Aquila Rocky Mountain Equity Fund
380 Madison Avenue, Suite 2300
New York, New York 10017
800-762-5955
212-697-6666
Prospectus
Class A Shares
Class C Shares April 30, 1997
[LOGO]
Aquila Rocky Mountain Equity Fund (the "Fund") is a mutual
fund whose objective is capital appreciation. (See "Investment of
the Fund's Assets.") It seeks to achieve its objective through
investment in securities (primarily equity securities) of
companies having a significant business presence in the general
Rocky Mountain region of our country. See "Investment of the
Fund's Assets."
The Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information dated April 30, 1997 about the Fund (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request
to Administrative Data Management Corp., the Fund's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement
contains information about the Fund and its management not
included in the Prospectus. The Additional Statement is
incorporated by reference in its entirety in the Prospectus. Only
when you have read both the Prospectus and the Additional
Statement are all material facts about the Fund available to you.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY ANY BANK. SHARES OF THE FUND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT
OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact
The Fund's Shareholder Servicing Agent:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-ROCKY-22 (800-762-5922) toll free or 908-855-5731
For General Inquiries
Call 800-ROCKY-55 (800-762-5955) toll free or 212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
Aquila Rocky Mountain Equity Fund (the "Fund") is a
diversified, open-end mutual fund which continuously offers to
sell or redeem its shares on any business day (see "Alternative
Purchase Plans"). The Fund's shares are designed to be a suitable
investment for investors who seek capital appreciation, primarily
through the common stocks or other equity securities of companies
having a significant business presence in the Rocky Mountain
Region of the country.
The Fund's investment objective is capital appreciation. The
Fund seeks to achieve this objective by investing primarily in
equity securities of companies having a significant business
presence in the general Rocky Mountain region of our country,
consisting of Colorado, Arizona, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming. It is anticipated that under normal
circumstances, the Fund will invest at least 65%, and possibly up
to 100%, of its total assets in equity securities issued by such
companies. Companies with a significant business presence in the
Rocky Mountain Region are defined as those companies (i) whose
principal executive offices are located in the Region, (ii) which
have more than 50% of their assets located in the Rocky Mountain
Region or (iii) which derive more than 50% of their revenues or
profits from the Rocky Mountain Region. Since the Fund's
objective is capital appreciation, it is not expected to provide
any significant current income to investors from dividend or
interest payments. (See "Table of Expenses" and "Investment of
the Fund's Assets.")
Investment Selection Criteria - The Fund will acquire only
those equity securities which, at the time of purchase, the
Adviser considers to be of financially sound companies possessing
good growth characteristics and solid management, and reasonably
priced relative their growth rate and anticipated future values.
The Fund may also make other types of investments. (See
"Investment of the Fund's Assets.")
Regional Portfolio Management - KPM Investment Management,
Inc. (the "Adviser") serves as the Fund's investment adviser. It
is a wholly-owned subsidiary of KFS Corporation, a member of the
Mutual of Omaha Companies. The Fund's portfolio is managed in the
Adviser's Denver office. Founded in 1981, the Adviser provides
discretionary equity fixed income and balanced account management
to mutual funds, retirement plans, foundations, endowments and
high net-worth individuals and currently manages over $1 billion
of clients' assets.
Aquila Management Corporation, the Fund's founder and
Sub-Adviser and Administrator, is the founder of and serves as
administrator for three other funds with a Rocky Mountain Region
orientation: Tax-Free Trust of Arizona, with assets of $398
million, Tax-Free Fund of Colorado, with assets of $216 million
and Tax-Free Fund For Utah, with assets of $29 million, all as of
December 31, 1996. Through its Denver office, the Adviser
currently acts as investment adviser for Tax-Free Fund of
Colorado. See "Management Arrangements."
Fee Arrangements - The Fund can pay fees at an annual rate
of up to 0.70 of 1% of average annual net assets to its Adviser
and up to 0.80 of 1% of average annual net assets to its
Sub-Adviser and Administrator (for total fees at a rate of up to
1.50% of the first $15 million of average annual net assets). The
overall rates of these fees decline as the asset size of the Fund
increases. See "Advisory and Administration Fees." Some or all of
these fees may be waived in the early development phase of the
Fund.(See "Table of Expenses," "Management Arrangements" and
"Distribution Plan.")
Diversification - The Fund will invest its assets in a
number of different securities. Additionally, investments will be
spread over a reasonably broad range of industries. Only the most
affluent investors can achieve such diversification on their own
among securities of Rocky Mountain Companies. In general, a
diversified portfolio, such as is provided by the Fund, can be
used to reduce your investment risk as compared with less
diversified portfolios. See "Investment of the Fund's Assets."
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of
$50 or more, through the convenience of having your investment
electronically transferred from your financial institution
account into the Fund by Automatic Investment or Telephone
Investment. (See "How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time
of purchase, much as goods can be purchased on an installment
plan. For this purpose the Fund offers the following classes of
shares, which differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A Shares")
are offered to anyone at net asset value plus
a sales charge, paid at the time of purchase,
at the maximum rate of 4.25% 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 0.25 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 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.
Class Y Shares are not offered by this Prospectus.
Class A Shares and Class C Shares are only offered for sale
in certain states. (See "How to Invest in the Fund.") If shares
of the Fund are sold outside those states the Fund can redeem
them.
Liquidity - Redemptions - 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.")
Distributions from the Fund - Distribution of any income net
of operating expenses or any net realized capital gains will be
made annually. The Fund's net income and short-term capital gains
are taxed as ordinary income, while long-term capital gains
distributions are taxed to you as long-term capital gains,
regardless of how long you have held your shares. See "Dividend
and Tax Information."
Convenience - Through ownership of a single security
consisting of shares of the Fund, you achieve investment
participation in a variety of Rocky Mountain Companies and are
relieved of all the various inconveniences - including selecting,
purchasing or selling, continuously monitoring, handling, and
safekeeping - associated with direct investment in individual
securities of those companies. The Fund handles all paperwork
involved with share ownership, advising you of the Federal tax
status of dividends and capital gains and providing you with
simplified records. You receive statements of your account
quarterly as well as each time you add to your investment or
redeem part or all of it. Additionally, you receive a semi-annual
report and an audited annual report.
Exchanges - You may exchange Class A or Class C Shares of
the Fund into corresponding classes of shares of the
Aquila-sponsored tax-free municipal bond mutual funds or another
Aquila-sponsored equity fund. 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.")
Risk Factors - The Fund seeks to provide you with capital
appreciation over a period of time. The value of the Fund's
shares will fluctuate due to changes in the equity markets and
the proceeds of redemptions may be more or less than your cost.
The Fund's assets, being primarily or entirely invested in the
securities of Rocky Mountain Companies, are subject to economic
and other conditions affecting that area and it may have less
diversification than funds without this investment policy. (See
"Risks and Special Considerations Regarding the Rocky Mountain
Region.") The Fund may also to a limited degree buy put options
and buy and sell call options; there may be risks associated with
these practices. (See "Options Transactions.")
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
TABLE OF EXPENSES
Class A Class C
Shares Shares
Shareholder Transaction Expenses
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.25% 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)
(as a percentage of average net assets)
Management Fees After Waivers(4) 0.00% 0.00%
12b-1 Fee 0.25% 0.75%
All Other Expenses After Expense
Reimbursement(4) 1.29% 1.54%
Service Fee None 0.25%
Other Expenses After Expense
Reimbursement(4) 1.29% 1.29%
Total Fund Operating Expenses After
Expense Reimbursement and Fee Waivers(4) 1.54% 2.29%
Example (5)
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 $58 $89 $123 $218
Class C Shares
With complete redemption
at end of period $33 $72 $123 $227(6)
With no redemption $23 $72 $123 $227(6)
<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 expenses incurred by the Fund during its most
recent fiscal year, restated to reflect current arrangements. Class A
Shares were outstanding during the entire period. Class C Shares were
established on May 1, 1996.
</FN>
<FN>
(4) The Adviser and the Sub-Adviser and Administrator (the "Sub-Adviser")
have undertaken to waive all their fees until the Fund attains an asset
size of $10 million. After the Fund attains the asset size of $10 million,
it is anticipated that certain fees for that fiscal year will be waived
following a predetermined formula. If the Adviser and Sub-Adviser
determine that it would be advisable to waive some or all of their fees,
it is anticipated that as the asset size of the Fund increases, waivers
would be progressively reduced so that when assets exceed approximately
$25 million a substantial portion or all of these fees would be paid.
Since the Fund's inception, the Sub-Adviser, in its sole discretion, has
been reimbursing some or all of the Fund's other operating expenses.
Other expenses do not reflect a 0.04% expense offset in custodian fees
received for uninvested cash balances. Without fee waiver and expense
reimbursement and including the offset in custody fees, the operating
expenses of the Fund for the fiscal year ended December 31, 1996 would
have been incurred at the following annual rates: for Class A Shares,
management fees, 1.50%; 12b-1 fee, 0.25%; and other expenses, 7.09%,
resulting in Total Fund Operating Expenses of 8.84%; for Class C Shares,
management fees, 1.50%; 12b-1 fees, 0.75%; service fee, 0.25%; and other
expenses, 7.09%, resulting in Total Fund Operating Expenses of 9.59%.
</FN>
<FN>
(5) The expense example is based upon the above shareholder transaction
expenses (in the case of Class A Shares, this includes a sales charge
of $42.50 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>
(6) 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 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. Although not obligated to do so, those entitled
to investment advisory and administration fees expect to waive a portion
or all of those fees in the early stages of the Fund's existence and
Aquila Management Corporation, the organizer and Sub-Adviser of the
Fund, may reimburse the Fund for various expenses; the above table
reflects one possible such arrangement and should not be considered as
a commitment or prediction that any fees, or that any particular
portion of fees, will be waived, or that any particular expenses will
be reimbursed. (See "Management Arrangements" for a more complete
description of the various investment advisory and administration
fees.)
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY 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 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.
Class A(1)
Year Ended Year Ended
December 31, December 31, Class C(2)
1996 1995 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period............... $13.13 $11.06 $14.59
Income from Investment Operations:
Net investment
income (loss)..................... (0.02) (0.07) 0.01
Net gain (loss) on securities
(both realized and unrealized).... 2.47 2.25 1.00
Total from Investment
Operations........................ 2.45 2.18 1.01
Less Distributions:
Dividends from net investment
income............................ --- (0.01) --
Distributions from capital gains.. (0.53) (0.10) (0.53)
Total Distributions............... (0.53) (0.11) (0.53)
Net Asset Value, End of Period...... $15.05 $13.13 $15.07
Total Return (not reflecting
sales load)....................... 18.68% 19.68% 6.94%+
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands).................. $2,178 $1,737 $4
Ratio of Expenses to Average
Net Assets........................ 1.50% 1.91% 1.25%*
Ratio of Net Investment Income
to Average Net Assets............. (0.14)% (0.60)% 0.11%*
Portfolio Turnover Rate........... 20.32% 15.14% 20.32%+
Average commission rate paid(4)... .0745 --- .0745
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:
Net Investment Income (loss)........ $(1.05) $(1.12) $(0.72)
Ratio of Expenses to Average
Net Assets #........................ 8.84% 10.48% 8.59%*
Ratio of Net Investment Income to
Average Net Assets.................. (7.48)% (9.17)%
(7.23)%*
<CAPTION>
Period Ended
December 31,
1994(3)
<C>
$11.43
---
(0.37)
(0.37)
---
---
---
$11.06
(3.24)%+
$530
1.19%*
---
2.95%+
---
$---
18.20%*
___
<FN>
(1) Designated as Class A Shares on May 1, 1996.
</FN>
<FN>
(2) New Class of Shares eatablished on May 1, 1996.
</FN>
<FN>
(3) For the period from July 22, 1994 (commencement of operations) to
December 31, 1994.
</FN>
<FN>
(4) Represents the average per share broker commission rate paid by the
Fund in connection with the execution of the Fund's portfolio transactions
in equity securities on which commissions were charged. Calculations are
for fiscal years beginning January 1, 1996.
</FN>
<FN>
(5) The ratios for Class A Shares were annualized based on average net
assets of $1,965,012, $1,239,752 and $453,768, respectively. In general,
as the Fund's net assets increase, the expense ratio will decrease.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
INTRODUCTION
Aquila Rocky Mountain Equity Fund is a diversified, open-end
mutual fund which continuously offers to purchase or redeem its
shares on any business day (see "How to Invest in the Fund" and
"How to Redeem Your Investment.") The Fund's shares are designed
to be a suitable investment for investors who seek capital
appreciation primarily through the equity securities of companies
operating in the Rocky Mountain region of the country.
The Fund provides you with the opportunity to have the
benefits of a diversified and professionally managed portfolio of
securities intended to allow participation in the economic
development of the Rocky Mountain Region. Through the convenience
of a single security consisting of shares of the Fund, you are
relieved of all the various inconveniences - including selecting,
purchasing or selling, continuously monitoring, handling, and
safekeeping - associated with direct investment in individual
securities of various Rocky Mountain Companies.
The Fund was organized by Aquila Management Corporation (the
"Sub-Adviser"), which has provided administrative and/or
investment advisory services to various mutual funds founded by
it since 1984. It currently acts as administrator to fourteen
Aquila-sponsored funds, including the Fund, with combined net
assets as of December 31, 1996 in excess of $2.7 billion.
Continuous and active portfolio management of the Fund is
provided by its regionally-located investment adviser, KPM
Investment Management, Inc.
INVESTMENT OF THE FUND'S ASSETS
The Fund's investment objective, which is a fundamental
policy of the Fund, is to purchase and hold securities for
capital appreciation. There is no assurance that the Fund will
achieve its objective. The Fund does not expect to receive
dividends of sufficient size to enable it to provide investors
with any significant amount of current income and during at least
its early fiscal years expects to apply all of such income to
Fund operating expenses so that none will be available for
distribution to shareholders.
In the Prospectus and Additional Statement, the general area
consisting of Colorado, Arizona, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming is called the "Rocky Mountain Region."
The Fund seeks to achieve its objective by investing primarily in
equity securities of companies ("Rocky Mountain Companies")
having a significant business presence in the Rocky Mountain
Region. It is anticipated that under normal circumstances, the
Fund will invest at least 65%, and possibly up to 100%, of its
total assets in securities issued by such companies.
For purposes of this Prospectus, companies with a
significant business presence in the Rocky Mountain Region are
defined as those companies (i) whose principal executive offices
are located in the Region, (ii) which have more than 50% of their
assets located in the Rocky Mountain Region or (iii) which derive
more than 50% of their revenues or profits from the Rocky
Mountain Region. In determining that companies have a significant
business presence in the Rocky Mountain Region, the Adviser may
rely on any publicly available information about those companies
that it considers reliable. There may be risks associated with
this investment policy. (See "Risk Factors and Special
Considerations.")
As used in the Prospectus, the term "equity securities"
means (i) common stocks and (ii) preferred stocks, bonds,
debentures and notes convertible into common stocks. Under normal
conditions, it is anticipated that the Fund will invest at least
65%, and possibly up to 100%, of its total assets in such
securities. The Fund may also, to a limited extent, make certain
other types of investments. (See below.)
In general, the Fund will take a long-term approach toward
investing. Accordingly, the turnover rate will normally be
consistent with this approach. (See "Portfolio Turnover.") At
times the Fund may make investments for short-term purposes.
Also, under changing market conditions, the Fund may dispose of
portfolio securities whenever the Adviser deems such action
advisable without regard to the length of time the securities
have been held.
In selecting investments for the Fund, the Adviser will
generally employ the investment philosophy of seeking to invest
in established, financially sound, well-managed Rocky Mountain
Companies whose securities it considers to be selling at a
reasonable price relative to their growth rate and anticipated
future values. Emphasis will be placed upon selection of Rocky
Mountain Companies whose securities are selling at lower prices
than comparable investments; other securities may be selected
whose issuers the Adviser believes are experiencing better growth
relative to comparable investments. It is anticipated that a
number of factors will be considered in investment selection,
including but not limited to: product characteristics and market
potential, operating ratios, management abilities, intrinsic
value of securities, securities' market action, and the overall
economic, monetary, political and market environment. The Adviser
currently focuses on approximately 300-400 Rocky Mountain
Companies from which it selects investments for the Fund's
portfolio.
Although the Fund may invest in large capitalization
companies, it is anticipated that the companies represented in
the Fund's portfolio will be primarily those having market
capitalization of middle to smaller size which the Adviser
believes offer the potential of capital appreciation due to their
overall characteristics. These companies are likely to be less
well known because they are smaller in size, have smaller
capitalizations, and have a lesser number of shares traded. The
prices of securities of such companies may be more volatile than
the prices of securities of issuers which are more mature, and
have larger capitalizations and whose securities are more
actively traded.
In unusual market conditions when the Adviser believes a
defensive posture for the Fund's investments is warranted, the
Fund may temporarily invest a portion or all of its assets in
high quality fixed-income securities such as U.S. Treasury
securities, corporate bonds or high grade short-term money-market
securities, without geographic or percentage limitation. Only
corporate securities rated "A" or equivalent by a nationally
recognized statistical rating organization will be purchased. See
the Additional Statement for a description of these organizations
and an explanation of their ratings.
Convertible Securities
The Fund may invest up to 25% of its assets in convertible
securities, primarily of Rocky Mountain Companies, if the Adviser
believes there is potential of capital growth through the
conversion option and greater investment income prior to
conversion. Only convertible securities rated investment grade by
a nationally recognized statistical rating organization will be
purchased. In general, there are nine separate credit ratings
ranging from the highest to the lowest quality standards for debt
obligations. Obligations rated within the four highest ratings
are considered "investment grade." Not more than 5% of the Fund's
net assets may be invested in such securities having the lowest
of the four investment grade ratings. Obligations rated in the
fourth such credit rating are considered by the rating agencies
to be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. See the Additional Statement for
a description of these organizations and an explanation of their
ratings.
A convertible security is a fixed-income security (a bond or
preferred stock) which may be converted at a stated price within
a specified period of time into a certain quantity of the common
stock of the same or a different issuer. Convertible securities
are senior to common stocks in a corporation's capital structure,
but are usually subordinated to similar nonconvertible
securities. While providing a fixed income stream (generally
higher in yield than the dividends received from a common stock
but lower than that afforded by a similar nonconvertible
security), a convertible security also affords the opportunity
through its conversion feature to participate in the capital
appreciation attendant upon a market price advance in the
convertible security's underlying common stock.
In general, the market value of a convertible security is at
least the higher of its "investment value" (i.e., its value as a
fixed-income security) or its "conversion value" (i.e., its value
upon conversion into its underlying common stock). As a
fixed-income security, a convertible security tends to increase
in market value when interest rates decline and tends to decrease
in value when interest rates rise. However, the price of a
convertible security is also influenced by the market value of
the security's underlying common stock. The price of a
convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines. While no
securities investment is without some risk, investments in
convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Warrants
The Fund may also invest up to 5% of its net assets, as
determined at time of purchase, in warrants of Rocky Mountain
Companies. Warrants entitle the holder to purchase a fixed number
of shares of the common stock of the issuer at a fixed price
during certain specified times. The value of the warrants from
time to time depends upon the market evaluation of the likelihood
that exercise of the warrants would be economically advantageous
before they expire. The market price of warrants tends to be more
volatile than that of the underlying common stock.
Options Transactions
The Fund may purchase put and purchase and write (i.e.,
sell) call options for hedging purposes or in order to generate
additional income or for taking a position in a security deemed
attractive by the Adviser. The Fund will purchase or write
options only on equity securities that are traded on national
securities exchanges or that are listed on NASDAQ. The Fund may
purchase put and write call options only on equity securities
which are held in the Fund's investment portfolio or to close out
positions. Additionally, the Fund may purchase calls on
securities which are not in the Fund's portfolio or to close out
positions.
The Fund will not (a) write call options if immediately
after any such transaction, the aggregate value of the securities
underlying the calls would exceed 20% of the Fund's net assets,
or (b) purchase put or call options if, immediately after such
purchases, the premiums paid for all such options owned at the
time would exceed 5% of the Fund's net assets. The Fund will not
write put options except to close out positions. See the
Additional Statement for a description of these instruments and
their uses.
While the Fund may engage in puts and calls to a limited
extent, there are certain risks associated with this activity
that are different than investing in the underlying securities
directly (see the Additional Statement). Option transactions
involve risks and transaction costs which the Fund would not
incur if it did not engage in option transactions. If the
Adviser's predictions of movements in the direction of the
securities markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options
include dependence upon the Adviser's ability to predict
correctly movements in the direction of securities prices and the
possible absence of a liquid secondary market for any particular
instrument at any time. See the Additional Statement for a
description of these and other risks with respect to option
transactions.
Lending of Portfolio Securities
In order to generate additional income, the Fund may lend
portfolio securities, up to 25% of the net assets, to
broker-dealers, banks or other financial borrowers of securities.
As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, the Fund
will enter into loan arrangements only with broker-dealers,
banks, or other institutions which the Adviser has determined are
creditworthy under guidelines established by the Fund's Board of
Trustees and will receive collateral in the form of cash or
short-term U.S. Government securities equal at least to 100% of
the value of the securities loaned. The value of the collateral
and the securities loaned will be marked to market on a daily
basis. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or
interest paid on the securities and the Fund may invest the cash
collateral and earn additional income or receive an agreed upon
amount of interest income from the borrower. However, the amounts
received by the Fund may be reduced by any finders' fee paid to
broker-dealers and any other related expenses.
