund's management believes that, in general, fees allocable
to activities such as sub-accounting and record-keeping are not
"service fees," while fees allocable to activities such as
account service are "service fees." In like manner, allocation of
payments among activities is also determined by the Independent
Trustees or their delegates. Subject to the foregoing, Service
Payments may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year), 0.25 of 1% of the average
annual net assets represented by the Class I Shares of the Fund.
Such payments shall be made only out of the Fund's assets
represented by the Class I Shares.
"Qualified Recipients" means broker-dealers or others
selected by the Distributor, including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements to provide
personal services to Class I Shares shareholders, maintenance of
Class I Shares shareholder accounts and/or pursuant to specific
agreements entering of confirmed purchase orders on behalf of
customers or clients and which have provided services to holders
of Class I Shares and/or maintenance of Class I Shares
shareholder accounts.
The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of
the Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Class I Shares,
including without limitation, (i) activities relating to
sub-accounting and record-keeping, including the providing of
necessary personnel and facilities to establish and maintain
shareholder accounts and records, and (ii) activities relating to
account service, such as assisting shareholders in designating
and changing dividend options, account designations and
addresses; answering customer inquiries regarding account status
and history and the manner in which purchases and redemptions of
shares of the Fund may be effected; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares, including, where appropriate, arranging for the wiring of
funds; assisting in processing purchase and redemption
transactions; and verifying and guaranteeing shareholder
signatures in connection with redemption orders and transfers and
changes in shareholder designated accounts. A majority of the
Independent Trustees (as defined in the Plan) may remove any
person as a Qualified Recipient and no fees shall be paid
pursuant to the Plan for activities primarily intended to result
in the sale of shares of the Fund or to finance sales or sales
promotion expenses. No fees shall be paid, or be deemed to have
been paid, for any of the listed activities to the extent that
such payments are deemed by the Independent Trustees to be
intended for distribution. Service Payments shall be paid through
the Distributor or shareholder servicing agent as disbursing
agent. (See the Additional Statement.)
HOW TO REDEEM YOUR INVESTMENT
Redemption of Class Y Shares
You may redeem all or any part of your Class Y Shares at the
net asset value next determined after acceptance of your
redemption request at the Agent. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Fund, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. There are no redemption fees or penalties on
redemption of Class Y Shares. A redemption may result in a
transaction taxable to you.
For your convenience the Fund offers expedited redemption
for Class Y Shares to provide you with a high level of liquidity
for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions of Class Y Shares.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make
payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your
address of record during the 30 days preceding your
redemption request. You can make only one request for
telephone redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-446-8824 toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
2. By FAX or Mail. You may also request redemption
payments to a predesignated Financial Institution
account by a letter of instruction sent after November
8, 1997 to: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809. Before November 8, 1997 send your
letter of instructions to Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, by FAX
at 732-855-5730 or by mail at 581 Main Street,
Woodbridge, NJ 07095-1198. The letter must provide
account name(s), account number, amount to be redeemed,
and any payment directions and be signed by the
registered holder(s). Signature guarantees are not
required. See "Redemption Payments", below for payment
methods.
If you wish to have redemption proceeds sent directly to a
Financial Institution Account you should so elect on the
Expedited Redemption section of the Application or the Ready
Access Features form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s) of
the shareholder(s) as registered with the Fund. You may change
the designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
If you own Class Y Shares and you have not elected
Expedited Redemption to a predesignated Financial
Institution account, you must use the Regular Redemption
Method. Under this redemption method you should send a
letter of instruction (after November 8, 1997) to: to the
Fund's Shareholder Servicing Agent: PFPC Inc., 400 Bellevue
Parkway, Wilmington, DE 19809. Before November 8, 1997 send
your letter to Administrative Data Management Corp., Attn:
Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ
07095-1198. The letter must contain:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
below.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), the Stock Exchanges
Medallion Program (SEMP) or the New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.
Redemption of Class I Shares
You may redeem all or any part of your Class I Shares at the
net asset value next determined after acceptance of your
redemption request by your financial intermediary. Redemption
requests for Class I Shares must be made through a financial
intermediary and cannot to be made directly. Financial
intermediaries may charge a fee for effecting redemptions. There
is no minimum period for any investment in the Fund. The Fund
does not impose redemption fees or penalties on redemption of
Class I Shares. A redemption may result in a transaction taxable
to you.
Redemption Payments
Redemption payments with respect to Class Y Shares will
ordinarily be mailed to you at your address of record. If you so
request and the amount of your redemption proceeds is $1,000 or
more, the proceeds will, wherever possible, be wired or
transferred through the facilities of the Automated Clearing
House to the Financial Institution account specified in the
Expedited Redemption section of your Application or Ready Access
Features form. The Fund may impose a charge, not exceeding $5.00
per wire redemption, after written notice to shareholders who
have elected this redemption procedure. The Fund has no present
intention of making this charge. Upon 30 days' written notice to
shareholders, the Fund may modify or terminate the use of the
Automated Clearing House to make redemption payments at any time
or charge a service fee, although no such fee is presently
contemplated. If any such changes are made, the Prospectus will
be supplemented to reflect them. If you use a broker or dealer to
arrange for a redemption, you may be charged a fee for this
service. Redemption Payments for Class I Shares are made to
financial intermediaries.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or determination of
the net asset value of, the portfolio securities to be
unreasonable or impracticable; or (iii) for such other periods as
the Securities and Exchange Commission may permit. Payment for
redemption of Class Y Shares recently purchased by check
(irrespective of whether the check is a regular check or a
certified, cashier's or official bank check) or by Automatic
Investment or Telephone Investment may be delayed up to 15 days
or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Fund, that the
purchase check or Automatic Investment or Telephone Investment
will be honored. Possible delays in payment of redemption
proceeds for Class Y Shares can be eliminated by using wire
payments or Federal Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. (See the Additional Statement for details.)
The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
If you had a Class Y Shares account before October 31, 1997,
you may establish an Automatic Withdrawal Plan if you own or
purchase Class Y Shares of the Fund having a net asset value of
at least $5,000.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
Class Y Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. (See the
Automatic Withdrawal Plan provisions of the Application included
in the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.)
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
Change in Management Arrangements
On October 24, 1997, the management arrangements described
below were approved by the Fund's shareholders and went into
effect. The new arrangements are designed to change the form of
the Fund's investment advisory and administration arrangements to
a new structure involving an adviser and a sub-adviser. The
proposed arrangements do not result in any change in overall
management fees paid by the Fund, nor any change in the parties
providing these services. Marketing efforts and positioning of
the Fund will remain the same with a strong local niche
orientation.
Under the new arrangements, Aquila Management Corporation
("Aquila"), which since inception of the Fund has served as the
Fund's administrator, in addition became investment adviser under
a new agreement (the "Advisory and Administration Agreement")
under which it also continues to provide the Fund with all
administrative services. Also, by adoption of a Sub-Advisory
Agreement between Aquila and First Security Investment
Management, Inc. (the "Sub-Adviser"), the former investment
advisory agreement was replaced by one under which Aquila
appointed the Sub-Adviser as Sub-Adviser to the Fund. Under the
Sub-Advisory Agreement, the Sub-Adviser will continue to provide
the Fund with advisory services of the kind which it formerly
provided as adviser. The duties of the administrator, previously
performed under an administration agreement, are now performed by
Aquila under the Advisory and Administration Agreement where
Aquila is referred to as the "Manager." The former administration
agreement terminated upon approval of the new agreements.
The Advisory and Administration Agreement
The Advisory and Administration Agreement between the Fund
and Aquila Management Corporation (the "Manager") has several
parts, most of which are substantially identical to corresponding
provisions in the Fund's former advisory agreements and
administration agreement. The Advisory and Administration
Agreement contains provisions relating to investment advice for
the Fund and management of its portfolio that are substantially
identical to prior advisory agreements, except that the Manager
has the power to delegate its advisory functions to a
sub-adviser, which it will employ at its own expense. It has
delegated these duties to the Sub-Adviser. The Advisory and
Administration Agreement contains provisions relating to
administrative services that are substantially identical to those
contained in the Fund's current 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 (the "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 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. (See the Additional Statement.)
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 this sub-section 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 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 the
Fund agrees to pay the Manager, and the Manager agrees to accept
as full compensation for all services rendered by the Manager as
such, an annual fee payable monthly and computed on the net asset
value of the Fund as of the close of business each business day
at the annual rate of 0.50 of 1% of such net asset value.
The Advisory and Administration Agreement provides that the
Sub-Advisory Agreement may provide for its termination by the
Manager upon reasonable notice, provided, however, that the
Manager agrees not to terminate the Sub-Advisory Agreement except
in accordance with such authorization and direction of the Board
of Trustees, if any, as may be in effect from time to time.
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 Act) of the
voting securities of the Fund outstanding and entitled to vote.
The specific portions of the Advisory Agreement which relate to
providing investment advisory services will automatically
terminate in the event of the assignment (as defined in the Act)
of the Advisory 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 0.27 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.
Under the Sub-Advisory Agreement, the Sub-Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Sub-Adviser.
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 rates of 0.23 of 1% of such net asset value.
The Sub-Adviser and/or the Manager may, in order to attempt to
achieve a competitive yield on the shares of the Fund, each waive
all or part of their respective fees.
The Sub-Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Sub-Adviser is
authorized to consider sales of shares of the Fund or of any
other investment company or companies having the same investment
adviser, sub-adviser, administrator or principal underwriter as
the Fund.
Information about the Manager, the Sub-Adviser
and the Distributor
The Sub-Adviser, First Security Investment Management, Inc.,
was incorporated in August 1984 and is a subsidiary of First
Security Investment Services, Inc., which in turn is a
wholly-owned subsidiary of First Security Corporation, a
Utah-headquartered financial services organization with
consolidated assets of $13.1 billion as of August 31, 1997. In
addition to advising the Fund, the Sub-Adviser's advisory
experience includes the management of The Achievement Family of
Funds, funds unrelated to the Fund and the provision of
investment management services to banks and thrift institutions,
corporate and profit-sharing trusts, Taft-Hartley, municipal and
state retirement funds, charitable foundations, endowments and
individual investors throughout the United States. The
Sub-Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. The Sub-Adviser has
offices at 61 South Main Street, Salt Lake City, Utah 84111, 119
North 9th Street, Boise, Idaho 83730, 219 Central Avenue, N.W.,
Albuquerque, New Mexico 87102 and 530 Las Vegas Boulevard, Las
Vegas Nevada 89101.
