NARRAGANSETT INSURED TAX-FREE INCOME FUND
Supplement to the Prospectus (Class A Shares and Class C Shares)
dated October 31, 1997
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 to any
dealer effecting a purchase of Class A Shares of the Fund using
the proceeds of a Qualified Redemption the lesser of (i) 0.50 of
1% of such proceeds or (ii) the same amounts described under
"Purchase of $1 Million or More," 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 two-year period from
the date of purchase you will be subject to the special
contingent deferred sales charge of 0.50 of 1% described under
"Purchase of $1 Million or More," on the same terms and
conditions. Whenever the Special Dealer Arrangements are in
effect the Prospectus will be supplemented.
The foregoing special dealer arrangements will be in effect
from April 6, 1998 until October 31, 1998 unless extended or
earlier terminated by another supplement to the Prospectus.
The date of this supplement is April 6, 1998
<PAGE>
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue
Suite 2300
New York, New York 10017
800-453-6864
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 a high level of preservation for investors' capital and
consistency in the payment of current income which is exempt from
both State of Rhode Island personal income taxes and regular
Federal income taxes.
To achieve this objective, the Fund will invest primarily in
tax-free municipal obligations which are insured by nationally
recognized insurers of municipal obligations. While individual
securities are insured as to the timely payment of principal and
interest when due, the Fund's share value and dividend rate are
not fixed and will vary with prevailing interest rates and
economic and market factors.
Municipal obligations which are so insured generally carry
the highest credit rating (Aaa or AAA) assigned by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"). The Fund's goal, which is not assured, is to
have 100% of the Fund's assets invested in insured obligations.
If any uninsured obligations are purchased by the Fund, they must
either be rated within the four highest credit ratings, which are
considered as "investment grade," or, if unrated, be determined
to be of comparable quality by the Fund's Adviser, Citizens Bank
of Rhode Island.
This 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.
INSURANCE COVERS TIMELY PAYMENT OF PRINCIPAL AND INTEREST
WHEN DUE ON INDIVIDUALLY INSURED SECURITIES IN THE FUND'S
INVESTMENT PORTFOLIO. INSURANCE DOES NOT, HOWEVER, INSURE AGAINST
FLUCTUATIONS IN THE VALUE OF THE FUND'S SHARES AND DIVIDEND
RATES, WHICH ARE NOT FIXED AND WILL VARY WITH PREVAILING INTEREST
RATES AND ECONOMIC AND MARKET FACTORS.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY CITIZENS BANK OF RHODE ISLAND (THE
"ADVISER"), CITIZENS FINANCIAL GROUP, INC. 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 800 637-4633 toll free
Until November 8, 1997: Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-637-4633 toll free or 732-855-5731
For General Inquiries & Yield Information,
Call 800-453-6864 toll free or 212-697-6666
In Rhode Island: 401-453-6864
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
[picture]
Department of Administration - Providence, RI
[picture]
Rhode Island Convention Center - Providence, RI
[picture]
Andrews Hall - Brown University
[picture]
Providence County Courthouse
[picture]
Daphne Farago Wing
Rhode Island School of Design
[picture]
Veterans Memorial Auditorium
Providence, RI
The Fund invests in tax-free municipal securities, primarily the
kinds of obligations issued by various communities and political
subdivisions within Rhode Island. 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 projects of which these are
typical, were included in the Fund's portfolio as of June 30,
1997, and together represented 18.22% 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
Narragansett Insured Tax-Free Income Fund, founded by Aquila
Management Corporation 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 and notes, the kind of obligations issued by the State of
Rhode Island and its various local authorities to finance such
long-term projects as schools, roads, hospitals, and water
facilities throughout Rhode Island or to finance short-term
needs. (See "Introduction.")
Insured Obligations - The Fund's investments will be
primarily municipal obligations which are insured as to the
timely payment of principal and interest when due by nationally
recognized insurers of such obligations. The goal of the Fund,
which is not assured, is to have 100% of the Fund's assets so
invested. While individual portfolio securities of the Fund will
be so insured, the Fund's share value and dividend rate are not
fixed or insured and will fluctuate with prevailing interest
rates and other economic and market factors. (See "Factors Which
May Affect the Value of the Fund's Investments and Their
Yields.")
Investment Grade - Other than insured municipal obligations
which are rated Aaa or AAA, the Fund will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or are determined
by the Adviser to be of comparable quality. In general there are
nine separate credit ratings, ranging from the highest to the
lowest credit ratings for municipal obligations. Obligations
within the top four ratings are considered "investment grade,"
but those in the fourth rating may have speculative
characteristics as well. (See "Investment of the Fund's Assets.")
Tax-Free Income - The municipal obligations in which the
Fund invests pay interest which is exempt from both State of
Rhode Island personal income taxes and regular Federal income
taxes. Dividends paid by the Fund from this income are likewise
free of both such taxes. It is, however, possible that in certain
circumstances, a small portion of the dividends paid by the Fund
will be subject to income taxes. In addition, the Federal
alternative minimum tax may apply to some investors; however,
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. 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. Capital gains distributions, if any, are
taxable.(See "Dividend and Tax Information.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. (See the
Application, which is in the back of the Prospectus and "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of
$50 or more, through the convenience of having your investment
electronically transferred from your financial institution
account into the Fund by Automatic Investment or Telephone
Investment. (See "How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time
of purchase, much as goods can be purchased on an installment
plan. For this purpose the Fund offers the following classes of
shares, which differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A Shares") are
offered to anyone at net asset value plus a sales charge,
paid at the time of purchase, at the maximum rate of 4.0% of
the public offering price, with lower rates for larger
purchases. (See "How to Purchase Class A Shares.") Class A
Shares are subject to an asset retention service fee under
the Fund's Distribution Plan at the rate of 0.15 of 1% of
the average annual net assets represented by the Class A
Shares. (See "Distribution Plan.")
* Level-Payment Class Shares ("Class C Shares") are
offered to anyone at net asset value with no sales charge
payable at the time of purchase but with a level charge for
service and distribution fees for six years after the date
of purchase at the aggregate annual rate of 1% of the
average annual net assets of the Class C Shares. (See
"Distribution Plan" and "Shareholder Services Plan for Class
C Shares.") Six years after the date of purchase, Class C
Shares are automatically converted to Class A Shares. If you
redeem Class C Shares before you have held them for 12
months from the date of purchase you will pay a contingent
deferred sales charge ("CDSC"); this charge is 1%,
calculated on the net asset value of the Class C Shares at
the time of purchase or at redemption, whichever is less.
There is no CDSC after Class C Shares have been held beyond
the applicable period. (See "Alternative Purchase Plans,"
"Computation of the Holding Periods for Class C Shares" and
"How to Purchase Class C Shares.")
The Fund also 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 registered for sale
only 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 Rhode Island, 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.")
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.")
Local Investment Management and Fee Arrangements - Citizens
Bank of Rhode Island serves as the Fund's Investment Adviser,
providing experienced local professional management. The Fund
pays fees at a rate of up to 0.23 of 1% of average annual net
assets to its Adviser and up to 0.27 of 1% of such assets to its
Administrator 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
will be waived temporarily. (See "Table of Expenses" and
"Management Arrangements.") It is expected that these management
arrangements will change. (See "Management Arrangements.")
