Registration Nos. 33-72212 & 811-8168
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 7 [ X ]
AQUILA ROCKY MOUNTAIN EQUITY FUND
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[_X_] on April 30, 1998, pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[___] on (date) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effective
date for a previous post-effective amendment.
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights
4..............Introduction; Investment of the Trust's
Assets; Investment Restrictions; General
Information
5..............Management Arrangements
5A.............**
6..............General Information; Dividend and Tax
Information
7..............Net Asset Value per Share; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information;
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind;
Computation of Net Asset Value; Automatic
Withdrawal Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus
caption); General Information
22.............Performance
* Not applicable or negative answer
** Contained in the annual report of the Registrant
<PAGE>
Aquila Rocky Mountain Equity Fund
380 Madison Avenue, Suite 2300
New York, NY 10017
800-762-5955
212-697-6666
Prospectus
Class A Shares
Class C Shares April 30, 1998
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, 1998 about the Fund (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
the Fund's Shareholder Servicing Agent, at the address given below,
or by calling the telephone number(s) given below. The Additional
Statement contains information about the Fund and its management
not included in 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:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-ROCKY-22 (800-762-5922) toll free
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 to 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 $393
million, Tax-Free Fund of Colorado, with assets of $221 million and
Tax-Free Fund For Utah, with assets of $32.5 million, all as of
March 31, 1998. 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 the Holding
Periods for Class C Shares" and "How to Purchase Class C
Shares.")
The Fund also offers Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors and
Financial Intermediary Class Shares ("Class I Shares") which are
offered and sold only through certain financial intermediaries.
Class Y Shares and Class I Shares are not offered by this
Prospectus.
Class A Shares and Class C Shares are only offered for sale in
certain states. (See "How to Invest in the Fund.") If shares of the
Fund are sold outside those states the Fund can redeem them.
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 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
Maximum 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) ......................... 1.25% 1.50%
Service Fee .............................. None 0.25%
Other Expenses After Expense
Reimbursement (4) ...................... 1.25% 1.25%
Total Fund Operating Expenses After
Expense Reimbursement and Fee Waivers (4) .. 1.50% 2.25%
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 .................. $57 $88 $121 $214
Class C Shares
With complete redemption
at end of period ........ $33 $70 $120 $222 (6)
With no redemption ........... $23 $70 $120 $222 (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.
</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 0.01% 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, 1997 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, 4.81%,
resulting in Total Fund Operating Expenses of 6.56%; for Class C Shares,
management fees, 1.50%; 12b-1 fee, 0.75%; service fee, 0.25%; and other
expenses, 4.77%, resulting in Total Fund Operating Expenses of 7.27%.
</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. Because of the effect of the asset-based
12b-1 fee and service fee on Class C Shares, long-term Class C shareholders
could pay the economic equivalent of an amount greater than the maximum
front-end sales charge allowed under applicable regulations.
</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) Class C(2)
Year Ended December 31, Year Ended Period Ended
Dec 31, Dec 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $15.05 $13.13 $15.07 $14.59
Income from Investment
Operations:
Net investment income
(loss).................... 0.01 (0.02) (0.11) 0.01
Net gain (loss) on
securities (both realized
and unrealized)........... 3.44 2.47 3.44 1.00
Total from Investment
Operations................ 3.45 2.45 3.33 1.01
Less Distributions:
Dividends from net
investment income.......... --- --- --- ---
Distributions from capital
gains...................... (0.61) (0.53) (0.61) (0.53)
Total Distributions......... (0.61) (0.53) (0.61) (0.53)
Net Asset Value,
End of Period................ $17.89 $15.05 $17.79 $15.07
Total Return (not reflecting
sales load) (%)............. 23.01 18.68 22.18 6.94+
Ratios/Supplemental Data
Net Assets, End of Period
($ in thousands)........... 3,144 2,178 7 4
Ratio of Expenses to Average
Net Assets (%)............. 1.50 1.50 2.26 1.25*
Ratio of Net Investment
Income Loss to Average Net
Assets (%)................. 0.05 (0.14) (0.70) 0.11*
Portfolio Turnover
Rate (%)................... 10.39 20.32 10.39 20.32+
Average commission rate
paid (4) ($)............... .0836 .0745 .0836 .0745
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances would
have been:
Net Investment Loss ($)....... (0.83) (1.05) (0.92) (0.72)
Ratio of Expenses to Average
Net Assets (5) (%)........... 6.56 8.84 7.27 8.59*
Ratio of Net Investment Loss
to Average Net Assets (%).... (5.01) (7.48) (5.71) (7.23)*
<CAPTION>
Class A(1)
Year Ended Period Ended
December 31, December 31,
1995 1994(3)
<C> <C>
$11.06 $11.43
(0.07) ---
2.25 (0.37)
2.18 (0.37)
(0.01) ---
(0.10) ---
(0.11) ---
$13.13 $11.06
19.68 (3.24)+
1,737 530
1.91 1.19*
(0.60) ---
15.14 2.95+
--- ---
(1.12) ---
10.48 18.20*
(9.17) ___
<FN>
(1) Designated as Class A Shares on May 1, 1996.
</FN>
<FN>
(2) New Class of Shares established on May 1, 1996.
</FN>
<FN>
(3) 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 its 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 based on average net assets of
$2,505,548, $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>
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 and/or manager to
fourteen Aquila-sponsored funds, including the Fund, with combined
net assets as of December 31, 1997 in excess of $2.9 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. Government
Securities 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 net asset value of the shares of each of the Fund's
classes of shares is determined as of 4:00 p.m., New York time, on
each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Fund's net assets (i.e., the
value of the assets less liabilities) allocable to each class by
the total number of shares of such class then outstanding.
Determination of the value of the Fund's assets is subject to the
direction and control of the Fund's Board of Trustees. 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 fixed-income securities maturing in 60 days or less are
generally valued at amortized cost; see the Additional Statement
for further information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus the Fund provides you with two
alternative ways to invest in the Fund through two separate classes
of shares. All classes represent interests in the same portfolio of
Securities. The classes of shares offered to individuals differ in
their sales charge structures and ongoing expenses, as described
below. You should choose the class that best suits your own
circumstances and needs.
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 the date of 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. 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. 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
represented by the Class C Shares. (See "Distribution Plan"
and "Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares, including Class C
Shares acquired in exchange for other Class C Shares under the
Exchange Privilege (see "Exchange Privilege"), are
automatically converted to Class A Shares. If you redeem Class
C Shares before you have held them for 12 months from the date
of purchase you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%, calculated on the net asset value
of the redeemed Class C Shares at the time of purchase or of
redemption, whichever is less. The amount of any CDSC will be
paid to the Distributor. The CDSC does not apply to shares
acquired through the reinvestment of dividends on Class C
Shares or to any Class C Shares held for more than 12 months
after purchase. For purposes of applying the CDSC and
determining the time of conversion, the 12-month and six-year
holding periods are considered modified by up to one month
depending upon when during a month your purchase of such
shares is made. (See "Computation of Holding Periods for Class
C Shares" and "How to Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions, second
of any Class C Shares you have held for more than 12 months from
the date of purchase and finally of those Class C Shares as to
which the CDSC is payable which you have held the longest. This
will result in your paying the lowest possible CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will be
deemed to have been made on the first business day of that month at
the average cost of all purchases made during that month. The
12-month CDSC holding period will end on the first business day of
the 12th calendar month after the date your purchase is deemed to
have been made. Accordingly, the CDSC holding period applicable to
your Class C Shares may be up to one month less than the full 12
months depending upon when your actual purchase was made during a
month. Running of the 12-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for Class C Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class C
Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day of
the month following that in which the sixth anniversary of your
purchase of the Class C Shares occurred, except as noted below.
Accordingly, the holding period applicable to your Class C Shares
may be up to one month more than the six years depending upon when
your actual purchase was made during a month. Because the per share
value of Class A Shares may be higher than that of Class C Shares
at the time of conversion, you may receive fewer Class A Shares
than the number of Class C Shares converted. If you have made one
or more exchanges of Class C Shares among the Aquila-sponsored
tax-free municipal bond funds or equity funds under the Exchange
Privilege, the six-year holding period is deemed to have begun on
the date you purchased your original Class C Shares of the Fund or
of another of the Aquila bond or equity funds. The six-year holding
period will be suspended by one month for each period of thirty
days during which you hold shares of a money market fund you have
received in exchange for Class C Shares under the Exchange
Privilege. (See "Exchange Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4.25% 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 the
Fund's Shareholder Servicing Agent (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, except that 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.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Fund are available only in the following states:
Alaska, Arizona, California, Colorado, District of Columbia,
Florida, Hawaii, Idaho, Kansas, Kentucky, Minnesota, Missouri,
Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, Ohio,
Oklahoma, Oregon, Texas (Class A Shares only), Utah, Washington,
Wisconsin (Class A Shares only) and Wyoming.
If you do not reside in one of these states you should not
purchase Class A Shares or Class C 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
Charge as Charge as Commissions
Percentage Approximate as
of Public Percentage Percentage
Offering of Amount of Offering
Amount of 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 purchases of $1 million or more see "Purchase of $1 Million
or More," below.
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing Class A Shares for his, her
or their own accounts; (c) a trustee or other fiduciary purchasing
Class A Shares for a single trust estate or a single fiduciary
account; (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
Class A Shares issued in a single purchase to a single purchaser
the value of which, when added to the value of the CDSC Class A
Shares and Class A Shares on which a sales charge has been paid,
already owned at the time of such purchase, equals or exceeds $1
million. CDSC Class A Shares also include certain Class A Shares
issued under the program captioned "Special Dealer Arrangements,"
below. CDSC Class A Shares do not include (i) Class A Shares
purchased without sales charge pursuant to the terms described
under "General," below and (ii) Class A Shares purchased in
transactions of less than $1 million and when certain special
dealer arrangements are not in effect under "Certain Investment
Companies" set forth under "Reduced Sales Charges," below.
When you purchase CDSC Class A Shares you will not pay a sales
charge at the time of purchase, and the Distributor will pay to any
dealer effecting such a purchase an amount equal to 1% of the sales
price of the shares purchased for purchases of $1 million but less
than $2.5 million, 0.50 of 1% for purchases of $2.5 million but
less than $5 million, and 0.25 of 1% for purchases of $5 million or
more.
If you redeem all or part of your CDSC Class A Shares
during the four years after your purchase of such shares, at the
time of redemption you will be required to pay to the Distributor
a special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at the
time of purchase or (ii) the net asset value of your redeemed CDSC
Class A Shares at the time of redemption (the "Redemption Value").
The special charge will be an amount equal to 1% of the Redemption
Value if the redemption occurs within the first two years after
purchase, and 0.50 of 1% of the Redemption Value if the redemption
occurs within the third or fourth year after purchase. The special
charge will apply to redemptions of CDSC Class A Shares purchased
without a sales charge pursuant to a Letter of Intent, as described
below under "Reduced Sales Charges for Certain Purchases of Class
A Shares." The special charge does not apply to Class A Shares
acquired through the reinvestment of dividends on CDSC Class A
Shares or to any CDSC Class A Shares held for more than four years
after purchase. In determining whether the special charge is
applicable, it will be assumed that the CDSC Class A Shares you
have held the longest are the first CDSC Class A Shares to be
redeemed, unless you instruct the Agent otherwise. It will also be
assumed that if you have both CDSC Class A Shares and non-CDSC
Class A Shares the non-CDSC Class A Shares will be redeemed
first.
For purposes of determining the holding period for CDSC Class
A Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that month
at the average cost of all purchases made during that month. The
four-year holding period will end on the first business day of the
48th calendar month after the date your purchase is deemed to have
been made. Accordingly, the CDSC holding period applicable to your
CDSC Class A Shares may be up to one month less than the full 48
months depending upon when your actual purchase was made during a
month. Running of the 48-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for CDSC Class A Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance with
the above schedule for subsequent purchases of Class A Shares if
the cumulative value (at cost or current net asset value, whichever
is higher) of Class A Shares you have previously purchased with a
sales charge and still own, together with Class A Shares of your
subsequent purchase with such a charge, amounts to $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
Fund or the Distributor has entered into an agreement relating to
such purchases. Except for the last category, purchasers must give
written assurance that the purchase is for investment and that the
Class A Shares will not be resold except through redemption. There
may be tax consequences of these purchases. Such purchasers should
consult their own tax counsel. Class A Shares may also be issued at
net asset value in a merger, acquisition or exchange offer made
pursuant to a plan of reorganization to which the Fund is a
party.
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 Class A Shares (iii) gives its endorsement or
authorization (if it is a group or association) to an investment
program to facilitate solicitation of its membership by a broker or
dealer; and (iv) complies with the conditions of purchase that are
set forth in any agreement entered into between the Fund and the
group, representative or broker or dealer. At the time of purchase
you must furnish the Distributor with information sufficient to
permit verification that the purchase qualifies for a reduced sales
charge, either directly or through a broker or dealer.
Certain Investment Companies: Class A Shares of the Fund
may be purchased at net asset value without sales charge (except as
set forth below under "Special Dealer Arrangements") to the extent
that the aggregate net asset value of such Class A Shares does not
exceed the proceeds from a redemption (a "Qualified Redemption"),
made within 120 days prior to such purchase, of shares of another
investment company on which a sales charge, including a contingent
deferred sales charge, has been paid. Additional information is
available from the Distributor.
To qualify, the following special procedures must be followed:
1. A completed Application (included in the Prospectus) and
payment for the Class A Shares to be purchased must be sent to
the Distributor, Aquila Distributors, Inc., 380 Madison
Avenue, Suite 2300, New York, NY 10017 and should not be sent
to the Shareholder Servicing Agent of the Fund. (This
instruction replaces the mailing address contained on the
Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective
shareholder has made a Qualified Redemption in an amount at
least equal to the net asset value of the Class A Shares to be
purchased. Satisfactory evidence includes a confirmation of
the date and the amount of the redemption from the investment
company, its transfer agent or the investor's broker or
dealer, or a copy of the investor's account statement with the
investment company reflecting the redemption transaction.
3. You must complete and return to the Distributor a Transfer
Request Form, which is available from the Distributor.
The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Fund) will
pay to any dealer effecting a purchase of Class A Shares of the
Fund using the proceeds of a Qualified Redemption the lesser of (i)
1% of such proceeds or (ii) the same amounts described under
"Purchase of $1 Million or More" above, on the same terms and
conditions. Class A Shares of the Fund issued in such a transaction
will be CDSC Class A Shares and if you thereafter redeem all or
part of such shares during the four-year period from the date of
purchase you will be subject to the special contingent deferred
sales charge described under "Purchase of $1 Million or More,"
above, on the same terms and conditions. Whenever the Special
Dealer Arrangements are in effect the Prospectus will be
supplemented.
How to Purchase Class C Shares
(Level-Payment Class Shares)
Level-Payment Class Shares ("Class C Shares") are offered
at net asset value with no sales charge payable at purchase. A
level charge is imposed for service and distribution fees for the
first six years after the date of purchase at the aggregate annual
rate of 1% of the average annual net assets of the Fund represented
by the Class C Shares. If you redeem Class C Shares before you have
held them for 12 months from the date of purchase you will pay a
contingent deferred sales charge ("CDSC"). The CDSC is charged at
the rate of 1%, calculated on the net asset value of the redeemed
Class C Shares at the time of purchase or at redemption, whichever
is less. There is no CDSC after Class C Shares have been held
beyond the applicable period. The CDSC does not apply to Class C
Shares acquired through the reinvestment of dividends on Class C
Shares.
The Distributor will pay to any dealer effecting a purchase of
Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Fund. Additional compensation may include
payment or partial payment for advertising of the Fund's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Fund effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through a Payroll Plan.
Investments can be made in either Class A Shares or Class C Shares.
In order to participate in a Payroll Plan, you should make
arrangements with your own employer's payroll department, and you
must complete and sign any special application forms which may be
required by your employer. You must also complete the Application
included in the Prospectus. Once your application is received and
put into effect, under a Payroll Plan the employer will make a
deduction from payroll checks in an amount you determine, and will
remit the proceeds to the Fund. An investment in the Fund will be
made for you at the offering price, which includes applicable sales
charges determined as described above, when the Fund receives the
funds from your employer. The Fund will send a confirmation of each
transaction to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to you
in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you so
request in writing to the Agent. All share certificates previously
issued by the Fund represent Class A Shares. No certificates will
be issued for fractional Class A Shares or if you have elected
Automatic Investment or Telephone Investment for Class A Shares
(see "How to Invest in the Fund" above) or Expedited Redemption
(see "How to Redeem Your Investment" below). If certificates for
Class A Shares are issued at your request, Expedited Redemption
Methods described below will not be available. In addition, you may
incur delay and expense if you lose the certificates.
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 four 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, 1997, $6,262 was
paid to Qualified Recipients under the Plan as then in effect, of
which $685 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. During the fiscal year ended
December 31, 1996 only nominal payments were made under this
plan.
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)
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: PFPC Inc., by FAX at 302-791-1777 or
by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter must provide 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: PFPC Inc., 400
Bellevue Parkway, Wilmington, DE 19809 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: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809 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, you may be charged a
fee for this service.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven days
after acceptance of such a redemption request. However, the right
of redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or determination of the net asset value
of, the portfolio securities to be unreasonable or impracticable;
or (iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of shares recently
purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) or by
Automatic Investment or Telephone Investment may be delayed up to
15 days or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Fund, that the
purchase check or Automatic Investment or Telephone Investment will
be honored. Possible delays in payment of redemption proceeds can
be eliminated by using wire payments or Federal Reserve drafts to
pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind of
securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. (See the Additional Statement for details.)
The Fund has the right to compel the redemption of shares held
in any account if the aggregate net asset value of such shares is
less than $500 as a result of shareholder redemptions or failure to
meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of a
redemption of shares in shares of the Fund of the same class as the
shares redeemed at the net asset value next determined after the
Agent receives your reinvestment order. In the case of Class C
Shares or CDSC Class A Shares on which a contingent deferred sales
charge was deducted at the time of redemption, the Distributor will
refund to you the amount of such sales charge, which will be added
to the amount of the reinvestment. The Class C Shares or CDSC Class
A Shares issued on reinvestment will be deemed to have been
outstanding from the date of your original purchase of the redeemed
shares, less the period from redemption to reinvestment. The
reinvestment privilege for any class may be exercised only once a
year, unless otherwise approved by the Distributor. If you have
realized a gain on the redemption of your shares, the redemption
transaction is taxable, and reinvestment will not alter any capital
gains tax payable. If there has been a loss on the redemption, some
or all of the loss may be tax deductible, depending on the amount
reinvested and the length of time between the redemption and the
reinvestment. You should consult your own tax advisor on this
matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the Fund having a net asset value of at
least $5,000. The Automatic Withdrawal Plan is not available for
Class C Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions must
be reinvested in your shareholder account. Redemption of Class A
Shares to make payments under the Automatic Withdrawal Plan will
give rise to a gain or loss for tax purposes. (See the Automatic
Withdrawal Plan provisions of the Application included in the
Prospectus, the Additional Statement under "Automatic Withdrawal
Plan," and "Dividend and Tax Information" below.)
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when purchases
are made. Accordingly, you may not maintain an Automatic Withdrawal
Plan while simultaneously making regular purchases. 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 Board of Trustees has approved a change in management
arrangements under which the Administrator will become Investment
Adviser and Administrator and the Advisor will become the Sub-
Advisor. The arrangements are subject to approval by the Fund's
shareholders. The new arrangements will not involve any change in
overall management fees nor in personnel.
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 $393 million, Tax-Free Fund of Colorado, with assets
of $221 million, and Tax-Free Fund For Utah, with assets of $32.5
million, all as of March 31, 1998.