First Security Bank of Utah, N.A., an affiliate of the Sub-
Adviser, is the largest bank in the State of Utah and one of the
largest banks in the Rocky Mountain region. The Sub-Adviser is
not permitted to purchase the securities of or enter into
principal transactions with any of its affiliates, including
First Security Bank of Utah, when acting on behalf of the Fund.
The above restriction does not apply, however, to securities
issued or underwritten by banks or other financial institutions
which are not themselves affiliates of the Sub-Adviser, although
they may have a correspondent banking or other business
relationship with one or more of the First Security banks. (See
below and in the Additional Statement as to the legality, under
the Glass-Steagall Act, of the Sub-Adviser's acting as the Fund's
investment adviser.) In general, under that Act, the Sub-Adviser
will not, among other things, be involved in the promotion or
distribution of shares of the Fund.
Sterling K. Jenson has managed the Fund's portfolio since
commencement of the Fund's operations in July, 1992. Mr. Jenson
is President, Chief Executive Officer and Senior Portfolio
Manager with the Sub-Adviser and has been employed in the
investment management business for over 19 years. He is a member
of the Association for Investment Management and Research (AIMR)
and has earned the professional designations Chartered Financial
Analyst (CFA) and Chartered Investment Counselor (CIC). He
received his B.S. degree (Economics) and M.B.A. degree from
Brigham Young University.
The Fund's Manager is founder of and administrator to the
Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and two equity funds. As of June
30, 1997, these funds had aggregate assets of approximately $2.8
billion, of which approximately $1.9 billion consisted of assets
of the tax-free municipal bond funds. The Manager, which was
founded in 1984, is controlled by Mr. Lacy B. Herrmann (directly,
through a trust and through share ownership by his wife). (See
the Additional Statement for information on Mr. Herrmann.)
During the fiscal year ended June 30, 1997, fees of $67,588
and $79,323, respectively, were accrued to the Sub-Adviser and
Manager under the former advisory and administration agreements
then in effect. Of these amounts, the Sub-Adviser and Manager
waived $55,749 and $72,207, respectively. In addition, during
that period the Manager agreed to reimburse the Fund for other
expenses during this period in the amount of $199,119 of which
$66,512 was paid prior to June 30, 1997 and the balance of
$132,607 was paid in July and early August of 1997.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds,
five money market funds and two equity funds), including the
Fund. Under the Distribution Agreement, the Distributor is
responsible for the payment of certain printing and distribution
costs relating to prospectuses and reports as well as the costs
of supplemental sales literature, advertising and other
promotional activities.
At the date of the Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Manager and/or the Distributor, including Mr. Herrmann and
Ms. Herrmann.
Authority to Act as Investment Sub-Adviser
Banking laws and regulations, including the Glass-Steagall
Act as currently interpreted by the Board of Governors of the
Federal Reserve System, prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling or
distributing securities, but do not prohibit such a bank holding
company or affiliate from acting as investment adviser, transfer
agent or custodian to such an investment adviser, or from
purchasing shares of such a company as agent for and upon the
order of a customer. The Sub-Adviser and the Fund believe that
the Sub-Adviser may perform the advisory services for the Fund
described in the Prospectus. However, future changes in legal
requirements relating to the permissible activities of banks and
their affiliates, as well as future interpretations of present
requirements, could prevent the Sub-Adviser from continuing to
perform investment advisory services for the Fund.
If the Sub-Adviser were prohibited from performing
investment advisory services for the Fund, it is expected that
the Board of Trustees of the Fund would recommend to the Fund's
shareholders that they approve new agreements with another entity
or entities qualified to perform such services and selected by
the Board.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Fund since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Fund's
dividends will also vary. Dividends and other distributions paid
by the Fund with respect to each class of its shares are
calculated at the same time and in the same manner. In addition,
the dividends of each class can vary because each class will bear
certain class-specific charges.
It is the Fund's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. On the Application or by completing a Ready Access
Features form, holders of Class Y Shares may elect to have
dividends deposited without charge by electronic funds transfers
into an account at a Financial Institution if it is a member of
the Automated Clearing House. All arrangements for the payment of
dividends with respect to Class I Shares, including reinvestment
of dividends, must be made through financial intermediaries.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid
by the Agent to a selected dealer; or (ii) the third day on which
the New York Stock Exchange is open after the day on which the
net asset value of the redeemed shares has been determined. (See
"How To Redeem Your Investment.")
Net investment income includes amounts of income from the
Utah Double-Exempt Obligations in the Fund's portfolio which are
allocated as "exempt-interest dividends." "Exempt-interest
dividends" are exempt from regular Federal income tax. The
allocation of "exempt-interest dividends" will be made by the use
of one designated percentage applied uniformly to all income
dividends declared during the Fund's tax year. Such designation
will normally be made in the first month after the end of each of
the Fund's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small
portion of the dividends paid by the Fund will be subject to
income taxes. During the Fund's fiscal year ended June 30, 1997,
97.89% of the Fund's dividends were "exempt-interest dividends."
For the calendar year 1996, 1.88% of the total dividends paid
were taxable as ordinary income. The percentage of income
designated as tax-exempt for any particular dividend may be
different from the percentage of the Fund's income that was
tax-exempt during the period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be
paid out after that date; the Fund may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions
to shareholders, and from short- and long-term gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends," if shareholders do not
comply with provisions of the law relating to the furnishing of
taxpayer identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Fund at net asset value on the record date for the dividend or
distribution or other date fixed by the Board of Trustees. An
election to receive cash will continue in effect until written
notification of a change is received by the Agent. All
shareholders, whether their dividends are received in cash or are
being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Fund are not
entitled to any deduction for dividends received from the Fund.
Tax Information
The Fund qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as
dividends and distributions. However, the Code contains a number
of complex tests relating to such qualification and it is
possible although not likely that the Fund might not meet one or
more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary
corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends," as discussed below.
The Fund intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income
earned by the Fund on Utah Double-Exempt Obligations will be
excludable from gross income of the shareholders for regular
Federal income tax purposes. Capital gains dividends are not
included in exempt-interest dividends. Although "exempt-interest
dividends" are not taxed, each taxpayer must report the total
amount of tax-exempt interest (including exempt-interest
dividends from the Fund) received or acquired during the year.
The Code requires that either gains realized by the Fund on
the sale of municipal obligations acquired after April 30, 1993
at a price which is less than face or redemption value be
included as ordinary income to the extent such gains do not
exceed such discount or that the discount be amortized and
included ratably in taxable income. There is an exception to the
foregoing treatment if the amount of the discount is less than
0.25% of face or redemption value multiplied by the number of
years from acquisition to maturity. The Fund will report such
ordinary income in the years of sale or redemption rather than
amortize the discount and report it ratably. To the extent the
resultant ordinary taxable income is distributed to shareholders,
it will be taxable to them as ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates)
are reportable by shareholders as gain from the sale or exchange
of a capital asset held for more than one year. This is the case
whether the shareholder takes the distribution in cash or elects
to have the distribution reinvested in Fund shares and regardless
of the length of time the shareholder has held his or her shares.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are
not distributed but carried forward by the Fund to offset gains
in later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Fund's gains or losses on sales of Utah Double-Exempt
Obligations will be long-term or short-term depending upon the
length of time the Fund has held such obligations.
Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Fund may not be
deducted for regular Federal tax purposes. In addition, under
rules used by the Internal Revenue Service for determining when
borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Fund
may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the
purchase of shares. The receipt of exempt-interest dividends from
the Fund by an individual shareholder may result in some portion
of any social security payments or railroad retirement benefits
received by the shareholder or the shareholder's spouse being
included in taxable income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
or private activity bonds should consult their own tax advisers
before purchasing shares.
While interest from all Utah Double-Exempt Obligations is
tax-exempt for purposes of computing the shareholder's regular
tax, interest from so-called private activity bonds issued after
August 7, 1986, constitutes a tax preference for both individuals
and corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the
taxpayer's return. The Fund will not invest in the types of Utah
Double-Exempt Obligations which would give rise to interest that
would be subject to alternative minimum taxation if more than 20%
of its net assets would be so invested, and may refrain from
investing in that type of bond completely. The 20% limit is a
fundamental policy of the Fund.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current
earnings, this adjustment will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. If you are required to pay a contingent deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. Your gain or loss will be long-term
if you held the redeemed shares for over 18 months, mid-term if
you held the redeemed shares for over one year but not more than
18 months and short-term, if for a year or less. Long term
capital gains are currently taxed at a maximum rate of 20%,
mid-term capital gains are currently taxed at a maximum rate of
28%, and short-term gains are currently taxed at ordinary income
tax rates. However, if shares held for six months or less are
redeemed and you have a loss, two special rules apply: the loss
is reduced by the amount of exempt-interest dividends, if any,
which you received on the redeemed shares, and any loss over and
above the amount of such exempt-interest dividends is treated as
a long-term loss to the extent you have received capital gains
dividends on the redeemed shares.
Utah Tax Information
Distributions of interest income made by the Fund from Utah
Double-Exempt Obligations will generally be treated for purposes
of the Utah Individual Income Tax Act in the same manner as they
are treated under the Internal Revenue Code for Federal income
tax purposes. (See the prior discussion under "Dividend and Tax
Information.") Individual shareholders of the Fund generally will
not be subject to Utah income tax on distributions received from
the Fund to the extent such distributions are attributable to
interest income on Utah Double-Exempt Obligations. Certain
subtractions relating to retirement income received by
shareholders under the age of 65 and the exemption allowed to
individuals over the age of 65 may be reduced because the receipt
of exempt-interest dividends from the Fund will be added to
federal adjusted gross income for purposes of calculating the
income of individuals for Utah income tax purposes. Other
distributions from the Fund, including capital gains dividends,
will generally not be exempt from Utah income tax.