Many Different Issues - Even a small investment in the Fund
allows you to have the advantages of a portfolio which consists
of over 110 issues with different maturities. (See "Investment of
the Fund's Assets.")
Certain Stabilizing Measures - To attempt to protect against
declines in the value of its investments and other market risks,
the Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases of
other than insured issues, broadening diversification and
increasing its position in cash.
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 Rhode Island issues, are subject to
economic and other conditions affecting Rhode Island. (See "Risk
Factors and Special Considerations Regarding Investment in Rhode
Island 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>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
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
Deferred Sales Charge .............................. None(1) 1.00%(2)
Redemption Fees .................................... None None
Exchange Fee ....................................... None None
Annual Fund Operating Expenses (3)(4) Arrangements
in effect through November 14, 1997 (See
"Management Arrangements.")
(as a percentage of average net assets)
Investment Advisory Fee After Waiver .............. 0.05% 0.05%
12b-1 Fee After Expense Reimbursement ............. 0.00% 0.75%
All Other Expenses After Expense
Reimbursement and Fee Waiver .................. 0.18% 0.43%
Administration Fee After Waiver ................. 0.00% 0.00%
Service Fee ..................................... None 0.25%
Other Expenses After Expense Reimbursement ...... 0.18% 0.18%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waivers ................. 0.23% 1.23%
Annual Fund Operating Expenses (3)(4) Arrangements
after November 14, 1997 (See "Management Arrangements.")
(as a percentage of average net assets)
Management Fee After Waiver (5).................... 0.05% 0.05%
12b-1 Fee After Expense Reimbursement.............. 0.00% 0.75%
All Other Expenses After Expense Reimbursement..... 0.18% 0.43%
Service Fee................................... None 0.25%
Other Expenses................................ 0.18% 0.18%
Total Fund Operating Expenses...................... 0.23% 1.23%
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............... $42 $47 $52 $68
Class C Shares
With complete redemption
at end of period......... $23 $39 $68 $95 (7)
With no redemption......... $13 $39 $68 $95 (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 $150
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 assets size matches approximately $60 million. The
undertakings of the Adviser and the Administrator as to fee waivers and
the practices of the Fund (see "Management Arrangements"). Other expenses
do not reflect a 0.02% 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, investment advisory fee,
0.23%; 12b-1 fee, 0.15%; administration fee, 0.27%; other expenses, 0.52%,
for total operating expenses of 1.17%; for Class C Shares, investment
advisory fee, 0.23%; 12b-1 fee, 0.75%; administration fee, 0.27%; service
fee, 0.25%; other expenses, 0.52%, for total operating expenses of
2.02%.
</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 0.45 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 net assets, of which 0.18 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 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>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
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 ended June 30, Year Period
Ended Ended
June 30, June 30,
1997 1996 1995 1997 1996
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ................ $9.93 $9.80 $9.44 $9.93 $9.94
Income from Investment
Operations:
Net investment income .... 0.51 0.52 0.54 0.41 0.07
Net gain (loss) on
securities (both realized
and unrealized) ........ 0.26 0.13 0.36 0.26 (0.01)
Total from Investment
Operations ............. 0.77 0.65 0.90 0.67 0.06
Less Distributions:
Dividends from net
investment income ...... (0.52) (0.52) (0.54) (0.42) (0.07)
Distributions from
capital gains .......... - - - - -
Total Distributions ...... (0.52) (0.52) (0.54) (0.42) (0.07)
Net Asset Value, End of
Period ................... $10.18 $9.93 $9.80 $10.18 $9.93
Total Return (not reflecting
sales charge) (%)......... 7.95 6.72 9.82 6.89 0.60+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) .......... 42,540 37,988 34,373 485 0.1
Ratio of Expenses to
Average Net Assets (%).. 0.21 0.14 0.06 1.06 0.20+
Ratio of Net Investment
Income to Average Net
Assets (%).............. 5.07 5.19 5.63 4.22 0.72+
Portfolio Turnover
Rate (%) ............... 5.29 0 0 5.29 0
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C>
Net Investment
Income ($).............. 0.41 0.42 0.43 0.30 0.06
Ratio of Expenses to
Average Net Assets (%).. 1.25 1.17 1.19 2.10 0.32+
Ratio of Net Investment
Income to Average Net
Assets (%).............. 4.03 4.16 4.50 3.18 0.61+
<CAPTION>
Period Ended
1994 June 30, 1993 (3)
<C> <C>
$10.07 $9.60
0.53 0.39
(0.63) 0.47
(0.10) 0.86
(0.53) (0.39)
- -
(0.53) (0.39)
$9.44 $10.07
(1.11) 9.18+
31,660 15,249
0.02 0*
5.30 5.28*
0 2.56+
0.40 0.20
1.32 2.56*
4.00 2.72*
<FN>
(1)Designated as Class A Shares on May 1, 1996.
</FN>
<FN>
(2)New Class of Shares established on May 1, 1996.
</FN>
<FN>
(3)From September 10, 1992 (commencement of operations) to June 30, 1993.
</FN>
<FN>
+Not Annualized.
</FN>
<FN>
*Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment
for investors who seek a high level of preservation for the
principal of their investment and consistency in the payment of
income which is exempt from regular State of Rhode Island
personal income taxes and regular Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Rhode Island Obligations, as defined below,
which may include obligations of certain non-Rhode Island
issuers. The Fund offers you the opportunity to keep assets fully
invested in a vehicle that provides a professionally managed
portfolio of Rhode Island 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 Rhode Island 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 Rhode Island Obligations.
Rhode Island 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
The Fund's objective is to seek a high level of preservation
for investor's capital and consistency in the payment of current
income which is exempt from both State of Rhode Island personal
income taxes and regular Federal income taxes. There is no
assurance, however, that the Fund will achieve its objective,
which is a fundamental policy of the Fund. (See "Investment
Restrictions" for a description of the Fund's fundamental
policies.) In seeking its objective, the Fund will invest
primarily in Rhode Island Obligations (as defined below) which
are insured by nationally recognized insurers of municipal
obligations as to the timely payment of principal and interest
when due. The value of the Fund's shares will tend to fluctuate
with prevailing interest rates and economic and market factors.
As used in the Prospectus and the Additional Statement, the
term "Rhode Island Obligations" means obligations, including
those of certain non-Rhode Island issuers, of any maturity which
pay interest which, in the opinion of bond counsel or other
appropriate counsel, is exempt from Rhode Island personal income
taxes and regular Federal income taxes. Although exempt from
regular Federal income tax, interest paid on certain types of
Rhode Island Obligations, and dividends which the Fund might pay
from this interest, are preference items as to the Federal
alternative minimum tax ("AMT"); 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 Rhode Island
Obligations the income paid upon which will not be subject to the
AMT; accordingly, the Fund can invest up to 20% of its net assets
in obligations which are subject to the AMT. The Fund may refrain
entirely from purchasing Rhode Island Obligations subject to AMT.
The non-Rhode Island bonds or other obligations, the
interest on which is exempt under present law from State of Rhode
Island personal income taxes and regular Federal income taxes,
are those of such issuers as Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands. The Fund will not purchase
Rhode Island Obligations of non-Rhode Island issuers unless Rhode
Island Obligations of Rhode Island issuers of the desired
quality, maturity and interest rate are not available. As a Rhode
Island-oriented fund, it is a fundamental policy that at least
65% of the Fund's total assets will be invested in Rhode Island
Obligations of Rhode Island issuers.