Borrowings by the Fund
The Fund can borrow money for temporary or emergency
purposes from a bank. The Fund will not borrow amounts in excess
of 10% of net assets and will not purchase securities if
borrowings are equal to or greater than 5% of net assets. The
Fund intends primarily to exercise such borrowing authority to
meet any abnormal level of shareholder redemptions and under
circumstances where redemptions exceed available cash.
Repurchase Agreements
The Fund may purchase securities subject to repurchase
agreements, provided that such securities consist entirely of
U.S. Government securities or securities that, at the time the
repurchase agreement is entered into, are rated in the highest
rating category by at least one nationally recognized statistical
rating organization. Repurchase agreements may be entered into
only with commercial banks or broker-dealers. Subject to the
control of the Board of Trustees, the Adviser will regularly
review the financial strength of all parties to repurchase
agreements with the Fund.
Under a repurchase agreement, at the time the Fund purchases
a security, the Fund also resells it to the seller and must
deliver the security (or securities substituted for it) to the
seller on an agreed-upon date in the future. (The securities so
resold or substituted are referred to herein as the "Resold
Securities.") The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective
for the period of time during which the Fund's money is invested
in the Resold Securities. The majority of these transactions run
from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase.
Repurchase agreements can be considered as loans
"collateralized" by the Resold Securities, such agreements being
defined as "loans" in the Investment Company Act of 1940 (the
"1940 Act"). The return on such "collateral" may be more or less
than that from the repurchase agreement. The Resold Securities
under any repurchase agreement will be marked to market every
business day so that the value of the "collateral" is at least
equal to the resale price provided in the agreement, including
the accrued interest earned thereon, plus additional market value
as is considered necessary to provide a margin of safety. During
the term of the repurchase agreement, the Fund or its custodian
either has actual physical possession of the Resold Securities
or, in the case of a security registered in book entry system,
the book entry is maintained in the name of the Fund or its
custodian.
The Fund retains an unqualified right to possess and sell
the Resold Securities in the event of a default by the other
party. However, in the event of bankruptcy or other default by
the other party, there may be delays and expenses in liquidating
the Resold Securities, decline in their value and loss of
interest.
Shares of Investment Companies
The Fund may purchase shares of investment companies with
money market portfolios which are any of the money-market funds
in the Aquilasm Group of Funds. As of the date of the Prospectus,
these 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. The Fund will not purchase shares of an
investment company which imposes a sales or redemption charge of
any sort; however, an investment company in which the Fund
invests may have a distribution plan under which it may pay for
distribution expenses or services. Such investments will
ordinarily be made to provide additional liquidity and at the
same time to earn higher yields than are usually associated with
the overnight or short-term obligations in which the Fund might
otherwise invest for this purpose. While higher yields than those
of alternative investments may be obtainable, these yields will
reflect management fees and operating and distribution expenses
of the investment companies and will result in duplication of
management fees with respect to assets of the Fund so invested.
The Fund may not invest in the shares of investment companies if
immediately thereafter it has invested more than 10% of the value
of its total assets in such companies or more than 5% of the
value of its total assets in any one such company; it may not
invest in such a company if immediately thereafter it owns more
than 3% of the total outstanding voting stock of such a company.
Risk Factors and Special Considerations
While the Fund will be actively managed to seek growth of
your capital, the value of the Fund's shares will fluctuate as a
result of equity market factors. Accordingly the proceeds of
redemptions may be more or less than your original cost.
There are two types of risk generally associated with owning
equity securities: market risk and financial risk. Market risk is
the risk associated with the movement of the stock market in
general. Financial risk is associated with the financial
conditions and profitability of the underlying company. Smaller
companies may experience different growth rates and higher
failure rates than those of larger companies having longer
operating histories. Moreover, the stock price movements of
smaller companies may experience more volatility than those of
larger and more mature companies.
There are two types of risk associated with owning debt
securities: interest rate risk and credit risk. Interest rate
risk relates to fluctuations in market value arising from changes
in interest rates. If interest rates rise, the value of debt
securities will normally decline and if interest rates fall, the
value of debt securities will normally increase. All debt
securities, including U.S. Government securities, which are
generally considered to be the most creditworthy of all debt
obligations, are subject to interest rate risk. Securities with
longer maturities generally have a more pronounced reaction to
interest rate changes than shorter-term securities.
Credit risk relates to the ability of the issuer to make
periodic interest payments as scheduled and ultimately repay
principal at maturity. The Fund does not intend to hold corporate
debt securities unless the opportunities for capital appreciation
and income, combined, remain attractive.
Risks and Special Considerations Regarding the
Rocky Mountain Region
The Fund's assets, being primarily or entirely invested in
the securities of Rocky Mountain Companies, are subject to
economic and other conditions affecting the various states which
comprise the Rocky Mountain Region.
The states of the Rocky Mountain Region are characterized by
wide differences in climate, great distances and relatively low
population density. In some areas, availability of water is a
factor of considerable importance in economic development and
water issues will likely affect the growth and prosperity of much
of the Region in the future. Originally heavily oriented toward
the exploitation of natural resources, in recent years the
economies of the states of the Rocky Mountain Region have shifted
toward more diversity with increases in tourism, high technology
and the service sector. The region has been characterized in
recent years by population growth and immigration from other
areas of the United States. Some of the states in the Rocky
Mountain Region have experienced growth rates above the national
averages.
Because of the large geographic size of the Rocky Mountain
Region, the above factors may have varying importance from one
state to another. It is not possible to predict what effect they
may individually or collectively have on any particular company
in which the Fund may choose to invest.
In addition, companies with headquarters in the Rocky
Mountain Region or with a significant business presence in the
Region may also have significant business interests, sales and
assets outside of the Region and may thus be subject to other
economic influences. Because the Fund will invest most, and may
invest all, of its assets in Rocky Mountain Companies, it may
have less diversification than funds without this investment
policy.
Portfolio Turnover
Given the Fund's orientation to capital appreciation, it is
not expected that the Fund's annual portfolio turnover rate will
exceed 60%. See the Additional Statement.
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 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. 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 has industry investment requirements.
The Fund cannot buy securities in any one industry if more
than 25% of its total assets would then be invested in securities
of that industry.
2. The Fund can make loans only by lending securities or entering
into repurchase agreements.
The Fund can lend its portfolio securities (see "Lending of
Portfolio Securities") and can enter into repurchase agreements
(see "Repurchase Agreements") but cannot otherwise make loans.
The Fund can buy debt securities as described above (see
"Investment of the Fund's Assets"); this is investing, not making
a loan.
3. 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
security while it has any outstanding borrowings which exceed 5%
of the value of its total assets.
NET ASSET VALUE PER SHARE
The Fund's net asset value and offering price per share of
each class are determined as of 4:00 p.m. New York time on each
day that the New York Stock Exchange is open (a "business day").
The close of the principal exchanges or other markets on which
some of the Fund's portfolio securities are traded may be later
than 4:00 p.m. The net asset value per share is determined by
dividing the value of the net assets (i.e., the value of the
assets less liabilities) by the total number of shares
outstanding. Determination of the value of the Fund's assets is
subject to the direction and control of the Fund's Board of
Trustees. Securities listed on a national securities exchange or
designated as national market system securities are valued at the
last prior sale price or, if there has been no sale that day, at
the bid price. The value of other securities is in general based
on market value, except that short-term investments maturing in
60 days or less are generally valued at amortized cost; see the
Additional Statement for further information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus, the Fund provides individual investors
with the option of two alternative ways to purchase shares,
through two separate classes of shares. All classes represent
interests in the same portfolio of securities. 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 4.25% 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. Under the Fund's Distribution
Plan, Class A Shares are subject to a fee of 0.25 of 1%
of the average annual net assets of the Class A Shares.
When you purchase Class A Shares, the amount of your
investment is reduced by the applicable sales charge.
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. In the
Prospectus, 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 4.25% 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 0.25 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 4.25% maximum initial sales
charge and 0.25 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 five 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, if any, 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's shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Fund's best interest to do
so.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Fund are available only in the following states:
Arizona, California, Colorado, District of Columbia, Hawaii,
Idaho, Kentucky, Montana, Nebraska, Nevada, New Jersey, New
Mexico, New York, Ohio, Oregon, Utah and Wyoming. If you do not
reside in one of these states you should not purchase shares of
the Fund. If 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.
How to Purchase Class A Shares
(Front-Payment Class Shares)
The following table shows the amount of the sales charge to
a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions") for Class A
Shares:
<TABLE>
<CAPTION>
Sales Sales Commis-
Charge Charge sions
as as as
Percentage Approximate Percentage
of Public Percentage of
Amount of Offering of Amount Offering
Purchase Price Invested Price
<S> <C> <C> <C>
Less than $50,000...... 4.25% 4.44% 3.75%
$50,000 but less
than $100,000....... 4.00% 4.17% 3.50%
$100,000 but less
than $250,000....... 3.50% 3.63% 3.25%
$250,000 but less
than $500,000....... 2.50% 2.56% 2.25%
$500,000 but less
than $1,000,000..... 1.50% 1.52% 1.25%
</TABLE>
For purchase 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 or
their own accounts; (c) a trustee or other fiduciary purchasing
Class A Shares for a single trust estate or a single fiduciary
account; (d) a pension, profit-sharing or other employee benefit
plan qualified or non-qualified under Section 401 of the Code and
(e) a tax-exempt organization enumerated in Section 501(c)(3) or
(13) of the Internal Revenue 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 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 Purchasers of Class A Shares." The special charge
does not apply to shares acquired through the reinvestment of
dividends on CDSC Class A Shares or to any CDSC Class A Shares
held for more than four years after purchase. In determining
whether the special charge is applicable, it will be assumed that
the CDSC Class A Shares you have held the longest are the first
CDSC Class A Shares to be redeemed, unless you instruct the Agent
otherwise. It will also be assumed that if you have both CDSC
Class A Shares and non-CDSC Class A Shares the non-CDSC Class A
Shares will be redeemed first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance
with the above schedule for subsequent purchases of Class A
Shares if the cumulative value (at cost or current net asset
value, whichever is higher) of Class A Shares you have previously
purchased with a sales charge, together with a subsequent
purchase of Class A Shares with such a charge, amounts to $50,000
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 Trustees and officers of any other fund in the Aquilasm
Group of Funds, by the directors, officers and certain employees,
retired employees and representatives of the Adviser and its
parent and affiliates, the Sub-Adviser and the Distributor, by
selected dealers and brokers and their officers and employees, by
a pension, profit-sharing or other employee benefit plan
qualified or non-qualified under Section 401 of the Code, by
tax-exempt organizations enumerated in Section 501(c)(3) or (13)
of the Code, 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 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. If you own shares of
any other fund in the Aquilasm Group of Funds (see "Exchange
Privilege") and have an account in the Fund, arrangements may be
made to have dividends paid by that other fund automatically
invested in shares of the Fund at net asset value.
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,
either upon purchase or redemption, 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 shares to be purchased must be sent to the
Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
Suite 2300, New York, NY 10017 and should not be sent to the
Shareholder Servicing Agent of the Fund, Administrative Data
Management Corp. (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. In addition, Class C Shares are subject to a
contingent deferred sales charge ("CDSC") if redeemed before you
have held them for 12 months from the date of purchase at the
rate of 1%, calculated on the net asset value of the Class C
Shares at the time of purchase or of 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 shares acquired
through the reinvestment of dividends on Class C Shares.
The Distributor will pay to any dealer effecting a purchase
of Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through a Payroll Plan.
Investments can be made in either Class A Shares or Class C
Shares. In order to participate in a Payroll Plan, you should
make arrangements with your own employer's payroll department,
and you must complete and sign any special application forms
which may be required by your employer. You must also complete
the Application included in the Prospectus. Once your application
is received and put into effect, under a Payroll Plan the
employer will make a deduction from payroll checks in an amount
you determine, and will remit the proceeds to the Fund. An
investment in the Fund will be made for you at the offering
price, which includes applicable sales charges determined as
described above, when the Fund receives the funds from your
employer. The Fund will send a confirmation of each transaction
to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you
so request in writing to the Agent. 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), 0.25 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 December 31, 1996, $4,975 was
paid to Qualified Recipients under the Plan as then in effect, of
which $574 was retained by the Distributor. (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 December
31, 1996 only nominal payments were made under this part of the
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 Sub-Adviser, 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.
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:
Toll-free 800-ROCKY-22 (800-762-5922) or 908-855-5731.
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.
2. By FAX or Mail. You may also request redemption payments
to a predesignated Financial Institution account by a letter
of instruction sent to: Administrative Data Management
Corp., Attn: Aquilasm Group of Funds, by FAX at 908-855-5730
or by mail at 581 Main Street, Woodbridge, NJ 07095-1198,
indicating account name(s), account number, amount to be
redeemed, and any payment directions, signed by the
registered holder(s). Signature guarantees are not required.
See "Redemption Payments " below for payment methods.
If you wish to have redemption proceeds sent to a Financial
Institution Account, you should so elect on the Expedited
Redemption section of the Application or the Ready Access
Features form and provide the required information concerning
your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Fund. You may change the
designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed should be sent in blank (unsigned) to
the Fund's Shareholder Servicing Agent: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main
Street, Woodbridge, NJ 07095-1198, with payment
instructions. A stock assignment form signed by the
registered shareholder(s) exactly as the account is
registered must also be sent to the Shareholder Servicing
Agent.
For your own protection, it is essential that certificates
be mailed separately from signed redemption documentation.
Because of possible mail problems, it is also recommended that
certificates be sent by registered mail, return receipt
requested.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), the Stock Exchanges
Medallion Program (SEMP) or the New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the Fund, and you have not elected
Expedited Redemption to a predesignated Financial Institution
account, you must use the Regular Redemption Method. Under this
redemption method you should send a letter of instruction to:
Administrative Data Management Corp., Attn: Aquilasm Group of
Funds, 581 Main Street, Woodbridge, NJ 07095-1198, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Fund may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
it may charge you a fee for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or 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.
The Advisory Agreement
KPM Investment Management, Inc. (the "Adviser") supervises
the investment program of the Fund and the composition of its
portfolio. Through its Denver office, the Adviser currently
serves as investment adviser for Tax-Free Fund of Colorado, a
tax-free municipal bond fund which was also founded and sponsored
by Aquila Management Corporation.
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. 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. At the Adviser's expense the Adviser shall 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, for pricing
of the Fund's portfolio at least quarterly using another such
source satisfactory to the Fund.
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 Sub-Adviser under the Sub-Advisory and
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 an Advisory fee
computed on the net asset value of the Fund as set forth in the
table that appears below.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. In general, the primary consideration in
effecting transactions for the Fund is obtaining the most
favorable prices and efficient execution. This means that the
Adviser will seek to execute each transaction at a price and
commission, if any, which provide the most favorable total cost
or proceeds reasonably attainable in the circumstances. While the
Adviser generally seeks reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest
spread or commission available. The Adviser has complete freedom
as to the markets in which and the broker-dealers through whom
(acting on an agency basis or as principal) it operates to seek
this result. The Adviser may consider a number of factors in
determining which broker-dealers to use. These factors, which are
more fully discussed in the Additional Statement, include, but
are not limited to, research services, the reasonableness of
commissions and quality of services and execution. The Adviser is
authorized to consider sales of shares of the Fund.
The Sub-Advisory and Administration Agreement
Aquila Management Corporation, founder of the Fund, serves
as Sub-Adviser and Administrator (the "Sub-Adviser") for the Fund
under a Sub-Advisory and Administration Agreement (the
"Sub-Advisory and Administration Agreement"). The Sub-Adviser is
the founder and serves as administrator for three other funds
oriented to the Rocky Mountain Region: Tax-Free Trust of Arizona,
with assets of $398 million, Tax-Free Fund of Colorado, with
assets of $216 million and Tax-Free Fund For Utah, with assets of
$29 million, all as of December 31, 1996.
At its own expense, the Sub-Adviser 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 Sub-Adviser.
Under the Sub-Advisory and Administration Agreement, subject
to the control of the Fund's Board of Trustees, the Sub-Adviser
provides such advisory services to the Fund, in addition to those
services provided by the Adviser, as the Sub-Adviser deems
appropriate.
Under the Sub-Advisory and Administration Agreement, subject
to the control of the Fund's Board of Trustees, the Sub-Adviser
provides all administrative services to the Fund other than those
relating to its investment portfolio handled by the Adviser under
the Advisory Agreement. Such administrative services include, but
are not limited to, overseeing all relationships between the Fund
and its various support organizations including the transfer
agent, custodian, legal counsel, auditors and principal
underwriter. Its services include 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 Sub-Adviser
either keeps the accounting and other books and records of the
Fund, including the computation of net asset value per share and
the dividends (utilizing daily pricing of the securities in the
Fund's portfolio performed by 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 Sub-Advisory and Administration Agreement
as part of such duties.
Under the Sub-Advisory and Administration Agreement, subject
to the control of the Fund's Board of Trustees, the Sub-Adviser
provides sub-advisory services to the Fund, which include review
of the investment activities of the Fund, and may include
providing the Adviser and the Fund with material relevant to the
investment in securities of issuers in various states. Although
such event is not anticipated, if the Advisory Agreement were
terminated, the Sub-Adviser would assume the duties of managerial
investment adviser, in addition to continuing its duties as
sub-adviser and administrator, subject to and in compliance with
the 1940 Act and the rules thereunder. In such event, it would be
paid an additional fee at the rate currently paid to the Adviser.
See the Additional Statement.
The Sub-Advisory and Administration Agreement contains
provisions as to the Sub-Adviser's allocation of the portfolio
transactions of the Fund similar to those in the Advisory
Agreement; see the Additional Statement.
Under the Sub-Advisory and Administration Agreement, the
Fund pays a sub-advisory and administration fee computed on the
net asset value of the Fund as described in the table below.
Advisory and Sub-Advisory Fees
Under the Advisory Agreement and the Sub-Advisory and
Administration Agreement, the Fund pays fees to the Adviser and
Sub-Adviser which are payable monthly and computed on the net
asset value of the Fund at the end of each business day at
different levels, depending on the net assets of the Fund. The
aggregate annual rate of the fees payable with respect to net
assets at different levels are set forth in the following table:
<TABLE>
<CAPTION>
Aggregate Annual Rates
Sub-Advisory and
Administration
Fund Net Assets Advisory Fee Fee Total Fees
<S> <C> <C> <C>
Up to $15 million..... 0.70 of 1% 0.80 of 1% 1.50%
$15 million up to
$50 million........ 0.55 of 1% 0.65 of 1% 1.20%
Above $50 million..... 0.40 of 1% 0.50 of 1% 0.90%
</TABLE>
The Adviser and the Sub-Adviser may each waive all or part
of their respective fees during the early development phase of
the Fund. The combined fees paid by the Fund to the Adviser and
the Sub-Adviser are higher than those paid by most other
investment companies. In authorizing such fees, the Board of
Trustees considered a number of factors including the
difficulties of managing a portfolio oriented primarily to the
Rocky Mountain Region, and the expertise with respect to that
area possessed by both the Adviser and the Sub-Adviser.
The Adviser and Sub-Adviser have each agreed that their
respective fees shall be reduced, but not below zero, by an
amount equal to their respective pro-rata portions (based upon
the aggregate fees of the Adviser and the Sub-Adviser) of the
amount, if any, by which the total expenses of the Fund in any
fiscal year, exclusive of taxes, interest, and brokerage fees,
exceed the most restrictive expense limitation imposed upon the
Fund in the states in which shares are then eligible for sale. At
the present time none of the states in which the Fund's shares
will be sold have any such limitation.
Information about the Adviser, the Sub-Adviser and the
Distributor
The Adviser is a wholly-owned subsidiary of KFS Corporation,
a member of the Mutual of Omaha Companies. The Fund's portfolio
is managed in the Adviser's Denver office. Founded in 1981, the
Adviser provides discretionary equity fixed income and balanced
account management to mutual funds, retirement plans,
foundations, endowments and high net-worth individuals and
currently manages over $1 billion of clients' assets.
The Fund's portfolio is managed in the Adviser's Denver
office. Mr. John Henry Schonewise is the Fund's Portfolio
Manager. He has been a Vice President of the Adviser since 1994.
From 1992 to 1994 he was Vice President and a portfolio manager
of Banc One Investment Advisors Corporation. From 1985 through
1992, he was a portfolio manager at United Bank of Denver (now
Norwest Bank, Denver). He holds a B.S. in Business Administration
from the University of Nebraska at Lincoln and a M.A. in
Economics from the University of Kansas.
The Adviser has its primary office at 10250 Regency Circle,
Omaha, NE 68114 and its Denver office is located at One Norwest
Center, 1700 Lincoln Street, Denver, CO 80203. Since 1983, the
Adviser has been wholly-owned by Mutual of Omaha Insurance
Company, whose principal office is at Mutual of Omaha Plaza,
Omaha, NE 68175.