For corporate investors, distributions of interest income
from Utah Double-Exempt Obligations are not exempt from the Utah
corporate franchise and income tax, although a credit against the
corporate franchise and income tax is available with respect to a
portion of the interest income from obligations issued by the
State of Utah, its agencies and instrumentalities and its
political subdivisions. Prior to January 1, 1993 the credit is
generally equal to 2.5% of the gross interest income from such
Utah obligations. From and after January 1, 1993, the credit is
generally equal to 1% of the gross interest income from such Utah
obligations. The Utah corporate franchise or income tax applies
to every state or national bank or corporation, with certain
exceptions specifically enumerated by Utah law.
Shares of the Fund will not be subject to the Utah property
tax.
You should consult your tax advisor concerning the specific
state and local tax consequences from your investment in the
Fund.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and equity funds
(the "Bond or Equity Funds") and certain money market funds (the
"Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have
the same Administrator and Distributor as the Fund. All exchanges
are subject to certain conditions described below. As of the date
of the Prospectus, the Aquila-sponsored Bond and 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, Tax-Free Fund of Colorado, Churchill
Tax-Free Fund of Kentucky, and Narragansett Insured Tax-Free
Income Fund; the Aquila Money-Market Funds are Capital Cash
Management Trust, Pacific Capital Cash Assets Trust (Original
Shares), Pacific Capital Tax-Free Cash Assets Trust (Original
Shares), Pacific Capital U.S. Treasuries Cash Assets Trust
(Original Shares) and Churchill Cash Reserves Trust.
Class Y Shares of the Fund may be exchanged only for Class Y
Shares of the Bond or Equity Funds or for shares of a
Money-Market Fund. Similar exchangability is available to Class I
Shares to the extent that other Aquila-sponsored funds are made
available to its customers by a financial intermediary. All
exchanges of Class I Shares must be made through your financial
intermediary.
Under the Class Y exchange privilege, once Class Y Shares of
any Bond or Equity Fund have been purchased, those shares (and
any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and Class Y Shares of the Bond or
Equity Funds without the payment of any sales charge.
The "Class Y Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange by an institutional investor from a Money-Market
Fund, or which were received in exchange for Class Y Shares of
another Bond or Equity Fund; or (b) acquired as a result of
reinvestment of dividends and/or distributions on otherwise Class
Y Eligible Shares. Shares of a Money-Market Fund not acquired in
exchange for Class Y Eligible Shares of a Bond or Equity Fund can
be exchanged for Class Y Shares of a Bond or Equity Fund only by
persons eligible to make an initial purchase of Class Y Shares.
This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence. The Fund
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal
to the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-446-8824 toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
Exchanges of Class Y Shares will be effected at the relative
net asset values of the Class Y Shares being exchanged next
determined after receipt by the Agent of your exchange request.
Prices for exchanges are determined in the same manner as for
purchases of the Fund's shares. Exchanges of Class I Shares will
be effected at the relative net asset values of the Class I
Shares being exchanged next determined after receipt by the
financial intermediary of your exchange request. (See "How to
Invest in the Fund.")
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see "Tax Effects of Redemptions" and the Additional Statement);
no representation is made as to the deductibility of any such
loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
money-market fund) are exempt from regular Federal income tax,
and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Treasuries Cash Assets Trust (which invests
in U.S. Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund and Aquila
Cascadia Equity Fund are taxable. If your state of residence is
not the same as that of the issuers of obligations in which a
tax-free municipal bond fund or a tax-free money-market fund
invests, the dividends from that fund may be subject to income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of such a bond
fund or a tax-free money-market fund under the exchange privilege
arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1- and 5-year periods and for a
period since the inception of the Fund, to the extent applicable,
through the end of such periods, assuming reinvestment (without
sales charge) of all distributions. The Fund may also furnish
total return quotations for other periods or based on investments
at various applicable sales charge levels or at net asset value.
For such purposes total return equals the total of all income and
capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price. (See the Additional Statement.)
Current yield reflects the income per share earned by each
of the Fund's portfolio investments; it is calculated by (i)
dividing the Fund's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable
investment that would be required to produce an after-tax yield
equivalent to that of the Fund, which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
the Fund's yield (calculated as indicated) by one minus a stated
income tax rate and by adding the product to the taxable portion
(if any) of the Fund's yield. (See the Additional Statement.)
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities
and Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will
be paid to the Fund's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted
to shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Fund's distribution rate (calculated as
indicated above). The current distribution rate differs from the
current yield computation because it could include distributions
to shareholders from sources, if any, other than dividends and
interest, such as short-term capital gains or return of capital.
If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge, if any, on the purchase of shares, but not on
reinvestment of income dividends. The investment results of the
Fund, like all other investment companies, will fluctuate over
time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the
Fund's yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any future
period. The annual report of the Fund contains additional
performance information that will be made available upon request
and without charge.
Description of the Fund and Its Shares
The Fund is an open-end, non-diversified management
investment company organized in December, 1990 as a Massachusetts
business trust. (See the sixth paragraph under "Investment of the
Fund's Assets" for further information about the Fund's status as
"non-diversified.") The Fund began operations in July, 1992.
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide or
combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests
in the Fund. Each share represents an equal proportionate
interest in the Fund with each other share of its class; shares
of the respective classes represent proportionate interests in
the Fund in accordance with their respective net asset values.
Income, direct liabilities and direct operating expenses of each
series will be allocated directly to each series, and general
liabilities and expenses, if any, of the Fund will be allocated
among the series in a manner acceptable to the Board of Trustees.
Upon liquidation of a series, shareholders of the series are
entitled to share pro-rata in the net assets of that series
available for distribution to shareholders and upon liquidation
of the Fund, the respective series are entitled to share
proportionately in the assets available to the Fund after
allocation to the various series. Shareholders of each series or
class are entitled to share pro-rata in the net assets of the
Fund available for distribution to shareholders, in accordance
with the respective net asset values of the shares of that series
or class at that time. The Fund currently has only one series of
shares. Upon liquidation of the Fund, shareholders are entitled
to share pro-rata in the net assets of the Fund available for
distribution to shareholders, in accordance with the respective
net asset values of the shares of each of the Fund's classes at
that time. All shares are presently divided into four classes;
however, if they deem it advisable and in the best interests of
shareholders, the Board of Trustees of the Fund may create
additional classes of shares (subject to rules and regulations of
the Securities and Exchange Commission or by exemptive order) or
the Board of Trustees may, at its own discretion, create
additional series of shares, each of which may have separate
assets and liabilities (in which case any such series will have a
designation including the word "Series"). (See the Additional
Statement for further information about possible additional
series.) Shares are fully paid and non-assessable, except as set
forth under the caption "General Information" in the Additional
Statement; the holders of shares have no pre-emptive or
conversion rights.
The other two classes of shares of the Fund are
Front-Payment Class Shares ("Class A Shares") and Level-Payment
Class Shares ("Class C Shares"), which are fully described in a
separate prospectus that can be obtained by calling the Fund at
800-882-4937.
The primary distinction among the Fund's classes of shares
lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields
and other measures of investment performance. All classes
represent interests in the same portfolio of Utah Double-Exempt
Obligations and have the same rights, except that each class
bears the separate expenses, if any, of its Distribution Plan and
has exclusive voting rights with respect to its Plan. There are
no distribution fees with respect to Class Y Shares.
The Fund's Distribution Plan has four parts. In addition to
the provisions relating to Class I Shares and the defensive
provisions described above, Parts I and II of the Plan authorize
payments, to certain "Qualified Recipients," out of the Fund
assets allocable to the Class A Shares and Class C Shares,
respectively. (See the Additional Statement.) The Fund has also
adopted a Shareholder Services Plan under which the Fund is
authorized to make certain payments out of the Fund assets
allocable to the Class C Shares. (See the Additional Statement.)
See the notes to the Statement of Assets and Liabilities in
the annual report for information as to the amortization of the
Fund's organizational and start-up expenses. A copy of the
financial statements contained in the annual report is
incorporated by reference into the Additional Statement.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan. No
amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding
shares of the Fund, except that the Fund's Board of Trustees may
change the name of the Fund. The Fund may be terminated (i) upon
the sale of its assets to another issuer, or (ii) upon
liquidation and distribution of the assets of the Fund, in either
case if such action is approved by the vote of the holders of a
majority of the outstanding shares of the Fund. If not so
terminated, the Fund will continue indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE FUND FOR UTAH
FOR CLASS Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
After November 8, 1997: PFPC Inc., ATTN: Aquilasm Group of Funds
400 Bellevue Parkway, Wilmington, DE 19809
Before November 8, 1997: ADM, ATTN: Aquilasm Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198 Tel.# 1-800-446-8824
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** ___________________________________________
Name of State Minor's Social Security Number
4. _____________________________________________________________________
_____________________________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust
may be registered in the name of the Plan or Trust itself.)