Insurance Feature
The purpose of having insurance on investments in Rhode
Island Obligations in the Fund's portfolio is to reduce financial
risk for investors in the Fund.
Insurance as to the timely payment of principal and interest
when due for Rhode Island Obligations is acquired as follows:
(i) obtained by the issuer of the Rhode Island Obligations
at the time of original issue of the obligations, known as "New
Issue Insurance," or
(ii) purchased by the Fund or a previous owner with respect
to specific Rhode Island Obligations, termed "Secondary Market
Insurance."
The insurance of principal under these types of insurance
policies refers to the payment of the face or par value of the
Rhode Island Obligation when due. Insurance is not affected by
nor does it insure the market price paid by the Fund for the
obligation. The market value of obligations in the Fund will,
from time to time, be affected by various factors including the
general movement of interest rates. The value of the Fund's
shares is not insured.
In order to reduce financial risk to the Fund's investors as
much as practical, it is a goal of the Fund, which is not
assured, that 100% of the Fund's assets will be invested in
insured Rhode Island Obligations. However, if the Board of
Trustees determines that there is an inadequate supply in the
marketplace of Rhode Island Obligations covered by New Issue
Insurance and that appropriate Secondary Market Insurance cannot
be obtained for other Rhode Island Obligations on terms that are
financially advantageous to the Fund as a result of market
conditions or other factors, then the Fund may invest in Rhode
Island Obligations that are not insured. As a fundamental policy,
65% of the Fund's total net assets will be invested in Rhode
Island Obligations which are insured.
New Issue Insurance is obtained by the issuer of the Rhode
Island Obligations and all premiums respecting such securities
are paid in advance by such issuer. Such policies are
noncancelable and continue in force so long as the Rhode Island
Obligations are outstanding and the insurer remains in business.
The Fund may also purchase Secondary Market Insurance on any
Rhode Island Obligation purchased by the Fund. By purchasing
Secondary Market Insurance, the Fund will obtain, upon payment of
a single premium, insurance against nonpayment of scheduled
principal and interest for the remaining term of the Rhode Island
Obligation, regardless of whether the Fund then owns such
security. Such insurance coverage is noncancelable and continues
in force so long as the security so insured is outstanding and
the insurer remains in business. The purposes of acquiring
Secondary Market Insurance are to insure timely payment of
principal and interest when due and to enable the Fund to sell a
Rhode Island Obligation to a third party as a high-rated insured
Rhode Island Obligation at a market price greater than what
otherwise might be obtainable if the security were sold without
the insurance coverage. There is no assurance that such insurance
can be obtained at rates that would make its purchase
advantageous to the Fund.
New Issue Insurance and Secondary Market Insurance will be
obtained from some or all of the following: Municipal Bond
Investors Assurance Corporation ("MBIA"), Financial Guaranty
Insurance Company ("Financial Guaranty") and AMBAC Indemnity
Corporation ("AMBAC Indemnity"). (See the Additional Statement
for information about these companies.) The Fund may also
purchase insurance from, or Rhode Island Obligations insured by,
other insurers. However, the Fund will seek to ensure that any
insurer used will itself have a Aaa or AAA rating.
Further information concerning the insurance feature appears
in the Additional Statement.
Risk Factors and Special Investment
Considerations Regarding the Insurance Feature
While the insurance feature is intended to reduce financial
risk, in some instances there is a cost to be borne by the Fund
for such a feature. In general, the insurance premium cost of New
Issue Insurance is borne by the issuer.
Secondary Market Insurance, if purchased by the Fund,
involves payment of a single premium, the cost of which is added
to the cost basis of the price of the security. It is not
considered an item of expense of the Fund, but rather an addition
to the price of the security. Upon sale of a security so insured,
the excess, if any, of the security's market value as an "Aaa" or
"AAA" rated security over its market value without such rating,
including the cost of the single premium for Secondary Market
Insurance, would inure to the Fund in determining the net capital
gain or loss realized by the Fund.
In practice, those nationally recognized insurers which
provide insurance generally do so only for municipal obligations
which on their own would be rated within the top four credit
ratings, and preferably with at least an "A" rating by such
credit rating agencies as Moody's or S&P.
New Issue Insurance and Secondary Market Insurance do not
terminate with respect to a Rhode Island Obligation once the
obligation is sold by the Fund.
Information about the Fund's Investments
Municipal obligations which are insured are generally rated
Aaa or AAA by the major credit rating agencies, the highest
attainable credit rating assigned by these rating agencies. If
the Fund purchases uninsured Rhode Island Obligations, which it
may do, in order to maintain a quality-oriented portfolio, the
Fund will purchase only investment grade securities. Any such
Rhode Island Obligations which the Fund purchases 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 Citizens Bank of Rhode Island (the
"Adviser"), the Fund's investment adviser (subject to the
direction and control of the Board of Trustees).
In general, there are nine separate credit ratings, ranging
from the highest to the lowest credit standards for municipal
obligations. 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 some 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.
Except as set forth under "Risk Factors and Special
Investment Considerations Regarding the Insurance Feature,"
above, if after purchase the rating of any rated Rhode Island
Obligation is downgraded such that it could not then be purchased
by the Fund, or, in the case of an unrated Rhode Island
Obligation, if the Adviser determines that the unrated obligation
is no longer of comparable quality to those rated obligations
which the Fund may purchase, it is the current policy of the Fund
to cause any such obligation to be sold as promptly thereafter as
the Adviser in its discretion determines to be consistent with
the Fund's objectives; such obligation remains in the Fund's
portfolio until it is sold. In addition, because a downgrade
often results in a reduction in the market price of a downgraded
obligation, sale of such an obligation may result in a loss.(See
Appendix A to the Additional Statement for further information as
to these ratings.) The Fund can purchase industrial development
bonds only if they meet the definition of Rhode Island
Obligations, i.e., the interest on them is exempt from Rhode
Island State and regular Federal income taxes.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). The Fund also intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code
(the "Code"). One of the tests for such qualification under the
Code is, in general, that at the end of each fiscal quarter of
the Fund, at least 50% of its assets must consist of (i) cash;
and (ii) securities which, as to any one issuer, do not exceed 5%
of the value of the Fund's assets. If the Fund had elected to
register under the 1940 Act as a "diversified" investment
company, it would have to meet the same test as to 75% of its
assets. The Fund may therefore not have as much diversification
among securities, and thus diversification of risk, as if it had
made this election under the 1940 Act. In general, the more the
Fund invests in the securities of specific issuers, the more the
Fund is exposed to risks associated with investments in those
issuers. The Fund's assets, being primarily or entirely Rhode
Island issues, are accordingly subject to economic and other
conditions affecting Rhode Island. (See "Risk Factors and Special
Considerations Regarding Investment in Rhode Island
Obligations.")
Possible 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 Rhode Island Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Rhode Island Obligations in the
proportion that the Fund's participation interest bears to the
total amount of the underlying Rhode Island 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 Rhode Island Obligations on a when-issued
or delayed delivery basis when it has the intention of acquiring
them. The Rhode Island 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 Rhode Island 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 Rhode Island 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) Rhode Island 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 Rhode Island 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 Rhode Island 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 Rhode
Island Obligations than on long-term obligations. Long-term
obligations (which often have higher yields) may fluctuate in
value more than short-term ones. For this reason, the Fund may,
to achieve a defensive position, shorten the average maturity of
its portfolio. 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 Fund's shares.