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. 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. 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 Adviser has informed the Fund that it anticipates
performing its advisory function at its primary office in Omaha,
Nebraska, beginning no later than May 8, 1998. The Adviser
continues to maintain a team-oriented equity investment process,
utilizing the collective experience and knowledge of each of four
equity portfolio manager/analysts. The equity team divides research
responsibility by sector and each manager/analyst prepares both
industry research and recommendations on individual issues.
Mr. Randall D. Greer has final responsibility for the
investment process for the Fund. Mr. Greer has been President and
CEO of the Adviser since 1994. From 1988 to 1994, he was President
of Kirkpatrick, Pettis, Smith, Polian, Inc. ("Kirkpatrick,
Pettis"), a broker/dealer and investment adviser, which at that
time was the parent company and is now an affiliate of the Adviser.
From 1975 to 1987, he held various positions at Kirkpatrick, Pettis
including research analyst, Director of Research and Chief
Investment Officer. He is Chairman of the Adviser's Board of
Directors and a member of the Board of Kirkpatrick, Pettis and the
Kirkpatrick Pettis Trust Company. He holds a B.S. in Psychology
from the University of Nebraska at Lincoln and an M.B.A. from the
University of Florida. He is a Chartered Financial Analyst and a
member of the Association for Investment Management and
Research.
Mr. John Henry Schoenwise, who is part of the team and is
currently the Fund's Portfolio Manager has notified the Adviser
that he will resign effective May 8, 1998. 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, 1997,
these funds had aggregate assets of approximately $2.9 billion, of
which approximately $900 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, 1997, the Fund
accrued fees to the Adviser and Sub-Adviser respectively of
$19,571 and $22,367. All of such fees were waived. In addition, the
Sub-Adviser reimbursed the Fund for unamortized deferred
organization expenses in the amount of $8,734 and agreed to
reimburse the Fund for other expenses in the amount of $98,824, of
which $91,656 was paid during the fiscal year and $3,168 was paid
in January, 1998.
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 75% by Mr. Herrmann and 25% by Diana P. Herrmann,
will be owned by certain directors and/or officers of the
Administrator and/or the Distributor, including Mr. Herrmann and
Ms. Herrmann.
DIVIDEND AND TAX INFORMATION
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. Your gain or loss will be long-term if you held
the redeemed shares for over 18 months, mid-term if you held the
redeemed shares for over one year but not more than 18 months and
short-term, if for a year or less. Long term capital gains are
currently taxed at a maximum rate of 20%, mid-term capital gains
are currently taxed at a maximum rate of 28%, and short-term gains
are currently taxed at ordinary income tax rates.
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 (together with this 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.
Government Securities 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.
Generally, you can exchange shares of a given class of a
Bond or Equity Funds including the Fund for shares of the same
class of any other Bond or Equity Fund, or for shares of any Money
Market Fund, without the payment of a sales charge or any other
fee, and there is no limit on the number of exchanges you can make
from fund to fund. However, the following important information
should be noted:
(1) CDSCs upon redemptions of shares acquired through
exchanges. If you exchange shares subject to a CDSC no CDSC will be
imposed at the time of exchange, but the shares you receive in
exchange for them will be subject to the applicable CDSC if you
redeem them before the requisite holding period (extended, if
required) has expired.
If the shares you redeem would have incurred a CDSC if you
had not made any exchanges, then the same CDSC will be imposed upon
the redemption regardless the exchanges that have taken place since
the original purchase.
(2) Extension of holding periods by owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
shares received on an exchange of CDSC Class A Shares or Class C
Shares are held is not counted in computing the applicable holding
period for CDSC Class A Shares or Class C Shares.
(3) Originally purchased Money Market Fund shares. Shares
of a Money Market Fund (and any shares acquired as a result of
reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money Market
Fund shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they been
purchased rather than acquired in exchange for Money Market Fund
shares. If the shares received in exchange are shares that would be
subject to a CDSC if purchased directly, the holding period
governing the CDSC will run from the date of the exchange, not from
the date of the purchase of Money Market Shares.
This Fund, as well as the Money-Market Funds and other Bond or
Equity Funds, reserves the right to reject any exchange into its
shares, if shares of the fund into which exchange is desired are
not available for sale in your state of residence. The Fund may
also modify or terminate this exchange privilege at any time. In
the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange is at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-ROCKY-22 (800-762-5922) toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges will be effected at the relative exchange prices
of the shares being exchanged next determined after receipt by the
Agent of your exchange request. The exchange prices will be the
respective net asset values of the shares, unless a sales charge is
to be deducted in connection with an exchange of shares, in which
case the exchange price of shares of a Bond or Equity Fund will be
their public offering price. Prices for exchanges are determined in
the same manner as for purchases of the Fund's shares. (See "How to
Invest in the Fund.")
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see "Tax Effects of
Redemptions, and the Additional Statement); no representation is
made as to the deductibility of any such loss should such
occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
money-market Fund) are exempt from regular Federal income tax, and
to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Government Securities Cash Assets Trust (which
invests in U.S. Government 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 of its class; shares of the respective classes
represent proportionate interests in the Fund in accordance with
their respective net asset values. Upon liquidation of the Fund,
shareholders are entitled to share pro-rata in the net assets of
the Fund available for distribution to shareholders, in accordance
with the respective net asset values of the shares of each of the
Fund's classes at that time. All shares are presently divided into
four classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Fund may
create additional classes of shares, which may differ from each
other as provided in rules and regulations of the Securities and
Exchange Commission or by exemptive order. The Board of Trustees
may, at its own discretion, create additional series of shares,
each of which may have separate assets and liabilities (in which
case any such series will have a designation including the word
"Series"). (See the Additional Statement for further information
about possible additional series.) Shares are fully paid and
non-assessable, except as set forth under the caption "General
Information" in the Additional Statement; the holders of shares
have no pre-emptive or conversion rights, except that Class C
Shares convert automatically to Class A Shares after being held for
six years.
In addition to Class A Shares and Class C Shares, which are
offered by this Prospectus, the Fund also has (i) Institutional
Class Shares ("Class Y Shares"), which are offered only to
institutions acting for investors in a fiduciary, advisory, agency,
custodial or similar capacity and are not offered directly to
retail customers, and (ii) Financial Intermediary Class Shares
("Class I Shares"), which are offered and sold only through certain
financial intermediaries. Class Y Shares and Class I Shares are
offered by a separate prospectus, which can be obtained by calling
the Fund at 800-ROCKY-55 (800-762-5955.
The primary distinction among the Fund's four 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 four 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.
The Year 2000
Like other financial and business organizations, the Fund
could be adversely affected if computer systems the Fund relies on
do not properly process date-related information and data involving
the year 2000 and after. The Sub-Adviser is taking steps that it
believes are reasonable to address this problem in its own computer
systems and to obtain assurances that comparable steps are being
taken by the other major service providers to the Fund. The Sub-
Adviser has also requested the Fund's portfolio manager to evaluate
the potential impact of this problem on the issuers of securities
in which the Fund invests. At this time there can be no assurance
that these steps will be sufficient to avoid any adverse impact on
the Fund.
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:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
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:
___Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing the
Financial Institution account where I/we would like you to deposit
the dividend. (A Financial Institution is a commercial bank, savings
bank or credit union.)
___Mail check to my/our address listed in Step 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ YES ___ NO
This option provides you with a convenient way to have amounts
automatically drawn on your financial institution account and invested
in your 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 of $50 and maximum of $50,000) at any time you wish by simply
calling 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 Letter of Intent and Escrow at the end of this application)
(Check appropriate box)
___ YES ___ NO
I/We intend to invest in Class A Shares of the Fund during the 13-month
period from the date of my/our first purchase pursuant to this Letter
(which purchase cannot be more than 90 days prior to the date of this
Letter), an aggregate amount (excluding any reinvestment of dividends or
distributions) of at least $50,000 which together with my/our present
holdings of Fund shares (at public offering price on date of this
Letter), will equal or exceed the minimum amount checked below:
___ $50,000 ___ $100,000 ___ $250,000
___ $500,000
D. AUTOMATIC WITHDRAWAL PLAN
APPLICABLE TO CLASS A SHARES ONLY.
(Minimum investment $5,000)
Application must be received in good order at least 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, PFPC Inc. (the "Agent")
is authorized to redeem sufficient shares from this account at the then
current Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________,
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
______________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
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, PFPC Inc., and to pay such sums in accordance therewith,
provided my/our account has sufficient funds to cover such drafts or
debits. I/We further agree that your treatment of such orders will be
the same as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number ______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City_______________________________________State _________ Zip 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 Mutual of Omaha 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
Sue McCarthy-Jones, Senior Vice 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
Aquila
[LOGO]
Rocky
Mountain
Equity Fund
A capital appreciation investment
PROSPECTUS
April 30, 1998
[LOGO]
One of The
Aquilasm Group Of Funds
<PAGE>
Aquila Rocky Mountain Equity Fund
380 Madison Avenue, Suite 2300
New York, NY 10017
800-762-5955
212-697-6666
Prospectus
Class Y Shares April 30, 1998
Class I Shares
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, 1998 about the Fund (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
the Fund's Shareholder Servicing Agent, at the address given below,
or by calling the telephone number(s) given below. The Additional
Statement contains information about the Fund and its management
not included in 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:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-ROCKY-22 (800-762-5922) toll free
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 to 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.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 $393
million, Tax-Free Fund of Colorado, with assets of $221 million and
Tax-Free Fund For Utah, with assets of $32.5 million, all as of
March 31, 1998. 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."
Alternative Purchase Plans -- The Fund provides alternative
ways to invest. (See "How to Invest in the Fund.") For this purpose
the Fund offers classes of shares, which differ in their expense
levels and sales charges. This Prospectus offers the following
classes of shares:
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are
not offered directly to retail customers. Class Y Shares
are offered at net asset value with no sales charge, no
redemption fee, no contingent deferred sales charge and
no distribution fee. (See "How to Purchase Class Y
Shares.")
Financial Intermediary Class Shares ("Class I Shares")
are offered and sold only through financial
intermediaries with which Aquila Distributors, Inc. (the
"Distributor") has entered into sales agreements, and are
not offered directly to retail customers. Class I Shares
are offered at net asset value with no sales charge and
no redemption fee or contingent deferred sales charge,
although a financial intermediary may charge a fee for
effecting a purchase or other transaction on behalf of
its customers. Class I Shares may carry a distribution
fee of up to 0.25 of 1% of average annual net assets
allocable to Class I Shares, currently 0.10 of 1% of such
net assets, and a service fee of 0.25 of 1% of such
assets. (See "How to Purchase Class I Shares.")
At the date of this Prospectus, Class I Shares are not
available for purchase. When Class I Shares become available the
Prospectus will be supplemented.
The Fund's other classes of shares, Front-Payment Class Shares
("Class A Shares") and Level-Payment Class Shares ("Class C
Shares"), are not offered by this Prospectus. (See "General
Information - Description of the Fund and Its Shares.")
At the date of the Prospectus, Class Y Shares and Class I
Shares are registered for sale only in certain states. (See "How to
Invest in the Fund.") If Class Y Shares or Class I Shares of the
Fund are sold outside those states, except to certain institutional
investors, the Fund can redeem them.
Initial Investment - - You may open your account for Class
Y Shares with any purchase of $100,000 or more for fiduciary
accounts and $250,000 for all other eligible purchasers. These
minimums do not apply to shareholders with accounts open on April
30, 1998. (See the Application, which is in the back of the
Prospectus.) Class I Shares are sold only through financial
intermediaries, which may have their own minimum investment
requirement. (See "How to Invest in the Fund.")
Additional Investments - You may make additional
investments in Class Y Shares at any time and in any amount,
directly or, if in an amount of $50 or more, through the
convenience of having your investment electronically transferred
from your financial institution account into the Fund by Automatic
Investment or Telephone Investment. Additional investments in Class
I Shares can be made only through financial intermediaries, which
may have their own requirements for subsequent investments. (See
"How to Invest in the Fund.")
Redemptions - Liquidity - You may redeem any amount of your
Class Y Shares account on any business day at the next determined
net asset value by telephone, FAX or mail request, with proceeds
being sent to a predesignated financial institution, if you have
elected Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or will
be mailed. For these and other redemption procedures see "How to
Redeem Your Investment." All arrangements for redemptions of Class
I Shares must be made through financial intermediaries. The Fund
does not impose redemption fees for redemption of Class Y Shares or
Class I Shares. However, financial intermediaries may charge a fee
for effecting redemptions.
Distributions from the Fund - Distribution of any income
net of operating expenses or any net realized capital gains will be
made annually. At your choice, dividends on Class Y Shares are paid
by check mailed to you, directly deposited into your financial
institution account or automatically reinvested without sales
charge in additional Class Y Shares at the then-current net asset
value. All arrangements for the payment of dividends with respect
to Class I Shares, including reinvestment of dividends, must be
made through financial intermediaries. (See "Dividend and Tax
Information.") 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 other 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. Similar exchangability is available to Class I Shares to the
extent that other Aquila-sponsored funds are made available to its
customers by a financial intermediary. The exchange prices will be
the respective net asset values of the shares. (See "Exchange
Privilege.")
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 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 I Class Y
Shares Shares
Shareholder Transaction Expenses
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases ........... None None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested
Dividends ......................................... None None
Maximum Deferred Sales Charge ....................... None None
Redemption Fees ..................................... None None
Exchange Fee ........................................ None None
Annual Fund Operating Expenses (1)(2)
(as a percentage of average net assets)
Management Fees After Waivers ....................... 0.00% 0.00%
12b-1 Fee (3) ....................................... 0.10% None
Other Expenses After Expense Reimbursement .......... 1.50% 1.25%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waivers .................... 1.60% 1.25%
Example (4)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
1 year 3 years 5 years 10 years
Class I Shares ..................... $16 $50 $87 $190
Class Y Shares ..................... $13 $40 $69 $151
<FN>
(1) Estimated based upon expenses incurred by Class Y Shares during its
most recent fiscal year, restated to reflect current arrangements.
</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 0.01% expense offset in custodian
fees received for uninvested cash balances. Without fee waiver and expense
reimbursement and including the offset in custody fees, and based on
estimates for Class I, management fees, all other expenses, and total Fund
operating expenses for Class I Shares would have been 1.50%, 4.16%, and
5.76%, respectively; for Class Y Shares, these expenses would have been
1.50%, 3.91%, and 5.41%, respectively. Operating expenses for Class I
Shares include a 0.25% Service fee. (See "Shareholder Services Plan for
Class I Shares.")
</FN>
<FN>
(3) Current rates; up to 0.25% can be authorized.
</FN>
<FN>
(4) 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 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 with 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) Class Y(2)
Year Ended December 31, Year Ended Period Ended
Dec 31, Dec 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $15.05 $13.13 $15.07 $14.59
Income from Investment
Operations:
Net investment income
(loss).................... 0.01 (0.02) 0.04 0.01
Net gain (loss) on
securities (both realized
and unrealized)........... 3.44 2.47 3.41 1.00
Total from Investment
Operations................ 3.45 2.45 3.45 1.01
Less Distributions:
Dividends from net
investment income.......... --- --- --- ---
Distributions from capital
gains...................... (0.61) (0.53) (0.61) (0.53)
Total Distributions......... (0.61) (0.53) (0.61) (0.53)
Net Asset Value,
End of Period................ $17.89 $15.05 $17.91 $15.07
Total Return (not reflecting
sales load) (%)............. 23.01 18.68 22.98 6.94+
Ratios/Supplemental Data
Net Assets, End of Period
($ in thousands)........... 3,144 2,178 795 133
Ratio of Expenses to Average
Net Assets (%)............. 1.50 1.50 1.27 1.25*
Ratio of Net Investment
Income Loss to Average Net
Assets (%)................. 0.05 (0.14) 0.23 0.11*
Portfolio Turnover
Rate (%)................... 10.39 20.32 10.39 20.32+
Average commission rate
paid (4) ($)............... .0836 .0745 .0836 .0745
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances would
have been:
Net Investment Loss ($)....... (0.83) (1.05) (0.65) (0.72)
Ratio of Expenses to Average
Net Assets (5) (%)........... 6.56 8.84 5.41 8.59*
Ratio of Net Investment Loss
to Average Net Assets (%).... (5.01) (7.48) (3.91) (7.23)*
<CAPTION>
Class A(1)
Year Ended Period Ended
December 31, December 31,
1995 1994(3)
<C> <C>
$11.06 $11.43
(0.07) ---
2.25 (0.37)
2.18 (0.37)
(0.01) ---
(0.10) ---
(0.11) ---
$13.13 $11.06
19.68 (3.24)+
1,737 530
1.91 1.19*
(0.60) ---
15.14 2.95+
--- ---
(1.12) ---
10.48 18.20*
(9.17) ___
<FN>
(1) Designated as Class A Shares on May 1, 1996.
</FN>
<FN>
(2) New Class of Shares established on May 1, 1996.
</FN>
<FN>
(3) 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 its 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 based on average net assets of
$2,505,548, $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>
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 and/or manager to
fourteen Aquila-sponsored funds, including the Fund, with combined
net assets as of December 31, 1997 in excess of $2.9 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. Government
Securities 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 net asset value of the shares of each of the Fund's
classes of shares is determined as of 4:00 p.m., New York time, on
each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Fund's net assets (i.e., the
value of the assets less liabilities) allocable to each class by
the total number of shares of such class then outstanding.
Determination of the value of the Fund's assets is subject to the
direction and control of the Fund's Board of Trustees. 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
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of
securities.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are not
offered directly to retail customers. Class Y Shares are
offered at net asset value with no sales charge, no redemption
fee, no contingent deferred sales charge and no distribution
fee.
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. (the "Distributor") has
entered into sales agreements, and are not offered directly to
retail customers. Class I Shares are offered at net asset
value with no sales charge and no redemption fee or contingent
deferred sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other transaction on
behalf of its customers. Class I Shares may carry a
distribution fee of up to 0.25 of 1% of average annual net
assets allocable to Class I Shares, currently 0.10 of 1% of
such net assets, and a service fee of 0.25 of 1% of such
assets. (See "Distribution Plan" and "Shareholder Services
Plan for Class I Shares.")
At the date of this Prospectus, Class I Shares are not
available for purchase. When Class I Shares become available the
Prospectus will be supplemented.
The Fund's other classes of shares, Front-Payment Class Shares
("Class A Shares") and Level-Payment Class Shares ("Class C
Shares"), are not offered by this Prospectus. (See "General
Information - Description of the Fund and Its Shares.")
At the date of the Prospectus, Class Y Shares of the Fund
are registered for sale only in Alaska, Arizona, California,
Colorado, District of Columbia, Florida, Hawaii, Idaho, Kansas,
Missouri, Montana, Nebraska, New Jersey, New Mexico, New York,
Oregon, Utah and Wyoming; Class I Shares of the Fund are registered
for sale only in Colorado and New York.
If you do not reside in one of those states you should not
purchase shares. If shares are sold outside of those states except
to certain institutional investors, the Fund can redeem them. Such
a redemption may result in a loss to you and may have tax
consequences. 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.
How to Purchase Class Y Shares
Institutional Class Shares ("Class Y Shares") are offered
only to institutional investors for investments held in a
fiduciary, advisory, agency, custodial or similar capacity, or
through them to their clients, and are not offered directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee.
Class Y Shares of the Fund may be purchased through any
investment broker or dealer (a "selected dealer") which has a sales
agreement with Aquila Distributors, Inc. (the "Distributor") or
through the Distributor. There are two ways to make an initial
investment: (i) order the shares through your investment broker or
dealer, if it is a selected dealer; or (ii) mail the Application
with payment to the Fund's Shareholder Servicing Agent (the
"Agent") at the address on the Application. There is no sales
charge on initial or subsequent investments. You are urged to
complete an Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment.