The Fund's founder, Sub-Adviser and Administrator is
administrator to the Aquilasm Group of Funds, which consists of
14 funds, seven tax-free municipal bond funds, five money market
funds and two equity funds, including the Fund. As of December
31, 1996, these funds had aggregate assets of approximately $2.7
billion, of which approximately $800 million consisted of assets
of money market funds and $1.9 billion consisted of assets of the
tax-free bond funds. The Sub-Adviser, which was founded in 1984,
is controlled by Mr. Lacy B. Herrmann (directly, through a trust
and through share ownership by his wife). See the Additional
Statement for information on Mr. Herrmann.
During the fiscal year ended December 31, 1996, the Fund
accrued fees to the Adviser and Sub-Adviser respectively of
$14,047 and $16,054. All of such fees were waived. In addition,
the Sub-Adviser agreed to reimburse $116,013 of the Fund's
expenses.
The Distributor currently handles the distribution of the
shares of fourteen funds, five money market funds, seven tax-free
municipal bond funds and two equity funds, including the Fund.
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs
relating to prospectuses and reports as well as the costs of
supplemental sales literature, advertising and other promotional
activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned by Mr. Herrmann, will be owned by certain
directors and/or officers of the Sub-Adviser and/or the
Distributor, including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
The Fund distributes dividends from net investment income on
an annual basis following the end of its fiscal year which is
December 31st. If the Fund has had net long-term capital gains or
net short-term capital gains for the year, it distributes
dividends on those items at the same time. Short-term capital
gains include the gains from the disposition of securities held
less than one year, the premiums from expired call options
written by the Fund and net gains from closing transactions with
respect to such options. If required by tax laws to avoid excise
or other taxes, dividends and/or capital gains distributions may
be made more frequently. 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.
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 quarterly account summary
indicating the current status of their investment. There is no
fixed dividend rate.
Tax Information
The Fund intends to qualify for taxation as a regulated
investment company under the provisions of Subchapter M of the
Internal Revenue Code. As such, the Fund will not be taxed on its
net investment income or its net realized capital gains, if any,
to the extent they have been distributed to the Fund's
shareholders. Distributions from the Fund's net income and net
short-term capital gains are taxed as ordinary income. If the
Fund has net long-term capital gains which are greater than its
net short-term capital losses, it will distribute the excess and
such distribution will be taxed to you as long-term capital
gains, regardless of how long you have held your shares. Although
distributions will be made in January, you must report the income
or capital gain on your return for the prior calendar year,
assuming you file your returns on a calendar year basis.
For purposes of Federal income tax, certain options, if any,
held by the Fund at the end of its fiscal year generally will be
treated as having been sold at market value. As a general rule
any gain or loss on such contracts will be treated as 60%
long-term and 40% short-term. See the Additional Statement for
more detail on the tax aspects of options. Dividends paid by the
Fund will qualify for the dividends received deduction for
corporations only to the extent that they represent payment of
qualifying dividend income received by the Fund. Shortly after
the end of each calendar year, the Fund will send you a statement
of the amount and nature of net income and capital gains.
Distributions from the Fund, whether ordinary income or
capital gain in nature, will be taxable to you whether you take
them in cash or have them automatically reinvested in shares of
the Fund.
The Fund will be obliged to withhold certain percentages of
distributions and pay over the amounts to the Internal Revenue
Service in either of two instances:
(1) if you do not supply the Fund or the institution
through which you receive distributions with your correct
taxpayer identification number, which for most individuals is
their Social Security number, the Fund will have to withhold 31%
of ordinary income dividends, capital gains dividends and
redemption payments; and
(2) if you are a non-resident alien or foreign entity, the
Fund will have to withhold 30% (or a lower rate if provided by
treaty with the country in which the alien or entity resides) of
such payments.
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. The gain or loss will be long-term
if you held the redeemed shares for over a year, and short-term,
if for a year or less.
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.
The above information is a summary of the tax treatment that
will be applied to the Fund and its distributions. If you have
any questions, you should contact your tax adviser, particularly
in connection with state and local taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and another equity
fund (the "Bond or Equity Funds") and certain money market funds
(the "Money-Market Funds"), all of which are in the Aquilasm
Group of Funds and have the same Administrator and Distributor as
the Fund. All exchanges are subject to certain conditions
described below. As of the date of this Prospectus, the Aquila
Bond or Equity Funds are this 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, Tax-Free Fund For Utah and Narragansett Insured
Tax-Free Income Fund; the Aquila Money-Market Funds are Capital
Cash Management Trust, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.
Class A Shares of the Fund can be exchanged only into Class
A Shares of any Bond or Equity Fund or into shares of the
Money-Market Funds. Class C Shares can be exchanged only into
Class C Shares of any Bond or Equity Fund or into shares of the
Money-Market Funds.
Class A Shares Exchange Privilege
Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A Shares of any
Bond or Equity Fund, those shares (and any shares acquired as a
result of reinvestment of dividends and/or distributions) may be
exchanged any number of times between Money-Market Funds and Bond
or Equity Funds without the payment of any additional sales
charge.
CDSC Class A Shares of the Fund (see "Purchase of $1 Million
or More" and "Special Dealer Arrangements") can be exchanged for
CDSC Class A Shares of a Bond or Equity Fund or into a
Money-Market Fund. The CDSC Class A Shares will not be subject to
a contingent deferred sales charge at the time of exchange, but
the contingent deferred sales charge will be payable upon a
redemption which occurs before the expiration of the applicable
holding period of any CDSC Class A Shares or any shares of a
Money-Market Fund received on exchange for CDSC Class A Shares.
(The contingent deferred sales charge does not apply to any
shares acquired as a result of reinvestment of dividends and/or
distributions.) For purposes of computing the time period for the
applicable contingent deferred sales charge, the length of time
of ownership of CDSC Class A Shares will be determined by the
time of original purchase and not by the time of the exchange.
Any period of 30 days or more during which any Money-Market
shares received on an exchange of CDSC Class A Shares are held is
not counted in computing the period of ownership of CDSC Class A
Shares. (See "Alternative Purchase Plans.")
Class C Shares Exchange Privilege
Under the Class C Shares exchange privilege, Class C Shares
(and any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and for Class C Shares of Bond or
Equity Funds. Class C Shares will not be subject to a contingent
deferred sales charge at the time of exchange, but the contingent
deferred sales charge will be payable upon redemption which
occurs before the expiration of the applicable holding period of
any Class C Shares or any shares of a Money-Market Fund received
on exchange for Class C Shares. (The contingent deferred sales
charge does not apply to any shares acquired as a result of
reinvestment of dividends and/or distributions.) For purposes of
computing the time period for the applicable contingent deferred
sales charge or for the conversion of Class C Shares into Class A
Shares, the length of time of ownership of Class C Shares will be
determined by time of original purchase and not by the time of
the exchange. Any period of 30 days or more during which any
Money-Market shares received on an exchange of Class C Shares are
held is not counted in computing the period of ownership of Class
C Shares. (See "Alternative Purchase Plans.")
Eligible Shares
The "Class A Eligible Shares" of any Bond or Equity Fund are
those Class A Shares which were (a) acquired by direct purchase
with payment of any applicable sales charge, or which were
received in exchange for shares of another Bond or Equity Fund on
which any applicable sales charge was paid; (b) acquired by
exchange for shares of a Money-Market Fund with payment of the
applicable sales charge; (c) acquired in one or more exchanges
between shares of a Money-Market Fund and a Bond or Equity Fund
so long as the shares of the Bond or Equity Fund were originally
purchased as set forth in (a) or (b); (d) acquired on conversion
of Class C Shares or (e) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class A Eligible
Shares.
The "CDSC Class A Eligible Shares" of any Bond or Equity
Fund are those CDSC Class A Shares which were (a) acquired by
direct purchase in the amount of $1 million or more without a
sales charge or in certain purchases when Special Dealer
Arrangements are in effect or which were received in exchange for
CDSC Class A Shares of another Bond or Equity Fund acquired under
the same conditions; (b) acquired by exchange for shares of a
Money-Market Fund under the same conditions; (c) acquired in one
or more exchanges between shares of a Money-Market Fund and a
Bond or Equity Fund so long as the shares of the Bond or Equity
Fund were originally purchased as set forth in (a) or (b); or (d)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise CDSC Class A Eligible Shares.
The "Class C Eligible Shares" of any Bond or Equity Fund are
those Class C Shares which were (a) acquired by direct purchase
including by exchange from a Money-Market Fund, or which were
received in exchange for shares of Class C Shares of another Bond
or Equity Fund; or (b) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class C Eligible
Shares.
If you own Class A or Class C Eligible Shares of any Bond or
Equity Fund, you may exchange them for shares of any Money Market
Fund or the Class A or Class C Shares, respectively, of any other
Bond or Equity Fund without payment of any sales charge or CDSC.
The shares received will continue to be Class A or Class C
Eligible Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for Class A Shares of any Bond or
Equity Fund without payment of any sales charge.
If you own shares of a Money-Market Fund which you have
acquired by exchange for CDSC Class A Eligible Shares of any Bond
or Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for CDSC Class A Shares of any
Bond or Equity Fund but you will be required to pay the
applicable contingent deferred sales charge, if any, if you
redeem such shares before you have held CDSC Class A Shares for
four years. You will also be required to pay the applicable
contingent deferred sales charge, if any, if you redeem such
shares of a Money-Market Fund before you have held CDSC Class A
Shares for four years. The running of the four-year period is
suspended during the period you hold shares of a Money-Market
Fund received in exchange for CDSC Class A Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for Class C Shares of any Bond or
Equity Fund, but you will be required to pay the applicable
contingent deferred sales charge, if any, if you redeem such
Class C Shares before you have held Class C Shares for 12 months.
You will also be required to pay the applicable contingent
deferred sales charge, if any, if you redeem such shares of a
Money-Market Fund before you have held Class C Shares for 12
months. The running of the 12-month CDSC period and the six-year
conversion period for Class C Shares is suspended during the
period you hold shares of a Money-Market Fund received in
exchange for Class C Shares. (See "Alternative Purchase Plans.")
Shares of a Money-Market Fund may be exchanged for shares of
another Money-Market Fund or for Class A Shares or Class C Shares
of a Bond or Equity Fund; however, if the shares of a
Money-Market Fund were not acquired by exchange of Eligible
Shares of a Bond or Equity Fund or of shares of a Money-Market
Fund acquired in such an exchange, they may be exchanged for
Class A Shares of a Bond or Equity Fund only upon payment of the
applicable sales charge.
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-ROCKY-22 (800-762-5922) toll free or 908-855-5731
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 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 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 various expressions of total return.
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.
Performance figures are based upon past performance, reflect
as appropriate all recurring charges against Fund income net of
fee waivers and reimbursement of expenses, if any, and will
assume the payment of the maximum sales charge on the purchase of
shares, but not on reinvestment of income dividends for which the
Fund does not impose a sales charge.
The investment results of the Fund, like those of 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 total return may be in
any future period.
Description of the Fund and Its Shares
The Fund is an open-end, diversified management investment
company organized in 1993 as a Massachusetts business trust. The
Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares and to divide or combine the
shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Fund. Each
share represents an equal proportionate interest in the Fund with
each other share. Upon liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders. If they deem it
advisable and in the best interests of shareholders, the Board of
Trustees of the Fund may create additional classes of shares
which may differ from each other as provided in rules and
regulations of the Securities and Exchange Commission or by
exemptive order. The Board of Trustees may also, 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 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. Class Y Shares are offered by means of a separate
prospectus, which can be obtained by calling the Fund at
800-ROCKY-55 (800-762-5955).
The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
measures of investment performance. All three classes represent
interests in the same portfolio of securities and have the same
rights, except that each class bears the separate expenses, if
any, of its participation in the Distribution Plan and
Shareholder Services Plan and has exclusive voting rights with
respect to such participation.
See the notes to the "Statement of Assets and Liabilities"
in the Additional Statement for information as to the
amortization of the Fund's organizational and start-up expenses.
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. See the Additional
Statement for information about shareholder voting if the Fund
were in the future to have more than one portfolio (series). 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 Aquila Rocky Mountain Equity Fund
For Class A or Class C Shares only
Please complete steps 1 through 4 and mail to:
ADM, Attn: Aquilasm Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198
Tel. #1-800-762-5922
STEP 1 ACCOUNT REGISTRATION
A. REGISTRATION
___Individual (Use line 1)
___Joint Account* (Use lines 1&2)
___For a Minor (Only one custodian and one minor permitted.)
(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.
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
Under the _________Uniformed Gifts/Transfers to Minors Act.
State
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
_____________________________
Minor's Social Security No.
4. __________________________________________________________________
(Name of Corporation or Partnership. PLEASE INDICATE TYPE OF
ORGANIZATION. If a Trust, include the name and date of the Trust
Instrument. The name(s) of the Trustees in which account will be
registered should be listed below. 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 Trustee(s) or Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
__________________________________________________________________________
Street or P.O. Box City State Zip Code
(_______)_________________________________________________________________
Area Code Daytime Telephone # Occupation
__________________________________________________________________________
Employer's Name/Employer's Address City State
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.
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
__________________________________________________________________________
Dealer Name Branch Office Address
__________________________________________________________________________
Branch Office City/State Branch #
__________________________________________________________________________
Representative's Name Rep #
(_______)_________________________________________________________________
Area Code Telephone # [Agent Use: Dealer # / Branch #]
STEP 2 PURCHASE OF SHARES
A. INITIAL INVESTMENT
Indicate Method of Payment (For either method, make check payable to
Aquila Rocky Mountain Equity Fund)
Indicate class of shares:
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE
IN CLASS A SHARES.
___Initial Investment $________________ (Minimum $1,000)
___Automatic Investment $________________(Minimum $50)
For Automatic Investment of at least $50 per month, you must complete
Step 3, Section A, Step 4, Section A & B and attach a PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions will be 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:
___Wire directly into my financial institution account, ATTACHED IS
A VOIDED CHECK showing the account information where I would like
the dividend deposited.
___Mail check to my address listed in Step 1a.
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 Aquila Rocky Mountain Equity Fund account. To establish this
program, please complete Step 4, Sections A & B of this Application.
I 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 of $50 and maximum of $50,000) at any time you wish by simply
calling the Fund toll-free at 1-800-ROCKY-22. 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 Escrow for Letter of Intent at the end of this application)
(Check appropriate box)
___ YES ___ NO
I/we intend to invest in shares of the Fund during the 13-month period
from the date of my 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 $50,000 which together with my present
holdings of Fund shares (at public offering price on date of this
Letter), will exceed the minimum amount checked below:
___ $50,000 ___ $100,000 ___ $250,000
___ $500,000 ___ $1,000,000
D. AUTOMATIC WITHDRAWAL PLAN
APPLICABLE TO CLASS A SHARES ONLY.
(Minimum investment $5,000)
Application must be received in good order at least two 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, Administrative Data
Management Corp. (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
___ Mail check to my address listed in Step 1a.
E. TELEPHONE EXCHANGE
This option allows you to effect exchanges among accounts in your name
within the Aquila SM Group of Funds by telephone.
(Check appropriate box)
___ YES ___ NO
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
The proceeds will be deposited to your Financial Institution
account listed.
(Check appropriate box)
___ YES ___ NO
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.
_______________________________ ______________________________________
Financial Institution Financial Institution
Account Registration Account Number
_______________________________ ______________________________________
Name of Financial Institution Financial Institution Transit/Routing
Number
_______________________________ ______________________________________
Street City State Zip Code
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 my/our
account for any drafts or debits drawn on my/our account initiated
by the Agent, Administrative Data Management Corp., 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 Code________
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.
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 transaction 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 more than 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(s), etc.
* For a Trust, Corporation or Association, 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-ROCKY-55 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution changes 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 $50,000, 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 shall be
held in escrow in shares of the Fund by the Agent. All dividends
and any capital distribution 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 Agent 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 Agent or the Dealer, the Agent
will, within sixty days after the expiration of the Letter, redeem
the number of escrowed shares necessary to realize such difference
in sales charges. Any shares 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 the Net Asset Value.
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 first business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address
to which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then
current Prospectus of the Fund) to redeem all, or any part of, the
shares held under the Plan. In such case the Agent will redeem the
number of shares requested at the Net Asset Value per share in effect
in accordance with the Fund's usual redemption procedures and will
mail a check for the proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal
incapacity of the Planholder. Upon termination of the Plan by the
Agent or the Fund, shares remaining unredeemed will be held in an
uncertificated account in the name of the Planholder, and the account
will continue as a dividend-reinvestment, uncertificated account
unless and until proper instructions are received from the Planholder,
his executor or guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump
sum investment may be made, such investment should normally be an
amount equivalent to three times the annual withdrawal or $5,000,
whichever is less.
<PAGE>
INVESTMENT ADVISER
KPM Investment Management, Inc.
a subsidiary of Mutual of Omaha Insurance Company
10250 Regency Circle, Suite 200
Omaha, Nebraska 68114
and
One Norwest Center,
1700 Lincoln Street
Denver, Colorado 80203
SUB-ADVISER and ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
R. Thayne Robson
Cornelius T. Ryan
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior 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
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.......................
Distribution Plan...............................
How To Redeem Your Investment...................
Automatic Withdrawal Plan.......................
Management Arrangements.........................
Dividend And Tax Information....................
Exchange Privilege..............................
General Information.............................
Application and Letter of Intent
<PAGE>
[LOGO]
Aquila
Rocky Mountain
Equity Fund
PROSPECTUS
April 30, 1997
[LOGO]
One of The
Aquilasm Group Of Funds
<PAGE>
Aquila Rocky Mountain Equity Fund
380 Madison Avenue, Suite 2300
New York, New York 10017
800-762-5955
212-697-6666
Prospectus
Class Y Shares April 30, 1997
[LOGO]
Aquila Rocky Mountain Equity Fund (the "Fund") is a mutual fund
whose objective is capital appreciation. (See "Investment of the
Fund's Assets.") It seeks to achieve its objective through
investment in securities (primarily equity securities) of
companies having a significant business presence in the general
Rocky Mountain region of our country. See "Investment of the
Fund's Assets."
There are three classes of shares of the Fund: Institutional
Class Shares ("Class Y Shares") are offered only to institutions
acting for investors in a fiduciary, advisory, agency, custodial
or similar capacity, and are not offered directly to retail
customers. Class Y Shares are offered at net asset value with no
sales charge, no redemption fee, no contingent deferred sales
charge and no distribution fee. (See "How to Purchase Class Y
Shares.") The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares") are
not offered by this Prospectus. See "General Information -
Description of Classes."
The Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information dated April 30, 1997 about the Fund (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request
to Administrative Data Management Corp., 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 this Prospectus. The Additional Statement is
incorporated by reference in its entirety in this Prospectus.
Only when you have read both the Prospectus and the Additional
Statement are all material facts about the Fund available to you.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY ANY BANK. SHARES OF THE FUND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT
OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact
The Fund's Shareholder Servicing Agent:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-ROCKY-22 (800-762-5922) toll free or 908-855-5731
For General Inquiries
Call 800-ROCKY-55 (800-762-5955) toll free or 212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
Aquila Rocky Mountain Equity Fund (the "Fund") is a
diversified, open-end mutual fund which continuously offers to
sell or redeem its shares on any business day (see "Alternative
Purchase Plans"). The Fund's shares are designed to be a suitable
investment for investors who seek capital appreciation, primarily
through the common stocks or other equity securities of companies
having a significant business presence in the Rocky Mountain
Region of the country.
The Fund's investment objective is capital appreciation. The
Fund seeks to achieve this objective by investing primarily in
equity securities of companies having a significant business
presence in the general Rocky Mountain region of our country,
consisting of Colorado, Arizona, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming. It is anticipated that under normal
circumstances, the Fund will invest at least 65%, and possibly up
to 100%, of its total assets in equity securities issued by such
companies. Companies with a significant business presence in the
Rocky Mountain Region are defined as those companies (i) whose
principal executive offices are located in the Region, (ii) which
have more than 50% of their assets located in the Rocky Mountain
Region or (iii) which derive more than 50% of their revenues or
profits from the Rocky Mountain Region. Since the Fund's
objective is capital appreciation, it is not expected to provide
any significant current income to investors from dividend or
interest payments. (See "Table of Expenses" and "Investment of
the Fund's Assets.")
Investment Selection Criteria - The Fund will acquire only
those equity securities which, at the time of purchase, the
Adviser considers to be of financially sound companies possessing
good growth characteristics and solid management, reasonably
priced relative their growth rate and anticipated future values.
The Fund may also make other types of investments. (See
"Investment of the Fund's Assets.")
Regional Portfolio Management - KPM Investment Management,
Inc. (the "Adviser") serves as the Fund's investment adviser. It
is a wholly-owned subsidiary of KFS Corporation, a member of the
Mutual of Omaha Companies. The Fund's portfolio is managed in the
Adviser's Denver office. Founded in 1981, the Adviser provides
discretionary equity fixed income and balanced account management
to mutual funds, retirement plans, foundations, endowments and
high net-worth individuals and currently manages over $1 billion
of clients' assets.
Aquila Management Corporation, the Fund's founder and
Sub-Adviser and Administrator, is the founder of and serves as
administrator for three other funds with a Rocky Mountain Region
orientation: Tax-Free Trust of Arizona, with assets of $398
million, Tax-Free Fund of Colorado, with assets of $216 million
and Tax-Free Fund For Utah, with assets of $29 million, all as of
December 31, 1996. Through its Denver office, the Adviser
currently acts as investment adviser for Tax-Free Fund of
Colorado. See "Management Arrangements."