Risk Factors and Special Considerations Regarding Investment in
Rhode Island Obligations
The following is a discussion of the general factors that
might influence the ability of issuers to repay principal and
interest when due on the Rhode Island 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.
Rhode Island experienced significant economic growth during
most of the 1980's. Its economy became more diversified as
reliance on manufacturing employment decreased and
non-manufacturing employment grew. From 1980 to 1989 per capita
income growth exceeded national growth levels, and employment
growth and total personal income growth both paralleled national
growth levels.
Since 1989, there was a national and regional economic
slowdown resulting in rising unemployment rates and the slowing
of personal income growth. Rhode Island, like other New England
states, began to experience a slowdown in its economy at that
time. Its unemployment rate increased from 4.1% in 1989 to 6.8%
in 1990, to 8.6% in 1991 and to 8.9% in 1992. Personal income
slowed from an annual rate of growth of 9.0% in 1988 to 2.1% in
1991. Real personal income growth slowed from 4.5% to 1.8% for
the same years. Personal income growth is forecast to be below
the growth rate for the United States as a whole.
The economic slowdown resulted in significant budget
constraints. Declining revenues, combined with increased demand
for certain governmental services, such as public assistance,
have occurred as a result of the difficult general economic
conditions. The State constitution requires that Rhode Island end
each year with a balanced budget and does not permit a deficit to
continue into the next fiscal year. The constitutional mandate
and overall budgeting pressure forced state officials to review
the State's overall fiscal outlook and structural issues
pertaining to its financial structure. Revenue estimating
procedures were improved, and five-year projections were
published with the annual budget submission. Major program
reductions and eliminations were adopted. A constitutional
amendment was adopted by voter referendum to mandate a "rainy day
fund." A capital budgeting process was initiated along with
increased emphasis on debt management. (See the Additional
Statement for further information.)
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and in the Additional Statement as "fundamental
policies," cannot be changed unless the holders of a "majority,"
as defined in the 1940 Act, of the Fund's outstanding shares vote
to change them. (See the Additional Statement for a definition
of such a majority.) All other policies can be changed from time
to time by the Board of Trustees without shareholder approval.
Some of the more important of the Fund's fundamental policies,
not otherwise identified in the Prospectus, are set forth below;
others are listed in the Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Rhode Island
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 Rhode Island 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
Rhode Island 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 Rhode Island Obligations maturing in 60 days
or less are generally valued at amortized cost; see the
Additional Statement for further information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus the Fund provides you with two
alternative ways to invest in the Fund through two separate
classes of shares. All classes represent interests in the same
portfolio of Rhode Island Obligations. The primary distinction
among the classes of shares offered to individuals lies in their
sales charge structures and ongoing expenses, as described below.
You should choose the class that best suits your own
circumstances and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you will pay a sales charge over a
period of six years after purchase but without paying anything at
time of purchase, much as goods can be purchased on an
installment plan. You are subject to a 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 0.15 of 1% of the average annual net assets represented
by the Class A Shares. 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% None
Charge of the Public
Offering Price
Contingent None (except Maximum CDSC
Deferred for certain of 1% if shares
Sales Charge purchases over redeemed before
$1 Million) 12 months; 0%
after 12 months
Distribution and 0.15 of 1% Distribution fee
Service Fees of 0.75 of 1% and
a service fee of
0.25 of 1% for a
total of 1%,
payable for six
years
Other Information Initial Sales Shares convert
Charge waived to Class A Shares
or reduced in after six years
some cases
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Fund be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual
service and distribution fees on the Class C Shares will equal or
exceed the total cost of the initial 4% maximum initial sales
charge and 0.15 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 Administrative Data Management Corp.
(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:
Rhode Island, Connecticut, District of Columbia, Florida, Hawaii,
Massachusetts, New Jersey and New York.
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
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
Rhode Island, 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 Charge as Sales Charge Commissions
Percentage as Approximate as Percentage
of Public Percentage of of Public
Amount of Purchase Offering Price Amount Invested Offering 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 shares for a single trust estate or a single fiduciary
account; and (d) a tax-exempt organization enumerated in Section
501(c)(3) or (13) of the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the
entire sales charge is reallowed, such selected dealers may be
deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Purchase of $1 Million or More
Class A Shares issued under the following circumstances are
called "CDSC Class A Shares": (i) Class A Shares issued in a
single purchase of $1 million or more by a single purchaser; and
(ii) all Class A Shares issued in a single purchase to a single
purchaser the value of which, when added to the value of the CDSC
Class A Shares and Class A Shares on which a sales charge has
been paid, already owned at the time of such purchase, equals or
exceeds $1 million. CDSC Class A Shares also include certain
Class A Shares issued under the program captioned "Special Dealer
Arrangements," below. CDSC Class A Shares do not include (i)
Class A Shares purchased without sales charge pursuant to the
terms described under "General," below and (ii) Class A Shares
purchased in transactions of less than $1 million and when
certain special dealer arrangements are not in effect under
"Certain Investment Companies" set forth under "Reduced Sales
Charges," below.
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will
pay to any dealer effecting such a purchase an amount equal to 1%
of the sales price of the shares purchased for purchases of $1
million but less than $2.5 million, 0.50 of 1% for purchases of
$2.5 million but less than $5 million, and 0.25 of 1% for
purchases of $5 million or more.
If you redeem all or part of your CDSC Class A Shares during
the four years after your purchase of such shares, at the time of
redemption you will be required to pay to the Distributor a
special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at
the time of purchase or (ii) the net asset value of your redeemed
CDSC Class A Shares at the time of redemption (the "Redemption
Value"). The special charge will be an amount equal to 1% of the
Redemption Value if the redemption occurs within the first two
years after purchase, and 0.50 of 1% of the Redemption Value if
the redemption occurs within the third or fourth year after
purchase. The special charge will apply to redemptions of CDSC
Class A Shares purchased without a sales charge pursuant to a
Letter of Intent, as described below under "Reduced Sales Charges
for Certain Purchases of Class A Shares." The special charge does
not apply to Class A Shares acquired through the reinvestment of
dividends on CDSC Class A Shares or to any CDSC Class A Shares
held for more than four years after purchase. In determining
whether the special charge is applicable, it will be assumed that
the CDSC Class A Shares you have held the longest are the first
CDSC Class A Shares to be redeemed, unless you instruct the Agent
otherwise. It will also be assumed that if you have both CDSC
Class A Shares and non-CDSC Class A Shares the non-CDSC Class A
Shares will be redeemed first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of
Class A Shares
Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance
with the above schedule for subsequent purchases of Class A
Shares if the cumulative value (at cost or current net asset
value, whichever is higher) of Class A Shares you have previously
purchased with a sales charge and still own, together with Class
A Shares of your subsequent purchase with such a charge, amounts
to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
Class A Shares of the Fund through a single selected dealer or
through the Distributor. Class A Shares of the Fund which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Fund's Trustees and officers,
by the directors, officers and certain employees, retired
employees and representatives of the Adviser and its parent and
affiliates, the Administrator and the Distributor, by selected
dealers and brokers and their officers and employees, by certain
persons connected with firms providing legal, advertising or
public relations assistance, by certain family members of, and
plans for the benefit of, the foregoing, and for the benefit of
trust or similar clients of banking institutions over which these
institutions have full investment authority if the Fund or the
Distributor has entered into an agreement relating to such
purchases. Except for the last category, purchasers must give
written assurance that the purchase is for investment and that
the Class A Shares will not be resold except through redemption.