________________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
________________________________________________________________________
Street or PO Box City
_________________________________ (______)_______________________
State Zip Daytime Phone Number
Occupation:________________________Employer:____________________________
Employer's Address:_____________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
______________________________ ____________________________________
Dealer Name Branch Number
______________________________ ____________________________________
Street Address Rep. Number/Name
______________________________ (_________)_________________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Make check payment to TAX-FREE FUND FOR UTAH)
__ Initial Investment $______________ (Minimum $1,000 for shareholders
with Class Y Shares accounts before October 31, 1997)
(After October 31, 1997:
Minimum $100,000 for fiduciaries and $250,000 for all other
eligible purchasers)
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be: ___ Reinvested ___ Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend. (A Financial Institution is a commercial bank,
savings bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free Fund For Utah Account. To establish this program, please
complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Fund toll-free at 1-800-446-8824. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Available only to shareholders who had Class Y Shares accounts before
October 31, 1997)
(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, the Fund's Shareholder
Servicing Agent (the "Agent") is authorized to redeem sufficient shares
from this account at the then current Net Asset Value, in accordance
with the terms below:
Dollar Amount of each withdrawal $ ______________beginning______________
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
________________________________________ ___________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ____________________________________
Street Financial Institution Street Address
_______________________________ ____________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
person's telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorney's fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of
$1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this 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
DEPOSITOR'S AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the
Agent, and to pay such sums in accordance therewith, provided my/our account
has sufficient funds to cover such drafts or debits. I/We further agree that
your treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number __________________________________
Name and Address where my/our account is maintained
Name of Financial Institution__________________________________________
Street Address_________________________________________________________
City_______________________________State _________________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account
is registered
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit
in the normal course of business initiated by the Agent (except any
loss due to your payment of any amount drawn against insufficient or
uncollected funds), provided that you promptly notify us in writing
of any claim against you with respect to the same, and further
provided that you will not settle or pay or agree to settle or pay
any such claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any
such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Fund and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Fund account to make up any
deficiency resulting from any decline in the net asset value of shares
so purchased and any dividends paid on those shares. I/We authorize the
Fund and its agents to correct any transfer error by a debit or credit
to my/our Financial Institution account and/or Fund account and to
charge the account for any related charges. I/We acknowledge that
shares purchased either through Automatic Investment or Telephone
Investment are subject to applicable sales charges.
- - The Fund, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for
any losses resulting from unauthorized telephone transactions if the
Agent follows reasonable procedures designed to verify the identity of
the caller. The Agent will request some or all of the following
information: account name and number; name(s) and social security
number registered to the account and personal identification; the
Agent may also record calls. Shareholders should verify the accuracy
of confirmation statements immediately upon receipt. Under penalties
of perjury, the undersigned whose Social Security (Tax I.D.) Number is
shown above certifies (i) that Number is my correct taxpayer
identification number and (ii) currently I am not under IRS
notification that I am subject to backup withholding (line out (ii) if
under notification). If no such Number is shown, the undersigned
further certifies, under penalties of perjury, that either (a) no such
Number has been issued, and a Number has been or will soon be applied
for; if a Number is not provided to you within sixty days, the
undersigned understands that all payments (including liquidations) are
subject to 31% withholding under federal tax law, until a Number is
provided and the undersigned may be subject to a $50 I.R.S. penalty; or
(b) that the undersigned is not a citizen or resident of the U.S.; and
either does not expect to be in the U.S. for 183 days during each
calendar year and does not conduct a business in the U.S. which would
receive any gain from the Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST,
ALL TRUSTEES MUST SIGN.*
__________________________ __________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ __________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Fund or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Fund reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-882-4937 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's Agent.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Agent will credit all such shares to
the Planholder on the records of the Fund. Any share certificates now
held by the Planholder may be surrendered unendorsed to the Agent with
the application so that the shares represented by the certificate may
be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund
at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and until
proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may
be made, such investment should normally be an amount equivalent to
three times the annual withdrawal or $5,000, whichever is less.
<PAGE>
INVESTMENT SUB-ADVISER
First Security Investment Management, Inc.
61 South Main Street
Salt Lake City, Utah 84111
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Gary C. Cornia
William L. Ensign
D. George Harris
Diana P. Herrmann
Anne J. Mills
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Vice President
Kimball L. Young, 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
After November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................4
Financial Highlights.............................5
Introduction.....................................6
Investment Of The Fund's Assets..................6
Investment Restrictions.........................11
Net Asset Value Per Share.......................11
How To Invest In The Fund.......................12
How To Redeem Your Investment...................14
Automatic Withdrawal Plan.......................16
Management Arrangements.........................16
Dividend And Tax Information....................20
Exchange Privilege..............................23
General Information.............................25
Application
AQUILA
TAX-FREE FUND FOR
[LOGO]
UTAH
PROSPECTUS
A tax-free
income investment
One Of The
Aquilasm Group Of Funds
<PAGE>
Aquila
TAX-FREE FUND FOR UTAH
380 Madison Avenue
Suite 2300
New York, NY 10017
800-UTAH-YES
(800-882-4937)
212-697-6666
Statement
of Additional Information
October 31, 1997
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for
the Fund dated October 31, 1997: 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 ("Class Y Shares") and Financial Intermediary
Class Shares ("Class I Shares") of the Fund. References in the
Additional Statement to "the Prospectus" refer to either of these
Prospectuses. The Additional Statement should be read in
conjunction with the Prospectus for the class of shares in which
you are considering investing. Either or both Prospectuses may be
obtained from the Fund's Shareholder Servicing Agent, (after
November 8, 1997) PFPC Inc., 400 Bellevue Parkway, Wilmington, DE
19809 or by calling the following number:
800-446-8824 toll free
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to 380 Madison Avenue, Suite 2300, New York, New York
10017; or by calling: 800-882-4937 toll free or 212-697-6666.
The Annual Report of the Fund for the fiscal year ended June
30, 1997 will be delivered with the Additional Statement.
TABLE OF CONTENTS
Investment of the Fund's Assets. . . . . . . . . . . . . . . . .2
Municipal Bonds. . . . . . . . . . . . . . . . . . . . . . . . .3
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Investment Restrictions. . . . . . . . . . . . . . . . . . . . .9
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . 10
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 16
Limitation of Redemptions in Kind. . . . . . . . . . . . . . . 18
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 18
Additional Information as to Management Arrangements . . . . . 23
Computation of Net Asset Value . . . . . . . . . . . . . . . . 27
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 28
Additional Tax Information . . . . . . . . . . . . . . . . . . 28
Conversion of Class Shares . . . . . . . . . . . . . . . . . . 29
General Information. . . . . . . . . . . . . . . . . . . . . . 29
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 32
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
The investment objective and policies of the Fund are
described in the Prospectus, which refers to the matters
described below. See the Prospectus for the definition of "Utah
Double-Exempt Obligations."
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds
and notes which they undertake to rate. It should be emphasized,
however, that ratings are general and not absolute standards of
quality. Consequently, obligations with the same maturity, stated
interest rate and rating may have different yields, while
obligations of the same maturity and stated interest rate with
different ratings may have the same yield. See Appendix A to this
Additional Statement for further information about the ratings of
Moody's and S&P as to the various rated Utah Double-Exempt
Obligations which the Fund may purchase.
The table below gives information as to the percentage of
the Fund's net assets invested, as of June 30, 1997, in Utah
Double Tax-Exempt Obligations in the various rating categories:
Highest rating (1). . . . . . . . . . . . . . . . . . 68.6%
Second highest rating (2) . . . . . . . . . . . . . . 17.4%
Third highest rating (3). . . . . . . . . . . . . . . 11.6%
Fourth highest rating (4) . . . . . . . . . . . . . . . 1.0%
Unrated Obligations. . . . . . . . . . . . . . . . . . 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.
When-Issued and Delayed Delivery Obligations
The Fund may purchase Utah Double-Exempt Obligations on a
when-issued or delayed delivery basis. The purchase price and the
interest rate payable on the Utah Double-Exempt Obligations are
fixed on the transaction date. At the time the Fund makes the
commitment to purchase Utah Double-Exempt Obligations on a
when-issued or delayed delivery basis, it will record the
transaction and thereafter reflect the value each day of such
Utah Double-Exempt 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 Utah Obligations. The Fund will maintain with the Custodian a
separate account with portfolio Utah Obligations in an amount at
least equal to such commitments, which will be marked to market
every business day. On delivery dates for such transactions, the
Fund will meet its commitments by selling the Utah Double-Exempt
Obligations held in the separate account and/or from cash flow.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average
value of such securities during the year, excluding certain
short-term securities. Since the turnover rate of the Fund will
be affected by a number of factors, the Fund is unable to predict
what rate the Fund will have in any particular period or periods,
although such rate is not expected to exceed 100%. However, the
rate could be substantially higher or lower in any particular
period.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General
obligation bonds are secured by the issuer's pledge of its full
faith, credit and unlimited taxing power for the payment of
principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or
class of facilities or projects or, in a few cases, from the
proceeds of a special excise or other tax, but are not supported
by the issuer's power to levy unlimited general taxes. There are,
of course, variations in the security of municipal bonds, both
within a particular classification and between classifications,
depending on numerous factors. The yields of municipal bonds
depend on, among other things, general financial conditions,
general conditions of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of
the issue.
Since the Fund may invest in industrial development bonds or
private activity bonds, the Fund may not be an appropriate
investment for entities which are "substantial users" of
facilities financed by those bonds or for investors who are
"related persons" of such users. Generally, an individual will
not be a "related person" under the Internal Revenue Code unless
such investor or his or her immediate family (spouse, brothers,
sisters and lineal descendants) own directly or indirectly in the
aggregate more than 50 percent of the equity of a corporation or
is a partner of a partnership which is a "substantial user" of a
facility financed from the proceeds of those bonds. A
"substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses a part of [a] facility"
financed from the proceeds of industrial development or private
activity bonds.
As indicated in the Prospectus, there are certain Utah
Double-Exempt 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 Utah Double-Exempt Obligations
due to this tax consequence. Also, as indicated in the
Prospectus, the Fund will not purchase obligations of 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.
As stated in the Prospectus, floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. In
determining marketability of any such securities, 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.
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject
to rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Fund be accompanied by certain standardized
performance information computed as required by the SEC. Current
yield and average annual compounded total return quotations used
by the Fund are based on these standardized methods and are
computed separately for each of the Fund's three classes of
shares. Prior to May 21, 1996, the Fund had outstanding only one
class of shares which are currently designated "Class A 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 November 8, 1997
and none were outstanding during the periods indicated. Each of
these and other methods that may be used by the Fund are
described in the following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over a 1-year period
and a period since the inception of the operations of the Fund
(on July 24, 1992) that would equate an initial hypothetical
$1,000 investment in shares of each of the Fund's three classes
to the value such an investment would have if it were completely
redeemed at the end of each such period.