The minimum initial investment for Class Y Shares is
$100,000 for fiduciaries and $250,000 for all other eligible
purchasers, except that this limitation does not apply to
shareholders with accounts open on October 31, 1997, or as
otherwise stated in the Prospectus or Additional Statement. Such
investment must be drawn in United States dollars on a United
States commercial or savings bank or 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.
How to Purchase Class I Shares
Initial and subsequent investments in Class I Shares must
be made through financial intermediaries and cannot be made
directly. Financial intermediaries may set minimum amounts for
initial purchase and subsequent investments in Class I Shares and
may charge a fee for effecting a purchase or other transaction on
behalf of customers. Financial intermediaries that make Class I
Shares of the Fund and other mutual funds available to their
customers may offer distinct services, may have their own charges
for services and may impose their own minimum requirements for
initial and subsequent investments. Customers of financial
intermediaries should read the Prospectus in light of the terms of
their accounts with financial intermediaries. Financial
intermediaries that have entered into specific agreements with the
Fund may enter confirmed purchase orders on behalf of clients and
customers, with payment to follow not later than the Fund's pricing
of Class I Shares on the following business day. If payment is not
received by that time the financial intermediary could be held
liable for resulting fees or losses.
Offering Price
The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to all
purchase orders received by the Agent from selected dealers that
day, except that orders received by it after 4:00 p.m. New York
time will receive that day's offering price only if such orders
were received by selected dealers from customers prior to such time
and transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so transmitted,
such orders will be filled at the next determined offering price.
Selected dealers are required to transmit orders promptly.
Investments by mail are made at the offering price next determined
after receipt of the purchase order by the Agent. Purchase orders
received on other than a business day will be executed on the next
succeeding business day. Purchases by Automatic Investment and
Telephone Investment will be executed on the first business day
occurring on or after the date an order is considered received by
the Agent at the price determined on that day. In the case of
Automatic Investment your order will be executed on the date you
specified for investment at the price determined on that day. If
that day is not a business day your order will be executed at the
price determined on the next business day. In the case of Telephone
Investment your order will be filled at the next determined
offering price except that 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.
The offering price for Class I Shares is the net asset
value per share. The offering price determined on any day applies
to all purchases received by each financial intermediary prior to
4:00 p.m. New York time on any business day. Purchase orders
received by financial intermediaries after that time will be filled
at the next determined offering price.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Fund. Additional compensation may include
payment or partial payment for advertising of the Fund's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Fund effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of Class Y Shares will be confirmed and
credited to you in an account maintained for you at the Agent in
full and fractional shares of the Fund (rounded to the nearest
1/1000th of a share). Purchases of Class I Shares will be confirmed
by financial intermediaries. No share certificates will be issued
for Class Y Shares or Class I Shares.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended
to result in the sale of its shares except pursuant to a written
plan adopted under the Rule. No payments under the Plan from assets
represented by Class Y Shares are authorized.
Under a part of the Plan, the Fund is authorized to make
payments with respect to Class I Shares ("Class I Permitted
Payments") to Qualified Recipients. Class I Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal year
of the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Plan are not accruable or for any
fiscal year which is not a full fiscal year), a rate set from time
to time by the Board of Trustees (currently 0.10 of 1%) but not
more than 0.25 of 1% of the average annual net assets represented
by the Class I Shares of the Fund. Such payments shall be made only
out of the Fund's assets allocable to the Class I Shares.
"Qualified Recipients" means financial intermediaries selected by
the Distributor with which the Fund or the Distributor has entered
into written agreements to act in such capacity.
The Plan contains provisions designed to protect against
any claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for payments made with respect to Class A Shares and
Class C Shares under other parts of the Plan, and with respect to
Class I Shares as discussed above, 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
Redemption of Class Y Shares
You may redeem all or any part of your Class Y Shares at the
net asset value next determined after acceptance of your redemption
request at the Agent. Redemptions can be made by the various
methods described below. There is no minimum period for any
investment in the Fund, except for shares recently purchased by
check, Automatic Investment or Telephone Investment as discussed
below. There are no redemption fees or penalties on redemption of
Class Y Shares. A redemption may result in a transaction taxable to
you.
For your convenience the Fund offers expedited redemption for
Class Y Shares to provide you with a high level of liquidity for
your investment.
Expedited Redemption Methods
You have the flexibility of two expedited methods of
initiating redemptions of Class Y Shares.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your address
of record during the 30 days preceding your redemption
request. You can make only one request for telephone
redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
Toll-free 800-ROCKY-22 (800-762-5922)
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: PFPC Inc., by FAX at 302-791-1777 or
by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter must provide 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 and 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 the Fund's
Shareholder Servicing Agent: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809. The letter must contain:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated below.
For your redemption request to be in "proper form," the
signature or signatures must be the same as in the registration of
the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required if
sufficient documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature
guarantor.
Redemption of Class I Shares
You may redeem all or any part of your Class I Shares at
the net asset value next determined after acceptance of your
redemption request by your financial intermediary. Redemption
requests for Class I Shares must be made through a financial
intermediary and cannot to be made directly. Financial
intermediaries may charge a fee for effecting redemptions. There is
no minimum period for any investment in the Fund. The Fund does
not impose redemption fees or penalties on redemption of Class I
Shares. A redemption may result in a transaction taxable to
you.
Redemption Payments
Redemption payments with respect to Class Y Shares will
ordinarily be mailed to you at your address of record. If you so
request and the amount of your redemption proceeds is $1,000 or
more, the proceeds will, wherever possible, be wired or transferred
through the facilities of the Automated Clearing House to the
Financial Institution account specified in the Expedited Redemption
section of your Application or Ready Access Features form. The Fund
may impose a charge, not exceeding $5.00 per wire redemption, after
written notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this charge.
Upon 30 days' written notice to shareholders, the Fund may modify
or terminate the use of the Automated Clearing House to make
redemption payments at any time or charge a service fee, although
no such fee is presently contemplated. If any such changes are
made, the Prospectus will be supplemented to reflect them. If you
use a broker or dealer to arrange for a redemption, it may charge
you a fee for this service. Redemption payments for Class I Shares
are made to financial intermediaries.
The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven days
after acceptance of such a redemption request. However, the right
of redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or determination of the net asset value
of, the portfolio securities to be unreasonable or impracticable;
or (iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of 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 of
Class Y Shares can be eliminated by using wire payments or Federal
Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind of
securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. (See the Additional Statement for details.)
The Fund has the right to compel the redemption of shares held
in any account if the aggregate net asset value of such shares is
less than $500 as a result of shareholder redemptions or failure to
meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
If you had a Class Y Shares account with the Fund before
April 30, 1998, 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. The Automatic Withdrawal Plan is not
otherwise available through this Prospectus. 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 Board of Trustees has approved a change in management
arrangements under which the Administrator will become Investment
Adviser and Administrator and the Advisor will become the Sub-
Advisor. The arrangements are subject to approval by the Fund's
shareholders. The new arrangements will not involve any change in
overall management fees nor in personnel.
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 $393 million, Tax-Free Fund of Colorado, with assets
of $221 million, and Tax-Free Fund For Utah, with assets of $32.5
million, all as of March 31, 1998.
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. 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. 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 Adviser has informed the Fund that it anticipates
performing its advisory function at its primary office in Omaha,
Nebraska, beginning no later than May 8, 1998. The Adviser
continues to maintain a team-oriented equity investment process,
utilizing the collective experience and knowledge of each of four
equity portfolio manager/analysts. The equity team divides research
responsibility by sector and each manager/analyst prepares both
industry research and recommendations on individual issues.
Mr. Randall D. Greer has final responsibility for the
investment process for the Fund. Mr. Greer has been President and
CEO of the Adviser since 1994. From 1988 to 1994, he was President
of Kirkpatrick, Pettis, Smith, Polian, Inc. ("Kirkpatrick,
Pettis"), a broker/dealer and investment adviser, which at that
time was the parent company and is now an affiliate of the Adviser.
From 1975 to 1987, he held various positions at Kirkpatrick, Pettis
including research analyst, Director of Research and Chief
Investment Officer. He is Chairman of the Adviser's Board of
Directors and a member of the Board of Kirkpatrick, Pettis and the
Kirkpatrick Pettis Trust Company. He holds a B.S. in Psychology
from the University of Nebraska at Lincoln and an M.B.A. from the
University of Florida. He is a Chartered Financial Analyst and a
member of the Association for Investment Management and
Research.
Mr. John Henry Schoenwise, who is part of the team and is
currently the Fund's Portfolio Manager has notified the Adviser
that he will resign effective May 8, 1998. 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, 1997,
these funds had aggregate assets of approximately $2.9 billion, of
which approximately $900 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, 1997, the Fund
accrued fees to the Adviser and Sub-Adviser respectively of
$19,571 and $22,367. All of such fees were waived. In addition, the
Sub-Adviser reimbursed the Fund for unamortized deferred
organization expenses in the amount of $8,734 and agreed to
reimburse the Fund for other expenses in the amount of $98,824, of
which $91,656 was paid during the fiscal year and $3,168 was paid
in January, 1998.
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 75% by Mr. Herrmann and 25% by Diana P. Herrmann,
will be owned by certain directors and/or officers of the
Administrator and/or the Distributor, including Mr. Herrmann and
Ms. Herrmann.
DIVIDEND AND TAX INFORMATION
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. 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. If you are required to pay a contingent deferred sales
charge at the time of redemption, the amount of that charge will
reduce the amount of your gain or increase the amount of your loss
as the case may be. Your gain or loss will be long-term if you held
the redeemed shares for over 18 months, mid-term if you held the
redeemed shares for over one year but not more than 18 months and
short-term, if for a year or less. Long term capital gains are
currently taxed at a maximum rate of 20%, mid-term capital gains
are currently taxed at a maximum rate of 28%, and short-term gains
are currently taxed at ordinary income tax rates.
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 (together with this 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.
Government Securities Cash Assets Trust (Original Shares) and
Churchill Cash Reserves Trust.
Class Y Shares of the Fund may be exchanged only for Class
Y Shares of the Bond or Equity Funds or for shares of a
Money-Market Fund. Similar exchangability is available to Class I
Shares to the extent that other Aquila-sponsored funds are made
available to its customers by a financial intermediary. All
exchanges of Class I Shares must be made through your financial
intermediary.
Under the Class Y exchange privilege, once Class Y Shares
of any Bond or Equity Fund have been purchased, those shares (and
any Class Y 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, provided that
the applicable minimum investment requirements for purchase of
Class Y Shares are met. (See "How to Purchase Class Y 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 is at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-ROCKY-22 (800-762-5922) toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges of Class Y Shares will be effected at the
relative net asset values of the Class Y Shares being exchanged
next determined after receipt by the Agent of your exchange
request. Exchanges of Class I Shares will be effected at the
relative net asset values of the Class I Shares being exchanged
next determined after receipt by the financial intermediary of your
exchange request.
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see "Tax Effects of
Redemptions" and the Additional Statement); no representation is
made as to the deductibility of any such loss should such
occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
money-market Fund) are exempt from regular Federal income tax, and
to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Government Securities Cash Assets Trust (which
invests in U.S. Government 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 of its class; shares of the respective classes
represent proportionate interests in the Fund in accordance with
their respective net asset values. Upon liquidation of the Fund,
shareholders are entitled to share pro-rata in the net assets of
the Fund available for distribution to shareholders, in accordance
with the respective net asset values of the shares of each of the
Fund's classes at that time. All shares are presently divided into
four classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Fund may
create additional classes of shares (subject to rules and
regulations of the Securities and Exchange Commission or by
exemptive order) or the Board of Trustees may, at its own
discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such series
will have a designation including the word "Series"). See the
Additional Statement for further information about possible
additional series. Shares are fully paid and non-assessable, except
as set forth under the caption "General Information" in the
Additional Statement; the holders of shares have no pre-emptive or
conversion rights, except that Class C Shares automatically convert
to Class A Shares after being held for six years.
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 four 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 four 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 four parts. In addition to
the provisions described above under "Distribution Plan," Parts I
and II of the Plan authorize payments, to certain "Qualified
Recipients," out of the Fund assets allocable to the Class A Shares
and Class C Shares, respectively. (See the Additional Statement.)
The Fund has also adopted a Shareholder Services Plan under which
the Fund is authorized to make certain payments out of the Fund
assets allocable to the Class C Shares. (See the Additional
Statement.)
See the notes to the "Statement of Assets and Liabilities" in
the Additional Statement for information as to the amortization of
the Fund's organizational and start-up expenses.
The Year 2000
Like other financial and business organizations, the Fund
could be adversely affected if computer systems the Fund relies on
do not properly process date-related information and data involving
the year 2000 and after. The Sub-Adviser is taking steps that it
believes are reasonable to address this problem in its own computer
systems and to obtain assurances that comparable steps are being
taken by the other major service providers to the Fund. The Sub-
Adviser has also requested the Fund's portfolio manager to evaluate
the potential impact of this problem on the issuers of securities
in which the Fund invests. At this time there can be no assurance
that these steps will be sufficient to avoid any adverse impact on
the Fund.
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 I and Y Shares only
Please complete steps 1 through 4 and mail to:
PFPC Inc.
400 Bellevue Parkway, Wilmington,DE 19809
Tel. #1-800-762-5922
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 $100,000 for
Fiduciaries and $250,000 for all other eligible purchasers.)
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:
___Deposit directly into my/our Financial Institution account. ATTACHED
IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing the Financial
Institution account where I/we would like you to deposit the dividend.
(A Financial Institution is a commercial bank,savings bank or credit
union.)
___Mail check to my/our address listed in Step 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested
in your 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 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
(Available only to shareholders who
had Class Y Shares before April 30, 1998.)
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks
prior to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, PFPC Inc. (the "Agent")
is authorized to redeem sufficient shares from this account at the then
current Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
_______________________________ _____________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ _____________________________________
Street Financial Institution Street Address
_______________________________ _____________________________________
City State Zip City State Zip
_____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any
other persons telephone instructions to execute the exchange of
shares of one Aquila-sponsored fund for shares of another Aquila-
sponsored fund with identical shareholder registration in the manner
described in the Prospectus. Except for gross negligence in acting
upon such telephone instructions to execute an exchange, and subject
to the conditions set forth herein, I/we understand and agree to
hold harmless the Agent, each of the Aquila Funds, and their
respective officers, directors, trustees, employees, agents and
affiliates against any liability, damage, expense, claim or loss,
including reasonable costs and attorneys fees, resulting from
acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will
be mailed or wired, whenever possible, upon request, if in an amount
of $1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account initiated
by the Agent, PFPC Inc., and to pay such sums in accordance
therewith, provided my/our account has sufficient funds to cover such
drafts or debits. I/We further agree that your treatment of such orders
will be the same as if I/we personally signed or initiated the drafts
or debits. I/We understand that this authority will remain in effect
until you receive my/our written instructions to cancel this service.
I/We also agree that if any such drafts or debits are dishonored, for
any reason, you shall have no liabilities.
Financial Institution Account Number _______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account
is registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted
pursuant to the above authorization shall be subject to the
provisions of the Operating Rules of the National Automated
Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer
in connection with the execution and issuance of any electronic
debit in the normal course of business initiated by the Agent
(except any loss due to your payment of any amount drawn against
insufficient or uncollected funds), provided that you promptly
notify us in writing of any claim against you with respect to
the same, and further provided that you will not settle or pay
or agree to settle or pay any such claim without the written
permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs
and expenses in the event that you dishonor, with or without
cause, any such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is
of legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment
or Telephone Investment, if my/our account at the Financial
Institution has insufficient funds, the Fund and its agents may
cancel the purchase transaction and are authorized to liquidate
other shares or fractions thereof held in my/our Fund account to
make up any deficiency resulting from any decline in the net
asset value of shares so purchased and any dividends paid on
those shares. I/We authorize the Fund and its agents to correct
any transfer error by a debit or credit to my/our Financial
Institution account and/or Fund account and to charge the account
for any related charges. I/We acknowledge that shares purchased
either through Automatic Investment or Telephone Investment are
subject to applicable sales charges.
- - The Fund, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting
upon instructions believed to be genuine, and will not be
responsible for any losses resulting from unauthorized
telephone transactions if the Agent follows reasonable
procedures designed to verify the identity of the caller. The
Agent will request some or all of the following information:
account name and number; name(s) and social security number
registered to the account and personal identification; the
Agent may also record calls. Shareholders should verify the
accuracy of confirmation statements immediately upon receipt.
Under penalties of perjury, the undersigned whose Social
Security (Tax I.D.) Number is shown above certifies (i) that
Number is my correct taxpayer identification number and (ii)
currently I am not under IRS notification that I am subject to
backup withholding (line out (ii) if under notification). If no
such Number is shown, the undersigned further certifies, under
penalties of perjury, that either (a) no such Number has been
issued, and a Number has been or will soon be applied for; if
a Number is not provided to you within sixty days, the
undersigned understands that all payments (including
liquidations) are subject to 31% withholding under federal tax
law, until a Number is provided and the undersigned may be
subject to a $50 I.R.S. penalty; or (b) that the undersigned is
not a citizen or resident of the U.S.; and either does not
expect to be in the U.S. for 183 days during each calendar year
and does not conduct a business in the U.S. which would receive
any gain from the Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For 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 Mutual of Omaha 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
Sue McCarthy-Jones, Senior Vice 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
Aquila
[LOGO]
Rocky
Mountain
Equity Fund
PROSPECTUS
April 30, 1998
[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, 1998
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for the
Fund dated April 30, 1998: one Prospectus describes Front Payment
Class Shares ("Class A Shares") and Level-Payment Class Shares
("Class C Shares") of the Fund and the other describes
Institutional Class Shares ("Class Y Shares") and Financial
Intermediary Class Shares ("Class I Shares") of the Fund.
References in the Additional Statement to "the Prospectus" refer to
either of these Prospectuses. The Additional Statement should be
read in conjunction with the Prospectus for the class of shares in
which you are considering investing. Either or both Prospectuses
may be obtained from the Fund's Shareholder Servicing Agent, PFPC
Inc. by writing to: 400 Bellevue Parkway, Wilmington, DE 19809 or
by calling the following numbers:
800-ROCKY-22 (800-762-5922) toll free
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to it at 380 Madison Avenue, Suite 2300, New York, New York
10017; or by calling:
800-ROCKY-55 (800-762-5955) toll free or 212-697-6666
The Annual Report of the Fund for the fiscal year ended
December 31, 1997 (audited) will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Fund's Assets . . . . . . . . . . . . . . . .2
Performance . . . . . . . . . . . . . . . . . . . . . . . . . .7
Investment Restrictions . . . . . . . . . . . . . . . . . . . 10
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 11
Shareholder Services Plan . . . . . . . . . . . . . . . . . . 18
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 20
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 20
Additional Information as to Management Arrangements . . . . . 24
Computation of Net Asset Value . . . . . . . . . . . . . . . . 29
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 30
Additional Tax Information . . . . . . . . . . . . . . . . . . 30
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 30
General Information . . . . . . . . . . . . . . . . . . . . . 31
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 34
<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 underlying
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.
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. 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 include (i) the possible necessary sales of portfolio
securities to meet redemptions; and (ii) 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 four
classes of shares. The methods that may be used by the Fund are
described below.
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 in each of the Fund's classes of shares to the value
such an investment would have if it were completely redeemed at the
end of each such period.