There may be tax consequences of these purchases. Such purchasers
should consult their own tax counsel. Class A Shares may also be
issued at net asset value in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund
is a party.
The Fund permits the sale of its Class A Shares at prices
that reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group (i) is a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer), which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing shares; (iii) gives its endorsement or
authorization (if it is a group or association) to an investment
program to facilitate solicitation of its membership by a broker
or dealer; and (iv) complies with the conditions of purchase that
are set forth in any agreement entered into between the Fund and
the group, representative or broker or dealer. At the time of
purchase you must furnish the Distributor with information
sufficient to permit verification that the purchase qualifies for
a reduced sales charge, either directly or through a broker or
dealer.
Certain Investment Companies: Class A Shares of the Fund may
be purchased at net asset value without sales charge (except as
set forth below under "Special Dealer Arrangements") to the
extent that the aggregate net asset value of such Class A Shares
does not exceed the proceeds from a redemption (a "Qualified
Redemption"), made within 120 days prior to such purchase, of
shares of another investment company on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.
To qualify, the following special procedures must be
followed:
1. A completed Application (included in the Prospectus) and
payment for the Class A Shares to be purchased must be sent to
the Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
Suite 2300, New York, NY 10017 and should not be sent to the
Fund's Shareholder Servicing Agent. (This instruction replaces
the mailing address contained on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective shareholder
has made a Qualified Redemption in an amount at least equal to
the net asset value of the Class A Shares to be purchased.
Satisfactory evidence includes a confirmation of the date and the
amount of the redemption from the investment company, its
transfer agent or the investor's broker or dealer, or a copy of
the investor's account statement with the investment company
reflecting the redemption transaction.
3. You must complete and return to the Distributor a
Transfer Request Form, which is available from the Distributor.
The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Fund)
will pay to any dealer effecting a purchase of Class A Shares of
the Fund using the proceeds of a Qualified Redemption the lesser
of (i) 1% of such proceeds or (ii) the same amounts described
under "Purchase of $1 Million or More," above, on the same terms
and conditions. Class A Shares of the Fund issued in such a
transaction will be CDSC Class A Shares and if you thereafter
redeem all or part of such shares during the four-year period
from the date of purchase you will be subject to the special
contingent deferred sales charge described under "Purchase of $1
Million or More" above, on the same terms and conditions.
Whenever the Special Dealer Arrangements are in effect the
Prospectus will be supplemented.
How to Purchase Class C Shares (Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered at
net asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Fund represented by
the Class C Shares. If you redeem Class C Shares before you have
held them for 12 months from the date of purchase you will pay a
contingent deferred sales charge ("CDSC"). The CDSC is charged at
the rate of 1%, calculated on the net asset value of the redeemed
Class C Shares at the time of purchase or at redemption,
whichever is less. There is no CDSC after Class C Shares have
been held beyond the applicable period. The CDSC does not apply
to Class C Shares acquired through the reinvestment of dividends
on Class C Shares.
The Distributor will pay to any dealer effecting a purchase
of Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through the Payroll Plan.
Investments can be made in either Class A Shares or Class C
Shares. In order to participate in a Payroll Plan, you should
make arrangements with your own employer's payroll department,
and you must complete and sign any special application forms
which may be required by your employer. You must also complete
the Application included in the Prospectus. Once your application
is received and put into effect, under a Payroll Plan the
employer will make a deduction from payroll checks in an amount
you determine, and will remit the proceeds to the Fund. An
investment in the Fund will be made for you at the offering
price, which includes applicable sales charges determined as
described above, when the Fund receives the funds from your
employer. The Fund will send a confirmation of each transaction
to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you
so request in writing to the Agent. All share certificates
previously issued by the Fund represent Class A Shares. No
certificates will be issued for fractional Class A Shares or if
you have elected Automatic Investment or Telephone Investment for
Class A Shares (see "How to Invest in the Fund" above) or
Expedited Redemption (see "How to Redeem Your Investment" below).
If certificates for Class A Shares are issued at your request,
Expedited Redemption Methods described below will not be
available. In addition, you may incur delay and expense if you
lose the certificates.
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), 0.15 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.
During the fiscal year ended June 30, 1997, Permitted
Payments of $59,620 were made to Qualified Recipients with
respect to Class A Shares of the Fund, of which the Distributor
received $1,175. (See the Additional Statement for a description
of the Distribution Plan.)
Under another part of the Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year), 0.75 of 1%
of the average annual net assets represented by the Class C
Shares of the Fund. Such payments shall be made only out of the
Fund's assets allocable to the Class C Shares. "Qualified
Recipients" means broker-dealers or others selected by the
Distributor, including but not limited to any principal
underwriter of the Fund, with which the 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, Permitted
Payments of $1,815 were made to Qualified Recipients with respect
to Class A Shares of the Fund, of which the Distributor received
$1,815. (See the Additional Statement for a description of the
Distribution Plan.)
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, $605 of
Service Fees was paid to Qualified Recipients with respect to the
Fund's Class C Shares of which $60 was retained by the
Distributor.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net
asset value next determined after acceptance of your redemption
request at the Agent (subject to any applicable contingent
deferred sales charge for redemptions of Class C Shares and CDSC
Class A Shares). For redemptions of Class C Shares and CDSC Class
A Shares, at the time of redemption a sufficient number of
additional shares will be redeemed to pay for any applicable
contingent deferred sales charge. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Fund, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. Except for CDSC Class A Shares (see "Purchase of
$1 Million or More") there are no redemption fees or withdrawal
penalties for Class A Shares. Class C Shares are subject to a
contingent deferred sales charge if redeemed before they have
been held 12 months from the date of purchase. (See "Alternative
Purchase Plans.") A redemption may result in a transaction
taxable to you. If you own both Class A Shares and Class C Shares
and do not specify which you wish to redeem, it will be assumed
that you wish to redeem Class A Shares.
For your convenience the Fund offers expedited redemption
for all classes of shares to provide you with a high level of
liquidity for your investment.
Expedited Redemption Methods (Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have predesignated
or
b) by check in the amount of $50,000 or less, mailed to you,
if your shares are registered in your name at the Fund and
the check is sent to your address of record, provided that
there has not been a change of your address of record during
the 30 days preceding your redemption request. You can make
only one request for telephone redemption by check in any
7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-637-4633 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
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 to a Financial
Institution Account, you should so elect on the Expedited
Redemption section of the Application or the Ready Access
Features form and provide the required information concerning
your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Fund. You may change the
designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed should be sent in blank (unsigned)
(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 with payment instructions to Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main
Street, Woodbridge, NJ 07095-1198. 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 Class A 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
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 for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or valuation of the
net asset value of, the portfolio securities to be unreasonable
or impracticable; or (iii) for such other periods as the
Securities and Exchange Commission may permit. Payment for
redemption of shares recently purchased by check (irrespective of
whether the check is a regular check or a certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment may be delayed up to 15 days or until (i) the purchase
check or Automatic Investment or Telephone Investment has been
honored or (ii) the Agent has received assurances by telephone or
in writing from the Financial Institution on which the purchase
check was drawn, or from which the funds for Automatic Investment
or Telephone Investment were transferred, satisfactory to the
Agent and the Fund, that the purchase check or Automatic
Investment or Telephone Investment will be honored. Possible
delays in payment of redemption proceeds can be eliminated by
using wire payments or Federal Reserve drafts to pay for
purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. (See the Additional Statement for details.)