In the case of Class A Shares, the calculation assumes the
maximum sales charge is deducted from the hypothetical initial
$1,000 purchase. In the case of Class C Shares, the calculation
assumes the applicable Contingent Deferred Sales Charge ("CDSC")
imposed on a redemption of Class C Shares held for the period is
deducted. In the case of Class Y Shares, the calculation assumes
that no sales charge is deducted and no CDSC is imposed. For all
three classes, it is assumed that on each reinvestment date
during each such period any capital gains are reinvested at net
asset value, and all income dividends are reinvested at net asset
value, without sales charge (because the Fund does not impose any
sales charge on reinvestment of dividends for any class). The
computation further assumes that the entire hypothetical account
was completely redeemed at the end of each such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations for Class A Shares is a one
time charge, paid at the time of initial investment. The greatest
impact of this charge is during the early stages of an investment
in the Fund. Actual performance will be affected less by this one
time charge the longer an investment remains in the Fund.
Average Annual Compounded Rates of Return:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 3.37% 5.76% 8.80%
Since
inception on
July 22, 1992 5.66% 7.02%(1) 8.80%(1)
<FN>
(1) Period from May 21, 1996 (inception of class) through June 30, 1997.
</FN>
</TABLE>
These figures were calculated according to the following SEC
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-year period
or the period since inception, at the end of each
such period.
As discussed in the Prospectus, the Fund may quote total
rates of return in addition to its average annual total return
for each of its three classes of shares. Such quotations are
computed in the same manner as the Fund's average annual
compounded rate, except that such quotations will be based on the
Fund's actual return for a specified period as opposed to its
average return over the periods described above.
Total Return
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 3.37% 5.76% 8.80%
Since
inception on
July 22, 1992 31.26% 7.81%(1) 9.78%(1)
<FN>
(1) Period from May 21, 1996 (inception of class) through June 30, 1997.
</FN>
</TABLE>
In general, actual total rate of return will be lower than
average annual rate of return because the average annual rate of
return reflects the effect of compounding. See discussion of the
impact of the sales charge on quotations of rates of return,
above.
Yield
Current yield reflects the income per share earned by the
Fund's portfolio investments. Current yield is determined by
dividing the net investment income per share earned for each of
the Fund's three classes during a 30-day base period by the
maximum offering price per share on the last day of the period
and annualizing the result. Expenses accrued for the period
include any fees charged to all shareholders of each class during
the base period net of fee waivers and reimbursements of
expenses, if any.
The Fund may also quote a taxable equivalent yield for each
of its three classes of shares which shows the taxable yield that
would be required to produce an after-tax yield equivalent to
that of a fund which invests in tax-exempt obligations. Such
yield is computed by dividing that portion of the yield of the
Fund (computed as indicated above) which is tax-exempt by one
minus the highest applicable combined federal and Utah income tax
rate (and adding the result to that portion of the yield of the
Fund that is not tax-exempt, if any).
The Utah and the combined Utah and federal income tax rates
upon which the Fund's tax equivalent yield quotations are based
are 7.0% and 43.28%, 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 June 30, 1997 (the date of the
Fund's most recent audited financial statements:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
Yield 4.91% 4.10% 5.11%
Taxable
Equivalent
Yield 8.64% 7.23% 9.01%
</TABLE>
These figures were obtained using the Securities and
Exchange Commission formula:
6
Yield = 2 [(a-b + 1) -1]
----
cd
Where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative
of the amounts which were or will be paid to the Fund's
shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by
(i) dividing the total amount of dividends per share paid by the
Fund during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Fund's current distribution rate (calculated as
indicated above). The current distribution rate can differ from
the current yield computation because it could include
distributions to shareholders from additional sources (i.e.,
sources other than dividends and interest), such as short-term
capital gains.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase Class A Shares of the Fund at net asset
value, the Fund may quote a "Current Distribution for Net Asset
Value Investments." This rate is computed by (i) dividing the
total amount of dividends per share paid by the Fund during a
recent 30-day period by (ii) the current net asset value of the
Fund and by (iii) annualizing the result. Figures for yield,
total return and other measures of performance for Net Asset
Value Investments may also be quoted. These will be derived as
described above with the substitution of net asset value for
public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used. If distribution rates are published, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.
The Fund may include in advertisements and sales literature,
information, examples and statistics that illustrate the effect
of taxable versus tax-free compounding income at a fixed rate of
return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and
capital gains distributions in additional shares. The examples
used will be for illustrative purposes only and are not
representations by the Fund of past or future yield or return.
From time to time, in reports and promotional literature,
the Fund may compare its performance to, or cite the historical
performance of, U.S. Treasury bills, notes and bonds, or indices
of broad groups of unmanaged securities considered to be
representative of, or similar to, the Fund's portfolio holdings,
such as:
Lipper Analytical Services, Inc. ("Lipper") is a
widely-recognized independent service that monitors and ranks the
performance of regulated investment companies. The Lipper
performance analysis includes the reinvestment of capital gain
distributions and income dividends but does not take sales
charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend
dates accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance and are subject to
change every month. Funds with at least three years of
performance history are assigned ratings from one star (lowest)
to five stars (highest). Morningstar ratings are calculated from
the funds' three-, five-, and ten-year average annual returns
(when available) and a risk factor that reflects fund performance
relative to three-month Treasury bill monthly returns. Fund's
returns are adjusted for fees and sales loads. Ten percent of the
funds in an investment category receive five stars, 22.5% receive
four stars, 35% receive three stars, 22.5% receive two stars, and
the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly
publication which tracks principal return, total return and yield
on the Salomon Brothers Broad Investment-Grade Bond Index and the
components of the Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices," a monthly corporate government index publication which
lists principal, coupon and total return on over 100 different
taxable bond indices which Merrill Lynch tracks. They also list
the par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly
publication which tracks principal, coupon and total return on
the Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as
well as all the components of these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of inflation. The
Index shows changes in the cost of selected consumer goods and
does not represent a return on an investment vehicle.
From time to time, in reports and promotional literature,
performance rankings and ratings reported periodically in
national financial publications such as MONEY, FORBES, BUSINESS
WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In
addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE
WALL STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS
may be cited.
INVESTMENT RESTRICTIONS
The Fund has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the
1940 Act) of the Fund's outstanding shares vote to change them.
Under that Act, the vote of the holders of a "majority" of the
Fund's outstanding shares means the vote of the holders of the
lesser of (a) 67% or more of the Fund's shares present at a
meeting or represented by proxy if the holders of more than 50%
of its shares are so present or represented; or (b) more than 50%
of the Fund's outstanding shares. Those fundamental policies not
set forth in the Prospectus are set forth below:
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Utah
Double-Exempt Obligations (discussed under "Investment of the
Fund's Assets" in the Prospectus); therefore the Fund cannot buy
any voting securities, any commodities or commodity contracts,
any mineral related programs or leases, any shares of other
investment companies or any warrants, puts, calls or combinations
thereof.
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.
4. The Fund is not an underwriter.
The Fund cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Fund's Distribution Plan has four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II), to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part IV).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Fund would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Manager,
Sub-Adviser or the Distributor. The Distributor will consider
shares which are not Qualified Holdings of such unrelated
broker-dealers to be Qualified Holdings of the Distributor and
will authorize Permitted Payments to the Distributor with respect
to such shares whenever Permitted Payments are being made under
the Plan.
Part I of the Plan applies only to the Front-Payment Class
Shares ("Class A Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Front-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Front-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Board of
Trustees of the Fund, the Fund may make payments ("Class A
Permitted Payments") to Qualified Recipients, which Class A
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent as disbursing agent,
which may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year), 0.20 of 1% of the average
annual net assets of the Fund represented by the Front-Payment
Class Shares. Such payments shall be made only out of the Fund's
assets allocable to the Front-Payment Class Shares.
The Distributor shall have sole authority (i) as to the
selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Class A
Permitted Payments, if any, to each Qualified Recipient provided
that the total Class A Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year-end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part I is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Manager, Sub-Adviser, or the Distributor, such person
shall agree to furnish to the Distributor for transmission to the
Board of Trustees of the Fund an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part I of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Front-Payment Class Shares class (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class Shares and/or of any other class whose
shares are convertible into Front-Payment Class Shares. Part I
has continued, and will, unless terminated as hereinafter
provided, continue in effect, until the December 31 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 May 21, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment Shares
Class ("Class C Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Level-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class C Permitted
Payments") to Qualified Recipients, which Class C Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Fund (as adjusted for any part
or parts of a fiscal year during which payments under the Plan
are not accruable or for any fiscal year which is not a full
fiscal year), 0.75 of 1% of the average annual net assets of the
Fund represented by the Level-Payment Class Shares. Such payments
shall be made only out of the Fund's assets allocable to the
Level-Payment Class Shares. The Distributor shall have sole
authority (i) as to the selection of any Qualified Recipient or
Recipients; (ii) not to select any Qualified Recipient; and (iii)
the amount of Class C Permitted Payments, if any, to each
Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above. The Distributor is authorized, but not directed, to
take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient; (b) the extent to which the
Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of
Level-Payment Shares, including without limitation, any or all of
the following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year-end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level-Payment Class Shares. Part II has
continued, and will, unless terminated as thereinafter provided,
continue in effect, until the December 31 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 May 21, 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 C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class I Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Class I Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Fund
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part III is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class I Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part III originally went into effect when it was approved
(i) by a vote of the Trustees, including the Independent
Trustees, with votes cast in person at a meeting called for the
purpose of voting on Part III of the Plan; and (ii) by a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Class I Shares Class. Part
III has continued, and will, unless terminated as thereinafter
provided, continue in effect, until the December 31 next
succeeding such effectiveness, and from year to year thereafter
only so long as such continuance is specifically approved at
least annually by the Fund's Trustees and its Independent
Trustees with votes cast in person at a meeting called for the
purpose of voting on such continuance. Part II may be terminated
at any time by the vote of a majority of the Independent Trustees
or by the vote of the holders of a "majority" (as defined in the
1940 Act) of the outstanding voting securities of the Fund to
which Part III applies. Part III may not be amended to increase
materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by Part III
as set forth in (ii) above, and all amendments must be approved
in the manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class I Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to May 1, 1996 or
(ii) Class I Plan Agreements entered into thereafter.