Fee Arrangements - The Fund can pay fees at an annual rate
of up to 0.70 of 1% of average annual net assets to its Adviser
and up to 0.80 of 1% of average annual net assets to its
Sub-Adviser and Administrator (for total fees at a rate of up to
1.50% of the first $15 million of average annual net assets). The
overall rates of these fees decline as the asset size of the Fund
increases. See "Advisory and Administration Fees." Some or all of
these fees may be waived in the early development phase of the
Fund. (See "Table of Expenses" and "Management Arrangements.")
Diversification - The Fund will invest its assets in a
number of different securities. Additionally, investments will be
spread over a reasonably broad range of industries. Only the most
affluent investors can achieve such diversification on their own
among securities of Rocky Mountain Companies. In general, a
diversified portfolio, such as is provided by the Fund, can be
used to reduce your investment risk as compared with less
diversified portfolios. See "Investment of the Fund's Assets."
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund.")
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 alternative
ways to invest. (See "Description of the Fund and its Shares.")
For this purpose the Fund offers classes of shares, which differ
in their expense levels and sales charges:
Institutional Class Shares ("Class Y Shares")
are offered by this Prospectus. Class Y
Shares are offered only to institutions
acting for investors in a fiduciary,
advisory, agency, custodial or similar
capacity, and are not offered directly to
retail customers. Class Y Shares are offered
at net asset value with no sales charge, no
redemption fee, no contingent deferred sales
charge and no distribution fee. (See "How to
Purchase Class Y Shares.")
Class Y Shares of the Fund are only offered for sale in
certain states. (See "How to Invest in the Fund.") If Class Y
Shares of the Fund are sold outside those states, except to
certain institutional investors, the Fund can to redeem them.
The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares"), are
not offered by the Prospectus. See "General Information-
Description of the Fund and Its Shares."
Liquidity - Redemptions- You may redeem all or part of your
Class Y Shares 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
redemption fees for redemption of Class Y Shares.
Distributions from the Fund - Distribution of any income net
of operating expenses or any net realized capital gains will be
made annually. The Fund's net income and short-term capital gains
are taxed as ordinary income, while long-term capital gains
distributions are taxed to you as long-term capital gains,
regardless of how long you have held your shares. See "Dividend
and Tax Information."
Convenience - Through ownership of a single security
consisting of shares of the Fund, you achieve investment
participation in a variety of Rocky Mountain Companies and are
relieved of all the various inconveniences - including selecting,
purchasing or selling, continuously monitoring, handling, and
safekeeping - associated with direct investment in individual
securities of those companies. The Fund handles all paperwork
involved with share ownership, advising you of the Federal tax
status of dividends and capital gains and providing you with
simplified records. You receive statements of your account
quarterly as well as each time you add to your investment or
redeem part or all of it. Additionally, you receive a semi-annual
report and an audited annual report.
Exchanges - You may exchange Class Y Shares of the Fund into
Class Y Shares of Aquila-sponsored tax-free municipal bond funds
or another Aquila-sponsored equity fund. You may also exchange
them into shares of certain Aquila-sponsored money market funds.
The exchange prices will be the respective net asset values of
the shares. (See "Exchange Privilege.")
Risk Factors - The Fund seeks to provide you with capital
appreciation over a period of time. The value of the Fund's
shares will fluctuate due to changes in the equity markets and
the proceeds of redemption of your shares may be more or less
than your cost. The Fund's assets, being primarily or entirely
invested in the securities of Rocky Mountain Companies, are
subject to economic and other conditions affecting that area and
it may have less diversification than funds without this
investment policy. (See "Risks and Special Considerations
Regarding Investment in the Rocky Mountain Region.") The Fund may
also to a limited degree buy put options and buy and sell call
options; there may be risks associated with these practices. (See
"Options Transactions.")
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
TABLE OF EXPENSES
Class Y
Shares
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Charge Imposed on Purchases None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses(1)(2)
(as a percentage of average net assets)
Management Fees After Waivers 0.00%
Other Expenses After Expense Reimbursement 1.29%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waivers 1.29%
1 year 3 years 5 years 10 years
Example (3)
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: $13 $41 $71 $156
<FN>
(1) Estimated based upon expenses incurred by Class Y Shares during its
most recent fiscal year, restated to reflect current arrangements. Class Y
Shares were established on May 1, 1996.
</FN>
<FN>
(2) The Adviser and the Sub-Adviser and Administrator (the "Sub-Adviser")
have undertaken to waive all their fees until the Fund, comprised of Class A,
Class C and Class Y Shares, attains an asset size of $10 million. After the
Fund attains the asset size of $10 million, it is anticipated that certain
fees for that fiscal year will be waived following a predetermined formula.
If the Adviser and Sub-Adviser determine that it would be advisable to waive
some or all of their fees, it is anticipated that as the asset size of the
Fund increases, waivers would be progressively reduced so that when assets
exceed approximately $25 million a substantial portion or all of these fees
would be paid. Since the Fund's inception, the Sub-Adviser, in its sole
discretion, has been reimbursing some or all of the Fund's other operating
expenses. Other expenses do not reflect a 0.04% expense offset in custodian
fees received for uninvested cash balances. Without fee waiver and expense
reimbursement and including the offset in custody fees, the operating
expenses of the Fund for the fiscal year ended December 31, 1996 would have
been incurred at the following annual rates for Class Y Shares: management
fees, 1.50% and other expenses, 7.09%, resulting in Total Fund Operating
Expenses of 8.59%
</FN>
<FN>
(3) The expense example is based upon the above 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>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL
FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE
ABOVE EXAMPLE. THE ASSUMED 5% ANNUAL RETURN SHOULD NOT BE INTERPRETED
AS A PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE HIGHER OR LOWER.
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will bear
directly or indirectly. Although not obligated to do so, those entitled
to invesment advisory and administration fees expect to waive a portion
or all of those fees in the early stages of the Fund's existence and
Aquila Management Corporation, the organizer and Sub-Adviser of the
Fund, may reimburse the Fund for various expenses; the above table
reflects one possible such arrangement and should not be considered
as a commitment or prediction that any fees, or that any particular
portion of fees, will be waived, or that any particular expenses will
be reimbursed. (See "Management Arrangements" for a more complete
description of the various investment advisory and administration
fees.)
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY 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 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.
Class A(1)
Year Ended Year Ended
December 31, December 31, Class Y(2)
1996 1995 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period............... $13.13 $11.06 $14.59
Income from Investment Operations:
Net investment
income (loss)..................... (0.02) (0.07) 0.01
Net gain (loss) on securities
(both realized and unrealized).... 2.47 2.25 1.00
Total from Investment
Operations........................ 2.45 2.18 1.01
Less Distributions:
Dividends from net investment
income............................ --- (0.01) --
Distributions from capital gains.. (0.53) (0.10) (0.53)
Total Distributions............... (0.53) (0.11) (0.53)
Net Asset Value, End of Period...... $15.05 $13.13 $15.07
Total Return (not reflecting
sales load)....................... 18.68% 19.68% 6.94%+
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands).................. $2,178 $1,737 $133
Ratio of Expenses to Average
Net Assets........................ 1.50% 1.91% 1.25%*
Ratio of Net Investment Income
to Average Net Assets............. (0.14)% (0.60)% 0.11%*
Portfolio Turnover Rate........... 20.32% 15.14% 20.32%+
Average commission rate paid(4)... .0745 --- .0745
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:
Net Investment Income (loss)........ $(1.05) $(1.12) $(0.72)
Ratio of Expenses to Average
Net Assets #........................ 8.84% 10.48% 8.59%*
Ratio of Net Investment Income to
Average Net Assets.................. (7.48)% (9.17)%
(7.23)%*
<CAPTION>
Period Ended
December 31,
1994(3)
<C>
$11.43
---
(0.37)
(0.37)
---
---
---
$11.06
(3.24)%+
$530
1.19%*
---
2.95%+
---
$---
18.20%*
___
<FN>
(1) Designated as Class A Shares on May 1, 1996.
</FN>
<FN>
(2) New Class of Shares eatablished on May 1, 1996.
</FN>
<FN>
(3) For the period from July 22, 1994 (commencement of operations) to
December 31, 1994.
</FN>
<FN>
(4) Represents the average per share broker commission rate paid by the
Fund in connection with the execution of the Fund's portfolio transactions
in equity securities on which commissions were charged. Calculations are
for fiscal years beginning January 1, 1996.
</FN>
<FN>
(5) The ratios for Class A Shares were annualized based on average net
assets of $1,965,012, $1,239,752 and $453,768, respectively. In general,
as the Fund's net assets increase, the expense ratio will decrease.
</FN>
<FN>
* Annualized.
</FN>
<FN>
+ Not annualized.
</FN>
</TABLE>
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
INTRODUCTION
Aquila Rocky Mountain Equity Fund is a diversified, open-end
mutual fund which continuously offers to purchase or redeem its
shares on any business day (see "How to Invest in the Fund" and
"How to Redeem Your Investment.") The Fund's shares are designed
to be a suitable investment for investors who seek capital
appreciation primarily through the equity securities of companies
operating in the Rocky Mountain region of the country.
The Fund provides you with the opportunity to have the
benefits of a diversified and professionally managed portfolio of
securities intended to allow participation in the economic
development of the Rocky Mountain Region. Through the convenience
of a single security consisting of shares of the Fund, you are
relieved of all the various inconveniences - including selecting,
purchasing or selling, continuously monitoring, handling, and
safekeeping - associated with direct investment in individual
securities of various Rocky Mountain Companies.
The Fund was organized by Aquila Management Corporation (the
"Sub-Adviser") which has provided administrative and/or
investment advisory services to various mutual funds founded by
it since 1984. It currently acts as administrator to fourteen
Aquila-sponsored funds, including the Fund, with combined net
assets as of December 31, 1996 in excess of $2.7 billion.
Continuous and active portfolio management of the Fund is
provided by its regionally-located investment adviser, KPM
Investment Management, Inc.
INVESTMENT OF THE FUND'S ASSETS
The Fund's investment objective, which is a fundamental
policy of the Fund, is to purchase and hold securities for
capital appreciation. There is no assurance that the Fund will
achieve its objective. The Fund does not expect to receive
dividends of sufficient size to enable it to provide investors
with any significant amount of current income and during at least
its early fiscal years expects to apply all of such income to
Fund operating expenses so that none will be available for
distribution to shareholders.
As used in the Prospectus and Additional Statement, the
general area consisting of Colorado, Arizona, Idaho, Montana,
Nevada, New Mexico, Utah and Wyoming is called the "Rocky
Mountain Region." The Fund seeks to achieve its objective by
investing primarily in equity securities of companies ("Rocky
Mountain Companies") having a significant business presence in
the Rocky Mountain Region. It is anticipated that under normal
circumstances, the Fund will invest at least 65%, and possibly up
to 100%, of its total assets in securities issued by such
companies.
For purposes of this Prospectus, companies with a
significant business presence in the Rocky Mountain Region are
defined as those companies (i) whose principal executive offices
are located in the Region, (ii) which have more than 50% of their
assets located in the Rocky Mountain Region or (iii) which derive
more than 50% of their revenues or profits from the Rocky
Mountain Region. In determining that companies have a significant
business presence in the Rocky Mountain Region, the Adviser may
rely on any publicly available information about those companies
that it considers reliable. There may be risks associated with
this investment policy. (See "Risk Factors and Special
Considerations.")
As used in the Prospectus, the term "equity securities"
means (i) common stocks and (ii) preferred stocks, bonds,
debentures and notes convertible into common stocks. Under normal
conditions, it is anticipated that the Fund will invest at least
65%, and possibly up to 100%, of its total assets in such
securities. The Fund may also, to a limited extent, make certain
other types of investments. (See below.)
In general, the Fund will take a long-term approach toward
investing. Accordingly, the turnover rate will normally be
consistent with this approach. (See "Portfolio Turnover.") At
times the Fund may make investments for short-term purposes.
Also, under changing market conditions, the Fund may dispose of
portfolio securities whenever the Adviser deems such action
advisable without regard to the length of time the securities
have been held.
In selecting investments for the Fund, the Adviser will
generally employ the investment philosophy of seeking to invest
in established, financially sound, well-managed Rocky Mountain
Companies whose securities it considers to be selling at a
reasonable price relative to their growth rate and anticipated
future values. Emphasis will be placed upon selection of Rocky
Mountain Companies whose securities are selling at lower than
average prices; other securities may be selected whose issuers
the Adviser believes are experiencing better than average growth.
It is anticipated that a number of factors will be considered in
investment selection, including but not limited to: product
characteristics and market potential, operating ratios,
management abilities, intrinsic value of securities, securities'
market action, and the overall economic, monetary, political and
market environment. The Adviser currently focuses on
approximately 300-400 Rocky Mountain Companies from which it
selects investments for the Fund's portfolio.
Although the Fund may invest in large capitalization
companies, it is anticipated that the companies represented in
the Fund's portfolio will be primarily those having middle size
to smaller size market capitalization which the Adviser believes
offer the potential of capital appreciation due to their overall
characteristics. These companies are likely to be less well known
because they are smaller in size, have smaller capitalizations,
and have a lesser number of shares traded. The prices of
securities of such companies may be more volatile than the prices
of securities of issuers which are more mature, have larger
capitalizations and whose securities are more actively traded.
In unusual market conditions when the Adviser believes a
defensive posture for the Fund's investments is warranted, the
Fund may temporarily invest a portion or all of its assets in
high quality fixed-income securities such as U.S. Treasury
securities, corporate bonds or high grade short-term money-market
securities, without geographic or percentage limitation. Only
corporate securities rated "A" or equivalent by a nationally
recognized statistical rating organization will be purchased. See
the Additional Statement for a description of these organizations
and an explanation of their ratings.
Convertible Securities
The Fund may invest up to 25% of its net assets in
convertible securities, primarily of Rocky Mountain Companies, if
the Adviser believes there is potential of capital growth through
the conversion option and greater investment income prior to
conversion. Only convertible securities rated investment grade by
a nationally recognized statistical rating organization will be
purchased. In general, there are nine separate credit ratings
ranging from the highest to the lowest quality standards for debt
obligations. Obligations rated within the four highest ratings
are considered "investment grade. "Not more than 5% of the Fund's
net assets may be invested in such securities having the lowest
of the four investment grade ratings. Obligations rated in the
fourth such credit rating are considered by the rating agencies
to be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. See the Additional Statement for
a description of these organizations and an explanation of their
ratings.
A convertible security is a fixed-income security (a bond or
preferred stock) which may be converted at a stated price within
a specified period of time into a certain quantity of the common
stock of the same or a different issuer. Convertible securities
are senior to common stocks in a corporation's capital structure,
but are usually subordinated to similar nonconvertible
securities. While providing a fixed income stream (generally
higher in yield than the dividends received from a common stock
but lower than that afforded by a similar nonconvertible
security), a convertible security also affords the opportunity
through its conversion feature to participate in the capital
appreciation attendant upon a market price advance in the
convertible security's underlying common stock.
In general, the market value of a convertible security is at
least the higher of its "investment value" (i.e., its value as a
fixed-income security) or its "conversion value" (i.e., its value
upon conversion into its underlying common stock). As a
fixed-income security, a convertible security tends to increase
in market value when interest rates decline and tends to decrease
in value when interest rates rise. However, the price of a
convertible security is also influenced by the market value of
the security's underlying common stock. The price of a
convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines. While no
securities investment is without some risk, investments in
convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Warrants
The Fund may also invest up to 5% of its net assets, as
determined at time of purchase, in warrants of Rocky Mountain
Companies. Warrants entitle the holder to purchase a fixed number
of shares of the common stock of the issuer at a fixed price
during certain specified times. The value of the warrants from
time to time depends upon the market evaluation of the likelihood
that exercise of the warrants would be economically advantageous
before they expire. The market price of warrants tends to be more
volatile than that of the underlying common stock.
Options Transactions
The Fund may purchase put and write (i.e., sell) call
options and purchase call options for hedging purposes or in
order to generate additional income or for taking a position in a
security deemed attractive by the Adviser. The Fund will purchase
or write options only on equity securities that are traded on
national securities exchanges or that are listed on NASDAQ
(NASDAQ options). The Fund may purchase put and write call
options only on equity securities which are held in the Fund's
investment portfolio or to close out positions. Additionally, the
Fund may purchase calls on securities which are not in the Fund's
portfolio or to close out positions.
The Fund will not (a) write call options if immediately
after any such transaction, the aggregate value of the securities
underlying the calls would exceed 20% of the Fund's net assets,
or (b) purchase put or call options if, immediately after such
purchases, the premiums paid for all such options owned at the
time would exceed 5% of the Fund's net assets. The Fund will not
write put options except to close out positions. See the
Additional Statement for a description of these instruments and
their uses.
While the Fund may engage in puts and calls to a limited
extent, there are certain risks associated with this activity
that are different than investing in the underlying securities
directly (see the Additional Statement). Option transactions
involve risks and transaction costs which the Fund would not
incur if it did not engage in option transactions. If the
Adviser's predictions of movements in the direction of the
securities markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options
include dependence upon the Adviser's ability to predict
correctly movements in the direction of securities prices and the
possible absence of a liquid secondary market for any particular
instrument at any time. See the Additional Statement for a
description of these and other risks with respect to option
transactions.
Lending of Portfolio Securities
In order to generate additional income, the Fund may lend
portfolio securities, up to 25% of the net assets, to
broker-dealers, banks or other financial borrowers of securities.
As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, the Fund
will enter into loan arrangements only with broker-dealers,
banks, or other institutions which the Adviser has determined are
creditworthy under guidelines established by the Fund's Board of
Trustees and will receive collateral in the form of cash or
short-term U.S. Government securities equal at least to 100% of
the value of the securities loaned. The value of the collateral
and the securities loaned will be marked to market on a daily
basis. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or
interest paid on the securities and the Fund may invest the cash
collateral and earn additional income or receive an agreed upon
amount of interest income from the borrower. However, the amounts
received by the Fund may be reduced by any finders' fee paid to
broker-dealers and any other related expenses.
Borrowings by the Fund
The Fund can borrow money for temporary or emergency
purposes from a bank. The Fund will not borrow amounts in excess
of 10% of net assets and will not purchase securities if
borrowings are equal to or greater than 5% of net assets. The
Fund intends primarily to exercise such borrowing authority to
meet any abnormal level of shareholder redemptions and under
circumstances where redemptions exceed available cash.
Repurchase Agreements
The Fund may purchase securities subject to repurchase
agreements, provided that such securities consist entirely of
U.S. Government securities or securities that, at the time the
repurchase agreement is entered into, are rated in the highest
rating category by at least one nationally recognized statistical
rating organization. Repurchase agreements may be entered into
only with commercial banks or broker-dealers. Subject to the
control of the Board of Trustees, the Adviser will regularly
review the financial strength of all parties to repurchase
agreements with the Fund.
Under a repurchase agreement, at the time the Fund purchases
a security, the Fund also resells it to the seller and must
deliver the security (or securities substituted for it) to the
seller on an agreed-upon date in the future. (The securities so
resold or substituted are referred to herein as the "Resold
Securities.") The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective
for the period of time during which the Fund's money is invested
in the Resold Securities. The majority of these transactions run
from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase.
Repurchase agreements can be considered as loans
"collateralized" by the Resold Securities, such agreements being
defined as "loans" in the Investment Company Act of 1940 (the
"1940 Act"). The return on such "collateral" may be more or less
than that from the repurchase agreement. The Resold Securities
under any repurchase agreement will be marked to market every
business day so that the value of the "collateral" is at least
equal to the resale price provided in the agreement, including
the accrued interest earned thereon, plus sufficient additional
market value as is considered necessary to provide a margin of
safety. During the term of the repurchase agreement, the Fund or
its custodian either has actual physical possession of the Resold
Securities or, in the case of a security registered in book entry
system, the book entry is maintained in the name of the Fund or
its custodian.
The Fund retains an unqualified right to possess and sell
the Resold Securities in the event of a default by the other
party. However, in the event of bankruptcy or other default by
the other party, there may be possible delays and expenses in
liquidating the Resold Securities, decline in their value and
loss of interest.
Shares of Investment Companies
The Fund may purchase shares of investment companies with
money market portfolios which are any of the money-market funds
in the Aquilasm Group of Funds. As of the date of the Prospectus
these 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. The Fund will not purchase shares of an
investment company which imposes a sales or redemption charge of
any sort; however, an investment company in which the Fund
invests may have a distribution plan under which it may pay for
distribution expenses or services. Such investments will
ordinarily be made to provide additional liquidity and at the
same time to earn higher yields than are usually associated with
the overnight or short-term obligations in which the Fund might
otherwise invest for this purpose. While higher yields than those
of alternative investments may be obtainable, these yields will
reflect management fees and operating and distribution expenses
of the investment companies and will result in duplication of
management fees with respect to assets of the Fund so invested.
The Fund may not invest in the shares of investment companies if
immediately thereafter it has invested more than 10% of the value
of its total assets in such companies or more than 5% of the
value of its total assets in any one such company; it may not
invest in such a company if immediately thereafter it owns more
than 3% of the total outstanding voting stock of such a company.
Risk Factors and Special Considerations
While the Fund will be actively managed to seek growth of
your capital, the value of the Fund's shares will fluctuate as a
result of equity market factors. Accordingly the proceeds of
redemptions may be more or less than your original cost.