In the case of Class A Shares, the maximum sales charge is
deducted from the hypothetical initial $1,000 purchase. 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 C Shares, the calculation assumes the applicable
Contingent Deferred Sales Charge ("CDSC") imposed on a redemption
of Class C Shares held for the period is deducted. In the case of
Class Y Shares, the calculation assumes that no sales charge is
deducted and no CDSC is imposed. For all three classes, it is
assumed that on each reinvestment date during each such period any
capital gains are reinvested at net asset value, and all income
dividends are reinvested at net asset value, without sales charge
(because the Fund does not impose any sales charge on reinvestment
of dividends for any class). The computation further assumes that
the entire hypothetical account was completely redeemed at the end
of each such period.
During most of the historical periods listed below, there
were no Class C Shares or Class Y Shares outstanding and the
information below relates solely to Class A Shares unless otherwise
indicated. Class I Shares were first offered on April 30, 1998 and
none were outstanding during the periods indicated.
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
<S> <C> <C> <C>
One Year 17.77% 22.18% 22.98%
Since
inception on
July 22, 1994 14.99% 17.36%(1) 17.81%(1)
<FN>
(1) Period from April 30, 1996 (inception of class) through December 31,
1997.
</FN>
</TABLE>
These figures were calculated according to the following SEC
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1 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 four classes of shares. Such quotations are computed in the
same manner as the Fund's average annual compounded rate, except
that such quotations will be based on the Fund's actual return for
a specified period as opposed to its average return over the
periods described above.
Total Return
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 17.77% 22.18% 22.98%
Since
inception on
July 24, 1994 61.84% 30.66%(1) 31.51%(1)
<FN>
(1) Period from April 30, 1996 (inception of class) through December 31,
1997.
</FN>
</TABLE>
In general, actual total rate of return will be lower than
average annual rate of return because the average annual rate of
return reflects the effect of compounding. See discussion of the
impact of the sales charge on quotations of rates of return, above.
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.
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"), 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.
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
the 1940 Act, the vote of the holders of a "majority" of the Fund's
outstanding shares means the vote of the holders of the lesser of
(a) 67% or more of the Fund's shares present at a meeting or
represented by proxy if the holders of more than 50% of its shares
are so present or represented; or (b) more than 50% of the Fund's
outstanding shares. Those fundamental policies not set forth in the
Prospectus are set forth below.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than 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 four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II), to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part
IV).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Fund would be considered Qualified
Holdings of various broker-dealers unaffiliated with the 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 Class Shares beneficially owned by such Qualified
Recipient, or beneficially owned by its brokerage customers, other
customers, other contacts, investment advisory clients, or other
clients, if the Qualified Recipient was, in the sole judgment of
the Distributor, instrumental in the purchase and/or retention of
such shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class 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 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.
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 (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 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
Shares Class ("Class C Shares") of the Fund (regardless of whether
such class is so designated or is redesignated by some other
name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to any principal
underwriter of the Fund, with which the Fund or the Distributor has
entered into written agreements in connection with Part II ("Class
C Plan Agreements") and which have rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Fund's Level-Payment Class Shares or servicing of
shareholder accounts with respect to such shares. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Level-Payment Class Shares beneficially owned by such Qualified
Recipient, or beneficially owned by its brokerage customers, other
customers, other contacts, investment advisory clients, or other
clients, if the Qualified Recipient was, in the sole judgment of
the Distributor, instrumental in the purchase and/or retention of
such shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class C Permitted Payments")
to Qualified Recipients, which Class C Permitted Payments may be
made directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), 0.75 of 1% of the
average annual net assets of the Fund represented by the
Level-Payment Class Shares. Such payments shall be made only out of
the Fund's assets allocable to the Level-Payment Class Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do not
exceed the amount set forth above. The Distributor is authorized,
but not directed, to take into account, in addition to any other
factors deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in
the shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Fund may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts;
furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on behalf
of the Fund, proxy statements, annual reports, updating
prospectuses and other communications from the Fund to its
shareholders; receiving, tabulating and transmitting to the Fund
proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and providing such other related services
as the Distributor or a shareholder may request from time to time;
and (c) the possibility that the Qualified Holdings of the
Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding
the foregoing two sentences, a majority of the Independent
Trustees (as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid thereafter;
if less than the full amount is accrued to all Qualified
Recipients, the difference will not be carried over to subsequent
years.
While Part II is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under 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 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.
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. Part II 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 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.
Payments Under the Plan
During the fiscal year ended December 31, 1997, the Fund
paid $6,262 under the Plan with respect to its Class A Shares of
which the Distributor received $685. There were only nominal
payments with respect to Class C Shares. 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. During
the fiscal year ended December 31, 1995, the Fund paid $3,099 under
the Plan with respect to what are now called Class A Shares of
which the Distributor received $371. There were no Class C Shares
then outstanding.
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name).
As used in Part III of the Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to any principal underwriter of the Fund, with which the Fund or
the Distributor has entered into written agreements in connection
with Part III ("Class I Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Class I Shares or
servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient, all
Class I Shares beneficially owned by such Qualified Recipient, or
beneficially owned by its brokerage customers, other customers,
other contacts, investment advisory clients, or other clients, if
the Qualified Recipient was, in the sole judgment of the
Distributor, instrumental in the purchase and/or retention of such
shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class I Permitted Payments")
to Qualified Recipients, which Class I Permitted Payments may be
made directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), at a rate fixed
for time to time by the Board of Trustees, initially 0.10 of 1% of
the average annual net assets of the Fund represented by the Class
I Shares, but not more than 0.25 of 1% of such assets. Such
payments shall be made only out of the Fund's assets allocable to
Class I Shares. The Distributor shall have sole authority (i) as to
the selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Class I
Permitted Payments, if any, to each Qualified Recipient provided
that the total Class I Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into account,
in addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Class I Shares, including
without limitation, any or all of the following activities:
answering customer inquiries regarding account status and history,
and the manner in which purchases and redemptions of shares of the
Fund may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in processing
purchase and redemption transactions; arranging for the wiring of
funds; transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts;
furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on behalf
of the Fund, proxy statements, annual reports, updating
prospectuses and other communications from the Fund to its
shareholders; receiving, tabulating and transmitting to the Fund
proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and providing such other related services
as the Distributor or a shareholder may request from time to time;
and (c) the possibility that the Qualified Holdings of the
Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding
the foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years.
While Part III is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class I Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which the
amounts were expended; and (ii) all fees of the Fund to the
Distributor, Sub-Adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the Fund,
the Adviser, the Administrator or the Distributor, such person
shall agree to furnish to the Distributor for transmission to the
Board of Trustees of the Fund an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part III originally went into effect when it was approved
by a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part III of the Plan. Part III has continued, and will, unless
terminated as thereinafter 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 III may be
terminated at any time by the vote of a majority of the Independent
Trustees or by the vote of the holders of a "majority" (as defined
in the 1940 Act) of the outstanding voting securities of the Fund
to which Part III applies. Part III may not be amended to increase
materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by Part III as
set forth in (ii) above, and all amendments must be approved in the
manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class I Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each
such agreement must be approved in accordance with, and contain the
provisions required by, the Rule. In the case of Qualified
Recipients which are not principal underwriters of the Fund, the
Class I Plan Agreements with them shall be (i) their agreements
with the Distributor with respect to payments under the Fund's
Distribution Plan in effect prior to April 1, 1996 or (ii) Class I
Plan Agreements entered into thereafter.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to
the extent that any of the payments listed below are considered to
be "primarily intended to result in the sale of" shares issued by
the Fund within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of all
reports and notices to shareholders and the costs of printing and
mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares of
the Fund or other funds or other investments; (ii) the costs of the
preparation and setting in type of all prospectuses and statements
of additional information and the costs of printing and mailing all
prospectuses and statements of additional information to existing
shareholders; (iii) the costs of preparation, printing and mailing
of any proxy statements and proxies, irrespective of whether any
such proxy statement includes any item relating to, or directed
toward, the sale of the Fund's shares; (iv) all legal and
accounting fees relating to the preparation of any such reports,
prospectuses, statements of additional information, proxies and
proxy statements; (v) all fees and expenses relating to the
registration or qualification of the Fund and/or its shares under
the securities or "Blue-Sky" laws of any jurisdiction; (vi) all
fees under the Securities Act of 1933 and the 1940 Act, including
fees in connection with any application for exemption relating to
or directed toward the sale of the Fund's shares; (vii) all fees
and assessments of the Investment Company Institute or any
successor organization, irrespective of whether some of its
activities are designed to provide sales assistance; (viii) all
costs of the preparation and mailing of confirmations of shares
sold or redeemed or share certificates, and reports of share
balances; and (ix) all costs of responding to telephone or mail
inquiries of investors or prospective investors.
The Plan states that while it is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund shall be committed to the discretion of such
disinterested Trustees but that nothing in the Plan shall prevent
the involvement of others in such selection and nomination if the
final decision on any such selection and nomination is approved by
a majority of such disinterested Trustees.
The Plan 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 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 Plan defines as the Fund's Independent Trustees those
Trustees who are not "interested persons" of the Fund as defined in
the 1940 Act and who have no direct or indirect financial interest
in the operation of the Plan or in any agreements related to the
Plan. The Plan, unless terminated as therein provided, continues in
effect from year to year only so long as such continuance is
specifically approved at least annually by the Fund's Board of
Trustees and its Independent Trustees with votes cast in person at
a meeting called for the purpose of voting on such continuance. In
voting on the implementation or continuance of the Plan, those
Trustees who vote to approve such implementation or continuance
must conclude that there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders. The Plan may be
terminated at any time by vote of a majority of the Independent
Trustees or by the vote of the holders of a "majority" (as defined
in the 1940 Act) of the outstanding voting securities of the Fund.
The Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval and all amendments
must be approved in the manner set forth above as to continuance of
the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act as
now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part IV shall be deemed to be
severable, within the meaning of and to the extent required by Rule
18f-3, with respect to each outstanding class of shares of the
Fund.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares and Class I Shares of the Fund of "Service Fees" within
the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. The Services Plan applies
only to the Class C Shares and Class I Shares of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name).
Provisions for Level-Payment Class Shares (Part I)
As used in Part I of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the Fund,
who have, pursuant to written agreements with the Fund or the
Distributor, agreed to provide personal services to shareholders of
Level-Payment Class Shares and/or maintenance of Level-Payment
Class shareholder accounts. "Qualified Holdings" shall mean, as to
any Qualified Recipient, all Level-Payment Class Shares
beneficially owned by such Qualified Recipient's customers, clients
or other contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Service Fees") to Qualified
Recipients, which Service Fees (i) may be paid directly or through
the Distributor or shareholder servicing agent as disbursing agent
and (ii) may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Services Plan are not accruable or for any
fiscal year which is not a full fiscal year), 0.25 of 1% of the
average annual net assets of the Fund represented by the
Level-Payment Class Shares. Such payments shall be made only out of
the Fund's assets allocable to the Level-Payment Class Shares. The
Distributor shall have sole authority with respect to the selection
of any Qualified Recipient or Recipients and the amount of Service
Fees, if any, paid to each Qualified Recipient, provided that the
total Service Fees paid to all Qualified Recipients may not exceed
the amount set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a) the
amount of the Qualified Holdings of the Qualified Recipient and (b)
the extent to which the Qualified Recipient has, at its expense,
taken steps in the shareholder servicing area with respect to
holders of Level-Payment Class Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Fund may
be effected; assisting shareholders in designating and changing
dividend options, account designations and addresses; providing
necessary personnel and facilities to establish and maintain
shareholder accounts and records; assisting in processing purchase
and redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees (as
defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years. Service
Fees with respect to Class C Shares will be paid to the
Distributor. During the fiscal year ended December 31, 1997, $11.00
was paid to the Distributor.
Provisions for Financial Intermediary Class Shares (Part II)
As used in Part II of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the Fund,
who have, pursuant to written agreements with the Fund or the
Distributor, agreed to provide personal services to shareholders of
Financial Intermediary Class Shares, maintenance of Financial
Intermediary Class shareholder accounts and/or pursuant to specific
agreements entering confirmed purchase orders on behalf of
customers or clients. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Financial Intermediary Class Shares
beneficially owned by such Qualified Recipient's customers, clients
or other contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Service Fees") to Qualified
Recipients, which Service Fees (i) may be paid directly or through
the Distributor or shareholder servicing agent as disbursing agent
and (ii) may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Services Plan are not accruable or for any
fiscal year which is not a full fiscal year), 0.25 of 1% of the
average annual net assets of the Fund represented by the Financial
Intermediary Class Shares. Such payments shall be made only out of
the Fund's assets allocable to the Financial Intermediary Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and provided,
further, that no Qualified Recipient may receive more than 0.25 of
1% of the average annual net asset value of shares sold by such
Recipient. The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options, account
designations and addresses; providing necessary personnel and
facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from time
to time. Notwithstanding the foregoing two sentences, a majority of
the Independent Trustees (as defined below) may remove any person
as a Qualified Recipient. Amounts within the above limits accrued
to a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
General Provisions
While the Services Plan is in effect, the Fund's
Distributor shall report at least quarterly to the Fund's Trustees
in writing for their review on the following matters: (i) all
Service Fees paid under the Services Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which the
amounts were expended; and (ii) all fees of the Fund to the
Distributor paid or accrued during such quarter. In addition, if
any Qualified Recipient is an "affiliated person," as that term is
defined in the 1940 Act, of the Fund, the Adviser, the
Administrator or the Distributor, such person shall agree to
furnish to the Distributor for transmission to the Board of
Trustees of the Fund an accounting, in form and detail satisfactory
to the Board of Trustees, to enable the Board of Trustees to make
the determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Fund and had no direct or indirect financial interest in the
operation of the Services Plan or in any agreements related to the
Services Plan (the "Independent Trustees"), with votes cast in
person at a meeting called for the purpose of voting on the
Services Plan. It will continue in effect for a period of more than
one year from its original effective date only so long as such
continuance is specifically approved at least annually as set forth
in the preceding sentence. It may be amended in like manner and may
be terminated at any time by vote of the Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the 1940 Act as now in
force or hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing 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 Sub-Adviser 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 Sub-Adviser and
the Distributor. Ms. Herrmann is an interested person as an officer
of the Sub-Adviser. They are so designated by an asterisk.
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
Manager, Administrator and/or Adviser or Sub-Adviser to the
following open-end investment companies, and Founder, Chairman of
the Board of Trustees, and President of each: Hawaiian Tax-Free
Trust since 1984; Tax-Free Trust of Arizona since 1986; Tax-Free
Trust of Oregon since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; 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, the Fund and Aquila Cascadia Equity Fund since
1996, which, together with this Fund are called the Aquila Bond and
Equity Funds; and Pacific Capital Cash Assets Trust since 1984;
Churchill Cash Reserves Trust since 1985; Pacific Capital U.S.
Government Securities 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, of Pacific Capital Tax-Free Cash Assets
Trust and Pacific Capital U.S. Government Securities 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;present or formerly an officer and/or director of
various other community and professional organizations.
Diana P. Herrmann*, Trustee and Vice President, 380 Madison Avenue,
New York, New York 10017
Trustee of Tax-Free Trust of Arizona and Tax-Free Trust of
Oregon since 1994, of Churchill Tax-Free Fund of Kentucky and
Churchill Cash Reserves Trust since 1995, of Aquila Cascadia Equity
Fund since 1996 and Tax-Free Fund for Utah since 1997; President
and Chief Operating Officer of the Sub-Adviser since 1997; Senior
Vice President and Secretary, formerly Vice President of the
Sub-Adviser since 1986 and Director since 1984; Senior Vice
President or Vice President and formerly Assistant Vice President
of the Aquila Money-Market Funds since 1986; Vice President of the
Aquila Bond and Equity Funds since 1997; Vice President of InCap
Management Corporation since 1986 and Director since 1983;
Assistant Vice President of Oxford Cash Management Fund, 1986-1988;
Assistant Vice President and formerly Loan Officer of European
American Bank, 1981-1986; daughter of the Fund's President; Trustee
of the Leopold Schepp Foundation (academic scholarships) since
1995; actively involved in mutual fund and trade associations and
in college and other volunteer organizations.
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.
Sue McCarthy-Jones, Senior Vice President, 15230 SW 141st
Avenue, Tigard, Oregon 97244
Senior Vice President of Aquila Cascadia Equity Fund, and
Tax-Free Trust of Oregon since 1997; Investment Executive, US
Bancorp Securities, 1996-1997; Training and sales supervision,
Marketing One, Inc., 1991-1996; Account Executive, Security Pacific
Bank, 1990-1991; various investment related positions,
1980-1990.
Jerry G. McGrew, Senior Vice President, 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.
Jessica L. Wiltshire, Vice President, 410 17th Street, Suite
1715, Denver, Colorado 80202
Investor Representative with Oppenheimer Funds, 1996-1997; Sales
Representative for Tax-Free Fund of Colorado and Aquila Rocky
Mountain Equity Fund, 1993-1996.
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
Sub-Adviser and the Distributor since 1995; Secretary of the
Distributor since 1997; formerly a Legal Associate for Oppenheimer
Management Corporation, 1993-1995.
The Fund does not pay fees to Trustees affiliated with the
Administrator or the Distributor or to any of the Fund's officers.
During the fiscal year ended December 31, 1997, the Fund paid
$13,094 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 $1,850 $9,986 2
Arthur K.
Carlson $1,720 $59,122 7
R. Thayne
Robson $2,180 $5,245 2
Cornelius
Ryan $950 $3,700 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 1940 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 assumes the duties of
managerial investment adviser to the Fund with respect to
investment of the Fund's assets 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 than 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, 1997, the Fund
accrued fees to the Adviser and Sub-Adviser, respectively, of
$19,571 and $22,367. All of such fees were waived. In addition, the
Sub-Adviser reimbursed the Fund for unamortized deferred
organization expenses in the amount of $8,734 and agreed to
reimburse the Fund for other expenses in the amount of $98,824, of
which, $91,656 was paid during the fiscal year and $3,168 was paid
in January, 1998. 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.
COMPUTATION OF NET ASSET VALUE
The net asset value of the shares of each of the Fund's
classes is determined as of 4:00 p.m., New York time, on each day
that the New York Stock Exchange is open, by dividing the value of
the Fund's net assets allocable to each class by the total number
of shares of such class 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, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the Exchange may close on days not included
in that announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Fund's Class A Shares are sold or
issued on a basis other than the maximum public offering price,
that is, the net asset value plus the highest sales charge. Some of
these relate to lower or eliminated sales charges for larger
purchases, whether made at one time or over a period of time as
under a Letter of Intent or right of accumulation. (See the table
of sales charges in the Prospectus.) The reasons for these quantity
discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary to
meet competition as to sales of shares of other funds having such
discounts; and (ii) they are designed to avoid an unduly large
dollar amount of sales charge on substantial purchases in view of
reduced selling expenses. Quantity discounts are made available to
certain related persons ("single purchasers") for reasons of family
unity and to provide a benefit to tax-exempt plans and
organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges for Class A Shares are as
follows. Exchanges at net asset value are permitted because a sales
charge has already been paid on the shares exchanged. Sales without
sales charge are permitted to Trustees, officers and certain others
due to reduced or eliminated selling expenses and/or since such
sales may encourage incentive, responsibility and interest and an
identification with the aims and policies of the Fund. Limited
reinvestments of redemptions of Class A Shares and Class C Shares
at no sales charge are permitted to attempt to protect against
mistaken or incompletely informed redemption decisions. Shares may
be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such
issuance is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in
which there is a reduced or eliminated sales charge are the
interests of existing shareholders adversely affected since, in
each case, the Fund receives the net asset value per share of all
shares sold or issued.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchase Class A Shares or Class Y Shares
(Plan only available to Class Y shareholders with accounts on April
30, 1998) of the Fund having a net asset value of at least $5,000
you may establish an Automatic Withdrawal Plan under which you will
receive a monthly or quarterly check in a stated amount, not less
than $50. Stock certificates will not be issued for shares held
under an Automatic Withdrawal Plan. All dividends and distributions
must be reinvested. Shares will be redeemed on the last business
day of the month or quarter as may be necessary to meet withdrawal
payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate your account. The monthly or quarterly payments paid
to you may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
If you incur a sales commission on a purchase of shares of
one mutual fund (the original fund) and then sell or exchange them
for shares of a different mutual fund without having held them at
least 91 days, you must reduce the tax basis for the shares sold or
exchanged to the extent that the standard sales commission charged
for acquiring shares in the exchange or later acquiring shares of
the original fund or another fund is reduced because of the
shareholder's having owned the original fund shares. The effect of
the rule is to increase your gain or reduce your loss on the
original fund shares. The amount of the basis reduction on the
original fund shares, however, is added on the investor's basis for
the fund shares acquired in the exchange or later acquired. The
provision applies to commissions charged after October 3, 1989.