The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of
a redemption of shares in shares of the Fund of the same class as
the shares redeemed at the net asset value next determined after
the Agent receives your reinvestment order. In the case of Class
C Shares or CDSC Class A Shares on which a contingent deferred
sales charge was deducted at the time of redemption, the
Distributor will refund to you the amount of such sales charge,
which will be added to the amount of the reinvestment. The Class
C Shares or CDSC Class A Shares issued on reinvestment will be
deemed to have been outstanding from the date of your original
purchase of the redeemed shares, less the period from redemption
to reinvestment. The reinvestment privilege for any class may be
exercised only once a year, unless otherwise approved by the
Distributor. If you have realized a gain on the redemption of
your shares, the redemption transaction is taxable, and
reinvestment will not alter any capital gains tax payable. If
there has been a loss on the redemption, some or all of the loss
may be tax deductible, depending on the amount reinvested and the
length of time between the redemption and the reinvestment. You
should consult your own tax advisor on this matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the Fund having a net asset value of
at least $5,000. The Automatic Withdrawal Plan is not available
for Class C Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
Class A Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. (See the
Automatic Withdrawal Plan provisions of the Application included
in the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.)
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, you may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases. While an occasional lump sum investment may be made,
such investment should normally be an amount at least equal to
three times the annual withdrawal or $5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
Current Arrangements
On November 14, 1997, the arrangements described below under
"New Arrangements" will be submitted to the shareholders for
approval. If approved by the shareholders of the Fund the New
Arrangements will be in effect and those described below under
"Current Arrangements" will be superseded. If the New
Arrangements are not approved by the shareholders, the New
Arrangements will not go into effect and the Current Arrangements
will remain in effect. In either event, the prospectus will be
supplemented to reflect the arrangements that are in effect.
The Advisory Agreement
Citizens Bank of Rhode Island (the "Adviser") supervises the
investment program of the Fund and the composition of its
portfolio.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and at the 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 Advisory Agreement states that the
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 Adviser's duties under the Advisory
Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Adviser.Under
the Advisory Agreement, the Fund bears the cost of preparing and
setting in type its prospectuses, statements of additional
information, and reports to shareholders and the costs of
printing or otherwise producing and distributing those copies of
such prospectuses, statements of additional information and
reports as are sent to its shareholders. Under the Advisory
Agreement, all costs and expenses not expressly assumed by the
Adviser or by the Administrator under the Administration
Agreement or by the Fund's Distributor (principal underwriter)
are paid by the Fund. The Advisory Agreement lists examples of
such expenses borne by the Fund, the major categories of such
expenses being: legal and audit expenses, custodian and transfer
agent, or shareholder servicing agent fees and expenses, stock
issuance and redemption costs, certain printing costs,
registration costs of the Fund and its shares under Federal and
State securities laws, interest, taxes and brokerage commissions,
and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Fund pays a fee payable
monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.23 of
1% of such net assets. (However, the total fees which the Fund
pays are at the annual rate of 0.50 of 1% of such net assets,
since the Administrator also receives a fee from the Fund under
the Administration Agreement; see below.) The Adviser and/or the
Administrator may, in order to attempt to achieve a competitive
yield on the shares of the Fund, each waive all or part of either
fee. The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion (based
upon the aggregate fees of the Adviser and the Administrator) of
the amount, if any, by which the total expenses of the Fund in
any fiscal year, exclusive of taxes, interest, and brokerage
fees, shall exceed the lesser of (i) 2.5% of the first $30
million of average annual net assets of the Fund plus 2% of the
next $70 million of such assets and 1.5% of its average annual
net assets in excess of $100 million, or (ii) 25% of the Fund's
total annual investment income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Fund or of any
other investment company or companies having the same investment
adviser, sub-adviser, administrator or principal underwriter as
the Fund.
The Administration Agreement
Aquila Management Corporation is founder of the Fund and
serves as Administrator under an Administration Agreement (the
"Administration Agreement"). At its own expense, it provides
office space, personnel, facilities and equipment for the
performance of its functions thereunder and as is necessary in
connection with the maintenance of the headquarters of the Fund
and pays all compensation of the Fund's Trustees, officers and
employees who are affiliated persons of the Administrator.
Under the Administration Agreement, subject to the control
of the Fund's Board of Trustees, the Administrator provides all
administrative services to the Fund other than those relating to
its investment portfolio. Such administrative services include,
but are not limited to, overseeing all relationships between the
Fund and its transfer agent, custodian, legal counsel, auditors
and principal underwriter, including the negotiation of
agreements in relation thereto, the supervision and coordination
of the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation of the Fund and for the sale, servicing, or
redemption of the Fund's shares. Additionally, the Administrator
either keeps the accounting and other books and records of the
Fund, including the computation of net asset value per share and
the dividends (provided that daily pricing of the securities in
the Fund's portfolio shall be the responsibility of the Adviser
under the Advisory Agreement) or, at its expense and
responsibility, delegates such duties in whole or in part to a
company satisfactory to the Fund.(See the Additional Statement
for a further description of functions listed in the
Administration Agreement as part of such duties.)
Under the Administration Agreement, the Fund pays a fee
payable monthly and computed on the net asset value of the Fund
at the end of each business day at the annual rate of 0.27 of 1%
of such net asset value. The Administrator agrees that the above
fee shall be reduced, but not below zero, by an amount equal to
its pro-rata portion (based upon the aggregate fees of the
Adviser and the Administrator) of the amount, if any, by which
the total expenses of the Fund in any fiscal year, exclusive of
taxes, interest, and brokerage fees, shall exceed the lesser of
(i) 2.5% of the first $30 million of average annual net assets of
the Fund plus 2% of the next $70 million of such assets and 1.5%
of its average annual net assets in excess of $100 million, or
(ii) 25% of the Fund's total annual investment income.
New Arrangements
On November 14, 1997, the arrangements described below under
"New Arrangements" will be submitted to the shareholders for
approval. If approved by the shareholders of the Fund the New
Arrangements will be in effect and those described above under
"Current Arrangements" will be superseded. If the New
Arrangements are not approved by the shareholders, the New
Arrangements will not go into effect and the Current Arrangements
will remain in effect. In either event, the prospectus will be
supplemented to reflect the arrangements that are in effect.
The new Investment 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 Citizens Bank of Rhode Island (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.
Description of the New Investment Advisory
and Administration Agreement
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Fund;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Fund; and
(iv) at its expense provide for pricing of the Fund's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Fund and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund.
The Advisory and Administration Agreement provides that,
subject to the termination provisions described below, the
Manager may at its own expense delegate to a qualified
organization ("Sub-Adviser"), affiliated or not affiliated with
the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a
written agreement (the "Sub-Advisory Agreement") approved as
provided in Section 15 of the Investment Company Act of 1940. The
Manager has delegated all of such functions to the Sub-Adviser
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 a
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, provide office space,
facilities, equipment, and personnel for the performance of its
functions hereunder and shall pay all compensation of Trustees,
officers, and employees of the Fund who are affiliated persons of
the Manager.