There are two types of risk generally associated with owning
equity securities: market risk and financial risk. Market risk is
the risk associated with the movement of the stock market in
general. Financial risk is associated with the financial
conditions and profitability of the underlying company. Smaller
companies may experience different growth rates and higher
failure rates than those of larger companies having longer
operating histories. Moreover, the stock price movements of
smaller companies may experience more volatility than those of
larger and more mature companies.
There are two types of risk associated with owning debt
securities: interest rate risk and credit risk. Interest rate
risk relates to fluctuations in market value arising from changes
in interest rates. If interest rates rise, the value of debt
securities will normally decline and if interest rates fall, the
value of debt securities will normally increase. All debt
securities, including U.S. Government securities, which are
generally considered to be the most creditworthy of all debt
obligations, are subject to interest rate risk. Securities with
longer maturities generally have a more pronounced reaction to
interest rate changes than shorter-term securities.
Credit risk relates to the ability of the issuer to make
periodic interest payments as scheduled and ultimately repay
principal at maturity. The Fund does not intend to hold corporate
debt securities unless the opportunities for capital appreciation
and income, combined, remain attractive.
Risks and Special Considerations Regarding
the Rocky Mountain Region
The Fund's assets, being primarily or entirely invested in
the securities of Rocky Mountain Companies, are subject to
economic and other conditions affecting the various states which
comprise the Rocky Mountain Region.
The states of the Rocky Mountain Region are characterized by
wide differences in climate, great distances and relatively low
population density. In some areas, availability of water is a
factor of considerable importance in economic development and
water issues will likely affect the growth and prosperity of much
of the Region in the future. Originally heavily oriented toward
the exploitation of natural resources, in recent years the
economies of the states of the Rocky Mountain Region have shifted
toward more diversity with increases in tourism, high technology
and the service sector. The region has been characterized in
recent years by population growth and immigration from other
areas of the United States. Some of the states in the Rocky
Mountain Region have experienced growth rates above the national
averages.
Because of the large geographic size of the Rocky Mountain
Region, the above factors may have varying importance from one
state to another. It is not possible to predict what effect they
may individually or collectively have on any particular company
in which the Fund may choose to invest.
In addition, companies with headquarters in the Rocky
Mountain Region or with a significant business presence in the
Region may also have significant business interests, sales and
assets outside of the Region and may thus be subject to other
economic influences. Because the Fund will invest most, and may
invest all, of its assets in Rocky Mountain Companies, it may
have less diversification than funds without this investment
policy.
Portfolio Turnover
Given the Fund's orientation to capital appreciation, it is
not expected that the Fund's portfolio turnover rate will exceed
60%. See the Additional Statement.
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 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. 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 has industry investment requirements.
The Fund cannot buy securities in any one industry if more
than 25% of its total assets would then be invested in securities
of that industry.
2. The Fund can make loans only by lending securities
or entering into repurchase agreements.
The Fund can lend its portfolio securities (see "Lending of
Portfolio Securities") and can enter into repurchase agreements
(see "Repurchase Agreements") but cannot otherwise make loans.
The Fund can buy debt securities as described above (see
"Investment of the Fund's Assets"); this is investing, not making
a loan.
3. 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
security while it has any outstanding borrowings which exceed 5%
of the value of its total assets.
NET ASSET VALUE PER SHARE
The Fund's net asset value and offering price per share are
determined as of 4:00 p.m. New York time on each day that the New
York Stock Exchange is open (a "business day"). The close of the
principal exchanges or other markets on which some of the Fund's
portfolio securities are traded may be later than 4:00 p.m. The
net asset value per share is determined by dividing the value of
the net assets (i.e., the value of the assets less liabilities)
by the total number of shares outstanding. Determination of the
value of the Fund's assets is subject to the direction and
control of the Fund's Board of Trustees. Securities listed on a
national securities exchange or designated as national market
system securities are valued at the last prior sale price or, if
there has been no sale that day, at the bid price. The value of
other securities is in general based on market value, except that
short-term investments maturing in 60 days or less are generally
valued at amortized cost; see the Additional Statement for
further information.
HOW TO INVEST IN THE FUND
Institutional Class Shares (Class Y Shares) are offered only
to institutional investors for investments held in a fiduciary,
advisory, agency, custodial or similar capacity, or through them
to their clients, and are not offered directly to retail
customers. Class Y Shares are offered at net asset value with no
sales charge, no redemption fee, no contingent deferred sales
charge and no distribution fee.
How to Purchase Class Y Shares
Class Y Shares of the Fund may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to Administrative Data
Management Corp. (the "Agent") at the address on the Application.
There is no sales charge on initial or subsequent investments.
You are urged to complete an Application and send it to the Agent
so that expedited shareholder services can be established at the
time of your investment.
The minimum initial investment for Class Y Shares is $1,000,
except as otherwise stated in the Prospectus or Additional
Statement. You may also make an initial investment of at least
$50 by establishing an Automatic Investment Program. To do this
you must open an account for automatic investments of at least
$50 each month and make an initial investment of at least $50.
(See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank, credit
union or a United States branch of a foreign commercial bank
(each of which is a "Financial Institution"). You may make
subsequent investments in Class Y Shares in any amount (unless
you have an Automatic Withdrawal Plan). Your subsequent
investment may be made through a selected dealer or by forwarding
payment to the Agent, with the name(s) of account owner(s), the
account number and the name of the Fund. With subsequent
investments, please send the pre-printed stub attached to the
Fund's confirmations.
Subsequent investments of $50 or more in Class Y Shares can
be made by electronic funds transfer from your demand account at
a Financial Institution. To use electronic funds transfer for
your purchases, your Financial Institution must be a member of
the Automated Clearing House and the Agent must have received
your completed Application designating this feature, or, after
your account has been opened, a Ready Access Features form
available from the Distributor or the Agent. A pre-determined
amount can be regularly transferred for investment ("Automatic
Investment"), or single investments can be made upon receipt by
the Agent of telephone instructions from anyone ("Telephone
Investment"). The maximum amount of each Telephone Investment is
$50,000. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate these investment methods at any time or
charge a service fee, although no such fee is currently
contemplated.
The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to
all purchase orders received by the Agent from selected dealers
that day, except that orders received by it after 4:00 p.m. New
York time will receive that day's offering price only if such
orders were received by selected dealers from customers prior to
such time and transmitted to the Distributor prior to its close
of business that day (normally 5:00 p.m. New York time); if not
so transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund's 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 Y Shares of the Fund
are available only in Arizona, California, Colorado, District of
Columbia, Hawaii, Idaho, Montana, Nevada, New Jersey, Utah and
Wyoming. If you do not reside in one of these states you should
not purchase shares of the Fund. If shares are sold outside of
these states, except to certain institutional investors, the Fund
can redeem them. Such a redemption may result in a loss to you
and may have tax consequences.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of 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 Y
Shares.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended
to result in the sale of its shares except pursuant to a written
plan adopted under the Rule. No payments under the Plan from
assets represented by Class Y Shares are authorized.
The Plan contains provisions designed to protect against any
claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for payments made with respect to Class A Shares and
Class C Shares it is not financing any such activity and does not
consider any payment enumerated in such provisions as so
financing any such activity. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Fund shares, these payments are
authorized under the Plan. In addition, if the Sub-Adviser, out
of its own funds, makes payment for distribution expenses such
payments are authorized. See the Additional Statement.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your Class Y Shares at the
net asset value next determined after acceptance of your
redemption request at the Agent. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Fund, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. There are no redemption fees or penalties on
redemption of Class Y Shares. A redemption may result in a
transaction taxable to you.
For your convenience the Fund offers expedited redemption
for Class Y Shares to provide you with a high level of liquidity
for your investment.
Expedited Redemption Methods
You have the flexibility of two expedited methods of
initiating redemptions.
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:
Toll-free 800-ROCKY-22 (800-762-5922) or 908-855-5731.
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.
2. By FAX or Mail. You may also request redemption payments
to a predesignated Financial Institution account by a letter
of instruction sent to: Administrative Data Management
Corp., Attn: Aquilasm Group of Funds, by FAX at 908-855-5730
or by mail at 581 Main Street, Woodbridge, NJ 07095-1198,
indicating account name(s), account number, amount to be
redeemed, and any payment directions, signed by the
registered holder(s). Signature guarantees are not required.
See "Redemption Payments" below for payment methods.
If you wish to have redemption proceeds sent to a Financial
Institution Account, you should so elect on the Expedited
Redemption section of the Application or the Ready Access
Features form and provide the required information concerning
your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Fund. You may change the
designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
If you own Class Y Shares registered on the books of the
Fund, and you have not elected Expedited Redemption to a
predesignated Financial Institution account, you must use the
Regular Redemption Method. Under this redemption method you
should send a letter of instruction to: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main Street,
Woodbridge, NJ 07095-1198, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
below.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), the Stock Exchanges
Medallion Program (SEMP) or the New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.
Redemption Payments
Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Fund may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
it may charge you a fee for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or 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.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class Y Shares of the Fund having a net asset value of
at least $5,000.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
shares to make payments under the Automatic Withdrawal Plan will
give rise to a gain or loss for tax purposes. See the Automatic
Withdrawal Plan provisions of the Application included in the
Prospectus, the Additional Statement under "Automatic Withdrawal
Plan," and "Dividend and Tax Information" below.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
The Advisory Agreement
KPM Investment Management, Inc. (the "Adviser") supervises
the investment program of the Fund and the composition of its
portfolio. Through its Denver office, the Adviser currently
serves as investment adviser for Tax-Free Fund of Colorado, a
tax-free municipal bond fund which was also founded and sponsored
by Aquila Management Corporation.
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. 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. At the Adviser's expense the Adviser shall 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, for pricing
of the Fund's portfolio at least quarterly using another such
source satisfactory to the Fund.
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 Sub-Adviser under the Sub-Advisory and
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 an Advisory fee
computed on the net asset value of the Fund as set forth in the
table that appears below.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. In general, the primary consideration in
effecting transactions for the Fund is obtaining the most
favorable prices and efficient execution. This means that the
Adviser will seek to execute each transaction at a price and
commission, if any, which provide the most favorable total cost
or proceeds reasonably attainable in the circumstances. While the
Adviser generally seeks reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest
spread or commission available. The Adviser has complete freedom
as to the markets in which and the broker-dealers through whom
(acting on an agency basis or as principal) it operates to seek
this result. The Adviser may consider a number of factors in
determining which broker-dealers to use. These factors, which are
more fully discussed in the Additional Statement, include, but
are not limited to, research services, the reasonableness of
commissions and quality of services and execution. The Adviser is
authorized to consider sales of shares of the Fund.
The Sub-Advisory and Administration Agreement
Aquila Management Corporation, founder of the Fund, serves
as Sub-Adviser and Administrator (the "Sub-Adviser") for the Fund
under a Sub-Advisory and Administration Agreement (the
"Sub-Advisory and Administration Agreement"). The Sub-Adviser is
the founder of and serves as administrator for three other funds
oriented to the Rocky Mountain Region: Tax-Free Trust of Arizona,
with assets of $398 million, Tax-Free Fund of Colorado, with
assets of $216 million and Tax-Free Fund For Utah, with assets of
$29 million, all as of December 31, 1996.
At its own expense, the Sub-Adviser 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 Sub-Adviser.
Under the Sub-Advisory and Administration Agreement, subject
to the control of the Fund's Board of Trustees, the Sub-Adviser
provides such advisory services to the Fund, in addition to those
services provided by the Adviser, as the Sub-Adviser deems
appropriate.
Under the Sub-Advisory and Administration Agreement, subject
to the control of the Fund's Board of Trustees, the Sub-Adviser
provides all administrative services to the Fund other than those
relating to its investment portfolio handled by the Adviser under
the Advisory Agreement. Such administrative services include, but
are not limited to, overseeing all relationships between the Fund
and its various support organizations including the transfer
agent, custodian, legal counsel, auditors and principal
underwriter. Its services include 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 Sub-Adviser
either keeps the accounting and other books and records of the
Fund, including the computation of net asset value per share and
the dividends (utilizing daily pricing of the securities in the
Fund's portfolio performed by 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 Sub-Advisory and Administration Agreement
as part of such duties.
Under the Sub-Advisory and Administration Agreement, subject
to the control of the Fund's Board of Trustees, the Sub-Adviser
provides sub-advisory services to the Fund, which include review
of the investment activities of the Fund, and may include
providing the Adviser and the Fund with material relevant to the
investment in securities of issuers in various states. Although
such event is not anticipated, if the Advisory Agreement were
terminated, the Sub-Adviser would assume the duties of managerial
investment adviser, in addition to continuing its duties as
sub-adviser and administrator, subject to and in compliance with
the 1940 Act and the rules thereunder. In such event, it would be
paid an additional fee at the rate currently paid to the Adviser.
See the Additional Statement.
The Sub-Advisory and Administration Agreement contains
provisions as to the Sub-Adviser's allocation of the portfolio
transactions of the Fund similar to those in the Advisory
Agreement; see the Additional Statement.
Under the Sub-Advisory and Administration Agreement, the
Fund pays a sub-advisory and administration fee computed on the
net asset value of the Fund as described in the table below.
Advisory and Sub-Advisory Fees
Under the Advisory Agreement and the Sub-Advisory and
Administration Agreement, the Fund pays fees to the Adviser and
Sub-Adviser which are payable monthly and computed on the net
asset value of the Fund at the end of each business day at
different levels, depending on the net assets of the Fund. The
aggregate annual rate of the fees payable with respect to net
assets at different levels are set forth in the following table:
<TABLE>
<CAPTION>
Aggregate Annual Rates
Sub-Advisory and
Fund Net Assets Advisory Fee Administration Fee Total Fees
<S> <C> <C> <C>
Up to $15 million..... 0.70 of 1% 0.80 of 1% 1.50%
$15 million up to
$50 million........ 0.55 of 1% 0.65 of 1% 1.20%
Above $50 million..... 0.40 of 1% 0.50 of 1% 0.90%
</TABLE>
The Adviser and the Sub-Adviser may each waive all or part
of their respective fees during the early development phase of
the Fund. The combined fees paid by the Fund to the Adviser and
the Sub-Adviser are higher than those paid by most other
investment companies. In authorizing such fees, the Board of
Trustees considered a number of factors including the
difficulties of managing a portfolio oriented primarily to the
Rocky Mountain Region, and the expertise with respect to that
area possessed by both the Adviser and the Sub-Adviser.
The Adviser and Sub-Adviser have each agreed that their
respective fees shall be reduced, but not below zero, by an
amount equal to their respective pro-rata portions (based upon
the aggregate fees of the Adviser and the Sub-Adviser) of the
amount, if any, by which the total expenses of the Fund in any
fiscal year, exclusive of taxes, interest, and brokerage fees,
exceed the most restrictive expense limitation imposed upon the
Fund in the states in which shares are then eligible for sale. At
the present time none of the states in which the Fund's shares
will be sold have any such limitation.
Information about the Adviser,
the Sub-Adviser and the Distributor
The Adviser is a wholly-owned subsidiary of KFS Corporation,
a member of the Mutual of Omaha Companies. The Fund's portfolio
is managed in the Adviser's Denver office. Founded in 1981, the
Adviser provides discretionary equity fixed income and balanced
account management to mutual funds, retirement plans,
foundations, endowments and high net-worth individuals and
currently manages over $1 billion of clients' assets.
The Fund's portfolio is managed in the Adviser's Denver
office. Mr. John Henry Schonewise is the Fund's Portfolio
Manager. He has been a Vice President of the Adviser since 1994.
From 1992 to 1994 he was Vice President and a portfolio manager
of Banc One Investment Advisors Corporation. From 1985 through
1992, he was a portfolio manager at United Bank of Denver (now
Norwest Bank, Denver). He holds a B.S. in Business Administration
from the University of Nebraska at Lincoln and a M.A. in
Economics from the University of Kansas.
The Adviser has its primary office at 10250 Regency Circle,
Omaha, NE 68114 and its Denver office is located at One Norwest
Center, 1700 Lincoln Street, Denver, CO 80203. Since 1983, the
Adviser has been wholly-owned by Mutual of Omaha Insurance
Company, whose principal office is at Mutual of Omaha Plaza,
Omaha, NE 68175.
The Fund's founder, Sub-Adviser and Administrator is
administrator to the Aquilasm Group of Funds, which consists of
14 funds, seven tax-free municipal bond funds, five money market
funds and two equity funds, including the Fund. As of December
31, 1996, these funds had aggregate assets of approximately $2.7
billion, of which approximately $800 million consisted of assets
of money market funds and $1.9 billion consisted of assets of the
tax-free bond funds. The Sub-Adviser, which was founded in 1984,
is controlled by Mr. Lacy B. Herrmann (directly, through a trust
and through share ownership by his wife). See the Additional
Statement for information on Mr. Herrmann.
During the fiscal year ended December 31, 1996, the Fund
accrued fees to the Adviser and Sub-Adviser respectively of
$14,047 and $16,054. All of such fees were waived. In addition,
the Sub-Adviser agreed to reimburse $116,013 of the Fund's
expenses.
The Distributor currently handles the distribution of the
shares of fourteen funds, five money market funds, seven tax-free
municipal bond funds and two equity funds, including the Fund.
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs
relating to prospectuses and reports as well as the costs of
supplemental sales literature, advertising and other promotional
activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned by Mr. Herrmann, will be owned by certain
directors and/or officers of the Sub-Adviser and/or the
Distributor, including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
The Fund distributes dividends from net investment income,
on an annual basis following the end of its fiscal year, which is
December 31st. If the Fund has had net long-term capital gains or
net short-term capital gains for the year, it distributes
dividends on those items at the same time. Short-term capital
gains include the gains from the disposition of securities held
less than one year, the premiums from expired call options
written by the Fund and net gains from closing transactions with
respect to such options. If required by tax laws to avoid excise
or other taxes, dividends and/or capital gains distributions may
be made more frequently. Dividends and other distributions paid
with respect to each class of the Fund's shares are calculated at
the same time and in the same manner. In addition, the dividends
of each class can vary because each class will bear certain
class-specific charges.
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 quarterly account summary
indicating the current status of their investment. There is no
fixed dividend rate.
Tax Information
The Fund intends to qualify for taxation as a regulated
investment company under the provisions of Subchapter M of the
Internal Revenue Code. As such, the Fund will not be taxed on its
net investment income or its net realized capital gains, if any,
to the extent they have been distributed to the Fund's
shareholders. Distributions from the Fund's net income and net
short-term capital gains are taxed as ordinary income. If the
Fund has net long-term capital gains which are greater than its
net short-term capital losses, it will distribute the excess and
such distribution will be taxed to you as long-term capital
gains, regardless of how long you have held your shares. Although
distributions will be made in January, you must report the income
or capital gain on your return for the prior calendar year,
assuming you file your returns on a calendar year basis.
For purposes of Federal income tax, certain options, if any,
held by the Fund at the end of its fiscal year generally will be
treated as having been sold at market value. As a general rule
any gain or loss on such contracts will be treated as 60%
long-term and 40% short-term. See the Additional Statement for
more detail on the tax aspects of options. Dividends paid by the
Fund will qualify for the dividends received deduction for
corporations only to the extent that they represent payment of
qualifying dividend income received by the Fund. Shortly after
the end of each calendar year, the Fund will send you a statement
of the amount and nature of net income and capital gains.
Distributions from the Fund, whether ordinary income or
capital gain in nature, will be taxable to you whether you take
them in cash or have them automatically reinvested in shares of
the Fund.
The Fund will be obliged to withhold certain percentages of
distributions and pay over the amounts to the Internal Revenue
Service in either of two instances:
(1) if you do not supply the Fund or the institution
through which you receive distributions with your correct
taxpayer identification number, which for most individuals is
their Social Security number, the Fund will have to withhold 31%
on ordinary income dividends, capital gains dividends and
redemption payments; and
(2) if you are a non-resident alien or foreign entity, the
Fund will have to withhold 30% (or a lower rate if provided by
treaty with the country in which the alien or entity resides) of
such payments.
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. The gain or loss will be long-term if you held
the redeemed shares for over a year, and short-term if for a year
or less.
The above information is a summary of the tax treatment that
will be applied to the Fund and its distributions. If you have
any questions, you should contact your tax adviser, particularly
in connection with state and local taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and another equity
fund (the "Bond or Equity Funds") and certain money market funds
(the "Money-Market Funds"), all of which are in the Aquilasm
Group of Funds 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 Bond or
Equity Funds are this 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, Tax-Free Fund For Utah and Narragansett Insured
Tax-Free Income Fund; the Aquila Money-Market Funds are Capital
Cash Management Trust, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.
Class Y Shares of the Fund may be exchanged only for Class Y
Shares of the Bond or Equity Funds or for shares of a
Money-Market Fund.
Under the Class Y exchange privilege, once Class Y Shares of
any Bond or Equity Fund have been purchased, those shares (and
any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and Class Y Shares of the Bond or
Equity Funds without the payment of any sales charge.
The "Class Y Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange by an institutional investor from a Money-Market
Fund, or which were received in exchange for Class Y Shares of
another Bond or Equity Fund; or (b) acquired as a result of
reinvestment of dividends and/or distributions on otherwise Class
Y Eligible Shares. Shares of a Money-Market Fund not acquired in
exchange for Class Y Eligible Shares of a Bond or Equity Fund can
be exchanged for Class Y Shares of a Bond or Equity Fund only by
persons eligible to make an initial purchase of Class Y Shares.