CONVERSION OF CLASS C SHARES
Level-Payment Class Shares ("Class C Shares") of the Fund
which you hold will automatically convert to Front-Payment Class
Shares ("Class A Shares") of the Fund based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the sixth
anniversary of 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 holders of Class A Shares, 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 April 7,
1998, M and E Wolf Foundation Account, Denver, CO held of record
11,750 shares (6.6% of the class).
Of the Class C Shares of the Fund outstanding on April 7,
1998, BHC Securities, 2005 Market St., Philadelphia PA held of
record in three accounts 9,159 shares (91.7.1% 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 April 7,
1998, KPM Investment Management, Inc. held of record 44,386 shares
(100% 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
the 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.
Underwriting Commissions
During the year ended December 31, 1997 the aggregate
dollar amount of sales charges on sales of shares in the Fund was
$33,013 and the amount retained by the Distributor was $1,004.
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, 1997, which are contained in the Annual Report
for that fiscal year, are hereby incorporated by reference into the
Additional Statement. Those financial statements have been audited
by KPMG Peat Marwick LLP, independent auditors, whose report
thereon is incorporated herein by reference.
<PAGE>
APPENDIX A
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 Mutual of Omaha 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
Sue McCarthy-Jones, Senior Vice 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
[LOGO]
Rocky
Mountain
Equity Fund
A capital appreciation investment
STATEMENT OF
ADDITIONAL
INFORMATION
April 30, 1998
[LOGO]
One of The
Aquilasm Group Of Funds
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights
Included in Part B:
Report of Independent Auditors
Statement of Assets and Liabilities as of
December 31, 1997
Statement of Operations for the fiscal year
December 31, 1997
Statement of Changes in Net Assets for the
year 1996 and 1997
Statement of Investments as of December 31, 1997
Notes to Financial Statements
Included in Part C:
Consent of Independent Auditors
(b) Exhibits:
(1) Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust (i)
(2) By-laws (i)
(3) Not applicable
(4) Specimen share certificate (ii)
(5) (a) Investment Advisory Agreement (ii)
(5) (b) Sub-Advisory & Administration Agreement (ii)
(6) (a) Distribution Agreement (ii)
(6) (b) Sales Agreement for Brokerage Firms (ii)
(6) (c) Sales Agreement for Financial
Institutions (ii)
(6) (d) Shareholder Services Agreement (i)
(7) Not applicable
(8) Custody Agreement (i)
(9) Transfer Agency Agreement (iii)
(10) Opinion & consent of Fund's counsel (iii)
(11) Not applicable
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) (a) Distribution Plan (iii)
(15) (b) Shareholder Services Plan (iii)
(16) Computations regarding
performance quotations (iii)
(17) Financial Data Schedules (iii)
(18) Plan pursuant to Rule 18f-3
under the 1940 Act (iii)
(i) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 2 dated April 24, 1996
incorporated herein by reference.
(ii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 3 dated April 25, 1997
incorporated herein by reference.
(iii) Filed herewith.
ITEM 25. Persons Controlled By Or Under Common Control With
Registrant
None.
ITEM 26. Number of Holders of Securities
As of March 31, 1998, Registrant had 251 holders of
record of its Class A Shares, 20 of its Class C Shares and 2
of its Class Y Shares
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust, filed as Exhibit 1 to
Registrant's Post-Effective Amendment No. 15 dated March 28,
1996, is incorporated herein by reference. Insofar as
indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers, and
controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that
in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed
in that Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred
or paid by a Trustee, officer, or controlling person of
Registrant in the successful defense of any action,suit, or
proceeding) is asserted by such Trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal underwriter to
the following Funds, including the Registrant: Capital Cash
Management Trust, Churchill Cash Reserves Trust, Churchill
Tax-Free Fund of Kentucky, Hawaiian Tax-Free Trust,
Narragansett Insured Tax- Free Income Fund, Pacific Capital
Cash Assets Trust, Pacific Capital Tax-Free Cash Assets
Trust, Pacific Capital U.S. Government Securities Cash Assets
Trust, Prime Cash Fund, Tax-Free Fund For Utah, Tax-Free Fund
of Colorado, Tax-Free Trust of Arizona, Aquila Rocky Mountain
Equity Fund, Aquila Cascadia Equity Fund and Tax-Free Trust
of Oregon.
(b) For information about the directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange Act
of 1934.
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All such accounts, books, and other documents are
maintained by the adviser, the administrator, the
custodian, and the transfer agent, whose addresses
appear on the back cover pages of the Prospectus
and Statement of Additional Information.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) If requested to do so by the holders of 10% of the
Fund's outstanding shares, the Fund will call a
meeting of shareholders for the purpose of voting
upon the question of removal of a Trustee or
Trustees and to assist in communication with other
shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
(d) The Registrant undertakes to provide to any person to
whom the Prospectus is delivered a copy of its most
recent annual report upon request and without charge.
<PAGE>
Consent of Independent Auditors
To the Shareholders and Board of Trustees
Aquila Rocky Mountain Equity Fund:
We consent to the use of our report dated February 6, 1998,
incorporated herein by reference, and to the reference to our
firm under the headings "Financial Highlights" in the Prospectus
and "Custodian and Auditors" and "Financial Statements" in the
Statement of Additional Information.
New York, New York KPMG Peat Marwick LLP
April 24, 1998 /s/KPMG Peat Marwick LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933, and has caused this Amendment
to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 28th day of April, 1998.
AQUILA ROCKY MOUNTAIN EQUITY FUND
(Registrant)
/s/Lacy B. Herrmann
By___________________________
Lacy B. Herrmann, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement or Amendment has been signed below by
the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/Lacy B. Herrmann 4/28/98
______________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Tucker Hart Adams 4/28/98
______________________ Trustee ___________
Tucker Hart Adams
/s/Arthur K. Carlson 4/28/98
______________________ Trustee ___________
Arthur K. Carlson
/s/R. Thayne Robson 4/28/98
_____________________ Trustee ___________
R. Thayne Robson
/s/Cornelius T. Ryan 4/28/98
_____________________ Trustee ___________
Cornelius T. Ryan
/s/Rose F. Marotta 4/28/98
_____________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
EXHIBIT INDEX
Number Description
(9) Transfer Agency Agreement (iii)
(10) Opinion & consent of Fund's counsel (iii)
(15)(a) Distribution Plan (iii)
(15)(b) Shareholder Services Plan (iii)
(16) Computations regarding
performance quotations (iii)
(17) Financial Data Schedules (iii)
(18) Plan pursuant to Rule 18f-3
under the 1940 Act (iii)
Correspondence
TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of November 7, 1997 by and between
PFPC INC., a Delaware corporation ("PFPC"), and AQUILA ROCKY
MOUNTAIN EQUITY FUND, a Massachusetts business trust (the
"Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer
agent, registrar, dividend disbursing agent and shareholder
servicing agent to its investment portfolios listed on Exhibit A
attached hereto and made a part hereof, as such Exhibit A may be
amended from time to time (each a "Portfolio"), and PFPC wishes
to furnish such services, on the terms and for the considerations
set forth in this agreement (the "Agreement").
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Definitions. As used in this Agreement:
(a) "1933 Act" means the Securities Act of 1933, as
amended.
(b) "1934 Act" means the Securities Exchange Act of
1934, as amended.
(c) "Authorized Person" means any officer of the Fund
and any other person duly authorized by the Fund's Board of
Trustees to give Oral Instructions and Written Instructions on
behalf of the Fund and listed on the Authorized Persons Appendix
attached hereto and made a part hereof or any amendment thereto
as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such
limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as
amended.
(e) "Oral Instructions" mean oral instructions
received by PFPC from an Authorized Person or from a person
reasonably believed by PFPC to be an Authorized Person.
(f) "SEC" means the Securities and Exchange
Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act,
the 1940 Act and the CEA.
(h) "Shares" mean the shares of beneficial interest
of any series or class of the Fund.
(i) "Written Instructions" mean written instructions
signed by an Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as
transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent to the Fund in accordance with the
terms set forth in this Agreement. PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide PFPC with the following:
(a) Certified or authenticated copies of the
resolutions of the Fund's Board of Trustees,
approving the appointment of PFPC or its
affiliates to provide services to the Fund and
approving this Agreement;
(b) A copy, and all amendments thereto, of the Fund's
most recent effective registration statement;
(c) A copy of the applicable administration, advisory
and/or sub-advisory agreements, and all amendments
thereto, with respect to each Portfolio;
(d) A copy of the distribution agreement, and all
amendments thereto, with respect to each class of
Shares;
(e) Copies of any shareholder servicing agreements,
and all amendments thereto, made in respect of the
Fund or a Portfolio;
(f) The Fund's Declaration of Trust filed with the
Secretary of State of the Commonwealth of
Massachusetts and all amendments thereto (such
Declaration of Trust, as presently in effect and
as it shall from time to time be amended, is
herein called the "Declaration of Trust"); and
(g) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they
shall from time to time be amended, are
hereinafter called the "By-Laws").
PFPC has furnished the Fund with copies properly
certified or authenticated of its Registration Statement on Form
TA-1 under the Securities and Exchange Act of 1934, as amended
and all other public reports filed with the SEC related to the
services provided to the Fund as may be requested from time to
time by the Fund.
4. Compliance with Rules and Regulations. PFPC undertakes
to comply with all applicable requirements of the Securities Laws
and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by
PFPC hereunder. Except as specifically set forth herein, PFPC
assumes no responsibility for such compliance by the Fund or any
of its investment portfolios.
5. Instructions.
(a) Unless otherwise provided in this Agreement, PFPC
shall act only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an
Authorized Person (or from a person reasonably believed by PFPC
to be an Authorized Person) pursuant to this Agreement. PFPC may
assume that any Oral Instruction or Written Instruction received
hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote,
resolution or proceeding of the Fund's Board of Trustees or of
the Fund's shareholders, unless and until PFPC receives Written
Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written
Instructions confirming Oral Instructions so that PFPC receives
the Written Instructions by the close of business on the same day
that such Oral Instructions are received. The fact that such
confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral
Instructions or Written Instructions reasonably appear to have
been received from an Authorized Person, PFPC shall incur no
liability to the Fund in acting upon such Oral Instructions or
Written Instructions provided that PFPC's actions comply with the
other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any
action it should or should not take, PFPC may request directions
or advice, including Oral Instructions or Written Instructions,
from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as
to any question of law pertaining to any action it should or
should not take, PFPC may request advice at its own cost from
such counsel of its own choosing (who may be counsel for the
Fund, the Fund's investment adviser or PFPC, at the option of
PFPC).
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral Instructions or Written
Instructions PFPC receives from the Fund, and the advice it
receives from counsel, PFPC may rely upon and follow the advice
of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the
part of PFPC which constitutes willful misfeasance, bad faith,
negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in
any action it takes or does not take in reliance upon directions,
advice or Oral Instructions or Written Instructions it receives
from the Fund or from counsel and which PFPC believes, in good
faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to
seek such directions, advice or Oral Instructions or Written
Instructions, or (ii) to act in accordance with such directions,
advice or Oral Instructions or Written Instructions unless, under
the terms of other provisions of this Agreement, the same is a
condition of PFPC's properly taking or not taking such action.
Nothing in this subsection shall excuse PFPC when an action or
omission on the part of PFPC constitutes willful misfeasance, bad
faith, negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
7. Records; Visits. The books and records pertaining to
the Fund which are in the possession or under the control of PFPC
shall be the property of the Fund. Such books and records shall
be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. PFPC will,
if so requested by counsel to the Fund, work with such counsel to
develop an acceptable modification to the manner in which such
books and records are prepared and maintained so as to comply
with the reasonable opinion of such counsel as to such laws and
rules. Such modification will be subject to additional mutually-
agreed upon pricing, if any. The Fund and Authorized Persons
shall have access to such books and records at all times during
PFPC's normal business hours. Copies of any such books and
records shall be provided by PFPC to the Fund or to an Authorized
Person at the Fund's expense. Prior to any destruction of any
books or records, PFPC will advise the Fund of the proposed
destruction and in accordance with instructions of the Fund, the
records will be destroyed or, at the expense of the Fund,
delivered to the Fund or as it may otherwise direct.
8. Confidentiality. PFPC agrees to keep confidential all
records of the Fund and information relating to the Fund and its
shareholders, unless the release of such records or information
is otherwise consented to, in writing, by the Fund, and shall
maintain procedures reasonably designed to protect such
confidentiality. The Fund agrees that its consent shall not be
unreasonably withheld and may not be withheld where PFPC may be
exposed to civil or criminal contempt proceedings or when
required to divulge such information or records to duly
constituted authorities, and that such consent shall not be
required where consent or notice to the Fund is not permitted by
law or regulation.
9. Cooperation with Accountants. PFPC shall cooperate
with the Fund's independent public accountants and shall take all
reasonable actions in the performance of its obligations under
this Agreement to ensure that the necessary information is made
available on a timely basis to such accountants for the
expression of their opinion, as required by the Fund.
10. Adequate Facilities; Disaster Recovery. PFPC shall
maintain adequate personnel and facilities, as well as adequate
and reliable computer and other equipment, necessary and
appropriate to carry out its obligations under this Agreement,
including appropriate duplicate files (which shall be readable
by computer or otherwise or maintained in hard copy form, and
shall be maintained at a frequency and in a detail reasonably
designed pursuant to industry standards to provide for protection
of such files in the event of a disaster to PFPC's facilities).
PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making adequate and
reliable provisions for emergency use of electronic data
processing equipment to the extent appropriate equipment is
available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize
service interruptions. PFPC shall periodically back up data
(including all predecessor transfer agent data delivered to PFPC
by the Fund's prior transfer agent in a machine readable format
and converted by PFPC) on appropriate media to be stored at an
offsite facility of PFPC's choosing. PFPC shall have no
liability with respect to the loss of data or service
interruptions caused by equipment failure or otherwise, provided
such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its
duties or obligations under this Agreement.
11. Insurance. PFPC shall maintain adequate fidelity,
error and omissions and other insurance coverage in connection
with its transfer agent services throughout the duration of this
Agreement.
12. Compensation. As compensation for services rendered by
PFPC during the term of this Agreement, for the period commencing
on the date upon which PFPC becomes transfer agent for the Fund,
the Fund will pay to PFPC a fee or fees as agreed to from time to
time in writing by the Fund and PFPC. All services detailed in
this Agreement and expenses incurred in the performance of these
services will be provided by PFPC without cost to the Fund except
as otherwise stated in this Agreement or otherwise agreed to in
writing.
13. Indemnification. The Fund agrees to indemnify and hold
harmless PFPC and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any
state and foreign securities and blue sky laws, and amendments
thereto), and expenses, including (without limitation) attorneys'
fees and disbursements, arising directly or indirectly from (i)
any action or omission to act which PFPC takes (a) at the request
or on the direction of or in reliance on the advice of the Fund
or (b) upon Oral Instructions or Written Instructions or (ii) the
acceptance, processing and/or negotiation of checks or other
methods utilized for the purchase of Shares. Neither PFPC nor
any of its affiliates shall be indemnified against any liability
(or any expenses incident to such liability) arising out of
PFPC's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations
under this Agreement.
14. Release. PFPC understands that the obligations of this
Agreement are not binding upon any shareholder of the Fund
personally, but bind only the Fund's property; PFPC represents
that it has notice of the provision in the Fund's Declaration of
Trust disclaiming shareholder liability for acts or obligations
of the Fund.
15. Responsibility of PFPC.
(a) PFPC shall be under no duty to take any action on
behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by PFPC in writing. PFPC shall be
obligated to exercise care and diligence in the performance of
its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, to ensure the accuracy and
completeness of all services performed under this Agreement.
PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent
such damages arise out of PFPC's willful misfeasance, bad faith,
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing
or of any other provision of this Agreement, (i) PFPC shall not
be liable for losses beyond its control, provided that PFPC has
acted in accordance with the standard of care set forth above;
and (ii) PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction
or Written Instruction, notice or other instrument which conforms
to the applicable requirements of this Agreement, and which PFPC
reasonably believes to be genuine; or (B) subject to Section 10,
delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or
military authority, national emergencies, labor difficulties,
fire, flood, catastrophe, acts of God, insurrection, war, riots
or failure of the mails, transportation, communication or power
supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PFPC nor its affiliates shall be liable to the
Fund for any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PFPC's or its affiliates' performance of the services provided
hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
16. Description of Services.
(a) Itemized Services. PFPC shall:
(i) Calculate 12b-1 payments and payments under
any Shareholder Services Plan of the Fund,
produce and mail statements and checks where
applicable or generate payments through the
National Securities Clearing Corp. (the
"NSCC") to all eligible dealers, and forward
ineligible checks and statements to Aquila
Distributors, Inc. (the "Distributor");
(ii) Make weekly payment of direct commissions,
including settlement through NSCC;
(iii) Establish and maintain proper shareholder
registrations;
(iv) Review new applications for required
information and correspond with shareholders
to complete or correct information;
(v) Provide payment processing of checks or
wires;
(vi) Prepare and certify stockholder lists in
conjunction with proxy solicitations;
(vii) Issue and countersign share certificates
(when requested in writing by a shareholder)
and cancel share certificates;
(viii) Prepare and mail to shareholders confirmation
of activity;
(ix) Provide toll-free lines and voice response
unit for direct shareholder use, plus
customer liaison staff for on-line inquiry
response (generally until 6 p.m., New York
time, on days on which the New York Stock
Exchange is open), including the ability to
receive redirected toll-free calls from the
Distributor on an as-needed basis;
(x) On a monthly basis, mail duplicate statements
to: (1) broker-dealers of their clients'
activity, whether executed through the
broker-dealer or directly with PFPC, and (2)
other parties (e.g., lawyers and accountants)
as requested by the shareholders;
(xi) Provide periodic shareholder lists and
statistics to the Fund;
(xii) Provide detailed data for underwriter/broker
confirmations, including daily outstanding
confirmed purchases, redemptions, and paid
not issued shares;
(xiii) Prepare periodic mailing of year-end tax and
statement information;
(xiv) Provide reports, notification, and where
applicable reconciliation on a timely basis
to the investment adviser, sub-adviser,
administrator, accounting agent, and
custodian of fund activity;
(xv) Perform other participating broker-dealer
shareholder services, including Fund/Serv,
Automated Customer Account Transfer System
("ACATS"), Networking and terminal access for
selected dealers, and such other services as
may be agreed upon from time to time;
(xvi) Promptly transmit to the Fund all reports,
documents and information as are requested by
the Fund and agreed to by PFPC, which
agreement shall not be unreasonably withheld,
that are necessary to enable the Fund and its
service providers to comply with the
requirements of the Internal Revenue Service,
the SEC, the National Association of
Securities Dealers, Inc, the National
Securities Clearing Corp., the state blue sky
authorities and any other regulatory bodies
having jurisdiction over the Fund, it being
understood and agreed that such reports shall
include those on the list contained in
Exhibit B hereto, as such list may be
amended from time to time by agreement
between the parties;
(xvii) Process all clerical transactions;
(xviii) Screen and maintain Transfer on Death
registrations according to Fund guidelines
(except those guidelines hereafter adopted by
the Fund which are considered in PFPC's sole
good-faith discretion to be more burdensome
than the guidelines in effect on the date of
this Agreement);
(xix) Provide electronic imaging and time-stamping
of all incoming mail;
(xx) Compute and track all front-end and
contingent deferred sales charges imposed
upon the purchase and redemption of Shares;
(xxi) Track and convert Shares in accordance with
the share conversion features described in
the prospectus of the Fund;
(xxii) Answer written or telephonic correspondence
relating to its duties hereunder (including
providing written acknowledgement of address
changes to previous addresses of record) and
such other correspondence as may from time to
time be mutually agreed upon between PFPC and
the Fund; inquiries of a non-routine nature
shall be referred to the Fund;
(xxiii) Remit supporting detail of underwriter fees
to the Distributor on a semi-monthly basis;
(xxiv) Until such time as Fund management and legal
counsel to the Fund determine otherwise and
so inform PFPC in Written Instructions,
establish, maintain for the benefit of the
Fund and control the flow of funds through
separate subscription, redemption and
dividend disbursement accounts (each an
"Operational Account") provided by PNC Bank,
N.A. or by such other financial institution
as may be agreed upon by the Fund and PFPC;
(xxv) To the extent reasonably feasible, reverse
trades (including backing out dividends) due
to nonreceipt of funds, improper
registration, or other sufficient reason;
(xxvi) Compute and track all letters of intent;
(xxvii) Screen all transactions with respect to the
Fund's Blue Sky requirements of which PFPC is
informed by the Fund by Written Instructions,
and comply with the Written Instructions of
the Fund in effect from time to time limiting
issuance of Shares to specified states (based
on address of registration), including
screening for Shares sold in states other
than those so specified (but relating only to
those Shares sold after PFPC commences its
duties as transfer agent hereunder);
(xxviii) Provide abandoned property reporting and
filing to meet the escheat requirements of
each of the states named by the Fund in
Written Instructions;
(xxix) Maintain a record of all incoming checks, new
account applications and documentation set
forth in Section 16(g), on filmstrips,
another microfilm retrieval method or
otherwise so as to be retrievable and
reproducible, upon reasonable request, within
time frames that meet reasonable industry
standards;
(xxx) Process W-9 or similar forms received by PFPC
and review taxpayer identification numbers
for all same number (e.g., 888 88 8888),
sequential numbering (e.g., 123 45 6789) and
non-numeric numbers (e.g., 128 4A 3927) and
other conditions of obvious irregularity in
accordance with PFPC's normal operating
procedures;
(xxxi) On a semi-monthly or other basis acceptable
to PFPC and the Fund (but in no event more
frequently than once per month per
shareholder account) initiate, accept and
process pre-authorized checks or, when
available, electronic funds transfers drawn
against shareholders' checking accounts;
(xxxii) In accordance with policies and procedures
established by the Fund and PFPC, furnish to
shareholders dividend and redemption checks
alleged to have been lost, stolen, destroyed
or not received; and
(xxxiii) Record all incoming telephone conversations
and telephonic transactions that are received
via the Fund's published customer service
numbers and retain such recordings for a
minimum of six months.
(xxxiv) Post and perform shareholder transfers and
post and perform exchanges for shares of
other funds with which the Fund has exchange
privileges, pursuant to shareholder
instructions; and
(xxxv) Reconcile to Fund accounting records and pay
dividends and other distributions, including
direct deposit credits through the Automatic
Clearing House ("ACH") upon proper written
shareholder authorization.
(b) Purchase of Shares. PFPC shall issue Shares and
credit an account of an investor, in the manner described in the
Fund's prospectus, once it has screened for blue sky compliance
pursuant to Section 16(a)(xxvii) and Transfer on Death
registration compliance pursuant to Section 16(a)(xviii) and
receives:
(i) A purchase order or application, either
directly from an investor or otherwise,
complying with requirements for purchases
prescribed by the prospectus;
(ii) Proper information to establish a shareholder
account; and
(iii) A purchase check or confirmation of receipt
or crediting of available funds for such
order to the Fund's custodian.
In opening new shareholder accounts, PFPC will assign account
numbers. PFPC shall assign Aquila Distributors, Inc. as broker
of record whenever dealer information is omitted and send a copy
of any related application to Aquila Distributors, Inc.
PFPC must receive a completed application before any
redemption orders are accepted and processed for an account
opened directly by an investor.
(c) Redemption of Shares. PFPC shall redeem Shares
only if that function is properly authorized by the Declaration
of Trust or resolution of the Fund's Board of Trustees. If the
Fund is a money-market fund, PFPC shall arrange, in accordance
with the Fund's prospectus, for a shareholder's redemption of
shares from a shareholder's account with a checkwriting
privilege. Shares shall be redeemed and payment therefor shall
be made in accordance with the Fund's prospectus, including
provisions set forth therein for automatic redemption, telephone
redemption requests and check-writing privileges, when the
recordholder tenders Shares in proper form and amount and
properly directs the method of redemption. If Shares are
received in proper form, Shares shall be redeemed before the
funds are provided to PFPC from the Fund's custodian. If the
recordholder has not directed that redemption proceeds be wired,
when the custodian provides PFPC with funds, a redemption check
shall be sent to and made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to the
order of an assignee or holder and transfer
authorization is signed by the recordholder;
(ii) Transfer authorizations are signed by the
recordholder when Shares are held in
book-entry form;
(iii) Such redemption is through money market fund
check-writing capabilities; or
(iv) such redemption is in settlement of dealer
confirmed redemptions via Fund/Serv.
Consistent with provisions set forth in the prospectus,
redemption proceeds shall be wired upon request. When a
broker-dealer notifies PFPC of a redemption desired by a
customer, and the Fund's custodian provides PFPC with funds, PFPC
shall prepare and send the redemption check to the broker-dealer,
made payable to the broker-dealer on behalf of its customer.
PFPC shall establish procedures reasonably designed to
ensure that redemption requirements established by PFPC and
agreed to by the Fund have been met, including the receipt and
examination of stock certificates and related endorsements,
signature guarantees and obtaining any needed papers or
documents, including a properly completed application, where
required. No redemptions in accounts represented in whole or in
part by certificates shall be effected without cancellation of an
adequate number of certificate Shares, if necessary. No
signature guarantees shall be acceptable if received by facsimile
and signature guarantees must reasonably appear to have been
provided by an eligible guarantor institution of a type described
as such in the prospectus which is a participant in a medallion
program recognized by the Securities Transfer Association or in
instructions received from the Fund; provided, however, that PFPC
may accept a signature guarantee received by facsimile if so
instructed by Oral or Written Instructions.
(d) Dividends and Distributions. Upon receipt of a
resolution of the Fund's Board of Trustees authorizing the
declaration and payment of dividends and distributions, PFPC
shall issue dividends and distributions declared by the Fund in
Shares, or, upon shareholder election, pay such dividends and
distributions in cash, if and as provided for in the Fund's
prospectus. Such issuance or payment, as well as payments upon
redemption as described above, shall be made after deduction and
payment of the required amount of funds to be withheld in
accordance with any applicable tax laws or other laws, rules or
regulations. PFPC shall timely mail to the Fund's shareholders
and appropriate taxing authorities such tax forms and other
information, or permissible substitute notice, relating to
dividends and distributions paid by the Fund as are required to
be filed and mailed by applicable law, rule or regulation. PFPC
shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends
paid by the Fund to its shareholders as required by tax or other
law, rule or regulation.
(e) Communications to Shareholders. PFPC shall
address, enclose and mail all communications by the Fund to its
shareholders (pre-sorting where reasonably practicable),
including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of
Shares;
(iii) Monthly or quarterly statements (with extra
print lines for additional information, such
as additional dividend information, to
shareholders), generally by the fifth
business day after the dividend payable date,
providing a combined check and statement to
shareholders electing cash distributions;
(iv) Dividend and distribution notices (at year-
end, such notices will be upon Written
Instructions);
(v) Tax form information (upon Written
Instructions);
(vi) Forms W-9 or W-8 as appropriate;
(vii) Prospectuses;
(viii) Account-related shareholder correspondence
that is considered in PFPC's sole discretion
to be routine; and
(ix) Any other routine shareholder communications
as agreed to between the Fund and PFPC.
(f) Third Party Proxy Provider. PFPC shall assist the
Fund in obtaining competitive bids for proxy services. Proxy
services shall be provided by a third party. The Fund
understands and agrees that PFPC bears no responsibility for the
provision of any proxy services or the manner in which any proxy
services are provided, that PFPC will not be considered the
Fund's agent in connection with the provision of any proxy
services, and that any party providing proxy services to the Fund
shall not be considered to be the agent of PFPC or to have any
other relationship with PFPC with respect to such services. Such
proxy services, which will be decided upon solely between the
Fund and the third party provider, shall include proxy mailing,
receiving and tabulating proxy cards for the meetings of the
Fund's shareholders, communicating to the Fund daily and final
results of such tabulation accompanied by appropriate
certificates, and preparing and furnishing to the Fund certified
lists of shareholders as of such date, and in such form and
containing such information as may be required by the Fund to
comply with any applicable provisions of law or its Declaration
of Trust and/or By-Laws relating to such meetings.
Notwithstanding the foregoing provisions of this Subsection (f),
PFPC shall furnish to the third-party proxy provider such
information as is reasonably requested by such provider
pertaining to shareholder registration information and record-
date share positions to permit the Fund to obtain the benefits of
the services necessary for conduct of its shareholder meetings.
(g) Records. PFPC shall maintain records of the
accounts for each shareholder showing the following information:
(i) Name, address, United States Tax
Identification or Social Security number, and
any pertinent beneficiary information;
(ii) Number and class of Shares held and number
and class of Shares for which certificates,
if any, have been issued, including
certificate numbers and denominations;
(iii) Historical information regarding the account
of each shareholder, including dividends and
distributions paid and the date and price for
all transactions in a shareholder's account;
(iv) Any stop or restraining order placed against
a shareholder's account;
(v) Any correspondence relating to the current
maintenance of a shareholder's account;
(vi) Information with respect to withholdings,
including withholdings in the case of a
foreign account and accounts subject to
backup withholding; and
(vii) Any information required in order for the
transfer agent to perform any calculations
contemplated or required by this Agreement.
PFPC shall use its best efforts to convert for use in
its system such data of the predecessor transfer agent that has
been provided to PFPC as shall permit PFPC to maintain on its
system such converted data covering a minimum of 18 months prior
to commencement of its services as transfer agent of the Fund.
PFPC is not responsible for errors or omissions in or caused by
the records of any predecessor transfer agent. PFPC shall inform
the Fund of material errors coming to its attention in the course
of performance of its duties hereunder. PFPC shall maintain on
its system in a readily viewable form pertinent account
information (i.e., the information listed in this Section 16(g))
relating to shareholders of the Fund (including all predecessor
transfer agent data delivered to PFPC by the Fund's prior
transfer agent in a machine readable format and converted by
PFPC) for a minimum of 13 months after the date of the
transaction or other matter to which the information relates and
shall thereafter maintain such information in a readily
accessible format to the extent required by the 1940 Act and
other applicable securities laws, rules and regulations.
(h) Lost or Stolen Certificates. PFPC shall place a
stop notice against any certificate reported to be lost, stolen,
destroyed or not received and comply with all applicable federal
regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and
issued only upon:
(i) The shareholder's pledge of a lost instrument
bond or such other appropriate indemnity bond
issued by a surety company approved by PFPC;
and
(ii) Completion of a release and indemnification
agreement signed by the shareholder to
protect PFPC and its affiliates.
(i) Shareholder Inspection of Fund Records. Upon a
request from any Fund shareholder to inspect Fund records, PFPC
will notify the Fund and the Fund will issue instructions
granting or denying each such request. Unless PFPC has acted
contrary to the Fund's instructions, the Fund agrees and does
hereby release PFPC from any liability for refusal of permission
for a particular shareholder to inspect the Fund's records.
(j) Withdrawal of Shares and Cancellation of
Certificates. Upon receipt of Written Instructions, PFPC shall
cancel outstanding certificates surrendered by the Fund to reduce
the total amount of outstanding Shares by the number of Shares
surrendered by the Fund.
(k) Fraud Detection Procedures. PFPC shall establish
procedures that are reasonably designed to detect fraudulent
purchase, redemption and distribution checks (including
fraudulent or forged endorsements and altered payment amounts);
however, PFPC shall have no liability for loss resulting from any
fraud perpetrated or attempted to be perpetrated on the Fund,
unless PFPC has acted with willful misfeasance, bad faith,
negligence or reckless disregard of its duties hereunder. Such
procedures shall take into account the type of accounts involved,
the sums involved and cost/benefit considerations.
(l) Third Party Checks. PFPC shall not accept any
third party check (i.e., an investment check whose payee is other
than the Fund or PFPC) except pursuant to Written Instructions.
(m) Relationship Officer. PFPC agrees to provide a
Relationship Officer to serve as the primary point of contact
between the Fund and PFPC. PFPC will exercise due care in
assigning an individual who is conversant with standard
investment company practices.
(n) Additional Services.
(i) PFPC shall, in addition to the services
herein itemized, if so requested by the Fund
and agreed to by PFPC, which shall bargain in
good faith regarding such requests and the
fees and charges to be paid therefor, for
such additional fees and charges as the Fund
and PFPC may from time to time agree, perform
and do all other acts and services as
required by the Fund's prospectus or the law
or that are customarily performed and done by
transfer agents, dividend disbursing agents,
and shareholder servicing agents of open-end
mutual funds such as the Fund.
(ii) PFPC shall, in addition to the services
herein itemized, provide such additional
services to the Fund and in such manner as
are normally provided by PFPC to its mutual
fund transfer agency customers in the normal
course of business, subject to additional
mutually-agreed upon pricing, if any.
(o) Procedures. In order to facilitate the carrying
out of the services set forth in this Agreement, PFPC shall
follow the procedures attached hereto as Exhibit C and PFPC and
the Fund may from time to time mutually agree to changes thereto.
17. Duration and Termination. This Agreement shall
continue until terminated by the Fund on sixty (60) days' prior
written notice or by PFPC on one-hundred-twenty (120) days' prior
written notice to the other party, provided, however, that
without the Fund's consent PFPC shall not for a period of three
years after the date of this Agreement terminate this Agreement
with the intent to enter into a new agreement with the Fund that
provides for higher fees.
18. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending device.
Notices shall be addressed (a) if to PFPC, at 400 Bellevue
Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at 380
Madison Avenue, Suite 2300, New York, NY 10017, Attn: President
or (c) if to neither of the foregoing, at such other address as
shall have been given by like notice to the sender of any such
notice or other communication by the other party. If notice is
sent by confirming telegram, cable, telex or facsimile sending
device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have
been given three days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the
day it is delivered.
19. Amendments. This Agreement, or any term thereof, may
be changed or waived only by a written amendment, signed by the
party against whom enforcement of such change or waiver is
sought.
20. Delegation; Assignment. PFPC may assign its rights and
delegate its duties hereunder only to any wholly-owned direct or
indirect subsidiary of PNC Bank, National Association or PNC Bank
Corp., provided that (i) PFPC gives the Fund thirty (30) days'
prior written notice; (ii) the delegate (or assignee) agrees with
PFPC and the Fund to comply with all relevant provisions of the
1940 Act; and (iii) PFPC and such delegate (or assignee) promptly
provide such information as the Fund may request, and respond to
such questions as the Fund may ask, relative to the delegation
(or assignment), including (without limitation) the capabilities
of the delegate (or assignee).
21. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
22. Further Actions. Each party agrees to perform such
further acts and execute such further documents as are necessary
to effectuate the purposes hereof.
23. Miscellaneous.
(a) Entire Agreement. This Agreement embodies the
entire agreement and understanding between the parties and
supersedes all prior agreements and understandings relating to
the subject matter hereof, provided that the parties may embody
in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are
included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their
construction or effect.
(c) Governing Law. This Agreement shall be deemed to
be a contract made in Delaware and governed by Delaware law,
without regard to principles of conflicts of law.
(d) Partial Invalidity. If any provision of this
Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
(e) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of
any party to this Agreement shall constitute the valid and
binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.
PFPC INC.
By: Robert J. Perlsveg
Title: Exec. Vice Pres.
AQUILA ROCKY MOUNTAIN EQUITY FUND
By: Diana P. Herrmann
Title: Vice President
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of November 7, 1997, is Exhibit A
to that certain Transfer Agency Services Agreement dated as of
November 7, 1997 between PFPC Inc. and Aquila Rocky Mountain
Equity Fund.
PORTFOLIOS
AQUILA ROCKY MOUNTAIN EQUITY FUND
<PAGE>
AUTHORIZED PERSONS APPENDIX
On the date of the Agreement and thereafter until further
notice, the following persons shall be Authorized Persons as
defined therein:
Name (Type) Signature
Lacy B. Herrmann
Lacy B. Herrmann
William C. Wallace
William C. Wallace
Diana P. Herrmann
Diana P. Herrmann
Charles E. Childs, III
Charles E. Childs, III
John M. Herndon
John M. Herndon
Rose F. Marotta
Rose F. Marotta
Richard F. West
Richard F. West
Patricia A. Craven
Patricia A. Craven
Stephen J. Caridi
Stephen J. Caridi
William Killeen
William Killeen
<PAGE>
Exhibit B
Report List for Aquila Group of Funds
12b-1 Report
5 Percent or More Shareholder Listing
5 Percent or More Shareholder Listing - sorted by ssn
Account Analysis by Type
Asset Report by Dealer for Management Company
Asset Report by Fund and Dealer
Blue Sky Sales Report
Capital Stock Reporting
Daily Transaction Journal
Dealer Commission Check Register/Dealer Commission Statement
DTS Activity Summary
DTS Liquidation Placements
DTS Outstanding Trades by Fund
DTS Posted Transactions
DTS Purchase Placement
Matrix Summary by Fund With Dealer Name
Matrix Summary by Management Company With Dealer Name
Month to Sales (Demographics by Account Group)
Monthly Statistical Report
Monthly Wire Order (Purchases/Redemptions)
New Account Journal
Next Day NSCC Settlement Detail
NSAR Based on trade date
Transactions at a Glance
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
e-mail: [email protected]
April 23, 1998
Aquila Rocky Mountain Equity Fund
380 Madison Avenue, Suite 2300
New York, New York 10017
Ladies and Gentlemen:
You have requested that we render an opinion to Aquila Rocky
Mountain Equity Fund (the "Fund") with respect to Post-Effective
Amendment No. 4 (the "Amendment") to the Registration Statement
of the Fund under the Securities Act of 1933 (the "1933 Act") and
No. 7 under the Investment Company Act of 1940 (the "1940 Act")
which you propose to file with the Securities and Exchange
Commission (the "Commission"). The purpose of the Amendment is to
add a new class of shares, Financial Intermediary Class Shares
("Class I Shares"), as well as other changes. The Fund already
has outstanding Class A Shares, Class C Shares and Class Y
Shares.
We have examined originals or copies, identified to our
satisfaction as being true copies, of those corporate records of
the Fund, certificates of public officials, and other documents
and matters as we have deemed necessary for the purpose of this
opinion. We have assumed without independent verification the
authenticity of the documents submitted to us as originals and
the conformity to the original documents of all documents
submitted to us as copies.