The Fund 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 New Sub-Advisory Agreement
The Manager has delegated investment advisory responsibility
to Citizens Bank of Rhode Island (the "Adviser"), which
supervises the investment program of the Fund and the composition
of its portfolio.
The services of the Sub-Adviser are rendered under a
Sub-Advisory Agreement between the Manager and the Sub-Adviser
(the "Sub-Advisory Agreement") 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 Fund's Management
Citizens Bank of Rhode Island ("Citizens Bank") is wholly
owned by Citizens Financial Group, Inc. ("CFG"). CFG is a
subsidiary of The Royal Bank of Scotland plc. The Bank of Ireland
owns a 23.5% interest in CFG. Citizens Bank operates through 75
branch offices in Rhode Island and Connecticut; Citizens Bank of
Massachusetts, which has more than 60 branches in southeastern
Massachusetts; Citizens Bank New Hampshire, which has 81 branches
in New Hampshire; and Citizens Mortgage Corporation, a Georgia
corporation based in Atlanta with 20 offices in the southeastern
United States. In 1994, CFG acquired the former Old Stone Federal
Savings Bank in Providence, Rhode Island and the former Coastal
Federal Savings Bank in New London, Connecticut. CFG also
completed the acquisition of Neworld Bankcorp, Inc., the holding
company for Neworld Bank which was merged into Citizens Bank of
Massachusetts. In January, 1995, CFG acquired Quincy Savings Bank
of Massachusetts. In 1996, CFG acquired the former First New
Hampshire Bank. In June, 1996, CFG announced a definitive
agreement to acquire Farmers and Mechanics Bank in Middletown,
Connecticut. CFG is the 45th largest bank holding company in the
United States.
Salvatore C. DiSanto is the officer of Citizens Bank who
manages the Fund's portfolio. He has served as such since the
inception of the Fund in September, 1992. Mr.DiSanto, a Senior
Vice President within the Trust Group of Citizens Bank, is a
member of the its Officer Investment Committee. He has been
employed by the Citizens Bank for 38 years and has been involved
in portfolio management for the last 31 years.
Aquila Management Corporation ("Aquila") is 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 $2.7
billion, of which approximately $1.9 billion consisted of assets
of tax-free municipal bond funds. Aquila, 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 Fund's fiscal year ended June 30, 1997, fees of
$92,236 and $108,154 were accrued to the Adviser and
Administrator, respectively, of which, $72,100 and $84,117,
respectively, were waived. In addition, the Administrator
reimbursed the Fund for other expenses in the amount of $251,853.
Of this amount, $74,241 was paid prior to June 30, 1997 and the
balance of $177,612 was paid in July, 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 this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Administrator and/or the Distributor, including Mr. Herrmann
and Ms. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Fund since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Fund's
dividends will also vary. Dividends and other distributions paid
by the Fund with respect to each class of its shares are
calculated at the same time and in the same manner. The per share
dividends of Class C Shares will be lower than the per share
dividends on the Class A Shares as a result of the higher service
and distribution fees applicable to those shares. In addition,
the dividends of each class can vary because each class will bear
certain class-specific charges.
It is the Fund's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. On the Application or by completing a Ready Access
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
Rhode Island 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 fiscal year ended June 30, 1997, 97.84%
of the Fund's dividends were "exempt-interest dividends." For the
calendar year 1996, 1.91% of the total dividends paid were
taxable. 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.
Federal 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 Rhode Island 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 Rhode Island
Obligations will be long-term or short-term depending upon the
length of time the Fund has held such obligations. Capital gains
and losses of the Fund will also include gains and losses on
Futures and options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed to be
realized.
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 Rhode Island 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 Rhode
Island 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.
Rhode Island Tax Information
The following is a summary of certain aspects relating to
the Rhode Island tax consequences of an investment in the Fund.
This summary is based upon the advice of Edward & Angell, Rhode
Island counsel to the Fund.
This summary assumes that the Fund qualifies as a regulated
investment company for Federal income tax purposes under
Subchapter M of the Code. Such summary is based upon the
provisions of the Rhode Island tax law and the regulations
promulgated thereunder as currently in effect, all of which are
subject to change, possibly with retroactive effect. Prospective
investors in the Fund should contact their tax advisor regarding
the effect of Rhode Island or other state or local tax laws on
their investment.
Taxation of the Fund. The Fund will be subject to the Rhode
Island business corporation tax in an amount equal to the greater
of $250 or $0.10 on each $100 of the gross income of the Fund
that is apportioned to Rhode Island. Gross income is generally
defined in the same manner as for Federal income tax purposes
except that (i) interest which is exempt from Federal income tax
and which is not derived from obligations of the United States or
its possessions or Rhode Island Obligations issued by Rhode
Island issuers and exempt from taxation by Rhode Island, and(ii)
50% of the excess of capital gains over capital losses is
includable in gross income. While the issue is not entirely free
from doubt, it is unlikely that the Fund, as a Massachusetts
business trust, will be subject to the Rhode Island franchise
tax.
Individual Holders. Individual holders of shares of the Fund
who are subject to Rhode Island personal income taxation will not
be required to include in income for Rhode Island personal income
tax purposes that portion of the exempt-interest dividends which
the Fund clearly identifies as directly attributable to interest
earned on Rhode Island Obligations. Individual holders will,
however, be required to include in income any other distributions
of interest, dividends or income, except for interest or dividend
income obligations or securities issued by any authority,
commission or instrumentality of the United States.
Moreover, individual holders who are subject to Rhode Island
personal income taxation will be required to include in income
for Rhode Island personal income tax purposes the distribution of
capital gain dividends and any net short-term capital gains
realized by the Fund, unless such capital gains dividends and
short-term capital gains are derived from the sale of underlying
Rhode Island Obligations which are issued by Rhode Island issuers
and are specifically exempted from Rhode Island capital gains tax
by the Rhode Island law authorizing the issuance of the Rhode
Island Obligations.
Gain or loss recognized by an individual subject to Rhode
Island personal income taxation will be included in their Rhode
Island source income. However, Rhode Island may specifically
exempt from Rhode Island capital gains tax gain recognized on the
sale or exchange of certain Rhode Island Obligations.
Corporate Holders. Generally, corporate holders of shares of
the Fund are subject to the Rhode Island business corporation tax
or the Rhode Island franchise tax will be taxed on their net
income, authorized stock or at a flat rate minimum tax. Net
income is generally defined in the same manner as the
corporation's taxable income for Federal income tax purposes
except that distributions of exempt-interest dividends which are
derived from interest earned on municipal obligations by
governmental authorities in states other than Rhode Island will
be included in net income. Net income will also include
distributions of capital gain dividends and any net short-term
capital gains realized by the Fund, unless such distributions of
capital gain dividends and short-term capital gains are derived
from the sale of underlying Rhode Island Obligations which are
issued by Rhode Island issuers and are specifically exempted from
the Rhode Island capital gains tax.
Gain or loss recognized on the dispositions of fund shares
by corporate holders subject to the Rhode Island business
corporation tax will be included in their Rhode Island income.