Payments Under the Plan
During the fiscal years ended June 30, 1997, 1996 and 1995,
$58,706, $57,015, and $52,964, respectively, were paid under the
Plan with respect to Class A Shares to Qualified Recipients. Of
those amounts, $1,749, $1,624 and $1,424, respectively, were paid
to the Distributor. All of such payments were for compensation.
During the fiscal year ended June 30, 1997, $119 was paid with
respect to Class C Shares all of which was retained by the
Distributor. All of such payments were for compensation. No
payments were made with respect to Class C Shares for the fiscal
year ended June 30, 1996; no Class C Shares were outstanding
before that time.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to the
extent that any of the payments listed below are considered to be
"primarily intended to result in the sale of" shares issued by
the Fund within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Fund or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Fund's shares; (iv) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, statements of
additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Fund and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Fund's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan states that while it is in effect, the Fund's
Administrator and Distributor shall report at least quarterly to
the Fund's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Fund to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Plan defines as the Fund's Independent Trustees those
Trustees who are not "interested persons" of the Fund as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan. The Plan, unless terminated as thereinafter
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.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares and Class I Shares of the Fund of "Service Fees" within
the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. The Services Plan applies
only to the Class C Shares and Class I Shares of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name). The Services Plan has two
parts.
Provisions for Level-Payment Class Shares (Part I)
As used in the Services Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to the
Distributor and any other principal underwriter of the Fund, who
have, pursuant to written agreements with the Fund or the
Distributor, agreed to provide personal services to shareholders
of Level-Payment Class Shares and/or maintenance of Level-Payment
Class Shares shareholder accounts. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Class
Shares beneficially owned by such Qualified Recipient's
customers, clients or other contacts. "Administrator" shall mean
Aquila Management Corporation or any successor serving as
sub-adviser or administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Fund represented by
the Level-Payment Class Shares. Such payments shall be made only
out of the Fund's assets allocable to the Level-Payment Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and
provided, further, that no Qualified Recipient may receive more
than 0.25 of 1% of the average annual net asset value of shares
sold by such Recipient. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient and (b) the extent
to which the Qualified Recipient has, at its expense, taken steps
in the shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Fund may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years. During the fiscal year ended June 30, 1997, $40
was paid under the Services Plan with respect to Class C Shares,
of which the Distributor received all.
Provisions for Financial Intermediary Class Shares (Part II)
As used in Part II of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Fund, who have, pursuant to written agreements with the Fund
or the Distributor, agreed to provide personal services to
shareholders of Financial Intermediary Class Shares, maintenance
of Financial Intermediary Class Shares shareholder accounts
and/or pursuant to specific agreements entering confirmed
purchase orders on behalf of customers or clients. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Financial Intermediary Class Shares beneficially owned by such
Qualified Recipient's customers, clients or other contacts.
"Administrator" shall mean Aquila Management Corporation or any
successor serving as sub-adviser or administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Fund represented by
the Financial Intermediary Class Shares. Such payments shall be
made only out of the Fund's assets allocable to the Financial
Intermediary Class Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
While the Services Plan is in effect, the Fund's Distributor
shall report at least quarterly to the Fund's Trustees in writing
for their review on the following matters: (i) all Service Fees
paid under the Services Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor
paid or accrued during such quarter. In addition, if any
Qualified Recipient is an "affiliated person," as that term is
defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Fund, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Fund
an accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Fund and had no direct or indirect financial interest in the
operation of the Services Plan or in any agreements related to
the Services Plan (the "Independent Trustees"), with votes cast
in person at a meeting called for the purpose of voting on the
Services Plan. It will continue in effect for a period of more
than one year from its original effective date only so long as
such continuance is specifically approved at least annually as
set forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the Act as now in force
or hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing 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.
LIMITATION OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1 percent of the
net asset value of the Fund during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such
limitation, the Fund will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets
into cash. The method of valuing securities used to make
redemptions in kind will be the same as the method of valuing
portfolio securities described under "Net Asset Value Per Share"
in the Prospectus, and such valuation will be made as of the same
time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund, their affiliations,
if any, with the Administrator or the Distributor and the
principal occupations of such persons during at least the past
five years are set forth below. Mr. Herrmann is an "interested
person" of the Fund as that term is defined in the 1940 Act as an
officer of the Fund and a Director, officer and shareholder of
the Distributor. Ms. Herrmann is an interested person as a member
of his immediate family and as a shareholder of the Distributor.
Mr. Cornia is an interested person of the Fund as a shareholder
of the Sub-Adviser's corporate parent. They are so designated by
an asterisk. As of October 1, 1997, the Trustees and officers as
a group owned less than 1% of the Fund's outstanding shares.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila Management
Corporation since 1984, the sponsoring organization and Manager,
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: Hawaiian Tax-Free Trust since
1984; Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; and Narragansett
Insured Tax-Free Income Fund since 1992; each of which is a
tax-free municipal bond fund, and two equity funds, Aquila Rocky
Mountain Equity, Fund since 1993 and Aquila Cascadia Equity Fund,
since 1996, which, together with this Fund are called the Aquila
Bond and Equity Funds; and Pacific Capital Cash Assets Trust
since 1984; Churchill Cash Reserves Trust since 1985; Pacific
Capital U.S. Treasuries Cash Assets Trust since 1988; Pacific
Capital Tax-Free Cash Assets Trust since 1988; each of which is a
money market fund, and together with Capital Cash Management
Trust ("CCMT") are called the Aquila Money-Market Funds; Vice
President, Director, Secretary and formerly Treasurer of Aquila
Distributors, Inc. since 1981, distributor of the above funds;
President and Chairman of the Board of Trustees of CCMT, a money
market fund since 1981, and an Officer and Trustee/Director of
its predecessors since 1974; Chairman of the Board of Trustees
and President of Prime Cash Fund (which is inactive), since 1982
and of Short Term Asset Reserves 1984-1996; President and a
Director of STCM Management Company, Inc., sponsor and
sub-adviser to CCMT; Chairman, President, and a Director since
1984, of InCap Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term Asset Reserves,
and Founder and Chairman of several other money market funds;
Director or Trustee of OCC Cash Reserves, Inc., Oppenheimer Quest
Global Value Fund, Inc., Oppenheimer Quest Value Fund, Inc., and
Trustee of Quest For Value Accumulation Trust, The Saratoga
Advantage Trust, and of the Rochester Group of Funds, each of
which is an open-end investment company; Trustee of Brown
University, 1990-1996 and currently Trustee Emeritus; actively
involved for many years in leadership roles with university,
school and charitable organizations.
Philip E. Albrecht, C.F.A., Trustee, 1485 Gulf of Mexico Drive,
Longboat Key, Florida, 34228
Retired; Senior Vice President, Investments of National
Securities & Research Corporation, 1973-1984; Vice President of
Research of Merrill Lynch, Pierce, Fenner & Smith, 1949-1973;
past President of The New York Society of Security Analysts;
former officer and Director of The Financial Analysts Federation;
former officer and Trustee of the Institute of Chartered
Financial Analysts; active in a similar capacity with various
other professional organizations; Trustee of Tax-Free Trust of
Arizona since 1987.
Gary C. Cornia*, Trustee, 577 East 1090 North, Orem, Utah 84057
Professor and Associate Dean of the Marriott School of
Management, Brigham Young University, since 1991; Associate
Professor, 1985-1991; Assistant Professor, 1980-1985;
Commissioner of the Utah Tax Commission, 1983-1986; Director of
the National Tax Association, 1990-1993; Chair of the Governor's
Tax Review Committee since 1993; Faculty Associate of the Land
Reform Training Institute, Taipei, Taiwan and The Lincoln
Institute of Land Policy Cambridge, Massachusetts.
William L. Ensign, Trustee, 2928 Cortland Place N.W., Washington,
D.C. 20008
Assistant Architect of the United States Capital, Washington,
D.C. since 1980; formerly President and Chief Executive Officer
of McLeod Ferrara Ensign, a planning, architectural, and interior
design firm, in Washington D.C. and Maryland; a Fellow and former
member of the Board of Directors of the American Institute of
Architects and past President of the Washington-Metropolitan
Chapter of the A.I.A.; active in the National Trust for Historic
Preservation; designee to the Advisory Council on Historic
Preservation; designee to the Zoning Commission of the District
of Columbia since 1989; Trustee of Tax-Free Trust of Arizona
since 1986; Trustee of Oxford Cash Management Fund, 1983-1989.
George Harris, Trustee, 280 Nettleton Hollow Road, P.O. Box 1500,
Washington, Connecticut 06793
Chairman and Chief Executive Officer of Harris Chemical Group,
Inc., a producer and marketer of inorganic chemical and
extractive mineral products, including salt, soda ash and sulfate
of potash, since 1993; Chairman and CEO of Harris Specialty
Chemicals, Inc., a manufacturer of specialty formulated chemicals
for the construction industry and specialty fluorine and silane
chemicals for the pharmaceutical and silicone industries, since
1994; Chairman and CEO of D. George Harris & Associates, an
investment management and advisory firm, since 1987; Chairman
(non-executive) of McWhorter, Inc., a resin products company,
since 1994; Senior Investment Banking Advisor to Eberstadt
Fleming Inc., an investment banking firm, 1987-1988; President of
SCM Corporation, a manufacturing company, 1985-1986; President of
its Chemical Division, 1981-1985; formerly President of Rhone
Poulenc, Inc., a subsidiary of Rhone-Poulenc S.A., a chemical
manufacturer; Trustee of Trinity Liquid Assets Trust, 1985-1990;
Trustee of Prime Cash Fund, 1986-1992, of Churchill Tax-Free Fund
of Kentucky, 1987-1993 and of Churchill Cash Reserves Trust,
1985-1993; Director of Valspar Corporation, a manufacturer of
paints and resins, 1987-1994; Director of Rexene Corporation, a
manufacturer of thermoplastic resins and petrochemical products,
1992-1994. Member of the President's Advisory Committee on Trade
Policy and Negotiations since 1990.