Upon the basis of the foregoing and in reliance upon such
other matters as we deem relevant under the circumstances, it is
our opinion that the Class A Shares, Class C Shares, Class Y
Shares and Class I Shares of the Fund as described in the
Amendment, when issued and paid for in accordance with the terms
set forth in the prospectus and statement of additional
information of the Fund forming a part of its then effective
Registration Statement as heretofore, herewith and hereafter
amended, will be duly issued, fully-paid and non-assessable to
the extent set forth therein.
This letter is furnished to you pursuant to your request and
to the requirements imposed upon you under the 1933 Act and 1940
Act and is intended solely for your use for the purpose of
completing the filing of the Amendment with the Commission. This
letter may not be used for any other purpose or furnished to or
relied upon by any other persons, or included in any filing made
with any other regulatory authority, without our prior written
consent.
We hereby consent to the filing of this opinion with the
Amendment.
Very truly yours,
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
/s/ W.L.D. Barrett
By:_________________________________
W. L. D. Barrett
Dated: April 30, 1996
AQUILA ROCKY MOUNTAIN EQUITY FUND
DISTRIBUTION PLAN
1. The Plan. This amended and restated Plan (the "Plan") is
the written plan, contemplated by Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act"), of Aquila
Rocky Mountain Equity Fund (the "Fund"). Part I of the Plan
applies solely to the Front-Payment Class ("Class A") of shares
of the Fund, Part II solely to the Level-Payment Class ("Class
C") and Part III to all classes.
2. Disinterested Trustees. While any Part of this Plan 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.
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.
Part I
Payments Involving Fund Assets Allocated to Front-Payment Shares
3. Applicability. This Part I of the Plan applies only to the
Front-Payment Class ("Class A") of shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name).
4. Definitions for Part I. As used in this 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 this 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 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. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
5. Certain Payments Permitted. 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 of
shares. Such payments shall be made only out of the Fund assets
allocable to the Front-Payment 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 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.
6. Reports. While this 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 5 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 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.
7. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part I of the Plan has
been approved (i) by a vote of the Trustees, including those
Trustees (the "Independent 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 this Plan or in any agreements related to this
Plan, 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 defined in the 1940 Act) of
the outstanding voting securities of the Front-Payment 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 and/or of any other class whose shares
are convertible into Front-Payment Shares. This Part I is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect until June
30 of each year 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. This Part
I may be terminated at any time by the vote of a majority of the
Independent Trustees or by shareholder approval of the class or
classes of shares affected by this Part I as set forth in (ii)
above. This 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 this Part I as set forth
in (ii) above, and all amendments must be approved in the manner
set forth in (i) above.
8. Class A Plan Agreements. 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 their agreements with the Distributor with
respect to payments under this Part I, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Fund in effect prior to the effective date of this Part I and
not terminated at or prior to such effective date are deemed to
be "Class A Plan Agreements" for purposes of this Part I and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part I and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part II
Payments Involving Fund Assets Allocated to Level-Payment Shares
9. Applicability. This Part II of the Plan applies only to the
Level-Payment Class ("Class C") of shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name).
10. Definitions for Part II. As used in this 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 this 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 Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-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. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Fund.
11. Certain Payments Permitted. 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 of
shares. Such payments shall be made only out of the Fund assets
allocable to the Level-Payment 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.
12. Reports. While this 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 11 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 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.
13. Effectiveness, Continuation, Termination and Amendment.
This Part II has been 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
defined in the 1940 Act) of the outstanding voting securities of
the Level-Payment Class. This Part II is effective as of the
date first above written and will, unless terminated as
hereinafter provided, continue in effect until June 30 of each
year 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. This 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 Level-Payment Class. This 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 this Part II as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
14. Class C Plan Agreements. 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 their agreements with the Distributor with
respect to payments under this Part II, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Fund in effect prior to the effective date of this Part II
and not terminated at or prior to such effective date are deemed
to be "Class C Plan Agreements" for purposes of this Part II and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part II and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part III
Defensive Provisions
15. Certain Payments Permitted. Whenever the Administrator of
the Fund (i) makes any payment directly or through the Fund's
Distributor for additional compensation to dealers in connection
with sales of shares of the Fund, which 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 trips taken by qualifying registered
representatives and members of their families to locations within
or outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences, or other items described in the Fund's
prospectus, in amounts that will not exceed the amount of the
sales charges in respect of sales of shares of the Fund effected
through such participating dealers whether retained by the
Distributor or reallowed to participating dealers, or (ii) bears
the costs, not borne by the Distributor, of printing and
distributing all copies of the Fund's prospectuses, statements of
additional information and reports to shareholders which are not
sent to the Fund's shareholders, or the costs of supplemental
sales literature and advertising, such payments are authorized.
It is recognized that, in view of the bearing by the
Administrator of certain distribution expenses, the profits, if
any, of the Administrator are dependent primarily on the
administration fees paid by the Fund to the Administrator and
that its profits, if any, would be less, or losses, if any, would
be increased due to the bearing by it of such expenses. If and to
the extent that any such administration fees paid by the Fund
might, in view of the foregoing, be considered as indirectly
financing any activity which is primarily intended to result in
the sale of shares issued by the Fund, the payment of such fees
is authorized by the Plan.
16. Certain Fund Payments Authorized. 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 the Rule, such payments are authorized
under this 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 of all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of the
preparation, printing and mailing of all 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.
17. Reports. While Part III of this Plan is in effect, the
Fund's sub-adviser, Administrator or Distributor shall report at
least quarterly to the Fund's Trustees in writing for their
review on the following matters: (i) all payments made under
Section 15 of this Plan; (ii) all costs of each item specified in
Section 16 of this 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.
18. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part III of the Plan
has, with respect to each class of shares outstanding, been
approved (i) by a vote of the Trustees of the Fund and of the
Independent Trustees, with votes cast in person at a meeting
called for the purpose of voting on this Plan; and (ii) by a vote
of holders of at least a "majority" (as defined in the 1940 Act)
of the outstanding voting securities of such class and a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of any class whose shares are
convertible into shares of such class. This Part III is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect with
respect to each class of shares to which it applies until June 30
of each year only so long as such continuance is specifically
approved with respect to that class 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. This Part III of the Plan may be terminated at any
time with respect to a given class 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 that class. This Part III may not be amended to
increase materially the amount of payments to be made without
shareholder approval as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
--------------------------
19. Additional Terms and Conditions. This Plan and each Part of
it shall also be subject to all applicable terms and conditions
of Rule 18f-3 under the 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.
Dated: April 30, 1996
AQUILA ROCKY MOUNTAIN EQUITY FUND
SHAREHOLDER SERVICES PLAN
1. The Plan. This Shareholder Services Plan (the "Plan") is the
written plan of AQUILA ROCKY MOUNTAIN EQUITY FUND (the "Fund")
adopted to provide for the payment by the Level-Payment Class of
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. This Plan
applies only to the Level-Payment Class ("Class C") of shares of
the Fund (regardless of whether such class is so designated or is
redesignated by some other name).
2. Definitions. As used in this 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 Level-
Payment shareholders and/or maintenance of Level-Payment
shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment 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.
3. Certain Payments Permitted. 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 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 assets allocable to
the Level-Payment 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 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.
4. Reports. While this 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 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.
5. Effectiveness, Continuation, Termination and Amendment. This
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 this
Plan or in any agreements related to this Plan (the "Independent
Trustees"), with votes cast in person at a meeting called for the
purpose of voting on this Plan. It is effective as of the date
first above written and will continue in effect for a period of
more than one year from such 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.
6. Additional Terms and Conditions. (a) This 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.
(b) While this 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.
<TABLE>
<CAPTION>
TOTAL RETURN BASED ON POP
Aquila Rocky Mountain Equity Fund (Class A Shares)
1-YEAR AVG. ANNUAL TOTAL RETURN AS OF 12/31/97 17.77%
1-YEAR CUMULATIVE TOTAL RETURN AS OF 12/31/97 17.77%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $15.05 As of 12/31/96
Public Offering Price (POP) 15.72 As of 12/31/96
Number of Shares Purchased 66.445 Based on POP
INVESTMENT NUMBER DIVIDEND/
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIB.
<S> <C> <C> <C> <C>
January 31, 1997 1,000.00 63.613 0.00
February 28, 1997 973.92 63.613 0.00
March 31, 1997 975.19 63.613 0.00
April 30, 1997 938.93 63.613 0.00
May 31, 1997 921.76 63.613 0.00
June 30, 1997 1,004.45 63.613 0.00
July 31, 1997 1,030.53 63.613 0.00
August 31, 1997 1,070.61 63.613 0.00
September 30, 1997 1,075.70 63.613 0.00
October 31, 1997 1,171.12 63.613 0.00
November 30, 1997 1,144.40 63.613 0.00
December 23, 1997 1,138.04 63.613 0.60912 38.75
December 31, 1997 1,151.34 65.829 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DISTRIB. @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
January 31, 1997 15.31 0.00 973.92 -2.61%
February 28, 1997 15.33 0.00 975.19 -2.48%
March 31, 1997 14.76 0.00 938.93 -6.11%
April 30, 1997 14.49 0.00 921.76 -7.82%
May 31, 1997 15.79 0.00 1,004.45 0.45%
June 30, 1997 16.20 0.00 1,030.53 3.05%
July 31, 1997 16.83 0.00 1,070.61 7.06%
August 31, 1997 16.91 0.00 1,075.70 7.57%
September 30, 1997 18.41 0.00 1,171.12 17.11%
October 31, 1997 17.99 0.00 1,144.40 14.44%
November 30, 1997 17.89 0.00 1,138.04 13.80%
December 23, 1997 17.49 2.22 1,151.34 15.13%
December 31, 1997 17.89 0.00 1,177.67 17.77%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN BASED ON NAV
Aquila Rocky Mountain Equity Fund (Class C Shares)
1-YEAR AVG. ANNUAL TOTAL RETURN AS OF 12/31/97 21.15%
1-YEAR CUMULATIVE TOTAL RETURN AS OF 12/31/97 21.15%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $15.07 As of 12/31/96
Number of Shares Purchased 66.357 Based on NAV
INVESTMENT NUMBER DIVIDEND/
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIB.
<S> <C> <C> <C> <C>
January 31, 1997 1,000.00 66.357 0.00
February 28, 1997 1,015.26 66.357 0.00
March 31, 1997 1,017.92 66.357 0.00
April 30, 1997 979.43 66.357 0.00
May 31, 1997 960.85 66.357 0.00
June 30, 1997 1,046.45 66.357 0.00
July 31, 1997 1,072.99 66.357 0.00
August 31, 1997 1,114.13 66.357 0.00
September 30, 1997 1,118.12 66.357 0.00
October 31, 1997 1,216.99 66.357 0.00
November 30, 1997 1,188.45 66.357 0.00
December 23, 1997 1,181.82 66.357 0.60912 40.42
December 31, 1997 1,195.03 68.680 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DISTRIB. @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
January 31, 1997 15.30 0.000 1,015.26 1.53%
February 28, 1997 15.34 0.000 1,017.92 1.79%
March 31, 1997 14.76 0.000 979.43 -2.06%
April 30, 1997 14.48 0.000 960.85 -3.92%
May 31, 1997 15.77 0.000 1,046.45 4.64%
June 30, 1997 16.17 0.000 1,072.99 7.30%
July 31, 1997 16.79 0.000 1,114.13 11.41%
August 31, 1997 16.85 0.000 1,118.12 11.81%
September 30, 1997 18.34 0.000 1,216.99 21.70%
October 31, 1997 17.91 0.000 1,188.45 18.85%
November 30, 1997 17.81 0.000 1,181.82 18.18%
December 23, 1997 17.40 2.323 1,195.03 19.50%
December 31, 1997 17.64 0.000 1,211.47 21.15%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN BASED ON NAV
Aquila Rocky Mountain Equity Fund (Class Y Shares)
1-YEAR AVG. ANNUAL TOTAL RETURN AS OF 12/31/97 22.98%
1-YEAR CUMULATIVE TOTAL RETURN AS OF 12/31/97 22.98%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $15.07 As of 12/31/96
Number of Shares Purchased 66.357 Based on NAV
INVESTMENT NUMBER DIVIDEND/
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIB.
<S> <C> <C> <C> <C>
January 31, 1997 1,000.00 66.357 0.00
February 28, 1997 1,017.92 66.357 0.00
March 31, 1997 1,019.24 66.357 0.00
April 30, 1997 982.08 66.357 0.00
May 31, 1997 964.17 66.357 0.00
June 30, 1997 1,050.43 66.357 0.00
July 31, 1997 1,078.30 66.357 0.00
August 31, 1997 1,120.77 66.357 0.00
September 30, 1997 1,125.41 66.357 0.00
October 31, 1997 1,219.64 66.357 0.00
November 30, 1997 1,192.44 66.357 0.00
December 23, 1997 1,189.12 66.357 0.60912 40.42
December 31, 1997 1,202.33 68.665 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DISTRIB. @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
January 31, 1997 15.34 0.000 1,017.92 1.79%
February 28, 1997 15.36 0.000 1,019.24 1.92%
March 31, 1997 14.80 0.000 982.08 -1.79%
April 30, 1997 14.53 0.000 964.17 -3.58%
May 31, 1997 15.83 0.000 1,050.43 5.04%
June 30, 1997 16.25 0.000 1,078.30 7.83%
July 31, 1997 16.89 0.000 1,120.77 12.08%
August 31, 1997 16.96 0.000 1,125.41 12.54%
September 30, 1997 18.38 0.000 1,219.64 21.96%
October 31, 1997 17.97 0.000 1,192.44 19.24%
November 30, 1997 17.92 0.000 1,189.12 18.91%
December 23, 1997 17.51 2.308 1,202.33 20.23%
December 31, 1997 17.91 0.000 1,229.80 22.98%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N S I N C E I N C E P T I O N
Aquila Rocky Mountain Equity Fund (Class A Shares)
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97 14.99%
CUMULATIVE TOTAL RETURN AS OF 12/31/97 61.84%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $11.43 As of 7/22/94
Public Offering Price (POP) 11.94
Number of Shares Purchased 83.752 Based on POP
INVESTMENT NUMBER DIVIDEND/
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIB.
<S> <C> <C> <C> <C>
July 31, 1994 1,000.00 83.752 0.00
August 30, 1994 957.29 83.752 0.00
September 30, 1994 967.34 83.752 0.00
October 31, 1994 943.05 83.752 0.00
November 30, 1994 958.12 83.752 0.00
December 31, 1994 909.55 83.752 0.00
January 31, 1995 926.30 83.752 0.00
February 28, 1995 948.07 83.752 0.00
March 31, 1995 982.41 83.752 0.00
April 30, 1995 993.30 83.752 0.00
May 31, 1995 1,000.84 83.752 0.00
June 30, 1995 1,016.75 83.752 0.00
July 31, 1995 1,056.95 83.752 0.00
August 30, 1995 1,085.43 83.752 0.00
September 30, 1995 1,097.15 83.752 0.00
October 31, 1995 1,113.90 83.752 0.00
November 30, 1995 1,092.96 83.752 0.00
December 26, 1995 1,103.02 83.752 0.10590 8.87
December 31, 1995 1,099.32 84.433 0.00
January 31, 1996 1,108.61 84.433 0.00
February 29, 1996 1,125.50 84.433 0.00
March 29, 1996 1,149.14 84.433 0.00
April 30, 1996 1,180.38 84.433 0.00
May 31, 1996 1,231.88 84.433 0.00
June 28, 1996 1,250.46 84.433 0.00
July 31, 1996 1,254.68 84.433 0.00
August 31, 1996 1,171.93 84.433 0.00
September 30, 1996 1,221.75 84.433 0.00
October 31, 1996 1,247.08 84.433 0.00
November 29, 1996 1,252.99 84.433 0.00
December 26, 1996 1,297.74 84.433 0.53050 44.79
December 31, 1996 1,311.29 87.419 0.00
January 31, 1996 1,315.66 87.419 0.00
February 28, 1997 1,338.39 87.419 0.00
March 31, 1997 1,340.14 87.419 0.00
April 30, 1997 1,290.31 87.419 0.00
May 31, 1997 1,266.71 87.419 0.00
June 30, 1997 1,380.35 87.419 0.00
July 31, 1997 1,416.19 87.419 0.00
August 31, 1997 1,471.27 87.419 0.00
September 30, 1997 1,478.26 87.419 0.00
October 31, 1997 1,609.39 87.419 0.00
November 30, 1997 1,572.68 87.419 0.00
December 23, 1997 1,563.93 87.419 0.60912 53.25
December 31, 1997 1,582.21 90.464 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DISTRIB. @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
July 31, 1994 11.43 0.00 957.29 -4.27%
August 30, 1994 11.55 0.00 967.34 -3.27%
September 30, 1994 11.26 0.00 943.05 -5.70%
October 31, 1994 11.44 0.00 958.12 -4.19%
November 30, 1994 10.86 0.00 909.55 -9.05%
December 31, 1994 11.06 0.00 926.30 -7.37%
January 31, 1995 11.32 0.00 948.07 -5.19%
February 28, 1995 11.73 0.00 982.41 -1.76%
March 31, 1995 11.86 0.00 993.30 -0.67%
April 30, 1995 11.95 0.00 1,000.84 0.08%
May 31, 1995 12.14 0.00 1,016.75 1.68%
June 30, 1995 12.62 0.00 1,056.95 5.70%
July 31, 1995 12.96 0.00 1,085.43 8.54%
August 30, 1995 13.10 0.00 1,097.15 9.72%
September 30, 1995 13.30 0.00 1,113.90 11.39%
October 31, 1995 13.05 0.00 1,092.96 9.30%
November 30, 1995 13.17 0.00 1,103.02 10.30%
December 26, 1995 13.02 0.68 1,099.32 9.93%
December 31, 1995 13.13 0.00 1,108.61 10.86%
January 31, 1996 13.33 0.00 1,125.50 12.55%
February 29, 1996 13.61 0.00 1,149.14 14.91%
March 29, 1996 13.98 0.00 1,180.38 18.04%
April 30, 1996 14.59 0.00 1,231.88 23.19%
May 31, 1996 14.81 0.00 1,250.46 25.05%
June 28, 1996 14.86 0.00 1,254.68 25.47%
July 31, 1996 13.88 0.00 1,171.93 17.19%
August 31, 1996 14.47 0.00 1,221.75 22.17%
September 30, 1996 14.77 0.00 1,247.08 24.71%
October 31, 1996 14.84 0.00 1,252.99 25.30%
November 29, 1996 15.37 0.00 1,297.74 29.77%
December 26, 1996 15.00 2.99 1,311.29 31.13%
December 31, 1996 15.05 0.00 1,315.66 31.57%
January 31, 1996 15.31 0.00 1,338.39 33.84%
February 28, 1997 15.33 0.00 1,340.14 34.01%
March 31, 1997 14.76 0.00 1,290.31 29.03%
April 30, 1997 14.49 0.00 1,266.71 26.67%
May 31, 1997 15.79 0.00 1,380.35 38.04%
June 30, 1997 16.20 0.00 1,416.19 41.62%
July 31, 1997 16.83 0.00 1,471.27 47.13%
August 31, 1997 16.91 0.00 1,478.26 47.83%
September 30, 1997 18.41 0.00 1,609.39 60.94%
October 31, 1997 17.99 0.00 1,572.68 57.27%
November 30, 1997 17.89 0.00 1,563.93 56.39%
December 23, 1997 17.49 3.04 1,582.21 58.22%
December 31, 1997 17.89 0.00 1,618.40 61.84%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N S I N C E I N C E P T I O N
Aquila Rocky Mountain Equity Fund (Class C Shares)
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97 17.36%
CUMULATIVE TOTAL RETURN AS OF 12/31/97 30.66%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $14.59 As of 5/1/96
(Commencement of Class)
Number of Shares Purchased 68.540 Based on NAV
INVESTMENT NUMBER DIVIDEND/
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIB.