This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence. The Fund
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal
to the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-ROCKY-22 (800-762-5922) toll free or 908-855-5731
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 of Class Y Shares will be effected at the relative
net asset values of the Class Y Shares being exchanged next
determined after receipt by the Agent of your exchange request.
Prices for exchanges are determined in the same manner as for
purchases of the Fund's shares. 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 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 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 various expressions of total return.
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.
Performance figures are based upon past performance, reflect
as appropriate all recurring charges against Fund income net of
fee waivers and reimbursement of expenses, if any, and will
assume the payment of the maximum sales charge on the purchase of
shares, but not on reinvestment of income dividends for which the
Fund does not impose a sales charge.
The investment results of the Fund, like those of 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 total return may be in
any future period.
Description of the Fund and Its Shares
The Fund is an open-end, diversified management investment
company organized in 1993 as a Massachusetts business trust. The
Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares and to divide or combine the
shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Fund. Each
share represents an equal proportionate interest in the Fund with
each other share. Upon liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders. If they deem it
advisable and in the best interests of shareholders, the Board of
Trustees of the Fund may create additional classes of shares,
which may differ from each other as provided in rules and
regulations of the Securities and Exchange Commission or by
exemptive order. The Board of Trustees may also, at its own
discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such
series will have a designation including the word "Series"). See
the Additional Statement for further information about possible
additional series. Shares are fully paid and non-assessable,
except as set forth under the caption "General Information" in
the Additional Statement; the holders of shares have no
pre-emptive or conversion rights.
The other two classes of shares of the Fund are
Front-Payment Class Shares ("Class A Shares") and Level-Payment
Class Shares ("Class C Shares"), which are fully described in a
separate prospectus that can be obtained by calling the Fund at
800-ROCKY-55 (800-762-5955) toll free or 212-697-6666.
The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All three
classes represent interests in the same portfolio of securities
and have the same rights, except that each class bears the
separate expenses, if any, of its participation in the
Distribution Plan and Shareholder Services Plan and has exclusive
voting rights with respect to such participation. There are no
distribution fees with respect to Class Y Shares.
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, but may differ depending upon the
distribution and service fees, if any, and other class-specific
expenses borne by each class.
The Fund's Distribution Plan has three parts. In addition to
the defensive provisions described above, Parts I and II of the
Plan authorize payments, to certain "Qualified Recipients," out
of the Fund's assets allocable to the Class A Shares and Class C
Shares, respectively. See the Additional Statement. The Fund has
also adopted a Shareholder Services Plan under which the Fund is
authorized to make certain payments out of the Fund's assets
allocable to the Class C Shares. See the Additional Statement.
See the notes to the "Statement of Assets and Liabilities"
in the Additional Statement for information as to the
amortization of the Fund's organizational and start-up expenses.
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. See the Additional
Statement for information about shareholder voting if the Fund
were in the future to have more than one portfolio (series). 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 Aquila Rocky Mountain Equity Fund
For Class Y Shares only
Please complete steps 1 through 4 and mail to:
ADM, Attn: Aquilasm Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198
Tel. #1-800-762-5922
STEP 1 ACCOUNT REGISTRATION
A. REGISTRATION
___Individual (Use line 1)
___Joint Account* (Use lines 1&2)
___For a Minor (Only one custodian and one minor permitted.)
(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.
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
Under the _________Uniformed Gifts/Transfers to Minors Act.
State
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
_____________________________
Minor's Social Security No.
4. __________________________________________________________________
(Name of Corporation or Partnership. PLEASE INDICATE TYPE OF
ORGANIZATION. If a Trust, include the name and date of the Trust
Instrument. The name(s) of the Trustees in which account will be
registered should be listed below. 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 Trustee(s) or Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
__________________________________________________________________________
Street or P.O. Box City State Zip Code
(_______)_________________________________________________________________
Area Code Daytime Telephone # Occupation
__________________________________________________________________________
Employer's Name/Employer's Address City State
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.
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
__________________________________________________________________________
Dealer Name Branch Office Address
__________________________________________________________________________
Branch Office City/State Branch #
__________________________________________________________________________
Representative's Name Rep #
(_______)_________________________________________________________________
Area Code Telephone # [Agent Use: Dealer # / Branch #]
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate Method of Payment (For either method, make check
payable to: Aquila Rocky Mountain Equity Fund)
___Initial Investment $ ______________ (Minimum investment $1,000)
___Automatic Investment $______________ (Minimum $50)
For Automatic Investment of at least $50 per month, you must
complete Step 3, Section A, Step 4, Sections A & B and ATTACH
A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions will be 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:
___Wire directly into my financial institution account, ATTACHED IS
A VOIDED CHECK showing the account information where I would like
the dividend deposited.
___Mail check to my address listed in Step 1a.
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 Aquila Rocky Mountain Equity 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-ROCKY-22. To establish
this program, please complete Step 4, Sections A & B of this
Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks
prior to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, Administrative
Data Management Corp. (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
___ Mail check to my address listed in Step 1a.
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any
other persons telephone instructions to execute the exchange of
shares of one Aquila-sponsored fund for shares of another Aquila-
sponsored fund with identical shareholder registration in the manner
described in the Prospectus. Except for gross negligence in acting
upon such telephone instructions to execute an exchange, and subject
to the conditions set forth herein, I/we understand and agree to
hold harmless the Agent, each of the Aquila Funds, and their
respective officers, directors, trustees, employees, agents and
affiliates against any liability, damage, expense, claim or loss,
including reasonable costs and attorneys fees, resulting from
acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will
be mailed or wired, whenever possible, upon request, if in an amount
of $1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account initiated
by the Agent, Administrative Data Management Corp., 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-ROCKY-55 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's Agent.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who
executed the Plan authorization.
2. Certificates will not be issued for shares of the Fund purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Fund. Any share
certificates now held by the Planholder may be surrendered
unendorsed to the Agent with the application so that the shares
represented by the certificate may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the
Fund at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments
will be made at the Net Asset Value per share in effect at the
close of business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed, at any
time, by the Planholder on written notification to the Agent.
The Planholder should allow at least two weeks time in mailing
such notification before the requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written
notice (in proper form in accordance with the requirements of the
then current Prospectus of the Fund) to redeem all, or any part of,
the shares held under the Plan. In such case the Agent will redeem
the number of shares requested at the Net Asset Value per share in
effect in accordance with the Fund's usual redemption procedures
and will mail a check for the proceeds of such redemption to the
Planholder.
7. The Plan may, at any time, be terminated by the Planholder on
written notice to the Agent, or by the Agent upon receiving
directions to that effect from the Fund. The Agent will also
terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon
termination of the Plan by the Agent or the Fund, shares
remaining unredeemed will be held in an uncertificated account
in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and
until proper instructions are received from the Planholder,
his executor or guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any
action taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent
for the Fund, the Planholder will be deemed to have appointed
any successor transfer agent to act as his agent in administering
the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump
sum investment may be made, such investment should normally be an
amount equivalent to three times the annual withdrawal or $5,000,
whichever is less.
<PAGE>
INVESTMENT ADVISER
KPM Investment Management, Inc.
a subsidiary of Mutual of Omaha Insurance Company
10250 Regency Circle, Suite 200
Omaha, Nebraska 68114
and
One Norwest Center,
1700 Lincoln Street
Denver, Colorado 80203
SUB-ADVISER and ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
R. Thayne Robson
Cornelius T. Ryan
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior 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
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.......................
How To Invest In The Fund.......................
Distribution Plan...............................
How To Redeem Your Investment...................
Automatic Withdrawal Plan.......................
Management Arrangements.........................
Dividend And Tax Information....................
Exchange Privilege..............................
General Information.............................
Application
[LOGO]
Aquila
Rocky Mountain
Equity Fund
PROSPECTUS
April 30, 1997
[LOGO]
One of The
Aquilasm Group Of Funds
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
380 Madison Avenue
Suite 2300
New York, New York 10017
800-ROCKY-55 (800-762-5955)
212-697-6666
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1997
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for
the Fund dated April 30, 1997: one Prospectus describes Front
Payment Class Shares ("Class A Shares") and Level Payment Class
Shares ("Class C Shares") of the Fund and the other describes
Institutional Class Shares ("Class Y Shares") of the Fund.
References in the Additional Statement to "the Prospectus" refer
to either of these Prospectuses. The Additional Statement should
be read in conjunction with the Prospectus for the class of
shares in which you are considering investing. Either or both
Prospectuses may be obtained from the Fund's Shareholder
Servicing Agent, Administrative Data Management Corp., by writing
to: 581 Main Street, Woodbridge, New Jersey 07095-1198 or by
calling at the following numbers:
800-ROCKY-22 (800-762-5922) toll free or 908-855-5731
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to it at 380 Madison Avenue, Suite 2300, New York, New
York 10017; or by calling:
800-ROCKY-55 (800-762-5955) toll free
or 212-697-6666
The Annual Report of the Fund for the fiscal year ended
December 31, 1996 (audited) will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Fund's Assets . . . . . . . . . . . . . . . .2
Performance . . . . . . . . . . . . . . . . . . . . . . . . . .7
Investment Restrictions . . . . . . . . . . . . . . . . . . . .8
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . .9
Shareholder Services Plan . . . . . . . . . . . . . . . . . . 16
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 17
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 18
Additional Information as to Management Arrangements . . . . . 21
Computation of Net Asset Value . . . . . . . . . . . . . . . . 25
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 27
Additional Tax Information . . . . . . . . . . . . . . . . . . 27
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 27
General Information . . . . . . . . . . . . . . . . . . . . . 28
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
The investment objective and policies of the Fund are
described in the Prospectus, which refers to the matters
described below.
Additional Information Regarding Options Transactions, Risks
Associated with such Transactions and Tax Consequences
Writing Covered Call Options
The Fund may write (sell) "covered" call options and
purchase options to close out options previously written by the
Fund to generate additional income from option premiums. This
premium income will serve to enhance the Fund's total return and
will reduce the effect of any price decline of the security
involved in the option. Covered call options will generally be
written on securities which, in the opinion of the Adviser are
not expected to make any major price moves in the near future but
which, over the long term, are deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the "right to
purchase" a security at a specified price (the exercise price) at
any time prior to a certain date (the expiration date). So long
as the obligation of the writer of a call option continues, he
may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the
underlying security against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or
such earlier time at which the writer effects a closing purchase
transaction by repurchasing the option which he previously sold.
To secure his obligation to deliver the underlying security in
the case of a call option, a writer is required to deposit in
escrow the underlying security or other assets in accordance with
the rules of the Options Clearing Corporation (OCC) and of the
Exchanges. The Fund will write only covered call options. This
means that the Fund will only write a call option on a security
which the Fund already owns. The Fund will not write call options
on when-issued securities. In order to comply with the
requirements of the securities laws in several states, the Fund
will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities covering call
options exceeds 20% of the market value of the Fund's assets.
Portfolio securities on which call options may be written
will be purchased solely on the basis of investment
considerations consistent with the Fund's investment objectives.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast
to the writing of naked or uncovered options, which the Fund will
not do), but capable of enhancing the Fund's total return. When
writing a covered call option, the Fund, in return for the
premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the
security decline. Unlike one who owns securities not subject to
an option, the Fund has no control over when it may be required
to sell the underlying securities, since it may be assigned an
exercise notice at any time prior to the expiration date of its
obligation as a writer. If a call option which the Fund has
written expires, the Fund will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the
market value of the underlying security during the option period.
If the call option is exercised, the Fund will realize a gain or
a loss from the sale of the underlying security. The security
covering the call will be maintained in a segregated account of
the Fund's custodian. The Fund does not consider a security
covered by a call to be "pledged" as that term is used in the
Fund's policy which limits the pledging or mortgaging of its
assets.
The premium received is the market value of an option. The
premium the Fund will receive from writing a call option will
reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to
such market price, the historical price volatility of the
underlying security, and the length of the option period. In
determining whether a particular call option should be written on
a particular security, the Adviser will consider the
reasonableness of the anticipated premium and the likelihood that
a liquid secondary market will exist for those options. The
premium received by the Fund for writing covered call options
will be recorded as a liability of the Fund. This liability will
be adjusted daily to the option's current market value, which
will be the latest sale price at the time at which the net asset
value per share of the Fund is computed (close of the New York
Stock Exchange), or, in the absence of such sale, the latest
asked price. The option will be terminated upon expiration of the
option, the purchase of an identical option in a closing
transaction, or delivery of the underlying security upon the
exercise of the option.
Closing transactions will be effected in order to realize a
profit on an outstanding call option, to prevent an underlying
security from being called, or, to permit the sale of the
underlying security. Furthermore, effecting a closing transaction
will permit the Fund to write another call option on the
underlying security with either a different exercise price or
expiration date or both. If the Fund desires to sell a particular
security from its portfolio on which it has written a call
option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of
the security. There is, no assurance that the Fund will be able
to effect such closing transactions at a favorable price. If the
Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case
it would continue to be at market risk on the security. This
could result in higher transaction costs, including brokerage
commissions. The Fund will pay brokerage commissions in
connection with the writing of options to close out previously
written options. Such brokerage commissions are normally higher
than those applicable to purchases and sales of portfolio
securities.
If the writer of an option wishes to terminate the
obligation, he or she may effect a "closing purchase
transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the
clearing corporation. However, a writer may not effect a closing
purchase transaction after he or she has been notified of the
exercise of an option. Similarly, an investor who is the holder
of an option may liquidate his or her position by effecting a
"closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing
sale transaction can be effected. To secure the obligation to
deliver the underlying security in the case of a call option, the
writer of the option (whether an exchange-traded option or a
NASDAQ option) is required to pledge for the benefit of the
broker the underlying security or other assets in accordance with
rules of the OCC, which is an institution created to interpose
itself between buyers and sellers of options. Technically, the
OCC assumes the other side of every purchase and sale transaction
on an exchange and, by doing so, guarantees the transaction.
Call options written by the Fund will normally have
expiration dates of less than nine months from the date written.
From time to time, the Fund may purchase an underlying security
for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from
its portfolio. In such cases additional brokerage commissions
will be incurred.
The Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or
more than the premium received from the writing of the option.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option
is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
Federal Income Tax Treatment of Covered Call Options.
Expiration of an option or entry into a closing purchase
transaction will result in a capital gain. If the option is
"in-the-money" (i.e., the option strike price is less than the
market value of the security covering the option) at the time it
was written, any gain or loss realized as a result of the closing
purchase transaction will be long-term capital gain or loss, if
the security covering the option was held for more than 12 months
prior to the writing of the option. The holding period of the
securities covering an "in-the-money" option will not include the
period of time the option is outstanding. If the option is
exercised, the Fund will realize a gain or loss from the sale of
the security covering the call option, and in determining such
gain or loss the premium will be included in the proceeds of the
sale.
If the Fund writes options other than "qualified covered
call options," as defined in the Internal Revenue Code, any
losses on such options transactions, to the extent they do not
exceed the unrealized gains on the securities covering the
options, may be subject to deferral until the securities covering
the options have been sold. In addition, any options written
against securities other than stocks will be considered to have
been closed out at the end of the Fund's fiscal year and any
gains or losses will be recognized for tax purposes at that time.
Such gains or losses would be characterized as 60% long-term
capital gain or loss and 40% short-term capital gain or loss.
Purchasing Put Options
The Fund may purchase put options on an underlying security
owned by the Fund. As the holder of a put option, the Fund has
the right to sell the underlying security at the exercise price
at any time during the option period. The Fund may enter into
closing sale transactions with respect to such options, exercise
them or permit them to expire. The Fund may purchase put options
for defensive purposes in order to protect against an anticipated
decline in the value of its securities. The example of such use
of put options is provided below. The Fund will not purchase
options for leverage purposes.
The Fund may purchase a put option on an underlying security
(a "protective put") owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value
of its security. Such hedge protection is provided only during
the life of the put option when the Fund as the holder of the put
option is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. For example, a put option may be
purchased in order to protect unrealized appreciation of a
security where the Adviser deems it desirable to continue to hold
the security because of tax considerations. The premium paid for
the put option and any transaction costs would reduce any capital
gain otherwise available for distribution when the security is
eventually sold.
The Fund will commit no more than 5% of its assets to
premiums when purchasing put options. The premium paid by the
Fund when purchasing a put option will be recorded as an asset of
the Fund. This asset will be adjusted daily to the option's
current market value, which will be the latest sale price at the
time at which the net asset value per share of the Fund is
computed (close of New York Stock Exchange), or, in the absence
of such sale, the latest bid price. The option will be terminated
upon expiration of the option, the selling (writing) of an
identical option in a closing transaction, or the delivery of the
underlying security upon the exercise of the option.
Writing Put Options
The Fund will not write put options except to close out
transactions as described above.
Purchasing Call Options
The Fund may purchase call options. As the holder of a call
option, the Fund has the right to purchase the underlying
security at the exercise price at any time during the option
period. The Fund may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire.
The Fund may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could
reduce its current return. The Fund may also purchase call
options in order to acquire the underlying securities. Examples
of such uses of call options are provided below. The Fund will
not purchase options for leverage purposes.
Call options may be purchased by the Fund for the purpose of
acquiring the underlying securities for its portfolio. Utilized
in this fashion, the purchase of call options enables the Fund to
fix its cost of acquiring the securities directly. This technique
may also be useful to the Fund in purchasing a large block of
stock that would be more difficult to acquire by direct market
purchases. So long as it holds such a call option rather than the
underlying security itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying
security and in such event could allow the call option to expire,
incurring a loss only to the extent of the premium paid for the
option.
The Fund will commit no more than 5% of its assets to
premiums when purchasing call options. The Fund may also purchase
call options on underlying securities it owns in order to protect
unrealized gains on call options previously written by it. A call
option would be purchased for this purpose where tax
considerations make it inadvisable to realize such gains through
a closing purchase transaction. Call options may also be
purchased at times to avoid realizing losses that would result in
a reduction of the Fund's current return. For example, where the
Fund has written a call option on an underlying security having a
current market value below the price at which such security was
purchased by the Fund, an increase in the market price could
result in the exercise of the call option written by the Fund and
the realization of a loss on the underlying security with the
same exercise price and expiration date as the option previously
written.
Risks Associated with Options Transactions
Option transactions involve risks and transaction costs
which the Fund would not incur if it did not engage in option
transactions. If the Adviser's predictions of movements in the
direction of the securities markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position
than if such strategies were not used. Risks inherent in the use
of options include (i) dependence upon the Adviser's ability to
predict correctly movements in the direction of securities
prices; (ii) imperfect correlation between the price of options
and the movements in the prices of securities being hedged; (iii)
the fact that the skills needed to use these strategies are
different from those needed to select portfolio securities; (iv)
the possible absence of a liquid secondary market for any
particular instrument at any time; (v) the possible need to defer
closing out certain hedged position to avoid adverse consequences
and (vi) the possible inability of the Fund to purchase or sell
portfolio securities at a time when it would otherwise be
favorable to do so, or the possible need for the Fund to sell a
portfolio security at a disadvantageous time, because of the
requirement for the Fund to maintain "cover" or to segregate
securities in connection with a hedging transaction.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average
value of such securities during the year, excluding certain short
term securities. Since the turnover rate of the Fund will be
affected by a number of factors, the Fund is unable to predict
what rate the Fund will have in any particular period or periods,
although such rate is not expected to exceed 60%. The factors
which may affect the rate with respect to the balance of the
Fund's assets include (ii) the possible necessary sales of
portfolio securities to meet redemptions; and (iii) the
possibility of purchasing or selling portfolio securities without
regard to the length of time they have been held to attempt to
take advantage of market opportunities and to avoid market
declines. Short-term trading increases portfolio turnover and
transaction costs.
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject
to rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Fund be accompanied by certain standardized
performance information computed as required by the SEC. Total
return quotations used by the Fund are based on these
standardized methods and are computed separately for each of the
Fund's three classes of shares. The methods that may be used by
the Fund are described below. Prior to April 30, 1996, the Fund
had outstanding only one class of shares, which are currently
designated Class A Shares, or "Front-Payment Class Shares." On
that date the Fund began to offer shares of two other classes:
Class C Shares, or "Level-Payment Class Shares," and Class Y
Shares, or "Institutional Class Shares." During the historical
periods listed below, there were no Class C Shares or Class Y
Shares outstanding and the information below relates solely to
Class A Shares.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over a 1- year period
and a period since the inception of the operations of the Fund
(on July 22, 1994) that would equate an initial hypothetical
$1,000 investment to the value such an investment would have if
it were completely redeemed at the end of each such period. The
calculation assumes the maximum sales charge is deducted from the
hypothetical initial $1,000 purchase, that on each reinvestment
date during each such period any capital gains are reinvested at
net asset value, and all income dividends are reinvested at net
asset value, without sales charge (because the Fund does not
impose any sales charge on reinvestment of dividends). During the
periods listed the Fund's maximum sales charge was 4.75%.
Effective April 30, 1996, the maximum sales charge was reduced to
4.25%.