Property and Estate Taxes. Shares of the Fund will be exempt
from local property taxes in Rhode Island but will be includable
in the gross estate of a deceased individual shareholder who is a
resident of Rhode Island for purposes of the Rhode Island estate
tax.
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 Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Aquila Cascadia Equity Fund,
Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free
Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free
Fund of Kentucky and Tax-Free Fund For Utah; 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 Funds including the Fund for shares of the same
class of any other Bond or Equity Fund, or for shares of any
Money Market Fund, without the payment of a sales charge or any
other fee, and there is no limit on the number of exchanges you
can make from fund to fund. However, the following important
information should be noted:
(1) CDSCs upon redemptions of shares acquired through
exchanges. If you exchange shares 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 of the exchanges that have taken
place since the original purchase.
(2) Extension of Holding Periods by owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
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 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:
800-637-4633 toll free or 732-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
Exchanges will be effected at the relative exchange prices
of the shares being exchanged next determined after receipt by
the Agent of your exchange request. The exchange prices will be
the respective net asset values of the shares, unless a sales
charge is to be deducted in connection with an exchange of
shares, in which case the exchange price of shares of a Bond or
Equity Fund will be their public offering price. Prices for
exchanges are determined in the same manner as for purchases of
the Fund's shares.(See "How to Invest in the Fund.")
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see "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 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 1992 as a Massachusetts business
trust. (See "Investment of the Fund's Assets" for further
information about the Fund's status as "non-diversified.") The
Declaration of Trust permits the Trustees to issue 80,000,000
shares of $.01 par value, and to divide or combine the shares
into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Fund. Each
share represents an equal proportionate interest in the Fund with
each other share of its class; shares of the respective classes
represent proportionate interests in the Fund in accordance with
their respective net asset values. Upon liquidation of the Fund,
shareholders are entitled to share pro-rata in the net assets of
the Fund available for distribution to shareholders, in
accordance with the respective net asset values of the shares of
each of the Fund's classes at that time. All shares are presently
divided into three classes; however, if they deem it advisable
and in the best interests of shareholders, the Board of Trustees
of the Fund may create additional classes of shares which may
differ from each other only as to dividends (subject to rules and
regulations of the Securities and Exchange Commission or by
exemptive order) or the Board of Trustees may, at its own
discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such
series will have a designation including the word "Series"). (See
the Additional Statement for further information about possible
additional series.) Shares are fully paid and non-assessable,
except as set forth under the caption "General Information" in
the Additional Statement; the holders of shares have no
pre-emptive or conversion rights.
In addition to Class A and Class C Shares, which are offered
by this Prospectus, the Fund also has (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 means of a separate prospectus, which can be obtained
by calling the Fund at 800-453-6864 toll free or 212-697-6666 or
in Rhode Island: 401-453-6864.
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 Rhode Island
Obligations and have the same rights, except that each class
bears the separate expenses, if any, of its participation in the
Distribution Plan and Shareholder Services Plan and has exclusive
voting rights with respect to such participation.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan. No
amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding
shares of the Fund except that the Fund's Board of Trustees may
change the name of the Fund. The Fund may be terminated (i) upon
the sale of its assets to another issuer, or (ii) upon
liquidation and distribution of the assets of the Fund, in either
case if such action is approved by the vote of the holders of a
majority of the outstanding shares of the Fund. If not so
terminated, the Fund will continue indefinitely.
<PAGE>
APPLICATION FOR NARRAGANSETT INSURED TAX-FREE INCOME FUND
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: Aquilasm Group of Funds
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.# 1-800-637-4633
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
NARRAGANSETT INSURED TAX-FREE INCOME FUND)
__ 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 Narragansett Insured Tax-Free Income Fund 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 1-800-637-4633. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. LETTER OF INTENT
APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this application.
___ Yes ___ No
I/We intend to invest in Class A Shares of the Fund during the
13-month period from the date of my/our first purchase pursuant to
this Letter (which purchase cannot be more than 90 days prior to the
date of this Letter), an aggregate amount (excluding any reinvestment
of dividends or distributions) of at least $25,000 which, together with
my/our present holdings of Fund shares (at public offering price on date
of this Letter), will equal or exceed the minimum amount checked below:
___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000
___ $500,000
D. AUTOMATIC WITHDRAWAL PLAN
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 1-800-453-6864 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 3c and signing the Application, the investor is
entitled to make each purchase at the public offering price applicable
to a single transaction of the dollar amount checked above, and agrees
to be bound by the terms and conditions applicable to Letters of Intent
appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such purchases
added to the investor's present holdings do not aggregate the minimum
amount specified above, the investor will pay the increased amount of
sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be
at the rate applicable to the minimum amount of the investor's specified
intended purchases checked above. If the investor's actual purchases do
not reach this minimum amount, the commissions previously paid to the
dealer will be adjusted to the rate applicable to the investor's total
purchases. If the investor's purchases exceed the dollar amount of the
investor's intended purchases and pass the next commission break-point,
the investor shall receive the lower sales charge, provided that the
dealer returns to the Distributor the excess of commissions previously
allowed or paid to him over that which would be applicable to the amount
of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent
in placing any future purchase orders for the investor while this Letter
is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3%
of the dollar amount specified in the Letter of Intent (computed to the
nearest full share) shall be held in escrow in shares of the Fund by
the Agent. All dividends and any capital distributions on the escrowed
shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to
completion of the purchase requirement under the Letter will be
deducted from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchases, the
investor must remit to the Distributor an amount equal to the difference
between the dollar amount of sales charges actually paid and the amount
of sales charges which would have been paid if the total amount
purchased had been made at a single time. If such difference in sales
charges is not paid within twenty days after receipt of a request from
the Distributor or the dealer, the Distributor will, within sixty days
after the expiration of the Letter, redeem the number of escrowed
shares necessary to realize such difference in sales charges. Full
shares and any cash proceeds for a fractional share remaining after
such redemption will be released to the investor. The escrow of shares
will not be released until any additional sales charge due has been
paid as stated in this section.
4. By checking Box 3c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor as
his attorney to surrender for redemption any or all escrowed shares
on the books of the Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Agent will credit all such shares to
the Planholder on the records of the Fund. Any share certificates now
held by the Planholder may be surrendered unendorsed to the Agent with
the application so that the shares represented by the certificate may
be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund
at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and until
proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may
be made, such investment should normally be an amount equivalent to
three times the annual withdrawal or $5,000, whichever is less.
<PAGE>
INVESTMENT ADVISER
Citizens Bank of Rhode Island
One Citizens Plaza
Providence, Rhode Island 02903
ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Paul Y. Clinton
David A. Duffy
Robert L. Krakoff
William J. Nightingale
J. William Weeks
OFFICERS
Lacy B. Herrmann, President
Stephen J. Caridi, 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......................................
Table of Expenses...............................
Financial Highlights............................
Introduction....................................
Investment Of The Fund's Assets.................
Investment Restrictions.........................
Net Asset Value Per Share.......................
Alternative Purchase Plans......................
How To Invest In The Fund.......................
How To Redeem Your Investment...................
Automatic Withdrawal Plan.......................
Management Arrangements.........................
Dividend And Tax Information....................
Exchange Privilege..............................
General Information.............................
Application and Letter of Intent
AQUILA
[LOGO]
Narragansett
[LOGO]
Insured Tax-Free Income Fund
PROSPECTUS
One Of The
Aquilasm Group Of Funds