Diana P. Herrmann*, Trustee and Vice President, 380 Madison
Avenue, New York, New York 10017
Trustee of Tax-Free Trust of Arizona and Tax-Free Trust of Oregon
since 1994, of Churchill Tax-Free Fund of Kentucky and Churchill
Cash Reserves Trust since 1995, of Aquila Cascadia Equity Fund
since 1996 and of Aquila Rocky Mountain Equity Fund since 1997;
President and Chief Operating Officer of the Administrator since
1997; Senior Vice President and Secretary, formerly Vice
President of the Administrator since 1986 and Director since
1984; Senior Vice President or Vice President and formerly
Assistant Vice President of the Aquila Money-Market Funds since
1986; Vice President of the Aquila Bond and Equity Funds since
1997; Vice President of InCap Management Corporation since 1986
and Director since 1983; Assistant Vice President of Oxford Cash
Management Fund, 1986-1988; Assistant Vice President and formerly
Loan Officer of European American Bank, 1981-1986; daughter of
the Fund's President; 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, Trustee, 167 Glengarry Place, Castle Pines
Village, Castle Rock, Colorado 80104
Vice President for Business Affairs of Ottawa University since
1992; Director of Customer Fulfillment, U.S. Marketing and
Services Group, IBM Corporation, 1990-1991; Director of Business
Requirements of that Group, 1988-1990; Director of Phase
Management of that Group, 1985-1988; Budget Review Officer of the
American Baptist Churches/USA since 1994; Director of the
American Baptist Foundation since 1985; Trustee of Brown
University; Trustee of Churchill Cash Reserves Trust since 1985,
of Tax-Free Trust of Arizona since 1986 and of Churchill Tax-Free
Fund of Kentucky, Tax-Free Fund of Colorado and Capital Cash
Management Trust since 1987.
R. Thayne Robson, Trustee, 3548 Westwood Drive, Salt Lake City,
Utah 84109
Director of the Bureau of Economic and Business Research,
Professor of Management, and Research Professor of Economics at
the University of Utah since 1978; Trustee of Aquila Rocky
Mountain Equity Fund since 1993; Director of the Alliance of
Universities for Democracy since 1990; Trustee of the Salt Lake
Convention and Visitors Bureau since 1984; Member of Utah
Governor's Economic Coordinating Committee since 1982; Member of
the Association for University Business and Economic Research
since 1985; Director of ARUP (a medical test laboratory) since
1988; Director of Western Mortgage since 1989; Director of the
Utah Economic Development Corporation since 1985; Director of the
Salt Lake Downtown Alliance since 1991; Trustee of Crossroads
Research Institute since 1986.
Jerry G. McGrew, Vice President, P.O. Box 662, Radcliff, Kentucky
40159
Senior Vice President of Aquila Rocky Mountain Equity Fund since
1997; Senior Vice President of Churchill Tax-Free Fund of
Kentucky since 1994, Vice President since 1987; Vice President of
Churchill Cash Reserves Trust since 1995; Registered Principal
since 1993; Vice President of Aquila Distributors, Inc. since
1993; Registered Representative of J.J.B. Hilliard, W.L. Lyons
Inc., 1983-1987; Account Manager with IBM Corporation, 1967-1981;
Gubernatorial appointee, Kentucky Financial Institutions Board,
since 1993; Chairman, Total Quality Management for Small
Business, 1990-1994; President of Elizabethtown/Hardin County,
Kentucky, Chamber of Commerce, 1989-1991; President of
Elizabethtown Country Club, 1983-1985.
Kimball L. Young, Vice President, 2049 Herbert Avenue, Salt Lake
City, Utah 84108
Utah Public Finance Manager and Senior Vice President of
Boettcher Division, Kemper Securities Group, Inc., with
responsibilities for financing capital improvement needs in
numerous Utah cities, towns and special districts, 1980-1992;
formerly state assistant to U.S. Senator Jake Garn.
Stephen J. Caridi, Vice President, 380 Madison Avenue, New York
10017
Vice President of the Distributor since 1995, Assistant Vice
President, 1988-1995, Marketing Associate, 1986-1988; Vice
President of Narragansett Insured Tax-Free Income Fund since
1996; Mutual Funds coordinator of Prudential Bache Securities,
1984-1986; Account Representative of Astoria Federal Savings and
Loan Association, 1979-1984.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-1991;
formerly Treasurer of the predecessor of CCMT; Treasurer and
Director of STCM Management Company, Inc., since 1974; Treasurer
of Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash
Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Administrator since 1984 and of
the Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT Insight Funds, Inc.,
1986-1988; Vice President of Lehman Management Co., Inc. and
Assistant Treasurer of Lehman Money Market Funds, 1981-1985;
Controller of Seligman Group of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust,
1982-1985 and Trustee of that Trust, 1985-1986; Secretary of
Oxford Cash Management Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the
Administrator and the Distributor since 1995; formerly a Legal
Associate for Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Fund does not pay fees to Trustees affiliated with the
Administrator or to any of the Fund's officers. During the fiscal
year ended June 30, 1997, the Fund paid $25,293 in fees and
reimbursement of expenses to its other Trustees. The Fund is one
of the 14 funds in the Aquilasm Group of Funds, which consist of
tax-free municipal bond funds, money market funds and two equity
funds. The following table lists the compensation of all Trustees
who received compensation from the Fund and the compensation they
received during the Fund's fiscal year from other funds in the
Aquilasm Group of Funds. None of such Trustees has any pension or
retirement benefits from the Fund or any of the other funds in
the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Fund Group now serves
<S> <C> <C> <C>
Philip E.
Albrecht $2,271 $13,236 2
Gary C.
Cornia $3,528 $3,528 1
William L.
Ensign $700 $4,500 2
D. George
Harris $250 $250 1
Anne J.
Mills $1,923 $36,526 6
R. Thayne
Robson $2,377 $4,965 2
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Investment Advisory and
Administration Agreement
The Advisory and Administration Agreement provides that it
will become effective on the date of its approval by the
shareholders of the Fund and will, unless terminated as
thereinafter provided, continue in effect until the December 31
next preceding the first anniversary of the effective date of the
Advisory and Administration 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 Advisory and Administration 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.
During the fiscal years ended June 30, 1997, 1996 and 1995,
the Fund accrued in fees to the Manager under the administration
agreement then in effect, respectively, of $79,323, of which
$58,760 was waived, $76,955 of which $72,207 was waived, and
$71,539, all of which was waived. In addition, during the fiscal
year ended June 30, 1997, the Manager agreed to reimburse the
Fund for other expenses in the amount of $199,119 of which
$66,512 was paid prior to June 30, 1997 and the balance of
$132,607 was paid in July and early August of 1997. During the
fiscal year ended June 30, 1996, the Manager reimbursed the Fund
$187,859 in expenses.
Additional Information as to 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 hereunder by the Sub-Adviser,
the Manager agrees to provide the Sub-Adviser the benefits of
such indemnification.
The Sub-Advisory Agreement provides that in connection with
its duties to arrange for the purchase and sale of the Fund's
portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-Adviser's
judgment, implement the policy of the Fund to achieve "best
execution," i.e., prompt, efficient, and reliable execution of
orders at the most favorable net price. The Sub-Adviser shall
cause the Fund to deal directly with the selling or purchasing
principal or market maker without incurring brokerage commissions
unless the Sub-Adviser determines that better price or execution
may be obtained by paying such commissions; the Fund expects that
most transactions will be principal transactions at net prices
and that the Fund will incur little or no brokerage costs. The
Fund understands that purchases from underwriters include a
commission or concession paid by the issuer to the underwriter
and that principal transactions placed through dealers include a
spread between the bid and asked prices. In allocating
transactions to dealers, the Sub-Adviser is authorized to
consider, in determining whether a particular dealer will provide
best execution, the dealer's reliability, integrity, financial
condition and risk in positioning the securities involved, as
well as the difficulty of the transaction in question, and thus
need not pay the lowest spread or commission available if the
Sub-Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the
brokerage and research services provided by the dealer, viewed
either in terms of the particular transaction or the
Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Sub-Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the Fund. Such research may be in
written form or through direct contact with individuals and may
include quotations on portfolio securities and information on
particular issuers and industries, as well as on market,
economic, or institutional activities. The Fund recognizes that
no dollar value can be placed on such research services or on
execution services and that such research services may or may not
be useful to the Fund and may be used for the benefit of the
Sub-Adviser or its other clients.
During the fiscal years ended June 30, 1997, 1996 and 1995,
all of the Fund's transactions were principal transactions and no
brokerage commissions were paid.
The Sub-Advisory Agreement provides that the Sub-Adviser
agrees to maintain, and to preserve for the periods prescribed,
such books and records with respect to the portfolio transactions
of the Fund as are required by applicable law and regulation, and
agrees that all records which it maintains for the Fund on behalf
of the Manager shall be the property of the Fund and shall be
surrendered promptly to the Fund or the Manager upon request. The
Sub-Adviser agrees to furnish to the Manager and to the Board of
Trustees of the Fund such periodic and special reports as each
may reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall bear all of the expenses it incurs in fulfilling its
obligations under the Agreement. In particular, but without
limiting the generality of the foregoing: the Sub-Adviser shall
furnish the Fund, at the Sub-Adviser's expense, all office space,
facilities, equipment and clerical personnel necessary for
carrying out its duties under the Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Fund all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Fund. The Sub-Adviser will also pay all
compensation of the Fund's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement provides that it will become
effective on the day it is approved by the shareholders of the
Fund (the "Effective Date") and shall, unless terminated as
thereinafter provided, continue in effect until the December 31
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.
During the fiscal years ended June 30, 1997, 1996 and 1995,
the Fund accrued in fees to the Sub-Adviser under the advisory
agreement then in effect of $67,588, $65,552 and $60,941,
respectively, of which $49,962, $55,749 and $47,747,
respectively, was waived.
Glass-Steagall Act and Certain Other Banking Laws
The United States Supreme Court has held that the federal
statute commonly referred to as the Glass-Steagall Act prohibits
a national bank or its affiliates from operating a fund for the
collective investment of managed agency accounts. Subsequently,
the Board of Governors of the Federal Reserve System (the
"Board") issued a regulation and interpretation to the effect
that the Glass-Steagall Act and the Supreme Court's Decision: (a)
prohibit an affiliate of a bank holding company registered under
the Federal Bank Holding Company Act of 1956 (the "Holding
Company Act"), like the Sub-Adviser, from sponsoring, organizing,
or controlling a registered, open-end investment company (mutual
fund); but (b) do not prohibit such an affiliate from acting as
investment adviser, transfer agent or custodian to such an
investment company. Later, the United States Supreme Court held
that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation
authorizing bank holding company affiliates to act as investment
advisers to registered investment companies.