In the case of Class A Shares, the calculation assumes the
maximum sales charge is deducted from the hypothetical initial
$1,000 purchase. In the case of Class C Shares, the calculation
assumes the applicable Conditional Deferred Sales Charge ("CDSC")
imposed on a redemption of Class C Shares held for the period is
deducted. In the case of Class Y Shares, the calculation assumes
that no sales charge is deducted and no CDSC is imposed. For all
three classes, it is assumed that on each reinvestment date
during each such period any capital gains are reinvested at net
asset value, and all income dividends are reinvested at net asset
value, without sales charge (because the Fund does not impose any
sales charge on reinvestment of dividends for any class). The
computation further assumes that the entire hypothetical account
was completely redeemed at the end of each such period.
Investors should note that the maximum sales charge (4.25%)
reflected in the following quotations is a one time charge on
certain purchases of Class A Shares, paid at the time of initial
investment. The greatest impact of this charge is during the
early stages of an investment in the Fund. Actual performance
will be affected less by this one time charge the longer an
investment remains in the Fund.
Average Annual Compounded Rates of Return:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
One Year 13.08% N/A(1) N/A(1)
<S> <C> <C> <C>
Since
inception on
July 22, 1994 11.68% 5.91%(2) 6.94%(2)
<FN>
(1) During these periods no Class C Shares or Class Y Shares were
outstanding.
</FN>
<FN>
(2) Period from April 30, 1996 (inception of class) through
December 31, 1996.
</FN>
</TABLE>
These figures will be calculated according to the following
SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1 and 5 year
periods or the period since inception, at the end of
each such period.
As discussed in the Prospectus, the Fund may quote total
rates of return in addition to its average annual total return
for each of its three classes of shares. Such quotations are
computed in the same manner as the Fund's average annual
compounded rate, except that such quotations will be based on the
Fund's actual return for a specified period as opposed to its
average return over the periods described above.
Total Return
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
One Year 13.08% N/A(1) N/A(1)
<S> <C> <C> <C>
Since
inception on
July 24, 1994 30.91% 5.91%(2) 6.94%(2)
<FN>
(1) During these periods no Class C Shares or Class Y Shares were
outstanding.
</FN>
<FN>
(2) Period from April 30, 1996 (inception of class) through
December 31, 1996.
</FN>
</TABLE>
In general, actual total rate of return will be lower than
average annual rate of return because the average annual rate of
return reflects the effect of compounding. See discussion of the
impact of the sales charge on quotations of rates of return,
above.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used.
The Fund may include in advertisements and sales literature,
information, examples and statistics that illustrate the effect
of taxable versus tax-free compounding income at a fixed rate of
return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and
capital gains distributions in additional shares. The examples
used will be for illustrative purposes only and are not
representations by the Fund of past or future yield or return.
From time to time, in reports and promotional literature,
the Fund may compare its performance to, or cite the historical
performance of, U.S. Treasury bills, notes and bonds, or indices
of broad groups of unmanaged securities considered to be
representative of, or similar to, that Fund's portfolio holdings,
such as:
Lipper Analytical Services, Inc. ("Lipper") is a
widely-recognized independent service that monitors and ranks the
performance of regulated investment companies. The Lipper
performance analysis includes the reinvestment of capital gain
distributions and income dividends but does not take sales
charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend
dates accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance and are subject to
change every month. Funds with at least three years of
performance history are assigned ratings from one star (lowest)
to five stars (highest). Morningstar ratings are calculated from
the funds' three-, five-, and ten-year average annual returns
(when available) and a risk factor that reflects fund performance
relative to three-month Treasury bill monthly returns. Fund's
returns are adjusted for fees and sales loads. Ten percent of the
funds in an investment category receive five stars, 22.5% receive
four stars, 35% receive three stars, 22.5% receive two stars, and
the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly
publication which tracks principal return, total return and yield
on the Salomon Brothers Broad Investment-Grade Bond Index and the
components of the Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices," a monthly corporate government index publication which
lists principal, coupon and total return on over 100 different
taxable bond indices which Merrill Lynch tracks. They also list
the par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly
publication which tracks principal, coupon and total return on
the Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as
well as all the components of these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of inflation. The
Index shows changes in the cost of selected consumer goods and
does not represent a return on an investment vehicle.
From time to time, in reports and promotional literature,
performance rankings and ratings reported periodically in
national financial publications such as MONEY, FORBES, BUSINESS
WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In
addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE
WALL STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS
may be cited.
INVESTMENT RESTRICTIONS
The Fund has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the
1940 Act) of the Fund's outstanding shares vote to change them.
Under that Act, the vote of the holders of a "majority" of the
Fund's outstanding shares means the vote of the holders of the
lesser of (a) 67% or more of the Fund's shares present at a
meeting or represented by proxy if the holders of more than 50%
of its shares are so present or represented; or (b) more than 50%
of the Fund's outstanding shares. Those fundamental policies not
set forth in the Prospectus are set forth below.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than those
discussed under "Investment of the Fund's Assets" in the
Prospectus; therefore the Fund cannot buy any commodities or
commodity contracts, any mineral related programs or leases or
combinations thereof.
The Fund cannot purchase or hold the securities of any
issuer if, to its knowledge, Trustees, Directors or officers of
the Fund or its Adviser individually owning beneficially more
than 0.5% of the securities of that issuer together own in the
aggregate more than 5% of such securities.
The Fund cannot buy real estate or any non-liquid interests
in real estate investment trusts; however, it can buy any
securities which it can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Fund does not buy for control.
The Fund cannot invest for the purpose of exercising control
or management of other companies.
3. The Fund does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin; however, the
Fund can make margin deposits in connection with the purchase or
sale of options and can pay premiums on these options.
4. The Fund is not an underwriter.
The Fund cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Fund's Distribution Plan has three parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II) and to certain defensive provisions (Part III).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Fund would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Adviser
or the Distributor. The Distributor will consider shares which
are not Qualified Holdings of such unrelated broker-dealers to be
Qualified Holdings of the Distributor and will authorize
Permitted Payments to the Distributor with respect to such shares
whenever Permitted Payments are being made under the Plan.
Part I of the Plan applies only to the Front-Payment Shares
Class ("Class A Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Front-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Front-Payment Shares beneficially owned by such
Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Board of
Trustees of the Fund, the Fund may make payments ("Class A
Permitted Payments") to Qualified Recipients, which Class A
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent as disbursing agent,
which may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year), 0.25 of 1% of the average
annual net assets of the Fund represented by the Front-Payment
Class Shares. Such payments shall be made only out of the Fund's
assets allocable to the Front-Payment Class Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class A Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class A Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized , but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Front-Payment Class Shares, including
without limitation, any or all of the following activities:
answering customer inquiries regarding account status and
history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year-end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part I is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part I of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Front-Payment Class Shares Class (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class Shares and/or of any other class whose
shares are convertible into Front-Payment Class Shares. Part I
has continued, and will, unless terminated as hereinafter
provided, continue in effect, until the June 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Fund's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part I may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund to which Part I
applies. Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part I as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class A Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment Class
Shares ("Class C Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Level-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Board of
Trustees of the Fund, the Fund may make payments ("Class C
Permitted Payments") to Qualified Recipients, which Class C
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent as disbursing agent,
which may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year), 0.75 of 1% of the average
annual net assets of the Fund represented by the Level-Payment
Class Shares. Such payments shall be made only out of the Fund's
assets allocable to the Level-Payment Class Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level-Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Fund
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level-Payment Class Shares. Part II has
continued, and will, unless terminated as hereinafter provided,
continue in effect, until the April 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Fund's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class C Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to April 30, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
During the fiscal year ended December 31, 1996 the Fund paid
$4,975 under the Plan with respect to its Class A Shares of which
the Distributor received $574. There were no payments with
respect to Class C Shares.
Defensive Provisions (Part III)
Another part of the Plan (Part III) states that if and to
the extent that any of the payments listed below are considered
to be "primarily intended to result in the sale of" shares issued
by the Fund within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Fund or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Fund's shares; (iv) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, statements of
additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Fund and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Fund's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan states that while it is in effect, the Fund's
Administrator and Distributor shall report at least quarterly to
the Fund's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Fund to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Plan defines as the Fund's Independent Trustees those
Trustees who are not "interested persons" of the Fund as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan. The Plan, unless terminated as hereinafter
provided, continues in effect from year to year only so long as
such continuance is specifically approved at least annually by
the Fund's Board of Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Plan may be terminated at any time by vote of a
majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund. The Plan may not be
amended to increase materially the amount of payments to be made
without shareholder approval and all amendments must be approved
in the manner set forth above as to continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Fund.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares of the Fund of "Service Fees" within the meaning of
Article III, Section 26(b)(9) of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. The Services
Plan applies only to the Class C Shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name).
As used in the Services Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to the
Distributor and any other principal underwriter of the Fund, who
have, pursuant to written agreements with the Fund or the
Distributor, agreed to provide personal services to shareholders
of Level-Payment Class Shares and/or maintenance of Level-Payment
Class Shares shareholder accounts. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Class
Shares beneficially owned by such Qualified Recipient's
customers, clients or other contacts. "Administrator" shall mean
Aquila Management Corporation or any successor serving as
sub-adviser or administrator of the Fund.
Subject to the direction and control of the Board of
Trustees of the Fund, the Fund may make payments ("Service Fees")
to Qualified Recipients, which Service Fees (i) may be paid
directly or through the Distributor or shareholder servicing
agent as disbursing agent and (ii) may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Services Plan are not
accruable or for any fiscal year which is not a full fiscal
year), 0.25 of 1% of the average annual net assets of the Fund
represented by the Level-Payment Class of shares. Such payments
shall be made only out of the Fund's assets allocable to the
Level-Payment Class Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Level-Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
While the Services Plan is in effect, the Fund's Distributor
shall report at least quarterly to the Fund's Trustees in writing
for their review on the following matters: (i) all Service Fees
paid under the Services Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor
paid or accrued during such quarter. In addition, if any
Qualified Recipient is an "affiliated person," as that term is
defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Fund, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Fund
an accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Fund and had no direct or indirect financial interest in the
operation of the Services Plan or in any agreements related to
the Service Plan (the "Independent Trustees"), with votes cast in
person at a meeting called for the purpose of voting on the
Service Plan. It will continue in effect for a period of more
than one year from its original effective date only so long as
such continuance is specifically approved at least annually as
set forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the Act as now in force
or hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent
of the net asset value of the Fund during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Fund will have the option of redeeming the
excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting
the assets into cash. The method of valuing securities used to
make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of
the same time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund, their affiliations,
if any, with the Administrator or the Distributor and their
principal occupations during at least the past five years are set
forth below. None of the Trustees or officers of the Fund is
affiliated with the Adviser. Mr. Herrmann is an "interested
person" of the Fund as that term is defined in the 1940 Act as an
officer of the Fund and a Director, officer and shareholder of
the Distributor.
As of the date of this Additional Statement, all of the
Trustees and officers as a group owned less than 1% of its
outstanding shares.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila Management
Corporation since 1984, the sponsoring organization and
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: Hawaiian Tax-Free Trust since
1984; Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; Tax-Free Fund For
Utah since 1992; and Narragansett Insured Tax-Free Income Fund
since 1992; each of which is a tax-free municipal bond fund, and
two equity funds, Aquila Cascadia Equity Fund since 1996, and
which, together with this Fund are called the Aquila Bond and
Equity Funds; and Pacific Capital Cash Assets Trust since 1984;
Churchill Cash Reserves Trust since 1985; Pacific Capital U.S.
Treasuries Cash Assets Trust since 1988; Pacific Capital Tax-Free
Cash Assets Trust since 1988; each of which is a money market
fund, and together with Capital Cash Management Trust ("CCMT")
are called the Aquila Money-Market Funds; Vice President,
Director, Secretary and formerly Treasurer of Aquila
Distributors, Inc. since 1981, distributor of the above funds;
President and Chairman of the Board of Trustees of CCMT, a money
market fund since 1981, and an Officer and Trustee/Director of
its predecessors since 1974; Chairman of the Board of Trustees
and President of Prime Cash Fund (which is inactive), since 1982
and of Short Term Asset Reserves 1984-1996; President and a
Director of STCM Management Company, Inc., sponsor and
sub-adviser to CCMT; Chairman, President, and a Director since
1984, of InCap Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term Asset Reserves,
and Founder and Chairman of several other money market funds;
Director or Trustee of OCC Cash Reserves, Inc., Oppenheimer Quest
Global Value Fund, Inc., Oppenheimer Quest Value Fund, Inc., and
Trustee of Quest For Value Accumulation Trust, The Saratoga
Advantage Trust, and of the Rochester Group of Funds, each of
which is an open-end investment company; Trustee of Brown
University, 1990-1996 and currently Trustee Emeritus; actively
involved for many years in leadership roles with university,
school and charitable organizations.
Tucker Hart Adams, Trustee, 4822 Alteza Drive, Colorado Springs,
Colorado 80917
President of the Adams Group, an economic consulting firm, since
1989; Trustee of Tax-Free Fund of Colorado since 1989; Vice
President of United Banks of Colorado, 1985-1988; Chief Economist
of United Banks of Colorado, 1981-1988; Director of University
Hospital, 1990-1994; Director of the Colorado Health Facilities
Authority; Vice Chair of the University of Colorado Foundation;
currently or formerly an officer or director of numerous
professional and community organizations.
Arthur K. Carlson, Trustee, 8702 North Via La Serena, Paradise
Valley, Arizona 85253
Retired; Advisory Director of the Renaissance Companies (design
and construction companies of commercial, industrial and upscale
residential properties) since 1996; Senior Vice President and
Manager of the Trust Division of The Valley National Bank of
Arizona, 1977-1987; Trustee of Tax-Free Fund of Colorado,
Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona and Pacific
Capital Cash Assets Trust since 1987 and of Pacific Capital
Tax-Free Cash Assets Trust and Pacific Capital U.S. Treasuries
Cash Assets Trust since 1988; previously Vice President of
Investment Research at Citibank, New York City, and prior to that
Vice President and Director of Investment Research of Irving
Trust Company, New York City; past President of The New York
Society of Security Analysts and currently a member of the
Phoenix Society of Financial Analysts; formerly Director of the
Financial Analysts Federation; past Chairman of the Board and,
currently, Director of Mercy Healthcare of Arizona, Phoenix,
Arizona since 1990; Director of Northern Arizona University
Foundation since 1990; present or formerly an officer and/or
director of various other community and professional
organizations.
R. Thayne Robson, Trustee, 3548 Westwood Drive, Salt Lake City,
Utah 84109
Director of the Bureau of Economic and Business Research,
Professor of Management, and Research Professor of Economics at
the University of Utah since 1978; Trustee of Tax-Free Fund for
Utah since 1992; Director of the Alliance of Universities for
Democracy since 1990; Trustee of the Salt Lake Convention and
Visitors Bureau since 1984; Member of Utah Governor's Economic
Coordinating Committee since 1982; Member of the Association for
University Business and Economic Research since 1985; Director of
ARUP (a medical test laboratory) since 1988; Director of Western
Mortgage since 1989; Director of the Utah Economic Development
Corporation since 1985; Director of the Salt Lake Downtown
Alliance since 1991; Trustee of Crossroads Research Institute
since 1986.
Cornelius T. Ryan, Trustee, c/o Oxford Partners, 315 Post Road
West, Westport, Connecticut, 06880
General Partner of Oxford Partners, a group of investment venture
capital partnerships; General Partner of Oxford Bioscience
Partners, and President of Oxford Venture Corporation, an
affiliated administrative company, since 1980; Trustee of CCMT
since 1976, of Prime Cash Fund (which is inactive), 1983-1996;
President of AMR International, Inc., a management training and
publishing company, 1978-1980; Director of Schuster Fund, Inc.,
1972-1980; President of GTE New Ventures Corporation, 1974-1978;
Vice President, Corporation Development, of GTE Corporation,
1974-1978; President and a founder of Randolph Computer
Corporation, 1965-1974; Director of Neuberger & Berman Equity
Funds, since 1988.
Jerry G. McGrew, Senior Vice President, P.O. Box 662, Radcliff,
Kentucky 40159
Senior Vice President of Churchill Tax-Free Fund of Kentucky
since 1994, Vice President since 1987; Vice President of Tax-Free
Fund For Utah since 1992; Vice President of Churchill Cash
Reserves Trust since 1995; Registered Principal since 1993; Vice
President of Aquila Distributors, Inc. since 1993; Registered
Representative of J.J.B. Hilliard, W.L. Lyons Inc., 1983-1987;
Account Manager with IBM Corporation, 1967-1981; Gubernatorial
appointee, Kentucky Financial Institutions Board, since 1993;
Chairman, Total Quality Management for Small Business, 1990-1994;
President of Elizabethtown/Hardin County, Kentucky, Chamber of
Commerce, 1989-1991; President of Elizabethtown Country Club,
1983-1985.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-1991;
formerly Treasurer of the predecessor of CCMT; Treasurer and
Director of STCM Management Company, Inc., since 1974; Treasurer
of Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash
Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Administrator since 1984 and of
the Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT Insight Funds, Inc.,
1986-1988; Vice President of Lehman Management Co., Inc. and
Assistant Treasurer of Lehman Money Market Funds, 1981-1985;
Controller of Seligman Group of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust,
1982-1985 and Trustee of that Trust, 1985-1986; Secretary of
Oxford Cash Management Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the
Administrator and the Distributor since 1995; formerly a Legal
Associate for Oppenheimer Management Corporation, 1993-1995.
The Fund does not pay fees to Trustees affiliated with the
Administrator or to any of the Fund's officers. During the fiscal
year ended December 31, 1996, the Fund paid $17,454 in fees and
reimbursement of expenses to its other Trustees. The Fund is one
of the 14 funds in the Aquilasm Group of Funds, which consist of
tax-free municipal bond funds, money market funds and two equity
funds. The following table lists the compensation of all Trustees
who received compensation from the Fund and the compensation they
received during the Fund's fiscal year from other funds in the
Aquilasm Group of Funds. None of such Trustees has any pension or
retirement benefits from the Fund or any of the other funds in
the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Fund Group now serves
<S> <C> <C> <C>
Tucker H.
Adams $2,553 $10,042 2
Arthur K.
Carlson $2,450 $50,027 7
R. Thayne
Robson $1,950 $4,250 2
Cornelius
Ryan $650 $1,875 2
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
The Investment Advisory Agreement (the "Advisory Agreement")
between the Fund and KPM Investment Management, Inc. (the
Adviser") contains the provisions described below, in addition to
those described in the Prospectus.
The Advisory Agreement may be terminated by the Adviser at
any time without penalty upon giving the Fund sixty days' written
notice, and may be terminated by the Fund at any time without
penalty upon giving the Adviser sixty days' written notice,
provided that such termination by the Fund shall be directed or
approved by the vote of a majority of all its Trustees in office
at the time or by the vote of the holders of a majority (as
defined in the 1940 Act) of its voting securities at the time
outstanding and entitled to vote; it automatically terminates in
the event of its assignment (as so defined). However, in the
Advisory Agreement, the Adviser agrees that it will not exercise
its termination rights for at least two years from the effective
date of the Advisory Agreement, except for regulatory reasons.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the Adviser is not
liable for any loss sustained by the adoption of any investment
policy or the purchase, sale or retention of any security and
permits the Adviser to act as investment adviser for any other
person, firm or corporation. The Fund agrees to indemnify the
Adviser to the full extent permitted under the Fund's Declaration
of Trust.
The Advisory Agreement contains the following provisions as
to the Fund's portfolio transactions. In connection with its
duties to arrange for the purchase and sale of the Fund's
portfolio securities, the Adviser shall select such
broker-dealers ("dealers") as shall, in the Adviser's judgment,
implement the policy of the Fund to achieve "best execution,"
i.e., the most favorable price and efficient execution, and
accordingly shall seek to execute each transaction at a price and
commission, if any, which provide the most favorable total cost
or proceeds reasonably attainable in the circumstances. The Fund
understands that purchases from underwriters include a commission
or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread
between the bid and asked prices. In allocating transactions to
dealers, the Adviser is authorized to consider, in determining
whether a particular dealer will provide best execution, the
dealer's reliability, integrity, financial condition and risk in
positioning the securities involved, as well as the difficulty of
the transaction in question, and thus need not pay the lowest
spread or commission available if the Adviser determines in good
faith that the amount of commission is reasonable in relation to
the value of the brokerage and research services provided by the
dealer, viewed either in terms of the particular transaction or
the Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the Fund. Such research may be in
written form or through direct contact with individuals and may
include quotations on portfolio securities and information on
particular issuers and industries, as well as on market, economic
or institutional activities. The Fund recognizes that no dollar
value can be placed on such research services or on execution
services and that such research services may or may not be useful
to the Fund and may be used for the benefit of the Adviser or its
other clients.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the
accuracy or completeness of the Fund's Registration Statement
under the Securities Act of 1933 and the 1940 Act, except for the
information supplied by the Adviser for inclusion therein.
Additional Information as to the Sub-Advisory and
Administration Agreement
The Sub-Advisory and Administration Agreement (the
"Sub-Advisory Agreement") between Aquila Management Corporation,
as Sub-Advisor and Administrator, and the Fund contains the
provisions described below in addition to those described in the
Prospectus.