<S> <C> <C> <C> <C>
MAY 1996 1,000.00 68.540 0.00
JUNE 1996 1,015.08 68.540 0.00
JULY 1996 1,018.51 68.540 0.00
AUGUST 1996 951.34 68.540 0.00
SEPTEMBER 1996 992.46 68.540 0.00
OCTOBER 1996 1,014.39 68.540 0.00
NOVEMBER 1996 1,019.19 68.540 0.00
DECEMBER 26, 1996 1,053.46 68.540 0.53050 36.36
DECEMBER 1996 1,064.46 70.964 0.00
JANUARY 1997 1,069.43 70.964 0.00
FEBRUARY 1997 1,085.75 70.964 0.00
MARCH 1997 1,088.59 70.964 0.00
APRIL 1997 1,047.43 70.964 0.00
MAY 1997 1,027.56 70.964 0.00
JUNE 1997 1,119.10 70.964 0.00
JULY 1997 1,147.49 70.964 0.00
AUGUST 1997 1,191.49 70.964 0.00
SEPTEMBER 1997 1,195.75 70.964 0.00
OCTOBER 1997 1,301.48 70.964 0.00
NOVEMBER 1997 1,270.97 70.964 0.00
DECEMBER 23, 1997 1,263.87 70.964 0.60912 43.23
DECEMBER 31, 1997 1,278.00 73.448 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DISTRIB. @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
MAY 1996 14.81 0.000 1,015.08 1.51%
JUNE 1996 14.86 0.000 1,018.51 1.85%
JULY 1996 13.88 0.000 951.34 -4.87%
AUGUST 1996 14.48 0.000 992.46 -0.75%
SEPTEMBER 1996 14.80 0.000 1,014.39 1.44%
OCTOBER 1996 14.87 0.000 1,019.19 1.92%
NOVEMBER 1996 15.37 0.000 1,053.46 5.35%
DECEMBER 26, 1996 15.00 2.424 1,064.46 6.45%
DECEMBER 1996 15.07 0.000 1,069.43 6.94%
JANUARY 1997 15.30 0.000 1,085.75 8.58%
FEBRUARY 1997 15.34 0.000 1,088.59 8.86%
MARCH 1997 14.76 0.000 1,047.43 4.74%
APRIL 1997 14.48 0.000 1,027.56 2.76%
MAY 1997 15.77 0.000 1,119.10 11.91%
JUNE 1997 16.17 0.000 1,147.49 14.75%
JULY 1997 16.79 0.000 1,191.49 19.15%
AUGUST 1997 16.85 0.000 1,195.75 19.57%
SEPTEMBER 1997 18.34 0.000 1,301.48 30.15%
OCTOBER 1997 17.91 0.000 1,270.97 27.10%
NOVEMBER 1997 17.81 0.000 1,263.87 26.39%
DECEMBER 23, 1997 17.40 2.484 1,278.00 27.80%
DECEMBER 31, 1997 17.79 0.000 1,306.65 30.66%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N S I N C E I N C E P T I O N
Aquila Rocky Mountain Equity Fund (Class Y Shares)
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97 17.81%
CUMULATIVE TOTAL RETURN AS OF 12/31/97 31.51%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $14.59 As of 5/1/96
(Commencement of Class)
Number of Shares Purchased 68.540 Based on NAV
INVESTMENT NUMBER DIVIDEND/
@ BEGINNING OF CAP. GAIN $
OF PERIOD SHARES DISTRIBUTION DISTRIB.
<S> <C> <C> <C> <C>
MAY 1996 1,000.00 68.540 0.00
JUNE 1996 1,015.08 68.540 0.00
JULY 1996 1,018.51 68.540 0.00
AUGUST 1996 951.34 68.540 0.00
SEPTEMBER 1996 992.46 68.540 0.00
OCTOBER 1996 1,013.71 68.540 0.00
NOVEMBER 1996 1,018.51 68.540 0.00
DECEMBER 26, 1996 1,054.83 68.540 0.53050 36.36
DECEMBER 1996 1,066.52 70.959 0.00
JANUARY 1997 1,069.36 70.959 0.00
FEBRUARY 1997 1,088.52 70.959 0.00
MARCH 1997 1,089.93 70.959 0.00
APRIL 1997 1,050.20 70.959 0.00
MAY 1997 1,031.04 70.959 0.00
JUNE 1997 1,123.29 70.959 0.00
JULY 1997 1,153.09 70.959 0.00
AUGUST 1997 1,198.50 70.959 0.00
SEPTEMBER 1997 1,203.47 70.959 0.00
OCTOBER 1997 1,304.23 70.959 0.00
NOVEMBER 1997 1,275.14 70.959 0.00
DECEMBER 23, 1997 1,271.59 70.959 0.60912 43.22
DECEMBER 31, 1997 1,285.72 73.428 0.00
<CAPTION>
ENDING
NET ASSET INVESTMENT CUMULATIVE
VALUE PER DISTRIB. @ END TOTAL
SHARE SHARES OF PERIOD RETURN
<S> <C> <C> <C> <C>
MAY 1996 14.81 0.000 1,015.08 1.51%
JUNE 1996 14.86 0.000 1,018.51 1.85%
JULY 1996 13.88 0.000 951.34 -4.87%
AUGUST 1996 14.48 0.000 992.46 -0.75%
SEPTEMBER 1996 14.79 0.000 1,013.71 1.37%
OCTOBER 1996 14.86 0.000 1,018.51 1.85%
NOVEMBER 1996 15.39 0.000 1,054.83 5.48%
DECEMBER 26, 1996 15.03 2.419 1,066.52 6.65%
DECEMBER 1996 15.07 0.000 1,069.36 6.94%
JANUARY 1997 15.34 0.000 1,088.52 8.85%
FEBRUARY 1997 15.36 0.000 1,089.93 8.99%
MARCH 1997 14.80 0.000 1,050.20 5.02%
APRIL 1997 14.53 0.000 1,031.04 3.10%
MAY 1997 15.83 0.000 1,123.29 12.33%
JUNE 1997 16.25 0.000 1,153.09 15.31%
JULY 1997 16.89 0.000 1,198.50 19.85%
AUGUST 1997 16.96 0.000 1,203.47 20.35%
SEPTEMBER 1997 18.38 0.000 1,304.23 30.42%
OCTOBER 1997 17.97 0.000 1,275.14 27.51%
NOVEMBER 1997 17.92 0.000 1,271.59 27.16%
DECEMBER 23, 1997 17.51 2.468 1,285.72 28.57%
DECEMBER 31, 1997 17.91 0.000 1,315.09 31.51%
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Annual report dated December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000915402
<NAME> AQUILA ROCKY MOUNTAIN EQUITY FUND, CLASS A SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,956,760
<INVESTMENTS-AT-VALUE> 3,820,960
<RECEIVABLES> 19,095
<ASSETS-OTHER> 231,123
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,071,178
<PAYABLE-FOR-SECURITIES> 93,495
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,551
<TOTAL-LIABILITIES> 125,046
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,070,546
<SHARES-COMMON-STOCK> 175,760
<SHARES-COMMON-PRIOR> 144,758
<ACCUMULATED-NII-CURRENT> 2,984
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,402
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 864,200
<NET-ASSETS> 3,946,132
<DIVIDEND-INCOME> 30,891
<INTEREST-INCOME> 12,325
<OTHER-INCOME> 0
<EXPENSES-NET> 41,430
<NET-INVESTMENT-INCOME> 1,786
<REALIZED-GAINS-CURRENT> 125,748
<APPREC-INCREASE-CURRENT> 473,126
<NET-CHANGE-FROM-OPS> 600,660
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 103,249
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 56,515
<NUMBER-OF-SHARES-REDEEMED> 30,449
<SHARES-REINVESTED> 4,937
<NET-CHANGE-IN-ASSETS> 1,630,459
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,571
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 180,289
<AVERAGE-NET-ASSETS> 2,505,548
<PER-SHARE-NAV-BEGIN> 15.05
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 3.44
<PER-SHARE-DIVIDEND> .61
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.89
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Annual report dated December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000915402
<NAME> AQUILA ROCKY MOUNTAIN EQUITY FUND, CLASS C SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,956,760
<INVESTMENTS-AT-VALUE> 3,820,960
<RECEIVABLES> 19,095
<ASSETS-OTHER> 231,123
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,071,178
<PAYABLE-FOR-SECURITIES> 93,495
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,551
<TOTAL-LIABILITIES> 125,046
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,070,546
<SHARES-COMMON-STOCK> 392
<SHARES-COMMON-PRIOR> 274
<ACCUMULATED-NII-CURRENT> 2,984
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,402
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 864,200
<NET-ASSETS> 3,946,132
<DIVIDEND-INCOME> 30,891
<INTEREST-INCOME> 12,325
<OTHER-INCOME> 0
<EXPENSES-NET> 41,430
<NET-INVESTMENT-INCOME> 1,786
<REALIZED-GAINS-CURRENT> 125,748
<APPREC-INCREASE-CURRENT> 473,126
<NET-CHANGE-FROM-OPS> 600,660
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 231
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 18
<NET-CHANGE-IN-ASSETS> 1,630,459
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,571
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 180,289
<AVERAGE-NET-ASSETS> 4,895
<PER-SHARE-NAV-BEGIN> 15.07
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 3.44
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .61
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.79
<EXPENSE-RATIO> 2.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Annual report dated December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000915402
<NAME> AQUILA ROCKY MOUNTAIN EQUITY FUND, CLASS Y SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,956,760
<INVESTMENTS-AT-VALUE> 3,820,960
<RECEIVABLES> 19,095
<ASSETS-OTHER> 231,123
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,071,178
<PAYABLE-FOR-SECURITIES> 93,495
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,551
<TOTAL-LIABILITIES> 125,046
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,070,546
<SHARES-COMMON-STOCK> 44,396
<SHARES-COMMON-PRIOR> 8,853
<ACCUMULATED-NII-CURRENT> 2,984
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,402
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 864,200
<NET-ASSETS> 3,946,132
<DIVIDEND-INCOME> 30,891
<INTEREST-INCOME> 12,325
<OTHER-INCOME> 0
<EXPENSES-NET> 41,430
<NET-INVESTMENT-INCOME> 1,786
<REALIZED-GAINS-CURRENT> 125,748
<APPREC-INCREASE-CURRENT> 473,126
<NET-CHANGE-FROM-OPS> 600,660
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 26,133
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,050
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1,492
<NET-CHANGE-IN-ASSETS> 1,630,459
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,571
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 180,289
<AVERAGE-NET-ASSETS> 287,294
<PER-SHARE-NAV-BEGIN> 15.07
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 3.41
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .61
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.91
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
Rule 18f-3
Multiple Class Plan
AQUILA ROCKY MOUNTAIN EQUITY FUND (the "Fund") has
elected to rely on Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), in offering multiple classes
of shares with differing distribution arrangements, voting rights
and expense allocations.
Pursuant to Rule 18f-3, the Board of Trustees of the
Fund has approved and adopted this written plan (the "Plan")
specifying all of the differences among the classes of shares to
be offered by the Fund. Prior to such offering, the Plan will be
filed as an exhibit to the Fund's registration statement. The
Plan sets forth the differences among the classes, including
shareholder services, distribution arrangements, expense
allocations, and conversion or exchange options.
I. Attributes of Share Classes
This section discusses the attributes of the various
classes of shares. Each share of the Fund represents an equal
pro rata interest in the Fund and has identical voting rights,
powers, qualifications, terms and conditions and, in proportion
to each share's net asset value, liquidation rights and
preferences. Each class differs in that: (a) each class has a
different class designation; (b) only the Front-Payment Class
Shares are subject to a front-end sales charge ("FESC"); (c) only
the Level-Payment and certain Front-Payment Class Shares are
subject to a contingent deferred sales charge ("CDSC"); (d) only
the Front-Payment Class Shares, Level-Payment Class Shares and
Financial Intermediary Shares (as described below) are subject to
distribution fees under a plan adopted pursuant to Rule 12b-1
under the 1940 Act (a "Rule 12b-1 Plan"), the distribution fees
for the Level-Payment Class and Financial Intermediary Class
being higher than that for the Front-Payment Class; (e) only the
Level-Payment Class Shares and Financial Intermediary Shares are
subject to a shareholder servicing fee under a non-Rule 12b-1
shareholder services plan (a "Shareholder Services Plan"); (f) to
the extent that one class alone is affected by a matter submitted
to a vote of the shareholders, then only that class has voting
power on the matter, provided, however, that any class whose
shares convert automatically to shares of another class also
votes separately with respect to class-specific Rule 12b-1
matters applying to the latter class; (g) the expenses
attributable to a specific class ("Class Expenses")* are borne
only by shares of that class on a pro-rata basis; and (h)
exchange privileges and conversion features may vary among the
classes.
* Class Expenses are limited to (i) transfer agency fees;
(ii) preparation and mailing expenses for shareholder
communications required by law, sent to current shareholders
of a class; (iii) state Blue Sky registration fees; (iv)
Securities and Exchange Commission ("SEC") registration
fees; (v) trustees' fees; (vi) expenses incurred for
periodic meetings of trustees or shareholders; and (vii)
legal and accounting fees, other than fees for income tax
return preparation or income tax advice.
A. Front-Payment Class Shares
Front-Payment Class Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Front-Payment Class
Shares under the exchange privileges of the Fund. Shares of the
Fund outstanding on the date that the different classes of shares
were first made available were be redesignated Front-Payment
Shares. Front-Payment Class Shares will also be issued upon
automatic conversion of Level-Payment Class Shares, as described
below.
1. Sales Loads. Front-Payment Class Shares are sold
subject to the current maximum FESC (with scheduled
variations or eliminations of the sales charge, as
permitted by the 1940 Act). Certain Front-Payment Class
Shares sold without a FESC are subject to a CDSC.
2. Distribution and Service Fees. Front-Payment Class
Shares are subject to a distribution fee pursuant to Part I
of the Fund's Rule 12b-1 Plan. They are not subject to
charges applicable to a Shareholder Services Plan.
3. Class Expenses. Class Expenses that are attributable
to the Front-Payment Class are allocated to that particular
class.
4. Exchange Privileges and Conversion Features. Front-
Payment Class Shares are exchangeable for Front-Payment
Class Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set forth
in the then current prospectus of the Fund. Front-Payment
Class Shares have no conversion features.
B. Level-Payment Class Shares
Level-Payment Class Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Level-Payment Class
Shares under the exchange privileges of the Fund.
1. Sales Loads. Level-Payment Class Shares are sold
without the imposition of any FESC, but are subject to a
CDSC (with scheduled variations or eliminations of the sales
charge, as permitted by the 1940 Act).
2. Distribution and Service Fees. Level-Payment Class
Shares are subject to a distribution fee pursuant to Part II
of the Fund's Rule 12b-1 Plan and to a shareholder servicing
fee under a Shareholder Services Plan not to exceed .25% of
the average daily net assets of the Level-Payment Class.
3. Class Expenses. Class Expenses that are attributable
to the Level-Payment Class are allocated to that particular
class.
4. Exchange Privileges and Conversion Features. Level-
Payment Class Shares are exchangeable for Level-Payment
Class Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set forth
in the then current prospectus of the Fund. After a period
of no greater than six years, Level-Payment Class Shares
automatically convert to Front-Payment Class Shares on the
basis of the relative net asset values of the two classes
without the imposition of any sales charge, fee, or other
charge, provided, however, that the expenses, including
distribution fees, for Front-Payment Class Shares are not
higher than the expenses, including distribution fees, for
Level-Payment Class Shares. If the amount of expenses,
including distribution fees, for the Front-Payment Class is
increased materially without approval of the shareholders of
the Level-Payment Class, a new class will be established --
on the same terms as apply to the Front-Payment Class prior
to such increase -- as the class into which Level-Payment
Class Shares automatically convert.
C. Institutional Class Shares
Institutional Class Shares are not offered to retail
customers but are sold only to (1) institutional investors
investing funds held in a fiduciary, advisory, agency, custodial
or other similar capacity and (2) persons entitled to exchange
into Institutional Class Shares under the exchange privileges of
the Fund.
1. Sales Loads. Institutional Class Shares are sold
without the imposition of any FESC, CDSC or any other sales
charge.
2. Distribution and Service Fees. Institutional Class
Shares are not subject to any distribution fee or
shareholder servicing fee.
3. Class Expenses. Class Expenses that are attributable
to the Institutional Class are allocated to that particular
class.
4. Exchange Privileges and Conversion Features.
Institutional Class Shares are exchangeable for
Institutional Class Shares issued by other funds sponsored
by Aquila Management Corporation and as may additionally be
set forth in the then current prospectus of the Fund.
Institutional Class Shares have no conversion features.
D. Financial Intermediary Class Shares
Financial Intermediary Class Shares are sold (1) only
through financial intermediaries with which Aquila Distributors,
Inc. has entered into sales agreements, and are not offered
directly to retail customers and (2) persons entitled to exchange
into Financial Intermediary Class Shares under the exchange
privileges of the Fund.
1. Sales Loads. Financial Intermediary Class Shares are
sold without the imposition of any FESC, CDSC or any other
sales charge.
2. Distribution and Service Fees. Financial Intermediary
Class Shares are subject to a distribution fee pursuant to
Part III of the Fund's Rule 12b-1 Plan and to a shareholder
servicing fee under a Shareholder Services Plan not to
exceed 0.25% of the average daily net assets of the
Financial Intermediary Class.
3. Class Expenses. Class Expenses that are attributable
to the Financial Intermediary Class are allocated to that
particular class.
4. Exchange Privileges . Financial Intermediary Shares
are exchangeable for Financial Intermediary Class Shares
issued by other funds sponsored by Aquila Management
Corporation to the extent that shares of such funds are sold
by the respective financial intermediaries, and as may
additionally be set forth in the then current prospectus of
the Fund.
E. Additional Classes
In the future, the Fund may offer additional classes of
shares which differ from the classes discussed above. However,
any additional classes of shares must be approved by the Board,
and the Plan must be amended to describe those classes.
II. Approval of Multiple Class Plan
The Board of the Fund, including a majority of the
independent Trustees, must approve the Plan initially. In
addition, the Board must approve any material changes to the
classes and the Plan prior to their implementation. The Board
must find that the Plan is in the best interests of each class
individually and the Fund as a whole. In making its findings,
the Board should focus on, among other things, the relationships
among the classes and examine potential conflicts of interest
among classes regarding the allocation of fees, services, waivers
and reimbursements of expenses, and voting rights. Most
significantly, the Board should evaluate the level of services
provided to each class and the cost of those services to ensure
that the services are appropriate and that the allocation of
expenses is reasonable. In accordance with the foregoing
provisions of this Section II, the Board of the Fund has approved
and adopted this Plan as of the date written above.
III. Dividends and Distributions
Because of the differences in fees paid under a Rule
12b-1 Plan and Shareholder Services Plan and the special
allocation of Class Expenses among the classes of shares of the
Fund, the dividends payable to shareholders of a class will
differ from the dividends payable to shareholders of one or more
of the other classes. Dividends paid to each class of shares in
the Fund will, however, be declared and paid at the same time
and, except for the differences in expenses listed above, will be
determined in the same manner and paid in the same amounts per
outstanding shares.
IV. Expense Allocations
The methodology and procedures for calculating the
net asset value and dividends and distributions of the various
classes of shares and the proper allocation of income and
expenses among the various classes of shares are set forth in the
Memorandum (together with exhibits) of Richard F. West,
Treasurer, dated November 24, 1995, revised September 1, 1997 and
entitled "Methodologies Used In Accounting For Multiple Class
Shares."
Dated October 31, 1997