The Sub-Adviser been advised that the Sub-Adviser may
perform the services for the Fund contemplated by the Prospectus,
the Additional Statement, and the Investment Advisory Agreement
without thereby violating applicable statutes and regulations,
provided that the Sub-Adviser adheres to the limitations imposed
by the Board in its Regulation Y and other applicable regulatory
pronouncements.
Future changes in either federal or state statutes and
regulations relating to permissible activities of banks or bank
holding companies and the subsidiaries or affiliates of those
entities, as well as further judicial or administrative decisions
or interpretations of present and future statutes and
regulations, could prevent or restrict the Sub-Adviser from
continuing to perform such services for the Fund. Depending on
the nature of any changes in the services which could be provided
by the Sub-Adviser, the Board of Trustees of the Fund would
review the Fund's relationship with the Sub-Adviser and consider
taking all action necessary in the circumstances.
COMPUTATION OF NET ASSET VALUE
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, by dividing
the value of the Fund's net assets allocable to each class by the
total number of 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, so long as
the Board of Trustees has determined that amortized cost
represents fair value for these securities. All other portfolio
securities are valued at the mean between bid and asked
quotations which, for Utah Double-Exempt Obligations, may be
obtained from a reputable pricing service or from one or more
broker-dealers dealing in Utah Double-Exempt Obligations, either
of which may, in turn, obtain quotations from broker-dealers or
banks which deal in specific issues. However, since Utah
Double-Exempt 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 Utah Double-Exempt 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
Utah Double-Exempt 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 Sub-Adviser may
at its own expense and without reimbursement from the Fund employ
a pricing service, bank or broker-dealer experienced in such
matters to perform any of the above described functions.
As indicated above, the net asset value per share of the
Fund's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, that Exchange may close on days not
included in that announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Fund's shares are sold or issued
on a basis other than the maximum public offering price, that is,
the net asset value plus the highest sales charge. Some of these
relate to lower or eliminated sales charges for larger purchases,
whether made at one time or over a period of time as under a
Letter of Intent or right of accumulation. (See the table of
sales charges in the Prospectus.) The reasons for these quantity
discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary
to meet competition as to sales of shares of other funds having
such discounts; and (ii) they are designed to avoid an unduly
large dollar amount of sales charge on substantial purchases in
view of reduced selling expenses. Quantity discounts are made
available to certain related persons ("single purchasers") for
reasons of family unity and to provide a benefit to tax-exempt
plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges for Class A Shares are as
follows. Exchanges at net asset value are permitted because a
sales charge has already been paid on the shares exchanged. Sales
without sales charge are permitted to Trustees, officers and
certain others due to reduced or eliminated selling expenses
and/or since such sales may encourage incentive, responsibility
and interest and an identification with the aims and policies of
the Fund. Limited reinvestments of redemptions of Class A Shares
and Class C Shares at no sales charge are permitted to attempt to
protect against mistaken or incompletely informed redemption
decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and
since, in some cases, such issuance is exempted in the 1940 Act
from the otherwise applicable restrictions as to what sales
charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Fund
receives the net asset value per share of all shares sold or
issued.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchase Class A Shares or Class Y Shares of
the Fund having a net asset value of at least $5,000 you may
establish an Automatic Withdrawal Plan under which you will
receive a monthly or quarterly check in a stated amount, not less
than $50. Stock certificates will not be issued for shares held
under an Automatic Withdrawal Plan. All dividends and
distributions must be reinvested. Shares will be redeemed on the
last business day of the month or quarter as may be necessary to
meet withdrawal payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate your account. The monthly or quarterly payments
paid to you may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
If you incur a sales commission on a purchase of shares of
one mutual fund (the original fund) and sell or exchange them for
shares of a different mutual fund without having held them at
least 91 days, you must reduce the tax basis for the shares sold
or exchanged to the extent that the standard sales commission
charged for acquiring shares in the exchange or later acquiring
shares of the original fund or another fund is reduced because of
the shareholder's having owned the original fund shares. The
effect of the rule is to increase your gain or reduce your loss
on the original fund shares. The amount of the basis reduction on
the original fund shares, however, is added on the investor's
basis for the fund shares acquired in the exchange or later
acquired. The provision applies to commissions charged after
October 3, 1989.
CONVERSION OF CLASS C SHARES
Level-Payment Class Shares ("Class C Shares") of the Fund,
which you hold will automatically convert to Front-Payment Class
Shares ("Class A Shares") of the Fund based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the
sixth anniversary of the your initial purchase of such Class C
Shares occurs. For these purposes, the date of your initial
purchase shall mean (1) the first business day of the month in
which such Class C Shares were issued to you, or (2) for Class C
Shares of the Fund you have obtained through an exchange or
series of exchanges under the Exchange Privilege (see "Exchange
Privilege" in the Prospectus), the first business day of the
month in which you made the original purchase of Class C Shares
so exchanged. For conversion purposes, Class C Shares purchased
through reinvestment of dividends or other distributions paid in
respect of Class C Shares will be held in a separate sub-account.
Each time any Class C Shares in your regular account (other than
those in the sub-account) convert to Class A Shares, a pro-rata
portion of the Class C Shares in the sub-account will also
convert to Class A Shares. The portion will be determined by the
ratio that your Class C Shares then converting to Class A Shares
bears to the total of your Class C Shares not acquired through
reinvestment of dividends and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A Shares and
Class C Shares will not result in "preferential dividends" under
the Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Fund has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Fund implements any amendments to its Distribution
Plan that would increase materially the costs that may be borne
under such Distribution Plan by Class A Shares shareholders,
Class C Shares will stop converting into Class A Shares unless a
majority of Class C Shares shareholders, voting separately as a
class, approve the proposal.
GENERAL INFORMATION
Possible Additional Series
If additional Series (as discussed in the Prospectus) were
created by the Board of Trustees, shares of each such Series
would be entitled to vote as a Series only to the extent
permitted by the 1940 Act (see below) or as permitted by the
Board of Trustees. Income and operating expenses would be
allocated among two or more series in a manner acceptable to the
Board of Trustees.
Under Rule 18f-2 under the 1940 Act, any matter required to
be submitted to shareholder vote is not deemed to have been
effectively acted upon unless approved by the holders of a
"majority" (as defined in that Rule) of the voting securities of
each Series affected by the matter. Such separate voting
requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, Series. A change in
investment policy may go into effect as to one or more Series
whose holders so approve the change, even though the required
vote is not obtained as to the holders of other affected Series.
Ownership of Securities
Of the shares of the Fund outstanding on September 30,
1997, Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box
30561 New Brunswick, NJ held of record 484,960 Class A Shares
(16.8% of the class) and 3,581 Class C Shares (19.2% of the
class); BHC Securities Inc., 2005 Market Street, Philadelphia,
PA held of record 493,382 Class A Shares (17.1% of the class).
Dean Witter, New York, NY held of record 12,988 Class C Shares
(69.6% of the class); and Dain Bosworth Inc. held of record 977
Class C Shares (5.2% of the class). On the basis of information
received from those holders, the Fund's management believes that
all of such shares are held for the benefit of brokerage clients.
Aquila Management Corporation held of record 11.2 Class Y Shares
(100% of the class).
The Fund's management is not aware of any other person
owning of record or beneficially 5% or more of the shares of any
class of Fund's outstanding shares as of that date.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Fund may, under certain circumstances, be held personally liable
as partners for the obligations of the 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 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 Fund's 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.
The Declaration of Trust further indemnifies the Trustees of
the Fund out of the property of the Fund and provides that they
will not be liable for errors of judgment or mistakes of fact or
law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Underwriting Commissions
During the year ended June 30, 1997, the aggregate dollar
amount of sales charges on sales of shares in the Fund was
$121,809 and the amount retained by the Distributor was $1,637.
Custodian and Auditors
The Fund's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Fund's assets.
The Fund's auditors, KPMG Peat Marwick LLP, perform an
annual audit of the Fund's financial statements.
The financial statements for the Fund for the year ended
June 30, 1997, which are contained in the Annual Report for that
fiscal year, are hereby incorporated by reference into the
Additional Statement. Those financial statements have been
audited by KPMG Peat Marwick LLP, independent auditors, whose
report thereon is incorporated herein by reference.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and
other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt
being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and
risk.
Standard & Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing
the designation SP-1 are deemed very strong or to have strong
capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a
plus (+) designation. Notes bearing the designation SP-2 are
deemed to have a satisfactory capacity to pay principal and
interest.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's
Investment Grade as MIG 1 through MIG 4. In the case of variable
rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other
representing an evaluation of the degree of risk associated with
the demand feature. The short-term rating assigned to the demand
feature of VRDOs is designated as VMIG. When no rating is applied
to the long or short-term aspect of a VRDO, it will be designated
NR. Issues or the features associated with MIG or VMIG ratings
are identified by date of issue, date of maturity or maturities
or rating expiration date and description to distinguish each
rating from other ratings. Each rating designation is unique with
no implication as to any other similar issue of the same obligor.
MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issuer's
specific structural or credit features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality.
Margins of protection are ample although not
so large as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access
for refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of
an investment security is present and
although not distinctly or predominantly
speculative, there is specific risk.
<PAGE>
INVESTMENT SUB-ADVISER
First Security Investment Management, Inc.
61 South Main Street
Salt Lake City, Utah 84111
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Gary C. Cornia
William L. Ensign
D. George Harris
Diana P. Herrmann
Anne J. Mills
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Vice President
Kimball L. Young, 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
After November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
AQUILA
TAX-FREE FUND FOR
[LOGO]
UTAH
Statement of
Additional
Information
A tax-free
income investment
One Of The
Aquilasm Group Of Funds