Subject to the control of the Fund's Board of Trustees, the
Sub-Adviser provides all administrative services to the Fund
other than those relating to its investment portfolio handled by
the Adviser under the Advisory Agreement; as part of such duties,
the Sub-Adviser (i) provides office space, personnel, facilities
and equipment for the performance of the following functions and
for the maintenance of the Fund's headquarters; (ii) oversees all
relationships between the Fund and its transfer agent, custodian,
legal counsel, auditors and principal underwriter, including the
negotiation, subject to the approval of the Fund's Board of
Trustees, 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 and for the sale, servicing, or
redemption of the Fund's shares; (iii) either keeps the
accounting records of the Fund, including the computation of net
asset value per share and the dividends (provided that daily
pricing of the Fund's portfolio is 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; (iv) maintains the Fund's books
and records and prepares (or assists counsel and auditors in the
preparation of) all required proxy statements, reports to
shareholders and Trustees, reports to and other filings with the
Securities and Exchange Commission and any other governmental
agencies, and tax returns, and oversees the Fund's insurance
relationships; (v) prepares, on the Fund's behalf and at its
expense, such applications and reports as may be necessary to
register or maintain the Fund's registration or that of its
shares under the securities or "Blue-Sky" laws of all such
jurisdictions as may be required from time to time; and (vi)
responds to any inquiries or other communications from
shareholders 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, oversees
such shareholder servicing and transfer agent's or distributor's
response thereto. Since the Fund pays its own legal and audit
expenses, to the extent that the Fund's counsel and accountants
prepare or assist in the preparation of prospectuses, proxy
statements and reports to shareholders, the costs of such
preparation or assistance are paid by the Fund.
The Sub-Advisory and Administration Agreement further
provides with respect to sub-advisory services that subject to
the direction and control of the Board of Trustees of the Fund,
the Sub-Adviser shall review with the Adviser the investment
activities of the Fund and in conjunction with the Adviser shall
make such periodic reports to the Board of Trustees of the Fund
as may be appropriate, and in addition, the Sub-Adviser shall
provide such advisory services to the Fund, in addition to those
services provided by the Adviser, as the Sub-Adviser deems
appropriate; as part of any such services, the Sub-Adviser shall
at its discretion: (i) provide the Adviser and the Fund with
overall market analysis; (ii) provide the Adviser and the Fund
with material relevant to the investment of the assets of the
Fund in securities of issuers in various states; (iii) provide
the Adviser and the Fund such other investment advice as it
considers necessary or appropriate; (iv) consult with the Adviser
in connection with the Adviser's duties under the Advisory
Agreement; and (v) otherwise assist the Adviser, and itself
directly act (in coordination with the Adviser and as may be
agreed among them with respect to a portion of, or all of, the
Fund's portfolio), to (A) supervise continuously the investment
program of the Fund and the composition of its portfolio; (B)
determine what securities shall be purchased or sold by the Fund;
and (C) arrange for the purchase and the sale of securities held
in the portfolio of the Fund.
The Sub-Advisory and Administration Agreement contains
provisions as to the Fund's portfolio transactions identical to
those contained in the Advisory Agreement, described above.
The Sub-Advisory and Administration Agreement further
provides with respect to possible advisory services that subject
to the direction and control of the Board of Trustees of the
Fund, in the event of the termination of the Advisory Agreement,
the Sub-Adviser shall act as managerial investment adviser to the
Fund with respect to the investment of the Fund's assets, and
supervise and arrange the purchase of securities for and the sale
of securities held in the portfolio of the Fund, and the fee
payable to the Sub-Adviser shall be increased to the amount
provided in sub-section 4(b) thereof, provided, however, that (i)
within two weeks of notice of termination of the Advisory
Agreement being delivered by the Fund or by the Adviser, or
termination of the Advisory Agreement for any other reason, or
within such longer period as shall have been specified by the
Board of Trustees, the Sub-Adviser shall have provided the Board
of Trustees information of the kind required in connection with
annual renewal of agreements under Section 15(c) of the Act, and
(ii) within thirty days of the termination of the Advisory
Agreement, the assumption of such duties by the Sub-Adviser shall
have been approved by a vote of the Fund's Board of Trustees,
including a vote of a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in
the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval.
In the event that the Sub-Adviser assumes such duties, it
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.
In the event that the Sub-Adviser has assumes the duties of
managerial investment adviser to the Fund with respect to
investment of the Fund's assets hereof following approval by the
Fund's Board of Trustees, the Fund shall pay the Sub-Adviser, and
the Sub-Adviser shall accept as full compensation for all
services rendered thereunder, 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 1.50% of such net asset value on net
assets of the Fund up to $15,000,000, 1.20% on net assets of the
Fund above $15,000,000 to $50,000,000 and 0.90 of 1% of the
Fund's net assets above $50,000,000.
In the event of termination of the Advisory Agreement, if
the Sub-Adviser does not elect to assume the duties of managerial
investment adviser or if its election as managerial investment
adviser is not approved by the Board of Trustees, the Sub-Adviser
shall act as acting investment adviser until a new investment
adviser has been appointed. In such event, the Fund shall pay the
Sub-Adviser an amount in addition to the amounts it is being paid
for sub-advisory and administrative services as described in the
Prospectus, which does not exceed its costs for its services as
acting managerial investment adviser, but in no event more that
the amounts set forth in the preceding paragraph.
The Sub-Advisory and Administration Agreement contains
provisions as to the Sub-Adviser's allocation of the portfolio
transactions of the Fund similar to those in the Advisory
Agreement.
The Sub-Advisory and Administration Agreement may be
terminated at any time without penalty by the Sub-Adviser upon
sixty days' written notice to the Fund and the Adviser; it may be
terminated by the Fund at any time without penalty upon giving
the Sub-Adviser sixty days' written notice, provided that such
termination by the Fund shall be directed or approved by a vote
of a majority of the Trustees in office at the time, including a
majority of the Trustees who are not interested persons of the
Fund. The Sub-Advisory and Administration Agreement will
otherwise continue indefinitely. In either case the notice
provision may be waived. The Sub-Advisory and Administration
Agreement contains a provision under which the Sub-Adviser agrees
that it will not exercise its termination rights for at least two
years from the effective date of the Agreement except for
regulatory reasons.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Sub-Advisory and Administration Agreement provides that
the Sub-Adviser shall not be liable for any error in judgement or
for any loss suffered by the Fund in connection with the matters
to which the Sub-Advisory and Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence of the Sub-Adviser in the performance of its
duties, or from reckless disregard by it of its obligations and
duties under the Sub-Advisory and Administration Agreement. The
Fund agrees to indemnify the Sub-Adviser to the full extent
permitted by the Declaration of Trust.
During the fiscal year ended December 31, 1996, the Fund
accrued fees to the Adviser and Sub-Adviser respectively of
$14,047 and $16,054. All of such fees were waived. In addition,
the Sub-Adviser agreed to reimburse $116,013 of the Fund's
expenses. During the fiscal year ended December 31, 1995, the
Fund accrued fees to the Adviser and Sub-Adviser respectively of
$8,679 and $9,981. All of such fees were waived. In addition the
Sub-Adviser agreed to reimburse $86,185 of the Fund's expenses.
During the fiscal period beginning with commencement of the
Fund's operations and ending on December 31, 1994, the Fund
accrued fees to the Adviser and Sub-Adviser respectively of
$1,401 and $1601. All of such fees were waived. In addition the
Sub-Adviser reimbursed $30,432 of the Fund's expenses.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined as of
4:00 p.m. New York time on each day that the New York Stock
Exchange is open by dividing the value of the Fund's net assets
by the total number of its shares then outstanding. The close of
the principal exchanges or other markets on which some of the
Fund's portfolio securities are traded may be later than 4:00
p.m. New York time. Options are valued at the last prior sales
price on the principal commodities exchange on which the option
is traded or, if there are no sales, at the bid price. Debt
securities having a remaining maturity of less than sixty days
when purchased and securities originally purchased with
maturities in excess of sixty days but which currently have
maturities of sixty days or less are valued at cost adjusted for
amortization of premiums and accretion of discounts.
As indicated above, the net asset value per share of the
Fund's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, that Exchange may close on days not included in that
announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Fund's shares are sold or issued
on a basis other than the maximum public offering price, that is,
the net asset value plus the highest sales charge. Some of these
relate to lower or eliminated sales charges for larger purchases,
whether made at one time or over a period of time as under a
Letter of Intent or right of accumulation. (See the table of
sales charges in the Prospectus.) The reasons for these quantity
discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary
to meet competition as to sales of shares of other funds having
such discounts; and (ii) they are designed to avoid an unduly
large dollar amount of sales charge on substantial purchases in
view of reduced selling expenses. Quantity discounts are made
available to certain related persons ("single purchasers") for
reasons of family unity and to provide a benefit to tax-exempt
plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges are as follows. Exchanges at
net asset value are permitted because a sales charge has already
been paid on the shares exchanged. Sales without sales charge are
permitted to Trustees, officers and certain others due to reduced
or eliminated selling expenses and/or since such sales may
encourage incentive, responsibility and interest and an
identification with the aims and policies of the Fund.
Reinvestments of redemptions at no sales charge are permitted
during a limited time to permit flexibility to shareholders in
their financial planning and to allow them an opportunity to
correct mistaken or incompletely informed redemption decisions.
Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and
since, in some cases, such issuance is exempted in the 1940 Act
from the otherwise applicable restrictions as to what sales
charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Fund
receives the net asset value per share of all shares sold or
issued.
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases Class A Shares or
Class Y Shares of the Fund having a net asset value of at least
$5,000 may establish an Automatic Withdrawal Plan under which he
or she will receive a monthly or quarterly check in a stated
amount, not less than $50. Stock certificates will not be issued
for shares held under an Automatic Withdrawal Plan. All dividends
and distributions must be reinvested. Shares will be redeemed on
the last business day of the month or quarter as may be necessary
to meet withdrawal payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate the account. Monthly or quarterly payments paid to
shareholders should not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
If you incur a sales commission on purchase of shares of one
mutual fund (the original fund) and then sell such shares or
exchange them for shares of a different mutual fund without
having held them at least 91 days, you must reduce the tax basis
for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or
later acquiring shares of the original fund or another fund is
reduced because of the shareholder's having owned the original
fund shares. The effect of the rule is to increase your gain or
reduce your loss on the original fund shares. The amount of the
basis reduction on the original fund shares, however, is added on
the investor's basis for the fund shares acquired in the exchange
or later acquired. The provision applies to commissions charged
after October 3, 1989.
CONVERSION OF CLASS C SHARES
Level-Payment Class Shares ("Class C Shares") of the Fund,
which you hold will automatically convert to Front-Payment Class
Shares ("Class A Shares") of the Fund based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the
sixth anniversary of the your initial purchase of such Class C
Shares occurs. For these purposes, the date of your initial
purchase shall mean (1) the first business day of the month in
which such Class C Shares were issued to you, or (2) for Class C
Shares of the Fund you have obtained through an exchange or
series of exchanges under the Exchange Privilege (see "Exchange
Privilege" in the Prospectus), the first business day of the
month in which you made the original purchase of Class C Shares
so exchanged. For conversion purposes, Class C Shares purchased
through reinvestment of dividends or other distributions paid in
respect of Class C Shares will be held in a separate sub-account.
Each time any Class C Shares in your regular account (other than
those in the sub-account) convert to Class A Shares, a pro-rata
portion of the Class C Shares in the sub-account will also
convert to Class A Shares. The portion will be determined by the
ratio that your Class C Shares then converting to Class A Shares
bears to the total of your Class C Shares not acquired through
reinvestment of dividends and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A Shares and
Class C Shares will not result in "preferential dividends" under
the Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Fund has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Fund implements any amendments to its Distribution
Plan that would increase materially the costs that may be borne
under such Distribution Plan by Class A Shares shareholders,
Class C Shares will stop converting into Class A Shares unless a
majority of Class C Shares shareholders, voting separately as a
class, approve the proposal.
GENERAL INFORMATION
Possible Additional Series
If additional Series (as discussed in the Prospectus) were
created by the Board of Trustees, shares of each such Series
would be entitled to vote as a Series only to the extent
permitted by the 1940 Act (see below) or as permitted by the
Board of Trustees. Income and operating expenses would be
allocated among two or more series in a manner acceptable to the
Board of Trustees.
Under Rule 18f-2 under the 1940 Act, any matter required to
be submitted to shareholder vote is not deemed to have been
effectively acted upon unless approved by the holders of a
"majority" (as defined in that Rule) of the voting securities of
each Series affected by the matter. Such separate voting
requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, Series. A change in
investment policy may go into effect as to one or more Series
whose holders so approve the change, even though the required
vote is not obtained as to the holders of other affected Series.
Ownership of Securities
Of the Class A Shares of the Fund outstanding on March 31,
1997, Aquila Management Corporation held of record 8,767 shares
(6.3% of the class).
Of the Class C Shares of the Fund outstanding on March 31,
1997, Dain Bosworth, Inc. F/B/O held 136.9 shares (49.1% of the
class) and Paine Webber F/B/O held 134.3% (48.2% of the class).
On the basis of information received from those holders, the
Fund's management believes that all of such shares are held for
the benefit of clients.
Of the Class Y Shares of the Fund outstanding on March 31,
1997, Kirkpatrick, Pettis, Smith, Polian, Inc. held 8,845 shares
(99.9% of the class). On the basis of information received from
the holder, the Fund's management believes that all of such
shares are held for the benefit of clients.
The Fund's management is not aware of any other person
owning of record or beneficially 5% or more of the shares of any
class of Fund's outstanding shares as of that date.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Fund may, under certain circumstances, be held personally liable
as partners for the obligations of the Fund. For shareholder
protection, however, an express disclaimer of shareholder
liability for acts or obligations of the Fund is contained in the
Declaration of Trust which requires that notice of such
disclaimer be given in each agreement, obligation, or instrument
entered into or executed by the Fund or the Trustees. The
Declaration of Trust provides for indemnification out of the
Fund's property of any shareholder held personally liable for the
obligations of the Fund. The Declaration of Trust also provides
that the Fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of
the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is limited to the relatively remote circumstances in
which the Fund itself would be unable to meet its obligations. In
the event the Fund had two or more series, and if any such series
were to be unable to meet the obligations attributable to it
(which, as is the case with the Fund, is relatively remote), the
other Series would be subject to such obligations, with
corresponding increase in the risk of the shareholder liability
mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees of
the Fund out of the property of the Fund and provides that they
will not be liable for errors of judgment or mistakes of fact or
law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his or her office.
Custodian and Auditors
The Fund's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Fund's assets.
The Fund's auditors, KPMG Peat Marwick LLP, perform an
annual audit of the Fund's financial statements.
Underwriting Commissions
During the year ended December 31, 1996, the aggregate
dollar amount of sales charges on sales of shares in the Fund was
$20,630 and the amount retained by the Distributor was $187.
Custodian and Auditors
The Fund's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Fund's assets.
The Fund's auditors, KPMG Peat Marwick LLP, perform an
annual audit of the Fund's financial statements.
Financial Statements
The financial statements for the Fund for the fiscal year
ended December 31, 1996, which are contained in the Annual Report
for that fiscal year, are hereby incorporated by reference into
the Additional Statement. Those financial statements have been
audited by KPMG Peat Marwick LLP, independent auditors, whose
report thereon is incorporated herein by reference.
<PAGE>
APPENDIX A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS
Bond Ratings
At the date of this Additional Statement there are six
organizations considered as Nationally Recognized Statistical
Rating Organizations ("NRSROs") for purposes of Rule 15c3-1 under
the Securities Exchange Act of 1934. Their names, a brief summary
of their respective rating systems, some of the factors
considered by each of them in issuing ratings and their
individual procedures are described below.
STANDARD AND POOR'S CORPORATION
Commercial paper consists of unsecured promissory notes
issued to raise short-term funds. An S&P commercial paper rating
is a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. S&P's
commercial paper ratings are graded into several categories from
"A-1" for the highest-quality obligations (which can also have a
plus (+) sign designation) to "D" for the lowest. The two highest
categories are:
A-1: This highest category indicates the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus (+) sign.
A-2: Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high for issues designated A-1.
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific
obligation. The ratings are based, in varying degrees, on the
following considerations:
1) Likelihood of default -- capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the
obligations;
2) Nature of and provisions of the obligation; and
3) Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
The two highest categories are:
AAA: Capacity to pay interest and repay principal is
extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in a degree.
MOODY'S INVESTORS SERVICE
Moody's short-term debt ratings are opinions of the ability
of issuers to repay punctually senior debt obligations which have
an original maturity not exceeding one year. Obligations relying
upon support mechanisms such as letters of credit and bonds of
indemnity are excluded unless explicitly rated. The two highest
categories are:
Prime-1: Issuers rated P-1 have a superior ability for
repayment of senior short-term debt obligations, evidenced
by the following characteristics:
* Leading market positions in well-established
industries.
* High rates of return on funds employed.
* Conservative capital structure with moderate reliance
on debt and ample asset protection.
* Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
* Well-established access to a range of markets and
assured sources of alternative liquidity.
Prime-2: Issuers rated P-2 have a strong ability for
repayment of senior short-term debt obligations, evidenced
by the above-mentioned characteristics, but to a lesser
degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity
is maintained.
Corporate bonds rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by large or exceptionally stable margin and principal
is secure. Corporate bonds rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high-grade bonds. Aa bonds
are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risk appear
somewhat greater than the Aaa securities.
DUFF & PHELPS, INC.
The ratings apply to all obligations with maturities of
under one year, including commercial paper, the unsecured portion
of certificates of deposit, unsecured bank loans, master notes,
bankers' acceptances, irrevocable letters of credit and current
maturities of long-term debt. The two highest categories are:
D-1+: Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
access to alternative sources of funds is outstanding and
safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
D-1 -: High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection
factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are very small.
Long-term debt rated AAA represents the highest credit
quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt. Debt rated AA
represents high credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
IBCA
In determining the creditworthiness of financial
institutions, IBCA assigns ratings within the following
categories: Legal, Individual, Short and Long Term. A legal
rating deals solely with the question of whether an institution
would receive support if it ran into difficulties and not whether
it is "good" or "bad". An individual rating looks purely at the
strength of a financial institution without receiving any
support. Short and long-term ratings assess the borrowing
capabilities and the capacity for timely repayment of debt
obligations. A short-term rating relates to debt which has a
maturity of less than one year, while a long-term rating applies
to a instrument of longer duration. The legal ratings are:
1: A bank for which there is a clear legal guarantee on the
part of its home state to provide any necessary support or a
bank of such importance both internationally and
domestically that support from the state would be
forthcoming, if necessary.
2: A bank for which there is no legal obligation on the part
of its sovereign entity to provide support but for which
state support would be forthcoming, for example, because of
its importance to the total economy or its historic
relationship with the government.
The individual ratings are:
A: A bank with a strong balance sheet, favorable credit
profile and a consistent record of above average
profitability.
B: A bank with a sound credit profile and without
significant problems. The bank's performance has generally
been in line with or better than that of its peers.
The short-term ratings are:
A-1+: Obligations supported by the highest capacity for
timely repayment.
A-1: Obligations supported by a very strong capacity for
timely repayment.
A-2: Obligations supported by a very strong capacity for
timely repayment, although such capacity may be susceptible
to adverse changes in business, economic or financial
conditions.
The long-term ratings are:
AAA: Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of
principal and interest is substantial, such that adverse
changes in business, economic or financial conditions are
unlikely to increase investment risk.
AA: Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment
risk albeit not significantly.
Thomson BankWatch, Inc. (TBW)
The TBW short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the
entities to which the rating has been assigned. TBW's two highest
short-term ratings are:
TBW-1: Indicates a very high degree of likelihood that
principal and interest will paid on a timely basis.
TBW-2: While the degree of safety regarding timely repayment
of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
The TBW long-term rating specifically assess the likelihood
of an untimely repayment of principal or interest over the term
to maturity of the rated instrument. TBW's two highest long-term
ratings are:
AAA: Indicates ability to repay principal and interest on a
timely basis is very strong.
AA: Indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
Fitch Investors Service, Inc.
The Fitch short-term ratings apply to debt obligations that
are payable on demand which include commercial paper,
certificates of deposit, medium-term notes and municipal and
investment notes. Short-term ratings places greater emphasis than
long-term ratings on the existence of liquidity necessary to meet
the issuer's obligations in a timely manner. Fitch short-term
ratings are:
F-1+: Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1: Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues
rated "F-1+".
The Fitch long-term rating represents their assessment of
the issuer's ability to meet the obligations of a specific debt
issue or class of debt in a timely manner. The rating takes into
consideration special features of the issue, its relationship to
other obligations of the issuer, the current and prospective
financial and operating performance of the issuer and any
guarantor, as well as the economic and political environment that
might affect the issuer's future financial strength and credit
quality. The Fitch long-term rating are:
AAA: Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest
and repay principal is very strong.
<PAGE>
INVESTMENT ADVISER
KPM Investment Management, Inc.
a subsidiary of Mutual of Omaha Insurance Company
10250 Regency Circle, Suite 200
Omaha, Nebraska 68114
and
One Norwest Center,
1700 Lincoln Street
Denver, Colorado 80203
SUB-ADVISER and ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
R. Thayne Robson
Cornelius T. Ryan
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior 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
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
Aquila
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Rocky Mountain
Equity Fund
STATEMENT OF
ADDITIONAL
INFORMATION
[LOGO]
One of The
Aquilasm Group Of Funds
